In a unit-linked fund, if the fund earns 4.0% before charges and the annual management charge is 1.0% per year, by what percentage will the unit price increase that year?

In a unit-linked fund, if the fund earns 4.0% before charges and the annual management charge is 1.0% per year, by what percentage will the unit price increase that year?

• A. 3%
• B. 1%
• C. 4%
• D. 5%

Answer: (A)

In a unit-linked fund, the unit price moves with the fund’s value after charges are taken out. If the fund earns 4.0% before charges and the annual management charge is 1.0%, the net increase in the unit price is 4.0% − 1.0% = 3.0%. So the unit price rises by 3% for that year. This reflects how fees reduce the gross return to the investor.

In a unit-linked fund, the unit price moves with the fund’s value after charges are taken out. If the fund earns 4.0% before charges and the annual management charge is 1.0%, the net increase in the unit price is 4.0% − 1.0% = 3.0%. So the unit price rises by 3% for that year. This reflects how fees reduce the gross return to the investor.