What counts as a fee
Investing almost always comes with costs. Brokerage commission when you buy or sell shares, the annual fee on your BO account, the management fee and other expenses in a mutual fund, a separate charge on buying or selling in some funds, and reduced profit or a penalty if you break an FDR or savings scheme early. Together these are your “costs”.
Some fees are visible, like a broker’s commission. Others are not: a fund’s management fee is not billed to you but taken from the fund’s assets, so the NAV or unit price simply shows a little lower. With no separate bill, many people never notice they are paying every year.
Say Hasan and Sumi each put Tk 50,000 into two funds that invest in the same things and earn the same return before fees. The only difference is cost: Hasan’s fund costs 0.5% a year in total, Sumi’s 2%. In the first year the difference is just Tk 750, so neither notices. But the gap compounds year after year, and over 20 years it becomes large. The numbers are only an example.
Why it matters to an investor
- Fees are certain, returns are not: nobody knows future returns for sure, but fees will almost certainly be taken. Cost is one of the few things you can control.
- Fees compound: money paid in fees no longer earns future returns. So the true cost of fees is much bigger than the yearly amounts added up.
- Fees bite harder when returns are low: with a 10% return, a 2% fee takes a fifth of the gain; with a 4% return, the same fee takes half.
- The hidden price of frequent trading: every trade pays commission. Buying and selling again and again turns small charges into a large sum.
How small percentages become large sums
The US securities regulator (the SEC) gives an example in its investor education bulletin: $100,000 growing at 4% a year for 20 years ends at about $208,000 with a 0.25% annual fee, about $198,000 with 0.50%, and about $179,000 with 1%. A difference of just three-quarters of a percentage point leaves about $29,000 less.
Where to find fees in Bangladesh
- Mutual funds: the prospectus and annual report list the management fee, trustee and custodian fees and other expenses. BSEC sets the rules for mutual funds.
- Shares: ask for the broker’s commission rate and the annual BO account fee in writing when you open the account.
- Banks and savings schemes: check the account maintenance charges and the early-withdrawal terms in the agreement.
- Policies that mix insurance and savings: a large share of the first years’ premiums can go on costs and commission; find out the surrender value.
Worked example
- You invest Tk 5,00,000 for 20 years. Say the return before fees is 10% a year.
- With no fee: about Tk 33.6 lakh after 20 years.
- With a 0.5% annual fee (9.5% net): about Tk 30.7 lakh.
- With a 2% annual fee (8% net): about Tk 23.3 lakh.
Result: the 2% fee ate about Tk 10.3 lakh over 20 years, more than twice your original investment. The gap between the 0.5% and 2% fees is about Tk 7.4 lakh. A higher fee only makes sense if you genuinely get more in return. The numbers are only an example.
Years
See the numbers as a table
| No fee | 0.5% fee | 2% fee | |
|---|---|---|---|
| 0 | Tk 5 lakh | Tk 5 lakh | Tk 5 lakh |
| 1 | Tk 5.5 lakh | Tk 5.5 lakh | Tk 5.4 lakh |
| 2 | Tk 6.1 lakh | Tk 6 lakh | Tk 5.8 lakh |
| 3 | Tk 6.7 lakh | Tk 6.6 lakh | Tk 6.3 lakh |
| 4 | Tk 7.3 lakh | Tk 7.2 lakh | Tk 6.8 lakh |
| 5 | Tk 8.1 lakh | Tk 7.9 lakh | Tk 7.3 lakh |
| 6 | Tk 8.9 lakh | Tk 8.6 lakh | Tk 7.9 lakh |
| 7 | Tk 9.7 lakh | Tk 9.4 lakh | Tk 8.6 lakh |
| 8 | Tk 10.7 lakh | Tk 10.3 lakh | Tk 9.3 lakh |
| 9 | Tk 11.8 lakh | Tk 11.3 lakh | Tk 10 lakh |
| 10 | Tk 13 lakh | Tk 12.4 lakh | Tk 10.8 lakh |
| 11 | Tk 14.3 lakh | Tk 13.6 lakh | Tk 11.7 lakh |
| 12 | Tk 15.7 lakh | Tk 14.9 lakh | Tk 12.6 lakh |
| 13 | Tk 17.3 lakh | Tk 16.3 lakh | Tk 13.6 lakh |
| 14 | Tk 19 lakh | Tk 17.8 lakh | Tk 14.7 lakh |
| 15 | Tk 20.9 lakh | Tk 19.5 lakh | Tk 15.9 lakh |
| 16 | Tk 23 lakh | Tk 21.4 lakh | Tk 17.1 lakh |
| 17 | Tk 25.3 lakh | Tk 23.4 lakh | Tk 18.5 lakh |
| 18 | Tk 27.8 lakh | Tk 25.6 lakh | Tk 20 lakh |
| 19 | Tk 30.6 lakh | Tk 28 lakh | Tk 21.6 lakh |
| 20 | Tk 33.6 lakh | Tk 30.7 lakh | Tk 23.3 lakh |
Common mistakes
- Ignoring fees because they are “only 1–2%”. Over long periods that “only” makes a difference of lakhs.
- Looking only at visible commissions and not at costs taken inside a fund.
- Assuming a higher fee means better management. A higher-fee option has to earn that much more just to leave you level.
- Trading often without adding up what each trade costs.
Fees are taken every year without fail, and they compound: before you invest, find out the total cost and compare it.