Mutual fund costs are typically a source of confusion and contention for many investors. Recently, for example, I was asked whether fund management expense ratios (MERs) are paid yearly, whether 1.90 per cent is a reasonable MER, and whether there are lower MERs available.
Management expenses (which are typically expressed as a percentage) are deducted from assets of the fund at the rate of 1/12 of the annual amount per month.
MERs vary significantly with the type of fund. A 1.9 per cent MER would be on the low side for an equity fund but high for a bond fund.
The average Canadian equity fund posted an average annual compounded rate of return of eight per cent in the five years to Nov. 30, 2016. The average U.S. equity fund posted an annualized 16.3 per cent in the same period. The published returns of mutual funds are net of fees. The performance figure is your actual return after fund charges and expenses.
The rate of inflation in Canada, as measured by the broad total consumer price index is 1.2 per cent as of the latest reading in November, not two per cent. The Bank of Canada’s target rate is wo per cent. So that still leaves a comfortable rate of return after inflation, on average.
There are many fund companies that offer lower fees. They include, for example, Steadyhand, Mawer, Beutel Goodman, and Leith Wheeler, among others. To find a fund’s MER, check with your advisor, search on a reliable fund database like the one found in Fund Library (www.fundlibrary.com), or go directly to the fund company’s website.
Courtesy Fundata Canada Inc. © 2017.Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder andThe Income Investor newsletters, available through his BuildingWealth.ca website. This article is not intended as personalized advice.
