The Consumer Council warns people to compare the Fund Expense Ratio when choosing an MPF fund, with others in the market as it varies greatly from one to another.

The council issued the warning today after its study found that a sizeable proportion of MPF members' investment is deducted by service providers for the Fund Expense Ratio and other charges.

The study covered nearly 300 constituent funds and showed that even just a few percentage points can make a substantial difference to the accrued benefits members eventually receive.

Benefit cut

The study found that on assumption of a 5% investment return with a monthly contribution of $2,000 from the employer and employee, a 1% annual fee will reduce 23% of the benefits over 40 years, or $690,000 less for an accrued balance of $3.05 million.

In theory, an extra 2% annually will take out 52% of the accrual, or $1.58 million less for the same amount. The average asset-weighted Fund Expense Ratio of the 35 schemes studied was 2.06% per annum. Of these schemes, 21 were above the average while 14 were below.

The ratio can vary significantly from one fund to another even for the same fund type. It is a standard measure of the total expense level of a fund as a percentage of the fund's average net assets. Members are often unaware of these expenses as they are deducted from the fund asset before its latest value is reported.

Prudence urged

The council reminds members to pay attention to some fund provisions allowing providers to impose certain types of fees. At least two constituent funds imposed a performance or incentive fee to a maximum of 20% of the increase in net asset value of units over an accounting period.

The council advised people not to make investment choices purely by comparing different MPF fund fee structures. They should also consider the investment objective, policy, risk profile, track record and the fund manager's expertise.