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What is a dilution levy?

Unusually high levels of buying and selling may increase the fund’s dealing costs and affect the value of its assets. In this situation, to protect the interests of existing investors the fund manager may apply a ‘dilution levy’ which increases the cost of buying and selling. This is typically between 0.5% and 2% of the trade, and the proceeds are held within the fund.

Only a small number of funds have this charge levied; some funds only apply a dilution levy when there has been a particularly large inflow or outflow within the fund. The majority of funds allow for any charges to be absorbed by their own ongoing charge.

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