1. Investors
  2. Deciding how to invest
  3. Costs involved in investing

Costs involved in investing

Investments aren’t free, even if you invest directly. Any fees you pay reduce the return you make, so you should understand them before you invest.

Most investments provide a product disclosure statement (PDS) explaining the fees you’ll be charged. KiwiSaver schemes and other managed funds also publish a fund update at least once a year with the latest fee information.

Providers set up their fees differently, so make sure you look at all fees charged. For example, some providers include their membership fee within their management fee, while others will charge it separately.

How fees stop your money growing

The example below shows the difference fees can make to total return – the investment with lower fees delivers a return that’s $1,794 higher than the more expensive option.

Impact of fees

Only pay higher fees if you’re confident you’ll be persistently rewarded with returns high enough to make it more financially worthwhile than an investment with lower fees.

For example, if you were confident that by paying the higher 1.25% fee, you’d make a 7% return on your $10,000 investment, it would be worthwhile. This is because your return after fees would be higher than if you’d paid lower fees and achieved a 6% return.

Active funds tend to be more expensive than passive funds because they require more investment expertise. This means you need to be very comfortable they have that expertise before you invest. Active funds aim to outperform an index; passive funds track an index.

TIP: Fees are usually shown in percentages. Small percentage differences can mask how much impact fees have in actual dollar terms. Use an online calculator, or ask your provider to help you work out your potential net returns in dollars. For KiwiSaver, check your annual statement each year to see the dollar amount you’ve paid in fees. You can also use the Sorted KiwiSaver fees calculator to find out how much you’ll pay in fees over the life of your KiwiSaver investment.

Types of fees 

Fees depend on the type of investment. If you invest in KiwiSaver or other managed funds, there will be a fee to cover the cost of someone managing your investments on your behalf. This will be more expensive than if you invested directly, for example in shares or bonds.

You may be charged a fee for leaving an investment early. For example, if you take money out of a term deposit before the end of the term, you’re likely to be charged an early termination fee, which means you’ll earn less interest on the amount withdrawn early.

If you’re using a financial adviser or broker, they may also charge you a fee for their services.

See paying for advice.

KiwiSaver fees

Typical KiwiSaver fees include:

  • Member fee – covers the administration of your personal KiwiSaver account. It’s usually deducted monthly.
  • Administration fee – contributes to the administration of the scheme as a whole.
  • Supervisor or trustee fee – pays the supervisor or trustee for overseeing all funds offered by the scheme and for holding the fund’s assets.
  • Management fee – pays the fund manager who decides how each fund is invested. This fee is different for each fund as some funds need more management than others. It’s calculated as a percentage of the fund’s net assets.
  • Performance-based fee – a bonus paid to the fund manager for achieving a return that’s better than the target return.

Other fees may be charged if you:

  • change your investment options
  • transfer savings from another NZ KiwiSaver or superannuation scheme
  • transfer savings from an overseas superannuation scheme, or vice versa
  • withdraw money from your KiwiSaver scheme.