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Understing mutual funds fees : the management expense ratio (MER)

16 November 2021 by National Bank Investments
Work advisor checking expenses

Portfolio managers add value to investments by measuring the risk involved and balancing the asset mix based on market fluctuations during the investment period. 

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. 

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The MER may differs by fund series. The ratio for Series A investment funds includes Fund manager fee + Trailer fee + Operating expenses + Taxes.

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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 can vary depending on the fees for each.

Investment management fees 

  • 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 costs

  • Include routine expenses such as record keeping, securities custody services, as well as legal, accounting and auditing fees. They also include reporting and prospectus fees. 

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.

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.

Legal notes

The information and opinions herein are provided for information purposes only and are subject to change. The opinions are not intended as investment advice nor are they provided to promote any particular investments and should in no way form the basis for your investment decisions. National Bank Investments Inc. has taken
the necessary measures to ensure the quality and accuracy of the information contained herein at the time of publication. It does not, however, guarantee
that the information is accurate or complete, and this communication creates no legal or contractual obligation on the part of National Bank Investments Inc.

© 2021 National Bank Investments Inc. All rights reserved. Any reproduction, in whole or in part, is strictly prohibited without the prior written consent of National Bank
Investments Inc.

® NATIONAL BANK INVESTMENTS is a registered trademark of National Bank of Canada, used under license by National Bank Investments Inc.

National Bank Investments is a member of Canada’s Responsible Investment Association and a signatory of the United Nations-supported Principles for Responsible
Investment.

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