Mutual Funds: Precise Costs Please

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How much does that mutual fund really cost you?

Q – I can’t wrest out of Scotiabank the exact amount it’s charging me for managing my Scotia Canadian Dividend Fund. They tell me the MER is 1.71% but can’t tell me what those charges add up to at the end of the year. I’m a financial neophyte but surely this isn’t an industry norm? – John M.,

A – The management expense ratio (MER) is in fact the industry standard for measuring fund costs. It represents all the costs and fees associated with the fund, expressed as a percentage of the fund’s total assets.

In the past, the fund industry has never presented these costs to individual investors in actual dollar terms. However, new regulations will require advisers to do this at year-end in the future.

If you want to do your own calculation, multiply the amount of money you have in the fund by the MER. If we use 1.71% and you have $10,000 invested, you’re paying the fund company $171 annually. Another way to look at it is to subtract 1.71% from the fund’s total return to find the net return to you. If the fund’s gross profit is 10% in a given year, your personal gain would be 8.29%. That’s the number the fund company is required to use when reporting results. – G.P.


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