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Mutual Fund Expenses Continue Downward Trend

There was a decline in expense ratios for actively managed and index equity and bond mutual funds, ICI data shows.

By PLANSPONSOR staff editors@plansponsor.com | May 22, 2017
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The average expense ratios of long-term mutual funds declined in 2016, continuing a two-decade downward trend, the Investment Company Institute (ICI) reports.

In 2016, investors paid, on average, 39% less for equity mutual fund expense ratios than in 1996—reflecting investor interest in lower-cost funds, industry competition, and economies of scale driven by asset growth, ICI says. A fund’s expense ratio is the fund’s total annual expenses expressed as a percentage of its net assets.

For the first time, the report, “Trends in the Expenses and Fees of Funds, 2016,” examines the expense ratios of exchange-traded funds (ETFs). They, too, show a downward trend, including a 32% decline in index equity ETF expense ratios from 2009 to 2016. In 2016, the average expense ratio of index equity ETFs fell to 0.23%, down from 0.24% in 2015. Index equity ETF average expense ratios have fallen each year since 2009, when the average was 0.34%. ICI says this is largely attributable to competition and economies of scale within the ETF industry, which appear to have put downward pressure on index equity ETF expense ratios since then.

The average expense ratio of index bond ETFs was 0.20% in 2016, unchanged from 2015, and down from 0.25% in 2009. The market for bond ETFs has been maturing. Assets have increased significantly, and the number of funds and sponsors competing for investor dollars has grown. These developments have played a part in the recent decline of index bond ETF expense ratios.

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