ICI Research Perspective: Trends in the Expenses and Fees of Mutual Funds, 2012

Abstract

This study examines recent trends in the expenses and fees of mutual funds. Expense ratios of equity, bond, and hybrid funds declined in 2012 owing to reductions in the expense ratios of individual funds, an increase in the demand for index funds, and a continuing shift by investors in both actively managed and index funds toward lower-cost funds. Expense ratios of money market funds declined sharply as assets migrated toward lower-cost funds and funds continued to waive large portions of expenses. Waiving expenses helps offset the effects of the current low interest rate environment on a fund’s net yield. Expense ratios of target date mutual funds were 58 basis points in 2012, down from 67 basis points in 2008. Two factors likely played a role. First, assets in target date mutual funds have tripled since 2008, lowering fund expense ratios through economies of scale. Second, a greater concentration of assets in lower-cost target date mutual funds pushed down the average expenses of these funds.