ICI reports that expense ratios incurred by investors in long-term mutual funds declined in last year. Equity fund investors, on average, paid 77 basis points (0.77%) in expenses, down 2 basis points from 2011. Expenses of bond funds declined 1 basis point to 61 basis points.

Expense ratios of money-market funds fell in 2012. The asset-weighted average expense ratio of money market funds was 17 basis points in 2012, 4 basis points less than in 2011. Expense ratios on money market funds have fallen sharply in the past few years as the great majority of funds waived expenses to ensure that net returns to investors remained positive in the current low interest rate environment.
In 2012, the average expense ratio paid by investors in funds of funds—mutual funds that invest in other mutual funds—decreased 3 basis points to 81 basis points. The total expense ratio of funds of funds includes the expenses that a fund pays directly out of its assets as well as the expense ratios of the underlying funds in which it invests. Since 2005, the average expense ratio for investing in funds of funds has fallen 20 basis points.
Expense ratios of target-date mutual funds were 58 basis points in 2012, down from 67 basis points in 2008. Two factors likely played a role. First, assets in target-date mutual funds have tripled since 2008, lowering fund expense ratios through economies of scale. Second, a greater concentration of assets in lower-cost target date mutual funds pushed down the average expenses of these funds.
In 2012, average expense ratios for actively managed bond funds, index bond funds and index equity funds all fell. The average expense ratio of actively managed equity funds, having declined 4 basis points in 2011, was unchanged. Since 1998, the average expense ratio of actively managed equity funds has declined 10 basis points, while that of equity index funds fell 12 basis points.
Load fee payments have decreased. In 2012, the average maximum sales load on equity funds offered to investors was 5.3%. But the average sales load investors actually paid was only 1%, owing to load fee discounts on large purchases and fee waivers, such as those on purchases through 401(k) plans. Average load fees paid by investors have fallen nearly 75% since 1990.

Fund expenses cover portfolio management, fund administration and compliance, shareholder services, recordkeeping, certain kinds of distribution charges (known as 12b-1 fees), and other operating costs. A fund's expense ratio, which is disclosed in the fund's prospectus and shareholder reports, is the fund's total annual expenses expressed as a percentage of the fund's net assets. As opposed to sales loads, fund expenses are paid from fund assets.

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Mutual Fund Expense Ratios Continue to Decline

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