Analyze Mutual Fund Costs with FINRA’s Mutual Fund Expense Analyzer
When evaluating a mutual fund, one of the major factors I will consider is the cost of owing the fund, which includes sales charges (load, redemption fee, etc) and management fees (12b-1, administrative and management fees). Since I use Morningstar quite heavily in mutual fund research, it is my main source for a fund’s fee information.
If you go to Morningstar.com and enter a fund ticker symbol (for example, VFINX), then click the Fees & Expenses on the left, you can see a summary of the fund’s expenses
It basically contains all the information I need, how it’s not very flexible as I can only take what it gives me (such as the total cost projection for 3-, 5-, and 10-year holding periods). To get a customizable cost analysis and comparison, I like the Mutual Fund Expenses Analyzer from FINRA (Financial Industry Regulatory Authority, formerly NASDD).
The FINRA MFEA consists of two sections. In the first section, you can enter up to 3 funds (or ETFs) to do a cost analysis and comparison.
All you need to do is entering the fund’s ticker symbol (or select a fund family and enter some keywords) and do a Search. Fund that meets the search criterion will show up in the Fund window. In this case, I entered symbols VFINX and PREIX (T. R. Price Equity Index 500) as I want a head-to-head comparison of these two funds.
In the second section, I can enter a little more information on how I want to compare the expenses of these two funds. Available options include the Investment Amount, Rate of Return, and Holding Period.
After entering the details, the analyzer calculates the estimated expenses of these two funds based on the information I provided (shown in the following figure, click to enlarge).
I can also choose a graphic display of the analysis results as shown in the following plot.
Of course, the above comparison is based on the same set of assumptions, especially the annual rate of return (which is assumed to be 8% for both funds). This, however, is seldom the case in reality. If I want to compare funds with different returns, I have to get the expense of each fund one by one (without entering the second or third fund) and compare them manually.
As shown above, the best part of this analyzer is I can customize the data (I usually use a fund’s annualized return data from Morningstar as the rate of return) so the result can be closer to what I want. On the other hand, the Morningstar cost projection is based on a fixed rate of return since it shows
how much an investor would expect to pay in expenses–sales charges (loads) and fees–over the next three, five, and 10 years, assuming a $10,000 investment that grows by 5% per year with redemption at the end of each time period.
Obviously, using 5% annual return to calculate a fund’s expenses doesn’t necessarily make the estimate more accurate than using the fund’s past return though “Past return doesn’t guarantee future performance.”
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