Quite number of times I heard that investing in UTF is more expensive than buying stock market directly. So, let me do some number crunching for the benefit of all.
Stock-marketMy knowledge of stock market is a bit out-dated and my info is based on my last time when I was a stock market participant through OSK Investment Bank (many years ago, and at that time, calling your broker on the phone is still common). The charge levied upon me is 0.6%. Min brokerage is MYR 40.00 per transaction. So, to maximize the transaction, each tranche should be 40 divided by 0.006 equal to MYR 6,666.67. Anything below this MYR 6,666.67 threshold, you will still pay MYR 40.00 broker fee as that is the minimum.
UTFFor UTF, you pay 2% entrance fee each time you inject fresh capital. MYR 2,000.00 x 2% equals to MYR 40.00. Lets say you pump in MYR 200.00 x 2% = MYR 4.00 entrance fee.
The above I want to highlight is that often people will say UTF fee is expensive. But they forget to put it into proper context or perspective. When you buy a stock, unless your capital injected per transaction is large, the percentage you pay as broker fee is actually more substantial than UTF.
If you are a small ikan-bilis player and only have like MYR 200 per month to invest, which method gives you a more cost efficient way access to the stock market?
So, many are repeating something they read from somewhere or something they heard from someone, without further investigating, and they prematurely think that UTF is expensive.
Not so, if your amount is small. Stock can be more expensive. And don't forget, stock is charged both ways... that is entry and exit. So the total cost = 0.6 x 2 = 1.2%. Not that far from UTF.
Sure bo? Post by Dividend magic IFP.
Mutual Funds and their Damned FeesYou’ve probably heard of investments like mutual funds, target date funds, or index funds. You might even own some of them. All of these funds have fees (also called the expense ratio), and if you’re smart you can save money on them.
Mutual funds are the worst (especially in Malaysia) because they rarely beat the market and usually have the highest fees, the average in Malaysia is a whopping 3%, I’ve seen some as high as 5%. These might all seem like insignificant numbers, so why does it even matter? It matters. Here, I’ll do some calculations to show you.
Let’s say you invest RM10,000 and earn 7% over 50 years.
0.0% fee: RM10,000 grows to RM294,570
1.0% fee: RM10,000 grows to RM184,202, and you lose
RM110,369 in fees
2.0% fee: RM10,000 grows to RM114,674, and you lose
RM179,896 in fees
3.0% fee: RM10,000 grows to RM71,066.83, and you lose
RM223,503 in fees
I cannot emphasize how fees can kill your investments. I hope the above illustration will get through to my fellow investors out there. With a 2% fee, you’re essentially losing more than 50% of your investment to fees alone. What’s even worse is that the above example assumes you’re earning a 7% return p.a., what if you’re losing money? The funds still collect the fees from you! Isn’t that outrageous?
By investing in your own portfolio of shares, it means more money for you, less for the fund houses. Also to note are low cost Index Funds from companies like Vanguard that serve to mimic the market. The day that they come to Malaysia is the day I’ll dump most if not all of my savings into them.
(I understand some of you may be mutual fund agents and investors here so if you disagree, please do provide me your reasons for it. Don’t just send me hate messages and emails.)