If you regularly read financial magazines and advice columns in your newspaper, you could not avoid seeing pieces about mutual fund fees. Experts give their opinions on which funds charge too much, which ones charge a reasonable fee, and what you should look for when buying a mutual fund. And I’m assuming you thought about their advice before investing in your fund. But have you looked into whether or not your fund’s fees are going up or down each year? You might be surprised at the answer.
During the first few months of each year, you receive your fund’s previous year’s annual report. With a little digging you can use this report to check how good your fund’s managers are controlling the expenses when compared to the growth of the fund.
Without worrying about how your fund’s expenses stack up against those of other mutual funds, take a look at the fund’s history. How do the current expenses look in contrast to those of past years? The numbers you need are generally listed in a table, called Financial Highlights, which can be in the front or back of the fund’s report. You want to look for “ratio of expenses to average net assets” for a comparison of the most recent expense ratio with that of the past years.
The expense ratio is based on daily assets under management. Is it dropping, as you would expect, when assets under management have increased? Or is the ratio rising while the amount of assets hasn’t changed? An increase in expenses might be justified, though. For instance, a global fund may expand into a new market that could require up-front costs. In such a case, it should be brought out in the report.
For help in learning if your fund’s managers care about expenses as much as you do, return the enclosed coupon for more information.