Fee & Tax
Fees and taxes represent costs that reduce your portfolio value. They are separate transaction types to distinguish between broker-charged costs and government-imposed obligations.
🔑 Key Properties
| Property | Fee | Tax |
|---|---|---|
| Code | FEE |
TAX |
| Cash effect | ⬇️ Decreases balance | ⬇️ Decreases balance |
| Asset effect | — | — |
| Examples | Commission, custody fee, spread | Capital gains tax, withholding tax, stamp duty |
📊 Fee Types
| Fee Type | Description | Frequency |
|---|---|---|
| Trading commission | Per-trade cost charged by broker | Per transaction |
| Custody fee | Account maintenance charge | Monthly/Quarterly |
| Spread | Difference between bid and ask price | Implicit per trade |
| FX conversion fee | Cost of currency exchange | Per conversion |
| Management fee (TER) | ETF/Fund annual expense | Deducted from NAV |
💰 Tax Types
| Tax Type | Description | When Charged |
|---|---|---|
| Capital gains tax | Tax on realized profit from selling | On sale |
| Withholding tax | Tax deducted at source (dividends, interest) | On payment |
| Stamp duty | Transaction tax (e.g., UK stamp duty) | On purchase |
| Financial transaction tax | Tax on trades (e.g., Italian Tobin tax) | On trade |
📐 Impact on Returns
Fees and taxes directly reduce your net return:
\[
R_{net} = R_{gross} - \frac{\text{Fees} + \text{Taxes}}{V_{start}}
\]
Over long periods, even small recurring fees compound significantly:
\[
V_{final} = V_0 \times (1 + r - f)^n
\]
where \(f\) is the annual fee rate. A 1% annual fee on a 7% return over 30 years reduces the final value by 26%.
🔗 Related
- 💰 Taxation — Comprehensive tax theory
- 🛒 Buy & Sell — Fees charged on transactions