Just to show the effects of sales commission and management fees, I will use the following example:
- The fund Amanah Saham Nasional 3 Imbang, managed by PNB, a slightly conservative fund, 2 out of 3 star rating, peer ranking 19/44, size about RM 1.2 Billion, all pretty decent
- I assume 3 year holding period, starting 30 April 2013 until 30 April 2016, as shown in the fund overview
- Sales charge 5%
- Management fee 1.5% per year
Lets assume one invests RM 100 on April 30, 2013:
- First RM 5.00 is used for sales charge
- The remaining RM 95.00 grows over the three years by 9.11% to RM 103.65
- During those three years the cumulative management fee is about RM 4.45
In other words, the total return on the RM 100 is RM 13.10, this amount is divided as follows:
- RM 5.00 (38%) as sales charge
- RM 4.45 (34%) as management fee
- RM 3.65 (28%) as return for the investor
Is this a fair division, the investor getting only slightly more than one quarter of the total return in exchange for investing the money and running all the risk?
I claim it is not. A sales charge of 1-2% would be much more in line.
Let's assume 1.5% as the sales charge, the numbers would change slightly:
- First RM 1.50 is used for sales charge
- The remaining RM 98.50 grows over the three years by 9.11% to RM 107.47
- During those three years the cumulative management fee is about RM 4.63
In other words, the total return on the RM 100 is RM 13.60, this amount is divided as follows:
- RM 1.50 (11%) as sales charge
- RM 4.63 (34%) as management fee
- RM 7.47 (55%) as return for the investor
Much more fair already, and the return for the investor is more than twice the return with a 5% sales charge.
Needless to say, this is just an example, the preferred holding period is definitely longer than three years (but how many people do actually hold their investments longer than three years?). The fund is good, but a bit conservative. And there have been better periods of three years in the past (but also worse).
But still, the message is (I think) clear, high sales charges will eat too much in the returns of investors.
Hopefully one day this will change, and the maximum sales charge will be capped to a realistic number, say 2% for smaller amounts, 1% for larger amounts.