A new report by ICI Research shows that, on average, expense ratios incurred by investors in long-term mutual funds declined in 2011. It also found that expense ratios of money market funds fell 3 basis points from 2010 to 2011 as the great majority of funds waived expenses to ensure that net returns to investors remained positive in the current low interest rate environment.
In 2011, the average expense ratio paid by investors in funds of funds—mutual funds that invest in other mutual funds—declined 4 basis points to 83 basis points. The report found that since 2005, the average expense ratio for investing in funds of funds has fallen 18 basis points.
The average expense ratio investors paid to hold either index or actively managed funds declined in 2011, the report found. Since 1997, the average expense ratio of actively managed equity funds has declined 11 basis points, while that of equity index funds declined 13 basis points. Growing investor demand for index funds has contributed to the overall decline in long-term fund expenses because index funds have lower average expense ratios than actively managed funds.
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Load fee payments also have declined over time. In 2011, the average maximum sales load on equity funds offered to investors was 5.4 percent. But the average sales load investors actually paid was only 1 percent, owing to load fee discounts on large purchases and fee waivers, such as those on purchases through 401(k) plans. This represents a decline of nearly 75 percent from the average load fee investors paid in 1990.
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