Mutual fund expense ratios at lowest level in years, Lipper says

Mutual fund expense ratios declined in 2008 for the fourth consecutive year, seeing an average reduction of 0.036% industrywide, according to a report by New York-based research firm Lipper Inc.

The decline was the largest reduction since the firm began the report in 2004.

The expense ratio of the average actively managed mutual fund dropped to 0.712% in 2008 from 0.748% in 2007, Lipper said.

In other words, investors paid $3 billion less than they would have paid compared with 2007 expense levels.

The asset-weighted average total expense ratio for fixed-income funds was 0.455% in 2008, down from 0.481% in 2007, Lipper said.

But equity funds saw a slight increase on average.

The asset-weighted average total expense ratio for equity funds was 0.94% in 2008, up slightly from 0.937% in 2007

Index funds, including ETFs, had an average expense of 0.262% last year, down from 0.263% in 2007.

Expense ratios for index funds are expected to remain constant in 2009 due to market competition, the report said.

Asset levels, which plunged in 2008, are one factor affecting expense ratios. But additional components of the fees include 12(b)-1 fees, non-management expenses and management fees.

Expense ratios for many actively managed mutual funds in general are likely to increase in 2009 due to an increase in fund non-management expenses, the report said.

These expenses include transfer agency, custodian and audit expenses.