Investments aren’t free, even if you invest directly. Any fees you pay reduce the return you make, so you should understand them before you invest.
Most investments provide a product disclosure statement (PDS) explaining the fees you’ll be charged. KiwiSaver schemes and other managed funds also publish a fund update at least once a year with the latest fee information.
Providers set up their fees differently, so make sure you look at all fees charged. For example, some providers include their membership fee within their management fee, while others will charge it separately.
The example below shows the difference fees can make to total return – the investment with lower fees delivers a return that’s $1,794 higher than the more expensive option.
Only pay higher fees if you’re confident you’ll be persistently rewarded with returns high enough to make it more financially worthwhile than an investment with lower fees.
For example, if you were confident that by paying the higher 1.25% fee, you’d make a 7% return on your $10,000 investment, it would be worthwhile. This is because your return after fees would be higher than if you’d paid lower fees and achieved a 6% return.
Active funds tend to be more expensive than passive funds because they require more investment expertise. This means you need to be very comfortable they have that expertise before you invest. Active funds aim to outperform an index; passive funds track an index.
Fees depend on the type of investment. If you invest in KiwiSaver or other managed funds, there will be a fee to cover the cost of someone managing your investments on your behalf. This will be more expensive than if you invested directly, for example in shares or bonds.
You may be charged a fee for leaving an investment early. For example, if you take money out of a term deposit before the end of the term, you’re likely to be charged an early termination fee, which means you’ll earn less interest on the amount withdrawn early.
If you’re using a financial adviser or broker, they may also charge you a fee for their services. See paying for advice.
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