The costs and fees that reduce your investment returns
When we think about investing, the focus is normally on the potential profits. That's normal because most people mainly care about whether an investment can grow their money…
But what we don't talk about as often are the costs… They come with every type of investment though, so it’s worth knowing what they are and how they’re applied.
Some costs are charged by platforms. Some are built into the way that markets work. And other costs come from habits (like trading frequently, switching strategies or making emotional decisions). They can all seem small at first glance, but then you end up realising that they can add up quickly and have a bigger impact on your returns (especially when you're just starting out with smaller amounts in MUR)…
Why returns don't tell the whole story
An investment that generates a return of 15% sounds obviously better than one that generates 10% right? But in reality, it might not always be the case because what really matters is how much of those returns you get to keep after all applicable costs have been paid…
Let's look at a simple example:
initial investment of Rs 50,000
a return of 15% (so, Rs 7,500 before costs)
A few costs will be applied to the Rs 7,500 before it reaches your pocket:
Rs 300 in currency conversion fees
Rs 200 in trading commissions
Rs 500 in fund management fees
Rs 250 in withdrawal fees
That’s Rs 1,250 of fees. Your net return is Rs 6,250 (instead of Rs 7,500)... That's almost 17% of your gains gone.
The investment still performed well, but the amount that you keep is lower than the return alone might suggest… That’s why experienced investors often pay close attention to costs. Even small expenses can reduce returns over time (especially when investing regularly or over many years). In Mauritius we’re used to dealing with taxes and other fees included in most price tags that we see. But global markets work differently. That’s why it’s worth knowing what costs can apply before putting your money down on an investment (or a trade).
Costs charged by your broker or investment platform
These are probably the easiest costs to spot because they're usually charged directly by the company that you're investing or trading with.
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A commission is a fee charged when you buy or sell an investment. Why? Because the platform that you’re using is providing a service. When you buy or sell, your order needs to be processed and sent to the market. The commission helps cover that service.
You can think of it a bit like paying a delivery fee when you order some food… You're not paying for the food itself. You're paying for someone to help get it from one place to another. The same concept applies to investment platforms’ commission fees.
Some brokers charge commissions on every transaction, while others offer commission-free trading on certain products. Investment platforms normally have multiple ways to generate revenue for themselves, so they don’t always feel the need to charge commission fees.
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Some platforms charge you when you move money into your account or take money back out. At first, that can feel a bit strange… It’s your money right? But moving money around isn't always free. Banks, payment processors and other financial institutions are often involved in the process… so there can easily be costs behind the scenes.
Some platforms absorb those costs themselves. Others pass part (or all) of the costs on to users through the deposit and withdrawal fees.
This is one of those fees that's easy to overlook… until you start moving money around regularly.
Costs that are part of the market itself
Unlike commissions or withdrawal fees, these aren't usually charged by your broker. They're simply part of how financial markets work… Good news is that once you understand them, they become much easier to spot.
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You’ll notice that when you’re interested in buying (or selling) an asset, there are 2 main ways of doing so:
a market order (buying/selling at the current market price)
a limit order (setting a future price where you would be interested in buying/selling)
Spreads enter the conversation when you choose to go with a market order… Why? Because there are actually 2 market prices at all times:
the highest price that someone is currently willing to pay (the bid)
the lowest price that someone is currently willing to sell for (the ask)
Let's imagine that an investment looks like this:
highest buyer: Rs 5,000
lowest seller: Rs 5,003
The difference between those two prices is Rs 3 and is called ‘the spread’. So, if you place a market order to buy (meaning that you’d like to immediately buy), you'll normally pay the lowest seller’s price (Rs 5,003 in our example). Now, if 5 seconds after buying, you change your mind and decide to sell right away, you’ll get paid the highest price that buyers are willing to pay for the asset (in this case Rs 5,000). So, you basically just lost Rs 3.
Notice that nothing happened to the investment… The price didn't suddenly drop… You simply came across the effect of the spread. For most popular investments, the spread is very small (almost negligible). But if you’re trading an asset that’s a quite niche, the spread can be much larger.
If you're curious, you can usually spot the spread in your platform's order book. You'll see the highest price that a buyer is willing to pay and the lowest price that a seller is willing to accept. As far as the cost though, you can think of it like this: if you buy and then immediately sell using market orders, you'll usually lose the value of the spread before taking any other fees into account.
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This happens when the price that you expect isn't exactly the price that you get (prices in financial markets can change in a fraction of a second)… If you've been investing or trading for a while, you've probably already seen moments where the market suddenly moves very quickly. On a price chart, these often appear as large candles because the price covered a lot of ground in a very short amount of time.
When the markets moves so fast like that, they can affect how your orders are executed. For example, imagine that you place a market order expecting to buy an investment at USD 100.00… Between the moment that you clicked ‘buy’ and the moment that your order is executed, the price might already have changed. As a result, your order (or part of it) might be filled at USD 100.02 or USD 100.03 instead. That small difference is called slippage.
Slippage is usually less noticeable on investments with high trading activity (like Bitcoin or shares of large companies like Apple) because there are usually many buyers and sellers available at all times… Less frequently traded investments though (like less popular cryptocurrencies or shares of smaller companies) normally experience more slippage.
Another interesting thing to note is that slippage can occasionally work in your favour and result in a slightly better price. For example, you might expect to buy at USD 100.00 but end up buying at USD 99.98 instead (you get a cheaper price).
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As a Mauritian, there's a good chance that many of the investments that you'll come across will be priced in USD. That means that, if your money is in MUR, it’ll normally need to be converted into USD before you can invest. And converting one currency into another isn't always free.
The investment platform that you’re using will probably charge you a small conversion fee for the service (or give you a slightly less favourable exchange rate than the one that you might see online elsewhere)… Either way, the end result is the same. You usually end up with slightly less than you would if you could exchange your money at the ‘ideal’ market rate with no costs involved.
Later on, when you sell your investment, you might want to bring the money back to your Mauritian bank account. If your investment is still in USD, it’ll need to be converted back into MUR before you receive it… Some platforms do this automatically, while others let you keep your money in USD until you decide to convert it yourself.
Keep in mind that each conversion might only cost a small amount, but these costs add up over time… especially if you're investing regularly or moving money between currencies.
Costs that depend on the investment that you choose
It’s important to note that not every investment comes with the same costs… Depending on what you're investing in, there might be additional expenses to keep in mind.
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Some investments (like mutual funds and a few ETFs) are managed for you. Instead of choosing every investment yourself, a team is usually responsible for researching, buying, selling and maintaining the fund.
That work isn't free though. The management fee is simply how the fund pays the people (and systems) that keep everything running. You can think of it like hiring somebody to manage a property for you… You could do everything yourself, but if someone else is handling the work… they'll usually expect to be paid for it.
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You'll likely come across funding fees if you trade perpetual futures. Without getting too technical… futures are contracts that allow you to ‘bet’ on whether the price of an asset will go up or down without actually owning it (we explain this concept a bit more over here).
But, to help keep the futures price close to the real market price of the asset, traders need to exchange small payments between each other (this happens periodically… commonly every 1h, 4h, or 8h). That’s what we call funding fees… Sometimes you'll pay the funding fee. Other times you'll receive it… It all depends on what's happening in the market at the time.
If you're a long-term investor that buys and holds stocks, ETFs or cryptocurrencies, this isn’t something that you'll need to worry about (funding fees mainly affect people who trade perpetual futures).
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Taxes work differently from the other costs that we've covered because they depend on where you live, where you're investing, and the type of investment that you own… For example, some countries tax dividends, others tax capital gains… and some tax both. The rules can vary from one country to another.
As Mauritians, we can invest in companies and funds from all over the world using online platforms. When that happens, some tax might be applied in the country where the investment is based… So for example, if a US company pays a dividend, part of that payment can be deducted as tax before it reaches your account. This means that when you receive a dividend, the amount that you see might already have had tax taken off in the background. Most people don’t notice this directly… they simply see the final amount that arrives in their account.
The good news is that in Mauritius, individual investors aren’t normally taxed on dividends or capital gains. So once your investment returns reach your Mauritian account, there are generally no additional deductions locally.
That said, it’s important to understand the tax rules that apply to you before you invest (it’ll save you from potential unpleasant surprises later on)… We cover more details about taxes on investments here.
The most expensive cost isn't always a fee
Some of the biggest costs can come from the decisions that we make ourselves and they can have a real impact on long-term returns.
For example:
buying and selling too often because you feel like you need to ‘do something’
exiting a trade early because of fear, even when the original plan hasn’t been invalidated
holding on too long (despite invalidation), instead of taking a relatively smaller loss
increasing position size after losses to try recover quickly
entering trades based on emotion or excitement rather than a clear plan
Individually, each of the above might not feel like a big deal… But over time, they can add up more than any commission, spread, or fee charged by a platform. They even have the potential to wipe out your capital.
Pou résumé
A return shows how much your investment has grown, but it doesn’t always show how much you actually keep… Costs like commissions, currency conversion, and investment fees can reduce the final amount that reaches your account.
The goal isn’t to calculate everything meticulously. It’s just wise to get into the habit of asking: “How much of this return will I actually keep?”