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On mutual fund brochures, they state a management fee and also a MER.

How to interpret these two numbers? For example, if management fee is 1% and MER is 2%, then for an investment of 100$, does it mean only 97$ (100 - 3) are actually invested and the rest goes to the money manager?

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The management expense ratio (MER) is the management fee, plus all of the other costs required to run the fund, excluding any trading costs.

Here's a pretty good explanation.

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  • So in the example, if I put 100$, 98$ are invested and 2$ go to manager ? Thank you
    – Victor123
    Apr 16, 2015 at 2:41
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    Well, it's a little more complicated than that. You as the investor don't pay it directly, but it comes out of the fund itself, and that affects the yearly return. So if the fund returns 10% one year and we use a 2% MER example, the return is 8%. So your $100 after 1st year is actually $107.8. Your example looks like a 2% front-end load, which is different from MER. I've edited my post to include a link that better describes it than I can.
    – zanussi
    Apr 16, 2015 at 3:06
  • Note that since gees count against returns, higher fees may negate any of the advantages of smarter fund management they're supposed to be buying. Which is why simple index funds tend to do as well as or better than traditional human managed funds in the same sector.
    – keshlam
    Apr 16, 2015 at 6:07
  • It is also worth remembering that the MER is taken out of the fund assets (on a monthly or weekly or perhaps even daily basis) regardless of whether the fund had a positive or negative return. Also, in @mikkel's example, the MER is acting exactly like a front-end load in that if 2% were paid as a front-end load and there was no MER, then $98 would grow by 10% to equal $107.80 at the end of the year; just as if there were no front-end load, and only MER of 2% of the asset value at the end of the year. Double-whammy: All mutual funds have MERs, many have front-end loads as well.
    – Dilip Sarwate
    Apr 16, 2015 at 13:33

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