The Management Expense Ratio, often abbreviated to MER, is the annual percentage that it costs a mutual fund company to manage a particular mutual fund. This is sort of a hidden cost - it is published in the prospectus and the annual report, but return figures and prices are generally given net of the MER. If you are considering purchasing a mutual fund, look up the most recent MER in the prospectus. Generally, the lower the better.

In the Canadian market, one place where MERs make quite a noticeable difference is in the so-called clone funds, funds that attempt to replicate the return of a foreign fund (ie, one that is not RRSP eligible) by using index instruments and other wacky costs. Although the underlying assets of the fund will show the same returns, the RRSP-eligible clone fund will have a higher MER (because they have to constantly work at keeping the results accurate), and so will have a lower net return for the investor. Thus, you should be certain that you only buy a clone fund if it is for an RRSP account, and then you should carefully weigh whether the extra cost will be worth it in return, or if you could do better with a non-clone fund with a lower MER.

adventures in canadian finance: a metanode

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