A fund advertises a 7% income figure. Another pays distributions every month. A third says its management fee is low. Which one will put more dependable money in your pocket?
The answer is not always the fund with the biggest number. We need to know what that number measures, which costs are included and what risks sit behind the payments. This practical $100,000 example shows how to read fund costs without deducting the same fee twice.
Portfolio impact summary
- Recurring fees reduce the income and capital available to an Income Factory.
- A distribution rate may already be after fund-level fees; subtracting them again can mislead.
- Compare like-for-like net returns, then check asset quality, liquidity and the role each fund plays.
Why fees matter to an Income Factory
For a long-term income investor, every dollar spent on fees is a dollar that cannot support income or build capital. Costs matter most when they repeat year after year.
But the cheapest fund is not always the best. An active manager may earn its fee through credit selection or risk management. An ETF may offer low-cost diversification. An LIC may offer a steady dividend policy, while its shares trade above or below the value of its investments. The question is what the fee buys and whether the income can last.
Start with three different numbers
A gross return is what an investment earns before the costs specified in the calculation. A cash distribution is the money paid to investors; its size alone does not prove the fund earned that amount. A total return includes distributions and changes in investment value, with the fee treatment clearly stated.
Before comparing products, check whether a figure is a past result, current distribution rate, target or forecast. Then check whether it is before or after fees, and whether capital gains, franking credits or returned capital are included.
The costs to find in the documents
Start with the latest product disclosure statement, fee-and-cost summary and annual report. Look for ongoing management fees and costs, transaction costs, performance fees and charges for buying, selling or withdrawing. Some funds also have borrowing costs or other operating expenses.
Do not add every line again if the published cost-of-product example already includes several categories. Also check adviser, platform and brokerage charges that sit outside the fund.
The $100,000 test
Imagine two made-up funds holding similar assets with the same gross investment income. This is a teaching example, not a comparison of real products or a prediction.
| Fund A | Fund B | |
|---|---|---|
| Starting balance | $100,000 | $100,000 |
| Gross income | $7,000 | $7,000 |
| Annual fee | 0.30% = $300 | 1.30% = $1,300 |
| Income remaining | $6,700 | $5,700 |
The one-percentage-point fee gap equals $1,000 a year on $100,000 when everything else is equal. Real funds will not necessarily earn the same gross income, pay fees from the same account or distribute all earnings. This is a fee test, not a fund ranking.
The double-counting trap
If a fund has already paid its costs and reports a 6.7% cash distribution rate based on its stated price and period, subtracting the 0.30% management fee again would count the same cost twice. Record the fee, but use the disclosure to understand whether the published rate is gross or net.
Separately charged adviser fees, platform fees, brokerage and personal tax may still affect what the investor keeps. Use the same dates, price basis and fee basis for each fund.
A distribution is not a report card
A monthly payment feels reassuring, yet an income fund could maintain it while loan defaults rise, assets are sold or unit values decline. Compare cash paid with net investment income and the movement in NAV or NTA. Check after-cost total return over a sensible period, not just the most recent distribution.
How the check changes by investment type
For an ETF, read the current PDS, performance figures and distribution notices. For an LIC, review the annual report, management expense ratio, performance fee and premium or discount to NTA. For a LIT, check the distribution source, trust structure, NTA, fees and market liquidity.
For private credit, ask about arrears, impaired loans, related-party arrangements, leverage, loan valuations, exit fees and the right to delay withdrawals. Interest earned on loans is not the same as income available after fees and losses.
When a higher fee may be worth paying
Fees buy services. A manager who improves credit selection, protects capital during stress or provides useful access may justify a higher cost, but that needs evidence. Compare investments doing similar jobs with similar risks.
Risks and trade-offs
A low fee cannot stop a dividend cut, credit default or fall in share prices. A high distribution may include amounts that are not repeatable. Performance fees, trading spreads, exit charges and withdrawal delays can all matter when cash is needed.
What I’d check this week
- Write down the fund’s role: dividend growth, broad exposure, credit income or near-term cash.
- Find the current PDS and fee-and-cost summary.
- Mark each cost as already included or separately charged.
- Compare net income, NAV/NTA movement, liquidity and risk—not just the headline yield.
Key takeaway
The goal is not to squeeze every fee to zero. It is to understand the price of the income you are relying on. Run the $100,000 test, avoid double-counting, and then ask whether the assets and risk controls justify the cost.
Sources and disclosure
Sources: ASIC Regulatory Guide 97; ASIC Moneysmart managed funds guidance; and ASIC Moneysmart private-credit guidance.
This article is educational and provides general information only. It does not consider your objectives, financial situation or needs and is not personal financial advice. All numerical examples are hypothetical, not market quotations or forecasts. Consider your circumstances and seek licensed professional advice where appropriate.