MPF fund fees comparison: the expense ratio tells the fuller story

This article is a rewrite of a report from March 2012.

Picking a fund on past returns and the headline management fee can quietly cost you. In March 2012, an AIA senior executive wrote that the fund expense ratio of same-type MPF funds could differ by as much as 16 times (as of 29 February 2012, per the MPFA’s fee comparison platform) — a small fee gap that compounds into a big dent in your accrued benefits.

What is the MPF fund expense ratio?

The fund expense ratio is the total expenses of an MPF fund expressed as a percentage of its assets, reflecting the fund’s overall cost level over the past year; the lower the ratio, the more of your contributions stand to benefit from investment returns, making it the most comprehensive single measure of a fund’s cost. It captures every expense, leaving no hidden costs out.

How does it differ from the fund management fee?

The fund management fee covers only the service fees charged by the trustee, custodian, administrator, investment manager and sponsor, while the fund expense ratio additionally includes items such as bank charges and auditors’ fees — all of which are deducted from the fund’s net asset value, so judging a fund on management fees alone gives an incomplete picture. The management fee is just the tip of the iceberg.

Why does a small fee difference matter so much?

Because MPF is a decades-long investment, even a small annual fee difference compounds into a huge gap in your accrued benefits at retirement; the reported 16-fold gap between the highest and lowest expense ratios among same-type funds shows why comparing before choosing is essential. The MPFA’s online fee comparison platform lists every fund’s expense ratio — check it before making investment decisions, and see the MPF education hub for more on reading fund factsheets.