Investment funds, including mutual funds, charge a fee for managing the fund. The fees are called the management expense ratio (MER).
~may include an ongoing commission paid to advisors who sell the fund (also known as a trailer fee)
~is paid regardless of whether the fund makes money
~is deducted before calculating the investor’s return
~is set at a percentage of the fund’s value
~The percentage varies depending on the fund. This can be from less than 1% to over 3%.
For example, you may have a fund with an annual return of 5%. If the fund’s MER was 3%, your net annual return would be 2%
|Total investment ($1,000 a year over 20 years)||$20,000||$20,000||$20,000|
|Annual return (before MER is deducted)||5.0%||5.0%||5.0%|
|Net annual return (after MER)||2.0%||3.5%||4.5%|
|Fund value after 20 years2||$24,783||$29,269||$32,783|
|Difference from fund A||n/a||+$4,486||+$8,000|