Money: If you don't like the F word, take action

Buy any investment and the fund company will shower you with leaflets, application forms and other bumf. Lost in all the paper there will be a couple of paragraphs setting out the charges you have to pay.

Plan carefully and they can be reduced or avoided altogether. Here's how to do it.

Unit trusts

The majority of people investing in stocks and shares under their individual savings account (ISA) allowance will be buying unit trusts.

Costs can be high. Typical charges include 5 per cent for Johnson Fry UK Growth and 4 per cent for Newton Income. These charges cover commission, administration, regulation, compliance and advertising costs. But you can slash them if you buy without advice through a discount execution-only broker.

For example, Chartwell Investment Management offers a 4 per cent discount on the Johnson Fry, Henderson, Exeter and Aberdeen unit trusts, and a 3 per cent discount on Newton. Similar savings are available from around a dozen discount houses.

But remember that saving money on charges could backfire if you choose an unsuitable investment. You can still negotiate discounts if you buy through a financial adviser. The worst thing you can do is buy direct from the investment company. This way you get no advice but pay the full charges.

With-profits bonds

These are the real villains of investment charges. Martyn Page, investment researcher at financial advice network Countrywide, says initial fees of 5 per cent are only the beginning. The Pearl Bonus Bond and Eagle Star With Profits Bond both charge 6.25 per cent and the MGM Capital Investment Bond 5.6 per cent.

The provider should supply you with "reduction in yield" figures, which will show how much of your money these charges will swallow. It might put you off with-profits bonds altogether. Again, you can buy from a discount broker.

Pensions

For years personal pension providers have piled the charges on, but the party may be coming to an end. The stakeholder pension, to be launched in 2001, will cut annual charges on approved pensions to just 1 per cent, with no other fees.

Pensions may have an initial charge, an annual management charge, a policy fee on each contribution, and also a bid/offer spread, which is the difference between the buying and selling price of units in the fund.

Policy fees can really add up, says Adam Norris, managing director of Hargreaves Lansdown Pensions Direct. "They can rise to pounds 3.50 a month, which hits those paying in smaller sums. Pay in pounds 1,000 over a year and this will cost you pounds 42, equivalent to a 4.2 per cent annual charge. Add a 1 per cent annual management charge and a 5 per cent bid/offer spread and your pension will have to rise by more than 10 per cent annually just to break even."

Many providers charge a 5 per cent bid/offer spread. Those that don't include Barclays Life, Direct Line Life, Eagle Star and Eagle Star Direct, Equitable Life, Hargreaves Lansdown, Marks & Spencer, Professional Life, Tesco Personal Finance Life, Virgin Direct, Winterthur Life and Woolwich Life.

Read the figures carefully. Marks & Spencer has a nil bid/offer spread but initial charges of between 3 and 5 per cent; most providers charge from zero to 1 per cent.

The allocation rate shows how much of your money actually goes into the fund. You should be looking for 100 per cent in the first year. Get a quote to see how charges will affect performance.

Financial advisers

Traditionally, advisers kept commission paid by the product provider, but growing numbers now charge their customers a fee. Commission levels depend on the investment and the provider, but are typically 3 per cent for unit trusts and 3 to 5 per cent for pensions. Advisers are obliged to reveal the commission they earn, so don't be shy, ask, and if you feel this is too high negotiate a discount.

Charges from fee-based advisers vary greatly. Philippa Gee, a fee-based independent adviser in Shrewsbury, says hourly rates range from pounds 30 to pounds 330. Whatever you do, don't pay advisers a fee and let them keep the commission as well.

With all investments, while charges are important, they are not the only thing to consider. Higher charges can be justified when above-average performance is delivered. The worst combination is high charges and poor performance.

n Chartwell, 01225 446556; Financial Discounts Direct, 0500 498477; Hargreaves Lansdown, 0117 900 9000; Philippa Gee, 01743 236982.