Aviva Investors has added a discretionary dilution levy fee to its Isa wrapper following a switch in the fund's administrators in September.
All Oeics have the capacity to levy a dilution charge, though Aviva terms the fee as an investor protection fee. It is issued when there is a large movement in or out of a fund, which would have a negative impact on existing investors.
The fee is only used in Oeics, which use a mid price unlike the dual price unit trusts, which can move between a bid and offer price if there are a large number of buyers or sellers in a fund. The levy is applied by reducing the money paid to the investors making a withdrawal or by deducting the fee from the money being invested.
Across the industry the charge is rarely enacted and Aviva said it would be unlikely to ever use this option on its Isas due to the typically small amounts invested under the wrapper. It said it extended the possibility of the dilution levy to its Isas as it already applies to its funds and under TCF rules was looking to ensure fairness between investors.
As is the case with Aviva Investors, dilution levies as a whole are only applied in exceptional circumstances. But there is little uniformity across the industry as to what is deemed exceptional while the amount charged varies between not only groups but the individual funds themselves.
Stuart Cazier, director of retail business development at Henderson New Star says the industry has been reluctant to ever issue the levy because few administration systems can handle it and there are now easier ways for an Oeic to compensate for big movements in and out of a fund.
See next week's Investment Week for a full analysis of dilution levies and spreads between creation and cancellation prices.
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