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MUTUAL FUND MERS
5/27/2017 9:45:05 AM
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Gordon Pape writes on common-sense wealth-building strategies.



By Gordon Pape  | Friday, January 13, 2017


BUILDING WEALTH WITH GORDON PAPE
 

Q – I had several questions regarding mutual funds:

1. Are MERs (management expense ratios) paid yearly?

2. Is 1.90% reasonable for an MER?

3. Most funds offer 4%-6%. The rate of inflation is 2% and 1.9% MER on top that leaves quite a small gain.

4. Are there any funds that come with lower fees? – Bill K.

A – Here are your answers:

1. Management expenses (which are typically expressed as a percentage) are deducted from assets of the fund at the rate of 1/12 of the annual amount per month.

2. MERs vary significantly with the type of fund. A 1.9% MER would be on the low side for an equity fund but high for a bond fund.

3. You say most funds “offer” 4%-6%. That’s not the case. They “offer” nothing. I believe you are referring to an annual rate of return. The average Canadian equity fund posted an average annual compounded rate of return of 8% in the five years to Nov. 30, 2016. The average U.S. equity fund posted an annualized 16.3% in the same period.

4. The published returns of mutual funds are net of fees. The performance figure is your actual return after fund charges and expenses.

5. The rate of inflation in Canada, as measured by the broad total consumer price index is 1.2% as of the latest reading in November, not 2%. The Bank of Canada’s target rate is 2%.

6. There are many fund companies that offer lower fees. They include, for example, Steadyhand, Mawer, Beutel Goodman, and Leith Wheeler, among others. To find a fund’s MER, use the Fund Library fund browser to search for a fund, and click on the fund name to see detailed information in the FundCard. – Gordon Pape

Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investornewsletter, which are available through the Building Wealth website.

Follow Gordon Pape on Twitter at https://twitter.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.

Notes and Disclaimer

© 2017 by The Fund Library. All rights reserved.

The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.

 
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