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Isa investing: How to find the cheapest fund supermarket

 

The first rule when it comes to buying funds is never go directly to the provider – the best deals lie with the middlemen.

Fund providers will typically slap you with an upfront fee, which you pay every time you invest in the fund and which can be as high as 5%.

With a £1,000 investment you would therefore automatically lose £50.

 

• TABLES: Best-selling funds

 

On top of this there is an annual management charge, which in some cases can be as high as 2%, but is typically around 1.5%:

Read more about the pros and cons with our basic guide to fund supermarkets.

The solution is to buy via a fund supermarket or discount broker, which will reduce the upfront fees and the best providers will even hand back some of the ongoing annual fees.

Follow our checklist to see if buying investments this way is right for you and how to find the cheapest providers...

Is a fund supermarket right for me?

This depends on what you are looking for – if you want financial advice, then no, but if you are happy to buy and manage your own portfolio of funds then they can be a very straightforward option but remember you will get better deals with a discount broker. If you're not confident picking your own funds, find an independent financial adviser.

Will brokers discount both upfront fees and annual fees?

Yes, that is their unique selling point. Most brokers typically do not charge any upfront fees and the annual management charge is usually between 1% - 1.25%, down from the provider average of 1.5%.

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...but as a general rule are some cheaper across the board than others?

Competition is tight but yes some do offer better value. While the likes of Hargreaves Lansdown take initial charges down to 0%, others will only reduce them to 1% to 2%.

Hargeaves has for some time been seen as the cheapest thanks to sharing part of the trail, or renewal, commission with investors as a loyalty bonus - on Isas. But now Alliance Trust and Commfreefunds.com refund all trail commission in return for a small flat annual fee.

Bestinvest also recent launched its own fund platform that undercuts Hargreaves by paying a bigger 'bonus' from the commission it receives.

If you want hold something other than managed funds, then different platforms also have varying charges, so if for example you want to hold managed funds, ETFs and in one place then you need to pick the overall best.

Unfortunately, it will be a case of doing your homework. If you know there is one particular fund you want, or a handful of Oeics and unit trusts that have grabbed your eye, look up discounts on these funds with different supermarkets. And if you also want to hold shares and ETFs compare the costs of these.

You may also like to include This is Money's fund supermarket in your comparison.

Which fund supermarkets offer the best research?

Arguably Hargreaves Lansdown – it has the advantage of being a broker and having its own fund supermarket – Vantage. It has a very comprehensive guide to funds and how it rates them. Hargreaves has its Wealth 150 list – the funds it favours best.

Some experts however would argue that its research capabilities are a little behind broker Bestinvest.

Bestinvest has online tools which show you the 'overall asset allocation' between your investment funds – in other words, you can see where the companies you are investing in via each fund are based. For example, it will show you the split between various regions such as the UK and emerging markets.

 

This is Money fund supermarket

This is Money has partnered with SFSDirect to offer a fund supermarket service that discounts initial charges to 0% on hundreds of funds. To also enables investors to analyse their portfolio with an X-ray tool. Find out more here:

>> www.thisismoney.co.uk/fundsupermarket

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