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Know your Financial Lingo- What's a MER?

A Management Expense Ratio or MER represents the costs associated with owning an investment fund like a mutual fund, that are deducted annually from the fund.

These expenses are the administrative costs the fund manager incurs to run the fund. This includes management fees such as salaries and benefits of the staff, operating expenses such as legal, audit, and accounting, and the taxes the fund must pay.

Comic, "MERRRRR" is a happy sound you hear from mutual fund managers

Depending on the type of mutual fund, sometimes broker commissions can also be included in the MER calculation.  

A quick example, if an investor holds assets of $10,000, and the fund incurs annual costs of $120, then the MER is expressed as 1.20%.  The fund performance for the investor is reported after the MER has been subtracted from the fund’s annual return.

It is interesting to note that Canada has one of the highest average management expense ratios in developed markets at 2.14% according to research by the evidence-based investor.  Higher MERs typically charged by mutual funds are one of the reasons why lower-fee Index ETFs (Exchange Traded Funds) have become a popular investment alternative in recent years.

WealthyPlanet's "Wealthopedia"  series demystifies financial terms and financial industry lingo. 

 

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