Most mutual fund companies continued to charge investors more in 1996 for the privilege of investing with them.
But many of the nation's largest stock funds were able to lower the expenses they charged shareholders, thanks to the buoyant stock market and the surge of new money flowing in, which let them benefit from economies of scale.
A recent analysis of mutual fund expenses by Lipper Analytical Services Inc., the New York mutual fund tracking firm, showed that half of general equity mutual funds had expenses of 1.283% of average net assets for the year ended Aug. 31, up from 1.252% the preceding year and 1.205% in 1994. Lipper's analysis also shows balanced/mixed equity funds tracked last year imposed a 1.309% expense ratio - the amount it charges, as a percentage of total average assets - compared with 1.246% in 1995 and 1.162% in 1994.
Nonetheless, some popular mutual funds have been able to slice their expenses. The T. Rowe Price New Horizons Fund, Baltimore, which saw its assets more than double to $4 billion-plus at the end of June 1996 from $1.7 billion at the end of 1994, cut its expense ratio to 0.89% for the year ended June 30, 1996, from 0.93% for the year ended Dec. 31, 1994.
At the same time, Ultra Investors, the high-octane mutual fund part of the American Century family of funds in Kansas City, Mo., pared its expenses to 0.98% of assets for the year ended April 30, from a flat 1% of assets charged in the five preceding years. The fund swelled more than eight times to nearly $17 billion in assets from $2.1 billion during the period.
The Janus Fund, Denver, which grew to $23.4 billion in 1996 from $18.2 billion in 1992, was able to slice its expense ratio to 0.85% last year, from 0.97%.
The fee structure is set on a sliding scale, so it charges proportionally less as it manages more money, said Glenn O'Flaherty, Janus treasurer and director of fund accounting.
In stock funds, Janus charges from 1% for funds with less than $30 million under management to 0.65% for funds with more than $500 million in assets.
"That's really a significant way that asset growth generates lower expenses," Mr. O'Flaherty said.
T. Rowe Price uses a similar sliding scale, with group fees dropping from 0.48% for the first $1 billion in assets to 0.37% when assets under management cross $5 billion, explained Kirk Joy, assistant to the director of investment services.
Investors in larger mutual funds also benefit because non-management expenses, such as fees paid to outside auditors, directors and trustees, tend to stay the same regardless of the amount of money under management.
The Montgomery Small Cap Fund, managed by Montgomery Asset Management, San Francisco, shaved its operating expenses to 1.24% for the financial year ended June 30, 1996, from 1.45% in 1990 "because organizational costs drop off after five years," according to Jane Ginsburg, a company spokeswoman. The fund has been closed to new investors since March 1992.
Janus also cut its printing and postage expenses by more than $500,000 a year by sending out a single annual (and semi-annual) report for all funds, instead of separate reports.
"We are continually looking at things like that" to save money, Mr. O'Flaherty noted.
Still, many industry observers say the decline in expenses falls far short proportionally to the huge flow of money the mutual funds have received in the last two years.
Mutual fund expenses have continued to climb largely because of the tsunami of new retirement dollars from 401(k) plans pouring into mutual funds in recent years, coupled with the proliferation of new mutual funds, noted Geoffrey Bobroff, an East Greenwich, R.I. industry consultant.
New accounts tend to be smaller, reflected in the precipitous drop in average account balances to $1,915 at the end of September, 1996, from $10,687 at the end of 1990, according to data from the Investment Company Institute, the Washington-based industry association.
At the same time, new funds typically charge higher fees than more mature funds, Mr. Bobroff and other observers said.
New mutual funds started during the stock market's boom in 1995 and 1996 charged investment management fees of 0.72% of average assets, compared with the 0.67% stock mutual funds set up between 1990 and 1995 charged, said Amy Arnott, editor of the Morningstar Mutual Funds newsletter service, Chicago.
Additionally, investors are demanding - and mutual funds are offering - more services, including access through supermarkets such as Charles Schwab & Co.'s OneSource, which charge high distribution fees. The mutual fund companies, in turn, are recouping those costs by passing them to shareholders, noted Michael Lipper, president of Lipper Analytical.
"If the market remains strong, there probably won't be downward pressure on expenses," Ms. Arnott said. "People don't notice how much they are paying as long as their funds are going up."
