Interesting development in the unit trust industry. With the recent implementation of Single Pricing Regime, most companies had revised and lowered their service charges for most of their funds.
Pressure is mounting for unit trust upfront sales charges to be reduced as new players emerge.
The matter was also brought up by the Employees Provident Fund (EPF). In recent talks with the Federation of Malaysian Unit Trust Managers (FMUTM) and its members, EPF asked them to consider lowering the charges to facilitate investment in unit trusts.
Industry observers said with Tune Money and InterPacific Asset Management Sdn Bhd coming onstream, there was greater pressure to lower the upfront fees and this should bode well for the investing public.
It is also learnt that EPF, in the past two to three months, had proposed to FMUTM that the maximum sales charges for unit trust investment be capped at 3% as opposed to the average 5% to 6%.
Sources said FMUTM had appealed to the Finance Ministry, saying the EPF’s proposed charges were too low and that the federation would consider lowering the charges gradually.
Source: The Star Online
Service charges are implemented upfront the moment the investor invest (or buy). This practice is also known as front-end loading. Service charges vary according to the fund’s characteristics. High growth aggressive funds and overseas funds usually incurs higher service charges while fixed income and bond funds would incur minimum service charges or non at all.
You can treat service charge like a form of service tax when you are ordering a Mc Value meal at Mc Donald’s. In this case, instead of paying the service tax after they bring you the food, they will usually take 5% worth of your French fries and charge you a bill without the tax.
On a side note, back-end load means fee that is charged when you sell, and is a common practice when you invest in equities via securities firms such as OSK Securities or Mayban Securities.
I don’t believe lowering service charges will make the fund perform any better than it is currently doing. It might seem much more attractive, but it’s definitely going to affect other expenses incurred in fund management activities, such as annual management fees or a higher management expenses. It’s only going to be a short-term strategy to attract investors using low service charges.
Rather, I think there are better ways to do it, such as increasing transparency in fund management activities and increasing other value-added services (constant updates, better customer service).
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