This advantage for investors comes at a cost that’s measured by the management expense ratio (MER).
This ratio corresponds to the percentage of the fund used to manage it and is deducted from its assets. It varies according to the composition of the service fees for the fund.
The costs associated with holding the fund are expressed in the fund series. Some include management fees, while others charge separately for advice or a supplement for transactions or research. Fees and advisor compensation therefore depends on the series chosen by the investor.
The MER may differs by fund series. The ratio for Series A investment funds includes Fund manager fee + Trailer fee + Operating expenses + Taxes.
The MER Investment fund, F series, includes Fund manager fees + Operating costs + Taxes
The MER is an indicator of value
To know the actual return of a fund, you need to obtain the amount after the MER has been deducted from the performance data. The MER therefore has an impact on the fund's performance.
It’s worth noting that MER fees do not have to be paid separately by the investor; they’re deducted annually from the fund and reflected in the fund’s daily net asset value (NAV).
A detailed view of the fees included in the MER
Since there are different series of a fund, the MER vary depending on the fees as well as the amount and province of residence of the participants.
Investment management fees (Fund Manager Fee + Trailer Fee)
- Account for the largest portion of the MER. These are charged for investment, research, risk management, oversight and advice. They also include the salaries of the fund manager(s) or advisor and support staff.
Operating expenses
- Include routine expenses such as record keeping, securities custody services, as well as legal, accounting and auditing fees. They also include reporting, prospectus fees and administration fees of underlying funds.
Taxes
- Are payable to the federal and provincial governments. They’re applied to management and administration fees based on the fund holder’s place of residence. When there is a change on the proportion of clients in each province, the impact can be seen in the December MER.
It is a good idea when building a portfolio and depending on your return expectations, to check the MER and performance of funds before you buy them. And remember that the MER is charged whether the fund is performing well or not.
Also make comparisons with similar funds to get a better idea of the costs of your investment.
For more information about the costs of investing in mutual funds, please speak with your advisor.