How Low Can You Go?

May 1999
Journal of Financial Planning;May99, Vol. 12 Issue 5, p21
Academic Journal
This article presents the results of a study conducted by the Investment Company Institute (ICI) about mutual fund fees in the U.S. Stung by criticism that mutual fund fees have stubbornly refused to fall despite economies of scale from the massive influx of dollars into funds in recent years, the mutual fund industry through the ICI conducted its own study of fees. Not surprisingly, it has found that fees for equity and bond funds have declined significantly. The ICI looked at what it calls total shareholder cost: not just fund operating expenses and 12b-1 fees, but also sales load, the latter being what's often left out of cost discussions. It found that total shareholder costs for equity funds have declined more than one-third in the last 18 years, from 2.25 percent for new investments in 1980 to 1.49 percent in 1997. The ICI attributed most of the decline to lower distribution costs. Operating expenses for the 100 largest equity funds over that time period showed significant decreases in operating expense ratios, reflecting economies of scale. Total shareholder costs for bond funds declined 25 percent during the same period, from 1.54 percent in 1980 to 1.16 in 1997. Lower costs were attributable to both lower distribution costs and lower operating expenses. Costs for money market funds declined 15 percent, from 0.54 percent in 1980 to 0.46 percent in 1997.


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