From the July 2010 issue of Boomer Market Advisor • Subscribe!

Fund expense ratios up in 2009, total fees and expenses flat

The average expense ratios of stock funds and bond funds rose slightly in 2009, but the total fees and expenses paid by investors remain largely unchanged on an asset-weighted basis, according to research published recently by the Investment Company Institute.

Rising expense ratios of stock funds were offset by a decline in sales charges, or loads, paid by investors. In 2009, the average maximum sales load on stock funds offered to investors was 5.3 percent. However, the average sales load investors actually paid was only 1 percent, as a result of fee discounts and fee waivers on many funds, such as those purchased through 401(k) plans.

Other key findings of the study, Trends in the Fees and Expenses of Mutual Funds, 2009, include:

  • Fees and expenses of money market funds fell an average of 4 basis points in 2009, to 34 basis points. Reasons for the decline include an increase in the market share of institutional money market funds and a move by retail and institutional investors toward lower-cost funds.
  • Average expense ratios of funds of funds declined for the fourth consecutive year, falling 1 basis point to 91 basis points.
  • While the rise in the average expense ratio of stock funds stemmed from a drop in the assets of stock funds, the rise in the average expense ratio of bond funds, by contrast, was attributable primarily to actions taken by some tax-exempt bond funds to avoid having to sell securities at unfavorable prices during the financial crisis.
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