Mutual fund expense ratios have declined substantially over the last 24 years, according to a new report from the Investment Company Institute (ICI).
The ICI report, called “Trends in the Expenses and Fees of Funds, 2020,” found that equity mutual fund expense ratios overall went from an average of 1.04 percent in 1996 to 0.50 percent in 2020. Also, hybrid mutual fund expense ratios went from an average of 0.95 percent in 1996 to 0.59 percent in 2020, while bond mutual fund expense ratios dropped from an average of 0.84 percent in 1996 to 0.42 percent in 2020. This includes both active and index funds.
“Expense ratios for both actively managed and index mutual funds have declined over the past two decades because fund investing is an extremely competitive marketplace,” Shelly Antoniewicz, ICI’s senior director of industry and financial analysis, said. “Investors are seeking new, diverse investment options through funds, and data show they’re very cost conscious, tending to concentrate assets in lower-cost funds when they invest.”
Looking at the breakout data for actively managed and index equity mutual funds, the expenses have also declined. In 2020, the average expense ratio of actively managed equity mutual funds was 0.71 percent, down from 1.08 percent in 1996. Index equity funds declined to an average of 0.06 percent in 2020 from 0.27 percent in 1996. The same goes for actively managed and index bond funds. Actively managed bond mutual funds fell to 0.50 percent in 2020 from 0.84 percent in 1996. Likewise, the expenses for the average index bond mutual funds fell to 0.06 percent in 2020 from 0.20 percent in 1996.
The report also found that the majority of inflows in 2020 went to funds with expense ratios among the lowest 25 percent.