Fees Included in NAV (Not Paid Directly)
Management Fee Custodian Fee (Asset Safekeeping) Mutual Fund Operational Costs Performance Fee (If Applicable) Fees Paid Directly by Investors (If Any)
Subscription Fee Switching Fee Redemption Fee What’s the Impact on Long-Term Returns?
Ensure You Choose a Trusted Investment Partner
Before starting to invest in Mutual Funds , it is important to realize that every investment product has a cost structure that needs to be considered.
Many beginner investors focus on potential returns without realizing that certain fees can reduce the profits earned.
Therefore, understanding the cost components of an investment is a crucial first step in crafting a wiser long-term strategy.
Read on to learn how both direct and indirect costs can affect your investment performance.
Fees Included in NAV (Not Paid Directly)
In Mutual Funds, there are certain fees automatically included in the Net Asset Value (NAV), so they are not paid directly by investors, but still affect the value of the investment. Here are some of them:
Management Fee The management fee is compensation paid to the Investment Manager for managing the Mutual Fund portfolio.
This fee typically ranges from 1% to 3% per year of total assets under management and is automatically calculated in the daily NAV.
This means you don’t pay it separately, but the return you receive has already been reduced by this fee. Although not visible upfront, the management fee still impacts your final investment results.
Therefore, it’s important to consider the management fee when selecting a Mutual Fund product, especially for long-term investments.
Custodian Fee (Asset Safekeeping) The custodian fee is paid to an independent institution responsible for safeguarding, administering, and recording all assets in the portfolio.
Custodians play a crucial role in ensuring the security and transparency of fund management. This fee typically ranges from 0.1% to 0.25% per year of total assets under management.
Like the management fee, the custodian fee is also factored into the NAV. While relatively small, this fee still affects investment performance over the long run.
Understanding these kinds of fee structures can help you make wiser investment decisions.
Mutual Fund Operational Costs This includes various technical costs such as auditing, reporting, administration, and distribution.
All of these are combined into the operational cost and automatically reflected in the NAV movements. While not always visible, investors still bear this cost through the fund’s unit price.
Performance Fee (If Applicable) Certain Mutual Funds—particularly equity or balanced funds—may charge a performance fee when the investment outperforms a specific target.
This fee usually ranges between 10% and 20% of the excess return. Even though it indicates strong performance, the performance fee must still be considered as part of your total investment costs.
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Fees Paid Directly by Investors (If Any)
In addition to fees embedded in the NAV, there are also fees charged directly to investors during transactions. Here’s a breakdown:
Subscription Fee A subscription fee is charged when you purchase Mutual Fund units.
The rate varies depending on the Investment Manager’s and distribution platform’s policy, usually between 0% and 2% of the purchase value.
Some digital platforms now offer zero-fee promotions to attract investors, particularly beginners.
Although it may seem minor, this fee can affect your initial investment amount, so it’s important to factor it into your strategy.
Make sure to read the prospectus and understand the fee terms before making a purchase.
Switching Fee A switching fee is charged when you transfer funds from one Mutual Fund product to another under the same Investment Manager.
This fee is generally lower than the subscription fee, ranging from 0.25% to 1% of the amount switched.
Switching is often used as a portfolio rebalancing strategy, such as when shifting from equity funds to money market funds due to economic conditions.
However, switching fees must still be considered, as they can reduce the effectiveness of your diversification strategy. Some platforms also offer limited free switches within a certain period as part of added services.
Redemption Fee A redemption fee applies when you sell (redeem) Mutual Fund units, especially if done within a short holding period defined by the Investment Manager.
This fee aims to encourage long-term investing and maintain the stability of managed funds. It typically ranges from 0% to 1%, depending on the product’s policy.
Usually, if you hold the fund units beyond the minimum required period, this fee no longer applies. Therefore, it is important for investors to understand the redemption terms to avoid unnecessary charges.
What’s the Impact on Long-Term Returns?
All the fee components mentioned above—whether included in NAV or paid directly—will cumulatively reduce the net returns received by the investor.
In the long run, annual fee deductions can significantly impact the growth of your investment.
For instance, if a Mutual Fund provides an annual return of 8%, but the total fees (management, custodian, operational, etc.) amount to 2%, your net return is only 6%.
A 2% difference, when compounded over 10–20 years, can lead to a substantial disparity in your investment outcome.
Hence, understanding and comparing fee structures across products is essential before selecting one that fits your financial goals.
Ensure You Choose a Trusted Investment Partner
By fully understanding the fee structure of Mutual Funds, you can build a smarter and more efficient investment strategy.
While fees are unavoidable, they can be managed by selecting transparent products and credible investment partners.
As a trusted partner, DBS Treasures priority banking offers a curated selection of Mutual Funds from reputable Investment Managers who have passed a strict selection process.
Moreover, you’ll receive insights from investment specialists ready to align your portfolio with your risk profile and financial objectives.
Another advantage—DBS Treasures priority banking leverages data-driven technology to monitor the market and provide more measurable recommendations.
Backed by financial experts who consistently monitor market developments, you’ll receive strategic guidance to diversify your assets, helping to maintain portfolio stability and minimize investment risks.
All transactions—purchasing, redeeming, switching products, and registering your Single Investor Identification (SID)—can be conducted seamlessly via the DBS digibank Application.
You’ll also benefit from curated market analysis delivered by financial experts, powered by AI/ML technology, offering real-time opportunities tailored to your risk profile and portfolio needs. These insights are complemented with curated solutions for both investments (Grow) and insurance (Protect), so you can invest confidently using your preferred channel.
With DBS Treasures priority banking and a thorough understanding of fee structures, you’ll be better prepared to achieve optimal long-term investment returns.
Plan your steps carefully, and let a solid strategy lead you toward a more certain financial goal. To learn more about Mutual Fund investments, read here .
