He listens to Investors Chronicle as a 'Talking book' from the RNIB and asks about an "inaccuracy" that he has spotted in our fund tip, Schroder Income Maximiser (IC: 22 May). We recommended that investors buy the 'Z Inc' share class of the fund, which distributes income and has an ongoing charge of 0.91 per cent. And we stated that Z Inc has a minimum investment of £100.
However, our reader says: "Schroders has informed me that the minimum investment is not £100; it is £1m for the Z class fund, the one mentioned by the IC, and £1,000 for the A class fund."
If only it were so simple. Funds often come in at least six share classes, and buying the wrong one could mean overpaying every year. Plus, the minimum investment limit is a red herring.
Yes, the £1m limit on Schroder Income Maximiser Z Inc is the case if you buy directly from Schroders. However, the best way to buy funds is not direct from the fund manager.
Instead, use an investment platform to get the best deal. The much cheaper Z Inc share class of the fund is widely available via investment platforms, which can buy the fund in chunks of £1m and then sell it on to their customers in smaller amounts. Note you will have to pay the platform fee on top, which will depend on the size of your portfolio and the types of investments held.
A quick search reveals that fund platforms Charles Stanley Direct, Hargreaves Lansdown and Fidelity Personal Investing all offer the Z Inc share class. However, the minimum investments vary: Hargreaves (£100), Charles Stanley Direct (£500) and Fidelity Personal Investing (£1,000).
Even small variations in charges can make big differences to the investment outcome over the long term. The Z Inc share class of the fund has delivered the best performance of all four versions available. Below is a table showing how even the one-year performance varies between the different share classes for the fund.
Schroder Income Maximiser: Performance of different fund share classes
|Share class||ISIN||Ongoing charge||1-year performance to 31 May 2015||3-year annualised performance to 31 May 2015*|
|Schroder Income Maximiser A Acc||GB00B0HWHK75||1.66%||5.36%||15.31%|
|Schroder Income Maximiser A Inc||GB00B0HWJ904||1.66%||5.39%||15.33%|
|Schroder Income Maximiser Z Acc||GB00B5B0KM51||0.91%||5.99%||16.00%|
|Schroder Income Maximiser Z Inc||GB00B53FRD82||0.91%||6.02%||16.02%|
Source: Morningstar. *The average amount of money earned by the investment each year over the time period.
So, when investing in funds, you really need to do your homework. It is worth looking through your current portfolio to check that the funds that you hold are actually the cheapest share classes available on your platform. In the case of Schroder Income Maximiser, that extra 0.66 per cent a year in performance from the Z Inc class over the A Acc class could amount to an extra £3,779* in your pocket on a £10,000 lump sum investment over 20 years.
*Figure calculated using the compound interest calculator at www.moneychimp.com.