The ongoing charges figure (OCF) is a key metric used to quantify the total annual costs of operating a fund, expressed as a percentage of the fund's average net assets. It includes various operational expenses such as fees paid to the fund manager, trustee and custodian, along with costs related to registration, regulatory compliance, auditing and legal services. The OCF provides investors with a clear indication of the expenses that directly impact the fund's performance by reducing its returns.
While the OCF is comprehensive, it does not encompass all costs associated with fund investment. Notably excluded from the OCF are performance fees, transaction costs, interest on borrowings, costs associated with using derivatives, as well as any entry and exit fees. Investors need to consider these costs separately, as they can significantly affect the overall cost of the investment and, consequently, the net return.
The OCF is calculated by summing all the operational expenses incurred over the past 12 months and dividing this by the average net assets of the fund over the same period. This figure offers investors a transparent view of the ongoing costs they will bear, aiding in more informed investment decisions. A higher OCF indicates more expensive fund management and operation, which could lead to lower net returns for investors. Therefore, when assessing funds, investors should factor in the OCF along with other performance and risk metrics to choose options that align with their financial goals and cost considerations.
This Trustnet Learn article was written with assistance from artificial intelligence (AI). For more information, please visit our AI Statement.