Fund charges and the ongoing charges figure (OCF)

When you put money into an investment fund, the biggest recurring cost is usually the ongoing charges figure, or OCF. It is an annual percentage of the value of your holding that pays for running the fund: the manager, the trustees, the auditors and the administration. If a fund's OCF is 0.85% and you hold £1,000 of units, the charge costs you £8.50 a year¹.

The OCF is not a bill. It is deducted from the fund's assets a little each day, so the price you see for the fund already has the charge taken out². You never pay it separately, and it never appears as a deduction from your bank account. What you see instead is a holding that grows slightly more slowly than the fund's underlying investments.

The OCF is also not the whole cost of investing. On top of it can sit platform account fees, dealing charges, transaction costs inside the fund, performance fees and, in some cases, exit fees³. This page explains what the OCF covers, what it costs in pounds, how it compares between index and active funds, and how to find it before you invest.

What the ongoing charges figure includes

The OCF is the annual charge you pay for as long as you hold the investment, and it is built from several parts. The largest is usually the annual management charge, or AMC, which is the fund manager's own fee. On top of that come the additional costs of managing the fund: the trustee's fees and expenses, audit fees, registration and administration. The OCF is the total of these running costs, expressed as one percentage⁴.

AJ Bell describes the same structure from the fund manager's side: the main charge levied by a fund manager is the OCF, which includes the AMC and other operating costs⁹. So when you compare two funds, the OCF is the like-for-like running cost, while the AMC alone would understate what is actually taken.

Just as important is what the OCF leaves out. Liontrust states that transaction costs, performance fees and initial charges are not included in the OCF or the related "ongoing cost" figure⁷. The Association of Investment Companies (AIC) makes the same point about transaction costs, which are the costs paid when a fund manager buys or sells assets, and gearing costs¹⁰. In other words, the OCF is the standing charge for the fund to exist and be managed, not the cost of everything the fund does.

That distinction matters because a fund that trades heavily can have a modest OCF and still cost you more in total than a fund with a higher OCF that rarely trades. The transaction costs are real money taken out of the fund, they are just measured and disclosed separately. The section on other fund costs below covers how they are worked out.

How the OCF is taken: a daily deduction from the fund, not a bill

The mechanics of the charge are what most often confuse people. The OCF is expressed as an annual percentage, but it is calculated and deducted from the fund daily². Triodos, describing its impact funds, puts it plainly: the charge is reflected in the value of the fund, and it is not paid separately by the investor¹¹. Legal & General says the same about its funds: the OCF is deducted from the fund and the daily fund price reflects the deduction¹².

The practical consequences are worth spelling out. First, you cannot avoid or defer the charge by leaving money in the fund and doing nothing: every day you are invested, a slice of the fund's assets goes to cover its running costs. Second, the charge is not linked to performance. Whether the fund rises or falls, the same percentage is taken from its assets over the year. Third, because the deduction is inside the price, the OCF you see quoted is the only visible sign of it: there is no transaction on your account to check it against.

This is also why the OCF is sometimes described as a drag on returns rather than a fee. If the fund's investments gain 5% in a year and the OCF is 1%, your holding grows by less than the investments did, because the running costs came out along the way.

What an OCF costs you in pounds: £8.50 a year on £1,000 at 0.85%

Percentages are abstract; pounds are not. The OCF is calculated as a percentage of the amount you hold in the fund, taken directly from the assets held within it¹³. AJ Bell gives a clean example: if your holding in a fund is worth £10,000 and the OCF is 1%, the charges will effectively reduce its value by £100¹³.

Freetrade's example works the same arithmetic at a smaller size: if a fund's OCF is 0.85% and you have £1,000 worth of units, your charges will cost £8.50 per year¹. InvestEngine gives an ETF version: an ETF with a 0.20% ongoing charge costs £2 per year for every £1,000 invested¹⁴.

Two features of the arithmetic deserve attention. The charge scales with the value of your holding, not the amount you originally put in: as a fund grows, the pounds taken grow with it, and if the fund falls, the charge falls too. And the cost compounds over time in the same way returns do. Which? illustrated this with a child trust fund example: £1,000 invested in a CTF charging 1.5% a year, growing at 5% a year for 18 years, ends at £1,857, with the charge having eaten into what the money could have become¹⁵.

A platform example shows how the OCF combines with other fees. Hargreaves Lansdown's UK Income Fund page shows, on £1,000, an initial charge of £0, an ongoing charge of £9.80 (0.98%), an HL account charge of £3.50 (0.35%), and a total of £13.30¹⁶. HSBC gives a similar illustration for a beginner investor: £1,000 invested over a year, with a 0.25% HSBC service fee and a 0.25% fund manager's annual fee, gives ongoing costs of around £5 in the first year¹⁷. The fund charge and the platform charge are separate, and both come out of your returns.

Typical OCFs: from about 0.1% for passive funds to around 1% for active funds

How big is a typical OCF? It depends first on how the fund is run. Passive funds, which simply track a market index, usually cost less to run: Which? notes their ongoing charges are sometimes as low as 0.1% a year⁵. Active funds, where a manager picks investments, tend to charge more, such as 0.5% or more³.

Interactive Investor's fund pages put the typical active range at between 0.85% and 1% a year⁶, and its tracker ISA guide uses around 0.85% as the figure for actively managed funds, excluding trading costs¹⁸. Some go higher: Interactive Investor notes some actively managed funds have ongoing charges figures above 1%¹⁹, and Hargreaves Lansdown's fund FAQs describe a typical ongoing charge of around 1% of fund value, alongside initial fees of up to 5.5% on some funds²⁰. AJ Bell's VCT guidance notes most actively managed funds such as unit trusts or OEICs charge 1% or less²¹.

Named fund examples show the spread at the lower end too:

The Fundsmith figure is an estimate of the fund's annual ongoing charges, as stated on its factsheet²⁶. The HL Select figures are the funds' own total ongoing charges²⁴. The 0.05% figure is Fidelity's stated starting point for the ongoing charges of funds available through its service²², and the 0.09% figure is the ongoing charge of a specific Vanguard ETF quoted in a Which? article on ethical investing²³.

Pension default funds often sit low in the range as well. Interactive Investor's SIPP and drawdown calculators both apply a 0.2% ongoing charge figure to fund investments in their illustrations²⁷. Aviva notes that some ETFs have an ongoing charge, which varies depending on the fund you choose²⁹, which is a reminder that the label on the wrapper (fund, ETF, pension fund) matters less than the figure itself.

The gap between 0.1% and 1% may sound small, but on a large holding held for many years it is one of the few things about investing you can control directly. Whether a higher charge is worth paying depends on whether the manager's approach delivers results after charges, which is a separate question from how the charge is measured. The pages on active vs passive investing and investment funds cover that comparison.

Other fund costs to add to the OCF

The OCF is the standing charge, but Which? lists the other costs that can apply when you invest in funds: performance fees, trading fees and stamp duty reserve tax, exit fees, and platform fees, alongside the OCF itself³. Each works differently and each is disclosed in a different place.

Transaction costs. These are the costs incurred when the fund buys or sells its underlying investments. Artemis states that investors do not pay separate transaction costs; rather they are incurred by the fund itself³⁰. The FCA's disclosure rules define them as explicit costs or charges, other than one-off costs, incurred in the course of buying or selling investments, and give examples including broker commissions, exchange fees, payments to agents, intermediaries or trading venues, stamp duty and other taxes or levies, and legal expenses³¹. They must be calculated on an annualised basis, using an average of the transaction costs incurred over the previous 36 months³². Where a fund has been operating for less than 36 months, they must be estimated on a reasonable basis³², which is why a young fund's transaction cost figure is an estimate rather than a measured average.

Performance fees. Some funds, particularly investment companies, add a performance fee on top of the ongoing charge. The AIC publishes a combined figure called "ongoing charge plus performance fee", which includes the performance fees paid in the last financial year³³. If you are comparing charges, check whether the figure you are looking at includes a performance fee or not, because two funds can look close on OCF alone and differ once performance fees are counted.

Entry and exit costs. The FCA's rules on consumer composite investments set out what one-off exit costs can include: proportional fees; the bid-mid spread to sell the product and any explicit costs, charges or penalties for early exit; exchange, clearing and settlement fees for derivative-based investments; and, where relevant, exit penalties depending on the holding period³⁴. On the entry side, some funds levy an initial charge when you invest, up to 5.5% in the example Hargreaves Lansdown gives, though many funds now charge nothing²⁰.

Platform and advice charges. The FCA's suitability rules treat ongoing product charges, discretionary fund management charges and platform charges as "other ongoing charges" that sit alongside the fund's own costs, and initial product charges and charges for moving funds as additional charges³⁵. In practice this is the £3.50 account charge in the Hargreaves Lansdown example above¹⁶, or the 0.25% service fee in HSBC's¹⁷. If you take regulated advice, that adds a further layer: the FCA's average ongoing advice fee is 0.8% a year, or 1.9% a year with underlying product and portfolio charges factored in³⁶, and independent advisers commonly charge an ongoing annual fee between 0.5% and 1.5% of the pot's value³⁷. In pensions, some schemes use fixed charges instead: The People's Pension applies a fixed charge of £4.50³⁸.

The full picture of what a fund costs is therefore the OCF plus transaction costs plus any performance fee, plus whatever the platform or adviser charges, plus any entry or exit costs. The pages on platform fees and charges, dealing charges and stamp duty on shares cover those layers in detail.

OCF or TER: comparing charges across funds, ISAs and pensions

You will meet several names for much the same thing. Vanguard states that both ETFs and mutual funds charge a total expense ratio, TER, also known as the ongoing charges figure or OCF, which covers the cost of running the fund³⁹. Triodos likewise describes the OCF as the ongoing costs of running the funds, "also known as the Total Expense Ratio"². So a TER quoted for an older fund document and an OCF quoted in a current one are measuring the same running costs, and you can compare them directly.

Where the comparison gets harder is across different types of product. The OCF of a fund tells you the fund's running cost, but not the cost of the wrapper it sits in. The same fund held in a stocks and shares ISA, a pension or a general investment account carries the same OCF, but the platform's account charge, and any dealing charges, can differ between wrappers and between providers. Interactive Investor's pension calculators, for instance, apply a 0.2% OCF to fund investments in their illustrations²⁷, while the Hargreaves Lansdown fund example shows a 0.35% account charge on top of the fund's 0.98%¹⁶. Neither figure alone is the total cost.

One rule from pension legislation is worth knowing when you see charges quoted for part of a year. Under the Occupational Pension Schemes (Charges and Governance) Regulations (Northern Ireland) 2015, where a charge calculation is made for a period shorter than a charges year, it must be done on a pro rata basis⁴⁰. The same principle applies to fund charges generally: an annual OCF of 1% means roughly a twelfth of that each month, which is how the daily deduction in the section above adds up to the annual figure.

For investment companies, the basis of the calculation is set out by the AIC: the ongoing charge takes costs for the last financial year and divides them by the net assets of the company to produce a percentage⁴¹. That is a backward-looking measure, and the AIC's separate "ongoing charge plus performance fee" figure exists precisely because the plain ongoing charge leaves the performance fee out³³. When comparing, check three things: whether the figure includes performance fees, whether it includes transaction costs (it will not, by definition), and whether the wrapper's own charges are counted anywhere.

Where to find a fund's charges

You do not have to hunt for the OCF; the rules require it to be shown to you. Fund managers are legally obliged to show the ongoing charge in their fund literature and must publish it once a year in the Key Investor Information Document, or KIID⁸. The KIID is the standard two-page document that accompanies UCITS funds sold to retail investors, and the OCF appears in its charges section. The page on fund documents explains what each of these documents contains.

Beyond the KIID, the OCF appears in several other places you will routinely see:

• The fund's factsheet, usually updated monthly, alongside performance figures. Fundsmith's factsheet, for example, shows the 1.01% estimate of annual ongoing charges for its S Class Acc units²⁶.
• The fund pages on investment platforms, where the OCF is often shown next to the platform's own charges so you can see the two layers side by side.
• The charges illustration or ex-ante costs document you are shown before investing, which also sets out the transaction costs and any other one-off costs.
• The fund's annual and half-yearly reports, where the actual costs of the last financial year are set out.

Two cautions when reading these figures. First, the OCF is a variable figure: Artemis states in its own charges document that the ongoing charges are variable³⁰, and the AIC's method of dividing last year's costs by net assets⁴¹ means the published percentage can move from year to year. A figure quoted in a factsheet is the latest calculation, not a permanent price. Second, a fund that has existed for less than 36 months will show estimated transaction costs rather than a measured average³², so its total cost picture is less settled than an established fund's.

If you want to check what a fund's charges mean for your own money, the worked examples above show the method: take the OCF percentage, apply it to the value of your holding, and that is roughly what the fund's running costs take over a year. Add the platform's charges, any performance fee and the transaction costs to see the full cost of holding it. The pages on how investment platforms work and where to hold investments cover the choices around the wrapper, and investment funds explained covers the funds themselves.