An SEC study shows investors are paying more to invest in mutual funds than they did two decades ago, but mutual fund expenses have declined in three of the last four years. The study, released today, notes that the increase in mutual fund expense ratios a funds total expenses divided by average net assets may be due to a shift from up-front fees, not included in the expense ratios, to ongoing 12b-1 fees, which are included in the calculation of expense ratios. In particular, the study found that large funds charge investors lower costs than smaller funds, thanks to the economies of scale, and that mutual funds with a high proportion of defined contribution assets generally charge less than other mutual funds.
The expense ratio of the average fund rose from 1.14% in 1979 to 1.36% in 1999, according to the study, But while fees for "load funds that charge up-front fees increased from 0.72% 20 years ago to 1.17% in 1999, the costs of "no-load funds dropped from 0.75% to 0.72% in 1999.
The SEC recommended that investors should get more information about the fees they pay to invest in mutual funds in semiannual and annual shareholder reports.