According to the Globe and Mails mutual fund website. as of May, 2014, there were over 19,740 mutual funds and segregated funds (up from 17,047 in February 2013 ) available in Canada. That’s a lot of choices!

With so many funds to choose from you can be afford to be a little picky when selecting where to put your savings. One of your top priorities should be to find funds with the lowest costs so that you can keep more of your savings invested and working toward your goals.

When thinking about investing in mutual funds and segregated funds, you need to look at the costs associated with them, including things like:

• the annual investment cost, or management expense ratio (MER)
• buying and selling costs

Annual investment costs (or MER): What is a MER?

All mutual funds and segregated funds charge a management fee and incur expenses, which the fund companies combine to calculate the funds management expense ratio (MER). The MER is the annual investment cost you pay to the fund management company. Many investors, however, don’t even realize they’re paying these fees. Why ?

Typically, you will never see a charge for the MER expenses. There will not be any entries in your account statement and no invoice issued. This is because the MER expenses are deducted by the fund’s management company before they calculate the Net Asset Value (NAV) of your units. So if your account statement says that you own 100 units of XYZ fund and the units are worth $10.00 each, the $10.00 number has been calculated after the fund company has deducted their management fees and operating expenses. So you will typically never see a debit, deduction, or charge for these costs in your account statement.

Remember: You should understand the cost of the MER for each fund you own!

How do you calculate the MER?

In Canada, approximately two thirds of all mutual funds and segregated funds have annual investment costs of 2.0% or higher. The MER is calculated by adding up all of the annual expenses (Management Fees, advertising, brokerage fees, Trailer Fees, etc.) incurred by the fund manager and then dividing the total expenses by the fund’s total current market value.

Example: Let’s say you invest in a $2 million mutual fund that incurred the following expenses in a single year: