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Created on 19.03.2018

Get to grips with the minefield of charges

Investing without high charges – anybody who decides to invest their money does not just need to take returns into account, but also charges. Rightly so as charges are levied for the purchase, sale and management of financial investments. Yet understanding how it all works is easier than it may appear.

Securities trading: custody account, brokerage fees and security transfer charges

Anyone making a financial investment in securities (for example in shares) requires a bank custody account for trading. Your securities are deposited in this custody account in a similar way to the money in your private account. Annual charges are generally made for custody account management.

If you buy and sell securities, you pay a brokerage fee. Your bank charges this fee for processing the purchase and sale of securities. The brokerage fee charged depends on the size of the order and the stock exchange you are trading on.

If you wish to transfer your securities custody account from one bank or platform to another, security transfer costs are incurred.

The charges for custody account management, brokerage fees and security transfers differ from provider to provider – enquire about them. Information is usually available online.

Funds: custody account, issuing commissions, redemption fees and administrative costs

Anyone wishing to invest in funds requires a custody account and may have to pay charges.

If you purchase or subscribe to fund units, for example in a bond or equity fund, an issuing commission is charged. How much commission is charged depends on how much money you invest in the fund and is indicated as a percentage. The same applies if you sell fund units (redemption commission).

In addition to these “direct costs”, “indirect costs” are also incurred for funds. Unlike shares or bonds, ffunds are managed by a fund management company. Such companies select the securities in your fund and manage them for you. In addition, there are custodian bank commissions, in other words the custody account charges levied by the bank holding the entire fund assets as well as charges for providing factsheets and other fund information. These costs are summarized in the “total expense ratio” (TER). The TER is debited from the fund assets. As the customer, you do not pay this TER directly, but it automatically reduces the performance of your fund. This means that if two funds are absolutely identical but have a different TER, the fund with the higher TER will not perform as well. The TER is indicated as a percentage which can be found on the factsheet.

The custody account and issuing charges also differ for funds. Take the time to find out about charges online. It is well worth comparing them.

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