Invest in a well diversified fund with low charges

I saw an investment product offered by a bank that has the following features:

- sales charge of 5%
- annual management fee of 1.75%
- pays out 8% per year, but this may be done by eroding the capital
- sell call warrants

Selling the call warrants allows the fund to earn income, but it also caps the gain that can be earned.

It is better to invest in the combined fund offered by NTUC Income. It is well diversifed and imposes a sales charge of 3.5% and an annual management fee of 0.95%. Due to the difference in charges over a 10 year period, the investment in the combined fund will pay you 10% more than the product offered by the bank.

The actual return depends on the underlying return of the fund. Here I assume that they are both funds provide the same average return over 10 years.

Advice: it is better to invest in simple financial products that have low charges.

Visit www.askdrmoney.com to get a comparison of the charges.