OUT OF SIGHT, OUT OF MIND?: AN EMPIRICAL ANALYSIS OF CPFIS MUTUAL FUND EXPENSE RATIO

Abstract

This paper highlights the more salient factors that investors can use in their selection of funds to minimize the erosive effect of operating expenses on net return. We looked at the determinants of expense ratio in a sample of Central Provident Fund Investment Scheme CPFIS-included mutual funds for the period from 2003 through 2011, and found that larger and more established funds have lower expense ratio, while funds with performance fee charges or are offered by foreign fund management firms are more expensive. Scale economies in mutual fund administration exist among the CPFIS- included mutual funds. Our findings indicate that expense ratio is minimized at about S$ 860 million in assets. Expense ratio also appears to have decreased with each policy introduced by the CPF Board to promote a low cost environment. However, this was not due to economies of scale explained by fund size.