Costs
What the ongoing charges figure leaves out
The headline percentage on a fact sheet is a defined, regulated number. Several genuine costs sit outside that definition by design.
What follows is the working version of the ongoing charges figure: the decisions in the order you actually meet them, with the reasoning attached.
Before you start
- The figure excludes the fund's own transaction costs by definition.
- Platform and adviser layers sit entirely outside it.
- Tracking difference captures more of the truth for an index fund.
What the figure covers
The ongoing charges figure captures the recurring costs of running a fund, principally the management fee and the administrative expenses. It is calculated to a standard definition so that funds can be compared on a consistent basis, which is genuinely useful.
It is expressed as a percentage of fund assets and deducted from the fund rather than billed to you separately. Because it is a historic figure covering a past period, it is a reliable guide rather than a forecast of what you will pay. For most mainstream funds it is also the largest single cost, which is why it earns the attention it receives.
Transaction costs sit outside it
The costs of the fund buying and selling securities are excluded from the ongoing charges figure by the definition itself. These include broker commissions, spreads paid on the fund's own trades and any transaction taxes in the markets where it deals. A fund turning its portfolio over frequently incurs far more of these than one trading only at scheduled index reviews.
For most people, regulation in several regions now requires separate disclosure of transaction costs, though the methodologies are contested and awkward to compare. Portfolio turnover, where it is published, is a useful proxy for how much of this cost a fund is generating.
Performance fees and one-off items
Where a performance fee exists it is generally reported separately rather than folded into the ongoing charges figure. Certain one-off or exceptional costs are also excluded, which can make a published figure look lower than the year's actual expenses.
Funds investing in other funds may report a synthetic figure including the underlying charges, and the treatment varies between providers. Reading the annual report rather than the fact sheet is the only way to see the complete expense picture for a given year. For simple index funds these differences are usually negligible; for complex structures they are anything but.
The layers above the fund
Platform fees, dealing charges and any adviser charge sit entirely outside the fund and are not captured in its figure at all. What you actually pay is the sum of the fund layer and every layer above it, and no single document reports that total.
The useful part is this: people commonly compare funds carefully on the ongoing charge while ignoring a platform fee several times larger. Writing the layers out on one page once a year is the only reliable way to see what the total has become.
That same page is what makes a platform comparison meaningful rather than a comparison of two headline rates.
Why the number is still worth using
Despite the exclusions, the figure is standardised, published and comparable, which is more than can be said for most cost information. The excluded items are usually smaller than the included ones for straightforward index funds held over long periods. Realised tracking difference captures more of the total for an index fund, and it is the better comparison wherever it is available.
Where it helps most, for active funds neither figure captures the whole cost, and the annual report remains the only complete source. Treat the figure as a floor and a comparison tool rather than as a statement of what you will actually pay.
Some of this will suit you and some will not, and that is the point.
A practical way to use it
Compare candidate funds on the ongoing charge, then check tracking difference or the annual report to see what the charge left out. Look at portfolio turnover as a rough indication of how much transaction cost the fund is generating on your behalf.
Do this at purchase, and afterwards only when a notification arrives telling you the charge has changed. Repeating the exercise monthly changes nothing, because the differences move slowly and the decision itself is a long-term one. The one number worth writing into your plan is the total across every layer, because that is the figure compounding against you.
The takeaway
The figure is a floor, not a total. The number that matters is every layer added together.
Small and repeatable beats ambitious and abandoned, almost every time.
Questions readers ask
Is a lower ongoing charge always cheaper?
Not always. Transaction costs, performance fees and platform charges sit outside it. For index funds, realised tracking difference is a more complete comparison.
Where do I find the excluded costs?
The annual report shows the full expense picture, and some regions require separate transaction cost disclosure. Portfolio turnover is a useful shortcut.
