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How do you calculate the Management Expense Ratio (MER) on a mutual fund?

Assuming that the fund you own is no-load, that is, you didn’t pay any kind of sales commission to purchase it, the MER (management expense ratio) of a fund will account for most of the cost of ownership. (Other fees charged by mutual funds include sales commissions (load funds), trailer fees, switching fees and set up fees.)

MERs vary from fund to fund, but here’s a simple example of how the MER is calculated: Aggregate Fees ad Expenses Payable During the Year/Average Net Asset Value for the Year x 100 Expenses are charged directly to the fund, and so affect your total return. For example, if a fund charges a MER of 2.2 per cent and it reports a compound annual return of 7.8 %, then the fund’s gross return is about 10 per cent. An easy way to figure out what it costs to own a mutual fund over the long term is to try the calculator available at www.seec.gov/mfcc/mfcc-int.html. It was developed by the U.S. Securities and Exchange Commission, but is generally relevant for Canadian funds. You can also find out more about MERs by visiting the Investment Funds Institute of Canada web site at www.ific.ca. Check their “fact sheet” on fees, in the investor education section of the site.