Are you paying unnecessary mutual fund fees?
Did you know that mutual fundholders may be able to lower their fees by switching to a different series? That’s because the same mutual fund can be offered in multiple series or classes, which charge different Management Expense Ratio (MER) fees.
Consider this scenario: Say you invested $10,000 in a mutual fund with an MER of 2.35 per cent and an annual return of 3 per cent. By the end of the year, you would see a gain of 0.65 per cent after the fund deducted the MER. But if the same mutual fund offered a lower-cost series with an MER of 1.35 per cent, you would see a gain of 1.65 per cent. In that case, investing in the cheaper series fund would increase your total gain by $309 over a three-year timeline.
|Timeline||Market Value||A-series MER||D-series MER|
The valuations in this table are for illustrative purposes only. They assume a 3% annual return, using an MER of 2.35% for A-series and 1.35% for D-series. Actual valuations vary by fund.
What are MER fees?
MER fees refer to the annual costs of owning the fund, and they’re expressed in percentage terms. They represent the total of the management fee, operating expenses and taxes charged to a fund. The management fee covers money paid to the fund’s manager and commissions paid to an advisor.
The returns you earn as a fundholder are reported after those charges have been deducted from the fund’s average net assets in a given year. This means that the MER directly impacts the fund’s rate of return.
Different mutual fund series are generally indicated with a letter, which tells you about the fund’s fee structure and other features. As a self-directed investor, it’s important to be familiar with the options available to you to ensure you’re not paying unnecessary fees. The most common types of series offered are:
- A-series: Funds offered by full-service advisors but available to online brokerages as well. The fund’s MER includes a fee paid to the dealer for providing advice to the investor.
- D-series: Funds available to do-it-yourself investors through online brokerages. These have lower MERs because they don’t include an advice fee. Not all fund families offer D-series, so it’s important to check which series are available before investing.
- F-series: Funds available to investors who have a fee-based arrangement with a full-service advisor, whereby they pay the advisor directly for their ongoing professional advice. F-series funds have lower MERs because they do not include a separate fee for advice. Qtrade Investor clients have exclusive access to F-series funds from NEI Investments as well as from Vanguard Canada, regardless of whether you work with an advisor.
It’s generally best for self-directed investors to choose lower-cost series funds. To help you invest with cost-effective options, Qtrade Investor has removed direct access to purchase higher-cost funds from our online trading platform whenever there is an equivalent lower-cost series option available.
Mutual funds can be a good investment choice for investors who wish to spend less time researching and analyzing market data. They can also be an easy and cost-effective way to diversify your portfolio. But always remember to check and compare the available series and their associated MERs before you buy.
Important information about your fund’s performance, risks and costs associated with your specific series can be found in the Fund Facts document. Take the time to review the document and make sure you’re choosing a lower-cost mutual fund. Check your fees now.