With the Ontario harmonized sales tax (HST) set to take a bite out of almost all Canadian mutual funds, The Investor Education Fund has launched a new online calculator to help Canadians determine the impact of the increase in mutual fund fees.

The calculator shows investors how fees and other costs can affect the return of different funds.

“Canadians pay some of the highest mutual fund fees in the world and many investors don’t understand the impact they have on their investments over the long term,” says Tom Hamza, president of The Investor Education Fund. “According to a recent Morningstar study, investors in Canada pay between 2% and 2.5% for equity fund fees versus less than 1% paid in the United States and between 1% and 1.49% paid in Australia and New Zealand.”

It should be pointed out that Canadian MERs include some costs which are charged separately in other countries.

Those fees are set to go up for investors with the introduction of the HST in Ontario this summer. Because the vast majority of mutual funds are domiciled in Ontario, investors across the country will be subject to the new tax. An existing MER of 2.1% (including GST) could increase to 2.26% with the introduction of the HST. Assuming a portfolio of $500,000, the impact would be an $800 drag on returns in the first year alone.

The Mutual Fund Fee Calculator can also provide past average returns and the MERs of thousands of funds available in Canada.

Investors simply enter the names of their mutual funds, their investment amounts and the length of time expect to hold their funds. They then choose between the available options on sales fees and the calculator estimates the final investment returns based on the historical performance of the fund.

Pie charts and numeric details offer a comparative illustration of the impact of fees over time on two different mutual fund investments.

“A 1% difference in fees can make a big difference in the amount of money an investor makes over the long term,” says Hamza.

There is an option to create a custom scenario in which investors can choose both the MER and the past average return percentages.

“The Mutual Fund Fee Calculator helps investors understand important details about their mutual fund investments — in particular the type of fees they’re incurring and the effect these fees have on their final investment returns,” says Hamza.

(05/31/10)