How do I know if a fund is too expensive?

I’ve been looking at a few mutual funds and the fees seem to vary wildly. At what point is a fund just too expensive to bother with - and is the Ongoing Charges Figure the only thing I should look at?

I think it depends what you want. A simple collection of mainstream British or global shares is arguably not so hard to manage (OK, oversimplification BUT…) and there are decent Investment Trusts out there with costs around 0.5%.

F&C has been around since 1868, has a good track record and is well regarded and has an annual ongoing chargeThe total cost of holding an investment over the course of one year. It typically includes the management fee and other charges. of 0.49%. You can also of course just mirror an indexA basket of assets designed to represent a particular stock market or part of a stock market. For example, the FTSE 100 is an index which is representative of the 100 largest companies listed on the London Stock Exchange by market capitalisation. of large global sharesA unit of ownership in a company. Companies divide their ownership into shares and investors can purchase these to become owners of a tiny part of it. They're also called 'stocks' or 'equities'. for nearer 0.1% - such as the Fidelity Index Word fund (0.12%) or the iShares Core MSCI World (0.2%).

If you start to get funkier or look at less liquidHow quick and easy it is to convert an investment into cash without losing significant value in the process. In other words, how easy it is to sell and how long it takes to get your money in return. or more complex regions, or sectors, understandably the management charges will be more. So the Baillie Gifford China Growth Trust charges 0.97%. It’s a less easy market to operate in than the US for example, it’s an actively managedRun by a professional or group of experts, usually called portfolio managers or fund managers, who make decisions about what to buy to try and outperform the market for their customers. trust so you’re paying for manager to cherry pick the best, and you also are paying to access some privately-held companies.

I think there are some products worth paying a bit more for, but you have to be convinced that it’s worth the premium. I think less confident investors can always start with a few low-cost passiveInvestment funds that automatically follow a market index or set of rules without a manager actively picking investments. They aim to match the performance of their chosen benchmark rather than trying to beat it, typically offering lower fees than actively managed funds. options (which will be a lot cheaper) and maybe pick a few more expensive active products as you gain confidence. This approach is known as a core and satellite approach and works for many.

As for disclosure, you will drive yourself mad if you dig too far into transaction costs, and fees for this and fees for that, so I do think the Ongoing Charges Figure (OCF) is a decent comparator. If you look at funkier stuff like private markets or infrastructure, for example, then you should also consider transaction costs or also any performance costs. But for bog standard stuff, the OCF is fine.

Hope this helps!