Expense ratios of mutual funds in Nigeria inched up slightly in the month of May compared to the month of April 2021, analysis of available information indicates.
The analysis also indicates that the change is noticeable across all fund categories or types. Looked at in its totality, May 2021 expense ratio exceeded that of April, averagely by 0.11%. The average expense ratio paid by investors in equity mutual funds increased by 0.04% while that paid by investors in money market funds increased by 0.01%. That is understandable because money market funds are not usually actively managed and as such, should not attract a large expense ratio.
Similarly, the average paid by investors in bond mutual funds fell 0.03% and the average paid by investors in bond mutual funds increased 0.25%. While there was no noticeable change in the expense ratio of real estate investment trust funds, the steepest average increase in expense ratio came from mixed/balanced funds at 0.3%. The expense ratio of ethical funds, however, decreased by 0.05% on the average.
A more granular analysis shows that AIICO Balanced Fund experienced the highest increase in expense ratio by 4.88%, having increased from 0.23% in April to 5.11% in May. The other two funds that saw huge increases in expense ratio include NOVA Dollar Fixed Income Fund and ARM Fixed Income Fund which increased by 3.79% and 3.0% respectively.
On the other hand, Stanbic IBTC Imaan Fund saw its expense ratio falling by 0.81% while Stanbic IBTC Conservative Fund (Sub Fund) and Stanbic IBTC Aggressive Fund (Sub Fund) had their expense ratios decreased by 0.57% and 0.47% respectively. To be precise, the expense ratio for Stanbic IBTC Imaan Fund fell from 0.9% in April to 0.18% in May while those of Stanbic IBTC Conservative Fund (Sub Fund) and Stanbic IBTC Aggressive Fund (Sub Fund) fell from 0.67% and 0.57% to 0.1% each respectively.
There was an indication that funds managed by Afrinvest Asset Management company, Stanbic IBTC Asset Management company, and PACAM Asset Management company experienced reductions in expense ratio in May while the other asset management companies decreased the expense ratio of some of the funds under their management but some other funds under their management saw their expense ratio increasing.
The Bottomline
One of the variables that impact the performance of mutual funds and one that mutual fund investors should pay close attention to is expense ratio. It is, therefore, not out of place that investors should analyze trends in mutual fund expense ratios.
While the percentage decreases in fund expense ratios as noted above, may not seem substantial, it could add up when considered in relation to your investment. Since expense ratio is a percentage of fund assets, a reduction of 0.03% in expense ratio in a fund where you invested N1,000,000, gives you a break of N300 in charges a month which translates to N3,600 a year.