Glossary: Annual management charge
If you put money in an investment or pension fund, you’ll not only pay a fee when you initially invest (see Allocation Rate) but also a fee every year based on a percentage of the money the fund manages on your behalf. Known as the AMC, the actual percentage varies according to the particular fund, but the industry average for active managed funds is 1.5%.
This is the percentage of an investor’s initial cash or capital outlay that actually goes towards the final investment after any initial fees and charges have been deducted. For example, if an investment or pension fund carries a 5% front-end fee, only 95% of an investor’s initial investment will actually be placed into the fund itself, with the rest going to the investment company. The higher the fees, the lower the overall allocation rate will be for the investor.
Active managed funds
These funds try to produce returns superior to a “benchmark index” such as the FTSE 100 by a combination of picking the right stock at the right price at the right time. A fund manager calls the shots and tries to outperform the index. “Passive” or “index tracking” funds just try to match the index as closely as possible and are managed by computer.