Fund management fees eat away an average of 43 per cent of investors' returns over a ten-year period, according to an investigation by Money Observer into the true cost of investing. 
Equity funds were the worst for eroding gains, with just investors receiving an average of just 57 per cent of returns after charges.
 
'Management fees might not make much of a difference over a year or two. But over a decade, it adds up to around half the underlying performance of the average based equity fund,' Money Observer found.
 
Equity fund managers maintain that the high charges are justified because they fund the research that allows them to root out the best undervalued companies to add growth to their portfolios.
 
However, the research also found that the lower the average performance of the equity funds, the greater the chunk of fees deducted by management.
 
On a group level BlackRock, which had 11 qualifying equity funds over the period, came top of the pile. The average total return before expenses were deducted was 144.2 per cent, and investors got back an average of 73.7 per cent of those gains.
 
Henderson, which had 18 equity funds, was at the other end of the scale. Its pre-charges performance over the decade averaged 18.8 per cent and investors got back just 4.8 per cent of that gain, or 0.9 per cent.
  
While equity funds can prove costly on the fees front, bond funds were most friendly to investors' pockets, returning 75 per cent of gains after fees were deducted.
 
These traditionally have lower charges than equity funds because fund managers have had less scope to produce growth.
 
Mixed asset and property funds paid back 66 per cent and 72 per cent of returns respectively.
 
Richard Saunders, chief executive of the Investment Management Association, told Money Observer: 'The proportion absorbed in expenses is heavily influenced by performance and this, in turn, is influenced by market movements. The past 10 years have been tough for managers as equity markets have moved sideways.
   
'The good thing about investment funds is that they are transparent. Charges are fixed, so investors know where they stand, which is not the case with all investment products,' he added.
    
Andrew Pitts, editor of Money Observer magazine, says: 'Our investigation reveals that a truly shocking amount of money has been taken out of open-ended funds by their managers. What's even worse is that these figures take no account of the private investor's buying and selling costs, which would further reduce any gains they have made, or magnified their losses. We are calling on fund management groups to make their charges far more transparent and, as UK investors pay the highest charges in the world for active fund management, they must also be reduced.'
  
Read the great fund fee take-away by clicking on the PDF below to find out just where your money goes and who are the worst culprits.

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