Calculate the long-term impact of management fees (MER) on your investment returns. Compare actively managed funds vs index ETFs for Australian investors.
| Metric | Active (high fee) | Index ETF (low fee) |
|---|
Most actively managed funds charge 1–2% MER. Australian index ETFs (Vanguard, iShares, BetaShares) charge 0.03–0.25%. The fee difference compounds dramatically over time — a 1.5% fee difference on $100,000 over 20 years at 8% can cost over $80,000.
| Fund type | Typical MER |
|---|---|
| Active Australian equity fund | 1.0–2.0% |
| Australian index ETF (ASX 200) | 0.07–0.20% |
| International index ETF | 0.07–0.30% |
| Super (industry fund, balanced) | 0.50–1.0% |
A managed fund pools money from many investors and invests it according to a specific investment strategy managed by professional fund managers. In Australia, managed funds are regulated by ASIC and are available in several structures including unit trusts, listed investment companies (LICs), and exchange-traded funds (ETFs). Managed funds provide diversification and professional management that most individual investors cannot replicate cost-effectively on their own.
| Fund Type | Description | Typical Fees (MER) | Where Traded |
|---|---|---|---|
| Active managed fund (unlisted) | Professional stock selection aiming to beat index | 0.7–2.0% p.a. | Direct via fund manager |
| Index fund (unlisted) | Tracks a market index (e.g. ASX 200) | 0.1–0.5% p.a. | Direct via fund manager |
| ETF (Exchange Traded Fund) | Index or active, traded on ASX like shares | 0.03–0.8% p.a. | ASX — buy/sell like shares |
| Listed Investment Company (LIC) | Closed-end actively managed portfolio | 0.5–1.5% p.a. (implied) | ASX — buy/sell like shares |
The Management Expense Ratio (MER) is deducted from fund returns automatically — you never write a cheque, but the compounding impact is substantial over decades.
| Starting Balance | Gross Return | MER | Net Return | Balance After 20yr |
|---|---|---|---|---|
| $100,000 | 8% | 0.1% (index ETF) | 7.9% | $462,497 |
| $100,000 | 8% | 0.8% (mid-cost active) | 7.2% | $402,268 |
| $100,000 | 8% | 1.5% (high-cost active) | 6.5% | $350,006 |
| $100,000 | 8% | 2.0% (expensive active) | 6.0% | $320,714 |
Since 2021, APRA tests Australian super funds annually and publishes underperforming funds. Funds that underperform their benchmark by 0.5% or more over 8 years are "stapled" — new workers are not automatically enrolled. The ATO's YourSuper comparison tool allows Australians to compare their super fund's fees and 10-year net return against all other funds.
What is the Management Expense Ratio (MER)?
The MER (also called the indirect cost ratio or ICR in super) is the annual percentage fee deducted from a fund's assets to cover management, administration, and operating costs. An MER of 1% on a $100,000 investment costs $1,000 per year — deducted automatically from the fund's returns. Lower MERs compound into significantly higher long-term wealth.
Are Australian managed funds safe?
Managed funds are regulated by ASIC and must be registered and comply with the Corporations Act. However, they are not bank deposits and are not protected by the government's Financial Claims Scheme. Their value fluctuates with the underlying investments. The safety of a managed fund depends entirely on its investment strategy and the underlying assets.
What is an ETF and how is it different from a managed fund?
An ETF (Exchange-Traded Fund) is a type of managed fund that trades on the ASX like shares — you can buy and sell during trading hours at live market prices. Traditional (unlisted) managed funds are priced daily and traded directly with the fund manager. ETFs generally have lower fees and greater liquidity than unlisted funds; unlisted funds may offer more investment strategy options.
How do I compare managed funds in Australia?
Compare: net return (after fees) over 1, 5, and 10 years; MER; investment strategy and risk profile; fund size (larger funds typically more stable); manager track record. ASIC's MoneySmart website and independent services like Morningstar and Chant West provide ratings and comparisons. The ATO's YourSuper tool is specifically for comparing super funds.