Funds split trading costs fairly. This means sharing them between existing investors, new investors, and people taking money out.

 

The goal is to make sure existing investors do not pay for costs caused by people joining or leaving the fund.

 

Funds use two common methods to do this:

 

Dilution levy: A direct charge collected from new investors to cover trading costs. For example, investing £10,000 creates £20 in costs, which can be charged using a dilution levy.

 

Bid/offer spread: New investors pay a slightly higher price for their units. This extra amount covers trading costs. For example, investing £10,000 leads to £20 in costs, so the price is about 0.2% higher.

 

With both methods, the value of new units you buy may be slightly less than the money you put in. Switching investments often can increase these costs.