Canadian Securities Course (CSC) Level 2 Practice Exam

What does the Management Expense Ratio (MER) encompass in a mutual fund?

1. Aggregate liabilities

2. Annual return

3. Aggregate fees and expenses

4. Switching fees

The correct answer is: Aggregate fees and expenses

The Management Expense Ratio (MER) is a critical metric in the context of mutual funds as it reflects the total costs associated with managing the fund. Specifically, it encompasses the aggregate fees and expenses that the fund incurs over a year, expressed as a percentage of the fund's average assets under management. This includes management fees, administrative costs, and other operational expenses necessary to maintain the fund. Understanding the significance of the MER is essential for investors, as it directly impacts their overall returns. A higher MER can erode investment gains, so comparing MERs among mutual funds can help investors make informed choices about where to allocate their resources. Other options do not capture the full scope of what the MER includes. While aggregate liabilities refer to the total debts or obligations of the fund, these are not part of the MER calculation. The annual return indicates the performance of the investment over a year, but it does not account for the ongoing costs incurred. Switching fees relate to costs associated with changing investments within a fund or between funds, which are separate from the ongoing expenses included in the MER.