Investment costs: how fees and commissions eat returns

Returns are uncertain. Costs are not. Every soʻm you pay in commissions, spreads and fees is a soʻm that is no longer working for you, and unlike market returns, it is lost for certain. Because costs are small on each trade, they are easy to ignore. Over many trades and many years they add up to a surprising amount. This guide lists the costs a private investor in Uzbekistan meets, shows how they compound, and gives practical ways to keep them down.

The visible costs

Broker commission

When you buy or sell shares or bonds on the Tashkent Stock Exchange (UZSE), you do it through a licensed broker, and the broker charges a commission on each trade. It is usually a percentage of the trade value, and many tariffs add a minimum charge per order. Tariffs differ between brokers and change over time, so read your own broker's current price list rather than relying on figures quoted elsewhere.

The minimum charge matters most for small orders. An illustrative example with invented numbers: if a tariff charged 0.5% with a minimum of 10,000 soʻm per order, then:

• An order of 5,000,000 soʻm would cost 25,000 soʻm, which is 0.5%.
• An order of 500,000 soʻm would cost the minimum 10,000 soʻm, which is 2%.

The same tariff costs four times as much, as a share of the trade, on the smaller order. Buying once a quarter with a larger amount instead of every week with small amounts can cut this cost sharply.

Exchange, depository and account fees

Trades also pass through the exchange and the Central Securities Depository, where your securities are recorded. Depending on the broker, some of these charges are included in the commission and some are passed on separately. There may also be fees for keeping a brokerage account, for transfers or for withdrawing money. Ask for the full list before you open a brokerage account, and compare the total, not only the headline commission.

The hidden cost: the spread

The spread is the gap between the best price at which someone will sell to you (the ask) and the best price at which someone will buy from you (the bid). If you buy with a market order and then sell straight away, you lose the spread even if the price does not move.

On heavily traded shares the spread is small. On many UZSE shares, where few orders sit in the book, it can be several percent. An illustrative example: if the best bid is 9,700 soʻm and the best ask is 10,000 soʻm, the spread is 300 soʻm, or 3% of the ask. A round trip in and out costs about 3% on top of commissions.

Using limit orders instead of market orders, and checking the order book before trading, helps you avoid paying more of the spread than necessary.

Fund fees

If you invest through a fund, the manager charges a yearly fee, usually a percentage of the money it manages, taken out of the fund's assets. You do not see a bill, but the fund's return is lower by that amount every year. Some funds also charge entry or exit fees. When comparing funds, look at the total yearly cost and the fees for buying and selling units, not just past returns.

Taxes as a cost

Taxes reduce what you keep. As of September 2026, under the Tax Code:

• Dividends and interest received by resident individuals are taxed at 5% (Article 381), usually withheld before you receive the money. This includes coupons on corporate bonds.
• Interest on bank deposits and income on Uzbek government securities are exempt for individuals (Article 378, items 12 and 13).
• Income from selling issue-grade securities on a stock exchange is exempt for individuals (Article 378, item 7).

Plan with after-tax figures. Tax on dividends and bond coupons goes through the details.

How small costs compound

Costs repeat, and they come out of money that would otherwise grow. An illustrative example with round numbers: you invest 10,000,000 soʻm for 20 years, and the investment earns 10% a year before costs.

• With no costs: about 67,275,000 soʻm.
• With 0.2% a year in costs (a net 9.8%): about 64,870,000 soʻm.
• With 1% a year (a net 9%): about 56,044,000 soʻm.
• With 2% a year (a net 8%): about 46,610,000 soʻm.

A cost of 2% a year looks small in any single year, yet over 20 years it takes away about 20,665,000 soʻm, close to a third of the final result. The effect is the same arithmetic as compound interest, working against you.

Trading too often

The most controllable cost is how often you trade. Each round trip pays two commissions and the spread. An investor who trades every week can easily lose several percent a year to costs, which is a high hurdle before earning anything. Frequent trading also invites the behavioural mistakes described in behavioural biases.

Practical ways to keep costs down

1. Read the full tariff. Commission rate, minimum per order, depository and account fees, and withdrawal charges.
2. Size your orders. If there is a minimum charge, make each order large enough that the minimum is a small share of it.
3. Trade less. Decide on a schedule, such as monthly or quarterly purchases, and avoid reacting to daily moves.
4. Use limit orders. Name the price you are willing to pay, especially on thinly traded shares.
5. Mind the spread. Before buying, check the gap between bid and ask; a wide gap is a cost you pay on the way in and again on the way out.
6. Compare fund costs. A lower yearly fee is a guaranteed advantage; past returns are not.
7. Keep records. Record every fee you pay, so you know your true return.

A free Finmind account includes the portfolio, where you can record holdings and follow their value, and the order book, which shows the best bids and offers during the session so you can see the spread before you place an order.

This article is for education only and is not investment advice. Investing in securities involves risk, including the loss of money you invest.