When picking similar funds, go for those with lower fees

18. When picking similar funds, go for those with lower fees

Cost: There’s no upfront cost to pay. Before buying, just check how much the sum of the management fee, custody fee, and sales service fee comes to.

In plain terms: For every 1 percentage point increase in a fund’s annual fee, the amount you end up with after 20 years drops by roughly 18%, and after 30 years by about 26%. Among funds in the same category, picking one with lower fees is the only thing you can be certain of in advance.

Benefit: The difference in fees gradually erodes your principal through compound interest — that tiny amount deducted each year adds up over time. If a fund’s annual fee is 1 percentage point higher, the final value after 20 years will be roughly 0.99^20, or 18.2%, lower than it would have been otherwise; after 30 years, the drop is about 26%. Since 2023, China has rolled out reforms to fund fees, capping the management fee for actively managed equity funds at 1.2% and the custody fee at 0.2% for newly registered funds as of July 7, 2023. 136 fund companies have also lowered these fees for their existing products to meet these limits.

Evidence grade: C

Sources: China Securities Regulatory Commission (2023). Heads of relevant departments of the China Securities Regulatory Commission answer reporters’ questions on the reform of public fund fee rates. <http://www.csrc.gov.cn/csrc/c100028/c7418692/content.shtml>; The hosting fee shall not exceed the "ceiling standard" of 0.2%. <http://www.csrc.gov.cn/xiamen/c105636/c7511608/content.shtml>; Fama EF, French KR (2010). See Article 11. <https://doi.org/10.1111/j.1540-6261.2010.01598.x>

Notes: This calculation follows the standard formula and assumes both funds generate identical pre-fee returns. In reality, you’d also need to factor in subscription fees, redemption fees, and sales service fees for Class C shares. This information does not constitute investment advice.