How to get around Isa fees

With the Isa deadline looming on 5 April, more money typically flows into funds about now than at any other time in the year. This, of course, is great news for fund providers it gives a nice little boost to the cash they rake in from fees and charges levied on fund investors. For example, a typical equity Isa can cost you around 5% in initial charges and another 1.5% in annual fees, says Emma Wall in The Daily Telegraph. If you are unlucky enough to end up paying all that, you've rather ruined the tax savings you intended to make from an Isa.

Fortunately, it's easy enough to reduce your costs. Fund supermarkets and discount brokers both offer reductions on charges. Fund supermarkets bulk-buy funds so are able to offer big discounts on initial charges. You can end up paying just 1.5%-2%, compared to the typical 5%. There are several fund supermarkets to choose from, including Fidelity's Funds Network, Cofunds, and FundsDirect. So if, for example, you open a Hargreaves Lansdown's Vantage Isa, then not only do you escape the initial fee, but you will also get an annual loyalty bonus of up to 0.5%. The other benefit of fund supermarkets is that you can purchase funds from a range of providers through them.

So which funds should you pick? Tim Price at PFPWealth Management likes the BlackRock Gold and General fund. This is the largest gold mining stock fund in the UK, and was the top performer out of more than 850 UK funds in the last decade. He's also keen on the Invesco Perpetual Income fund run by Neil Woodford, one of Britain's top-performing fund managers. The fund had a hard time in 2009, as high-risk cyclical' stocks rose much more rapidly than the defensive stocks he favoured. But with the economic backdrop looking pretty grim for 2010, we suspect he'll have a better run this year.

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If you really want to cut your charges, you might be better off avoiding unit trusts altogether. As regular readers will know, we're fans of exchange-traded funds (ETFs), which simply track an underlying market. This might not seem exciting, but the reality is most fund managers fail to outperform the market over the long run. Typical annual fees for ETFs start from as low as 0.3%. If you still want an actively managed fund, investment trusts are often a better bet than unit trusts. Their fees tend to be lower, and they also often trade at a discount to their net asset value (NAV). That means you can often buy shares in the investment trust itself for less than the value of the underlying shares it holds. So you make an extra gain when the gap closes.