When investing in funds many people do not take the effect of fees in concideration. They tend to think that 2% per annum is the norm and it is just one of those things, it is something you have to pay.

Here is an exerpt from a Fin24 article which indicates what difference the 2% per annum fee can make to your investment.

Johannesburg – Investors who think one or two percent in fees does not make much difference are deluding themselves, says Kari van Rensburg, a director of Sandton-based Deutsche Securities.

The company demonstrated the point by studying net returns achieved by the JSE’s All Share Index (Alsi) over the 20 years to May 2009, and says the pattern of value depletion holds true for all investments where fees are charged as a percentage of assets under management.

The study showed that if you invested R100 in an Alsi portfolio through a company that charged ongoing fees of 2% a year (2.28% VAT inclusive) your R100 would today be worth R727.31. If you paid no fees at all, your investment would have grown to R1 152.39.

“This is 58% more than an investment depleted by fees of 2% plus VAT per year,” says Van Rensburg. “That’s significant erosion. It might be the difference between retiring in comfort or retiring with insufficient funds to maintain a decent lifestyle.”

If you were charged 1% fees per annum plus VAT the difference on the optimum market-generated return would be 26%.

You can find the rest of the article here