Personal Finance

Help With Mutual Fund Management Expense Ratios

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  • Feb 20th, 2015 12:18 am
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Jr. Member
Jul 16, 2013
118 posts
2 upvotes

Help With Mutual Fund Management Expense Ratios

I've done a Google search on management expense ratios and have a basic idea that you want a fund that has a low management expense ratio (mer).

But, could someone help me understand how they work. Let's say I have $2000 invested in a mutual fund. The price for 1 share is $1 and so I have 2000 shares. If the MER is 3%, what exactly does that mean?

Thank you
9 replies
Sr. Member
Oct 24, 2007
526 posts
241 upvotes
You would be paying $60 (3% of $2000) per year for those mutual funds indirectly (it comes right off the funds price). I.e. if it tracked the TSX Composite and it increased 10% in one year, you would see a return of 7% in your account.
Newbie
Dec 13, 2014
65 posts
6 upvotes
Edmonton, AB
I've also seen MERs stated as decimals, such as 0.06. Does this mean 6%, or .06%?
Deal Addict
Aug 4, 2006
3428 posts
2377 upvotes
Toronto
Anonymouse wrote: Don't be too afraid of MERs if you think you are getting value for money. Sentry has nosebleed MERs, but also an excellent track record. You can mitigate some of the high MER by getting an account at a place like Questrade, they refund some of it.
I'm curious how they would refund the MER when it is done by a fund accounting team and built into the NAV. I'm assuming that it's just a marketing gimmick?
Deal Fanatic
Jul 1, 2007
8569 posts
1763 upvotes
Kennyboy82 wrote: I've also seen MERs stated as decimals, such as 0.06. Does this mean 6%, or .06%?
.06%, an ETF I'm guessing.
Money Smarts Blog wrote: I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.
Jr. Member
Aug 23, 2008
171 posts
48 upvotes
Richmond Hill
Anonymouse wrote: The main way financial advisors get paid is that the mutual fund company kicks back part of the MER to the advisor. This is less well known than it should be, and it is why certain rules are changing to require your advisor to disclose the exact amount he is getting (which you are paying for.)

Say you have a discount broker account. You get no advice at all from your broker, because you have an execution-only account. If it is a bank broker, like TDDI, BMOIL or RBCDI, they simply pocket the money from the mutual fund companies. But some non-bank brokers like Questrade will give you that money.
Or buy F series funds with the MER Reduced due to no trailing commission
Jr. Member
Jul 16, 2013
118 posts
2 upvotes
dwalker19 wrote: You would be paying $60 (3% of $2000) per year for those mutual funds indirectly (it comes right off the funds price). I.e. if it tracked the TSX Composite and it increased 10% in one year, you would see a return of 7% in your account.
What happens in a negative year?

In the example that you gave above, you mentioned that the mutual fund increased 10%, the MER was 3% and so my net return was 7%.

Supposing that this same mutual fund decreased in value by 10%. Does the fund manager still charge another 3% MER so my loss is now 13%?
Deal Addict
Jul 15, 2009
3649 posts
3043 upvotes
CarmenD849 wrote: What happens in a negative year?

In the example that you gave above, you mentioned that the mutual fund increased 10%, the MER was 3% and so my net return was 7%.

Supposing that this same mutual fund decreased in value by 10%. Does the fund manager still charge another 3% MER so my loss is now 13%?
Yes.
Sr. Member
User avatar
Nov 3, 2008
684 posts
984 upvotes
National Capital Reg…
Yes, you lose more. Think of MER as negative rates, or decay. Simple example is with MER 3.65%. Every day fund manager will deduct 0.01% of fund value.
Sr. Member
Dec 19, 2010
671 posts
5147 upvotes
Vancouver
The MER is paying for the work people are doing managing your funds (aka their salaries + profit). A higher MER isn't bad if your fund managers are getting a higher return than others. But if they are getting the same or less returns than average you are really losing out. Considering your fund managers are most likely not consistently beating the average, look for low MER's.

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