MPF Fund Fees Comparison: Breaking Down the 1.78% Expense Ratio, Item by Item

Eleven years after MPF launched, “expensive fees” were still workers’ biggest gripe. In December 2011, a Ming Pao column did the unglamorous work of itemising exactly where the money goes: four fee buckets are deducted before you ever see a return, and the number that truly tells you whether a fund is pricey is not any single charge but the fund expense ratio.

What do MPF fees actually cover?

MPF fees fall into four buckets — trustee, custodian, investment management and administration fees — all deducted from fund assets and reflected in the fund price. To see the full cost, members had to check the fund expense ratio and ongoing cost illustration: as of 2011, the market-average ratio stood at about 1.78%.

The four fee buckets

Fund management fees cover the costs of establishing and running a fund, generally grouped as follows:

Because these are taken out of fund assets, the figures on your annual benefit statement are already net of fees. To know the real charging level, members had to read the fee table inside the scheme’s offering document.

What does a 1.78% fund expense ratio mean?

The management fee does not capture everything — extras like the indemnity insurance providers must buy, legal fees for scheme amendments and annual auditor fees sit outside it. The fund expense ratio — total fund expenses as a percentage of fund assets — gives the fuller picture.

Using the MPFA’s suggested arithmetic: assume monthly contributions of HK$1,000 and a 5% annual return; at the 1.78% market average, the monthly cost works out to about HK$19 (HK$1,000 × 1.05 × 1.78%). The lower the ratio, the cheaper the fund and the higher the potential net return.

Better service can mean higher fees

The column added a caveat: charges reflect service levels. A provider offering a broader range of services or a richer investment platform could legitimately charge more, so members had to judge value for money rather than chasing the lowest number blindly.

Members could compare real fund costs on the MPFA’s fee comparison platform, or learn more at the MPF education hub.