How to Calculate Unit Trust Sales Charge

Calculating the sales charge for unit trusts can be a bit tricky, but understanding the process can save you a significant amount of money in the long run. The sales charge, also known as the front-end load, is a fee that investors pay when purchasing units in a unit trust. This fee is expressed as a percentage of the total investment amount. Here's a detailed guide on how to calculate this charge, including examples and key considerations.

1. Understand the Sales Charge Structure

Unit trusts typically have different sales charge structures depending on the type of trust and the financial institution managing it. The most common structures include:

• Percentage-Based Sales Charge: This is a fixed percentage of the investment amount. For example, if the sales charge is 5% and you invest $10,000, the charge would be $500.
• Tiered Sales Charge: This structure involves different sales charge rates based on the amount invested. For instance, investments up to $5,000 might have a 5% charge, while amounts above $5,000 might have a reduced rate of 3%.

2. Formula for Calculating Sales Charge

To calculate the sales charge, use the following formula:

$\text{Sales Charge}=\text{Investment Amount}\times \text{Sales Charge Rate}$Sales Charge=Investment Amount×Sales Charge Rate

3. Example Calculation

Let’s go through an example to make this clearer:

• Investment Amount: $10,000
• Sales Charge Rate: 5%

Using the formula:

$\text{Sales Charge}=\$10,000\times 0.05=\$500$Sales Charge=$10,000×0.05=$500

So, if you invest $10,000 in a unit trust with a 5% sales charge, you will pay $500 in sales charges, and the net amount invested in the unit trust will be $9,500.

4. Tiered Sales Charge Example

Consider a unit trust with a tiered sales charge structure:

• First $5,000: 5%
• Amount above $5,000: 3%

If you invest $7,000:

• Charge on First $5,000: $\$5,000\times 0.05=\$250$$5,000×0.05=$250
• Charge on Remaining $2,000: $\$2,000\times 0.03=\$60$$2,000×0.03=$60

Total Sales Charge:

$\text{Total Sales Charge}=\$250+\$60=\$310$Total Sales Charge=$250+$60=$310

5. Key Considerations

• Impact on Investment Returns: High sales charges can significantly reduce your investment returns, especially if you invest a large amount. Always compare the sales charges of different unit trusts before investing.
• No-Load Funds: Some unit trusts offer no-load funds, meaning they do not charge a sales fee. These might be a better option if you want to avoid sales charges altogether.
• Reinvestment Plans: Some funds offer sales charge discounts or rebates if you reinvest dividends or if you invest through certain plans.

6. Comparing Unit Trusts

When choosing a unit trust, compare the sales charges as well as other factors such as management fees, performance, and investment strategy. Here’s a simple table to help you compare:

Unit Trust	Sales Charge Rate	Investment Amount	Sales Charge	Net Investment
Trust A	5%	$10,000	$500	$9,500
Trust B	3% on first $5,000, 2% on remaining	$7,000	$310	$6,690
Trust C	No Load	$10,000	$0	$10,000

7. Conclusion

Understanding how to calculate the sales charge for unit trusts helps you make informed investment decisions and can save you money. Always review the fee structures and compare different unit trusts to find the best option for your investment goals.