Straight Talk About Fees and Penalties on Mutual Funds

Mr. Canadian Budget Binder received a question from one of his readers and asked me to craft a guest post to answer it. Question: Can you explain MER Fees and Penalties regarding investments?  What Does MER stand for? MER means Management Expense Ratio. There are a variety of expenses that make up MER. Some are: The fee paid to the fund managers for managing and investing your money Legal and audit fees of the fund Advisor sales compensation and trailer fees (ongoing service fees) Advertising expenses that promote the fund The cost of buying and selling the stocks the fund holds How does this impact my investing return? All published returns for a fund are net returns, after the MER has been deducted. In simple terms Fund A has a return of 10%. Its MER is 2.5%. The net return to the investor is 7.5% Fund B has the same 10% return but has an MER of 2%. The net is now 8%. The lesson we can learn from this is that lower MER’s usually mean more money for the investor all other things being equal. Some investors have focused exclusively on buying investments with the lowest cost. There are investments […]

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