If you are a brand-new investor, you might have heard about MER. Management Expense Ratio is a fee that the mutual funds charge you for running and managing your investment fund.
If you want to invest your money, you need to know that a good chunk of the investment returns an investment management bank channel towards fees. An investor should decode the charges and the impact on the investment returns.
Not sure what MER fees cover or how investment agencies calculate MER?
Understand what is management expense ratio (MER) is?
The management expense ratio (MER) is a percentage used to measure the costs of owning and running a mutual fund. We express MER as a percentage of your average portfolio’s value. It depends on your account structure.
MER = operational expenses and management costs / Total portfolio value
Typically, MERs in Canada are below 3%.
Management Expense Ratio (MER) is a disclosed measure that lets investors and advisors know how much it costs the provider to run the fund. As an investor, you can compare the MER of two or more investment funds before purchasing to find out which one has a cost that will be lower for the same level of risk.
The following are the total fees included in MER:
- Operating expenses include administrative fees for record-keeping, auditing, fund valuation, etc.
- Sales tax includes tax payment on management and administration of funds with the blend of current centralized and provincial tax rates.
- Management expenses include fees of portfolio fund managers for performing investing tasks.
MER does not include
Here is a list of the most common fees NOT included in the Management Expense Ratio (MER):
- Trade commissions to the broker
- Foreign conversion fees if you have invested in foreign currency
- You may owe taxes on the capital gains and dividends
How to reduce the investment fees?
Industry experts have made changes and have implemented measures concerning reducing investment fees without affecting the rate of return. Some recommendations are:
- Investing your money in exchange-traded funds (ETFs).
- Investing your money in mutual funds.
- You can create a portfolio of individual securities and bonds.
- Find out the fees of your manager and pay it yourself.
The Management Expense Ratio (MER) of an investment fund is the current fee that the fund costs for overseeing your investments. It is among the most critical issues you need to examine when choosing which mutual fund is right for you.
If you want to know more about investing in mutual funds, read ‘How Many Types of Mutual Funds Are There?’.