Fee calculation clarification

D

dice

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The investor fee is equal to the Yearly Fee times the principal amount of your securities times the index factor, calculated on a daily basis in the following manner: The investor fee on the inception date will equal zero. On each subsequent calendar day until maturity or early redemption, the investor fee will increase by an amount equal to the Yearly Fee times the principal amount of your securities times the index factor on that day (or, if such day is not a trading day, the index factor on the immediately preceding trading day) divided by 365. The index factor on any given day will be equal to the closing value of the Index on that day divided by the initial index level. The initial index level is the value of the Index on the inception date.
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The above is taken from an ETN I am considering, given that the "Yearly Fee " is 0.89% is this basically saying that the fee is .89% of profit/loss on any given day? Do you think this is a good fee and am I right in thinking that volatility in the market it is tracking could lead to high charges?
 
If the annual charge is 0.89% then this will presumably be deducted as 0.89% / 365 of the daily unit price the same way that most or all unit linked funds apply the annual management charge?
 
ClubMan: sorry for the delay in responding.

the daily charge you are outlining would be:
(0.89% x unit price x num units) / 365
which is not taking into account their "index factor".

their daily charge (I think) is:
(0.89% x (unit price)^2 x num units) / (initial price x 365).

which means that the fee percentage is linked to the cost of the security - if price goes up so does the fee% and vice versa

but Im not sure if I have this right. Each time I have looked at it I have got a slightly different view of it.
 
I don't understand that calculation - especially the squaring of the unit price. Sorry. Perhaps you should ask them directly?
 
I came to that calculationg by breaking down the wording in the paragraph, getting to the following is straight forward:

(Yearly Fee) x (principal amount) x (index factor)
----------------------------------------------- = Investor Fee per day
365

where:
Yearly Fee = 0.89% - defined in documentation
index factor = (index value)/(index value at inception) - defined in the paragraph
principal amount = (index value) x (number of shares) - this is my guess at what the principal amount means, perhaps someone could confirm this terminology for me?

subbing the above we get to:
(YF) x (index value x num shares) x (index value / index value at inception)
------------------------------------------------------------------------
365

which reduces to: (yf x iv^2 x ns)/(ivai x 365)

I guess this is not a normal charging structure? what I like is that if you make a loss your fees drop (based on .89% x iv/ivai) however your fees increase if you make a profit.

I will try to seek clarification from the suppliers.
 
Principal amount would seem to me to be almost certainly the amount of money that YOU invest in the fund.

Put that in your equation and the pricing structure will be pretty simple.
 
Apologies for my ignorance but I have zero background in accounting or finance.

Principal being the initial rather than the current value certainly makes it simpler. I guess that if there is no entrance fee then it matches what ClubMan said earlier because Principal would equal #units x unit value at inception?

would you understand "inception" to mean the start of the fund or the start of the investment?

if there were entry fees (I dont think there are but must double check) does the Principal normally refer to the amount before or after the fees are deducted?
 
Dice - who are you making this investment with?

Is there an intermediary?

Why are you getting no advice from whoever is looking after the investment?
 
  • Principal is usually the amount invested
  • Inception would relat to the date of investment in fund (not the start of the fund which could be years and years ago!!)
  • Principal would be before fees deducted
 
apologies again for the delay in responding - I had my account mis-configured so was not getting notifications.

South - I have not yet figured out how to make this investment I am simply looking up information on

CapitalCCC - thanks for the terminology tutorial, I really must invest in some books on the basics.
 
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