The IMA sasy that these costs are incurred as a result of the manager making investment decisions in accordance with a fund's investment objectives and strategy.  While some commentators claim they are not disclosed to investors, these costs are readily available in fund literature and investment fund regulation requires their disclosure, says the IMA.*

Using fund literature, the IMA analysed the fund accounts of a number of large UK All Companies funds in 2009.  For the actively managed funds, the transaction costs were 0.31 per cent of average assets, of which two-thirds was accounted for by stamp duty. In tracker funds, transaction costs totalled 0.06 per cent.

These transaction costs are "very small" - according to the IMA - for index tracking funds and are on average more than offset by investment returns in the case of active funds. This is confirmed by IMA's latest analysis, which compares the average net return of 129 active and passive funds in the UK All Companies sector (funds which invest at least 80 per cent of their assets in UK equities which have a primary objective of achieving capital growth), with that of two benchmark indices, the FTSE 100 and the FTSE All Share.

The IMA compared the annual difference over the ten year period to December 2011 between the return on the benchmark and what the investor would have received after charges. It found that:

• For the tracker funds, the Total Expense Ratio (overall charges) was broadly the same on average as the difference between the benchmark return and the fund return.
• For the actively managed funds, the difference between the net fund return and the benchmark return was on average significantly less than the TER, confirming that the transaction costs were more than covered by the investment returns from active management.

While transaction costs can only be implied from this data, there is nothing to suggest that they are significantly hampering fund performance.

Richard Saunders, chief executive of the IMA, said: "People need to save for the long term.  They do not need to be scared off by false stories that if they do so they will be ripped off by the industry. The IMA's figures demonstrate clearly that so-called hidden charges which cost investors billions a year are a complete myth.  If the accusation were true, it would show up in the net returns achieved by investors.  But there is no sign of it.  The accusations of hidden charges do not stand up."

* It is a regulatory requirement to disclose trading costs in the fund's report and accounts. When a fund manager buys and sells shares he incurs trading costs. A fund manager does not know in advance what trades he will undertake so he cannot tell what trading costs will be incurred.