New research published by the Investment Company Institute says that the shareholder cost of investing in mutual funds continued to decline between 1998 and 2001.

The total cost of investing in equity mutual funds decreased about 5% between 1998 and 2001, bringing the cumulative decrease since 1980 to 43%. The cost of investing in bond funds fell by 17% since 1998 for a total decrease of 41%, while money market dropped by 14%, for a total drop of 35%, the study shows.

The decline in total shareholder cost in equity funds largely reflected a continuation of the downward trend in distribution cost, which is the component of total cost accounts for compensation to sales professionals for advice and service.

Distribution cost for investors in equity funds fell 23% between 1998 and 2001 and overall is down 73% since 1980. The overall decline resulted from an increase in sales of no-load funds, as well as load fund sales through 401(k) plans, wrap accounts and IRA rollovers of 401(k) balances in which loads are reduced or waived.

The decline in total shareholder cost would have been even larger if it weren’t for recent preferences toward aggressive growth and international/global funds over the three-year period. These funds have higher operating expense ratios than other types of equity funds.

Based on a US$10,000 account, the study estimated that the total shareholder cost for an equity fund declined from US$135 in 1998 to US$128 in 2001, a decrease of 5%. The study also estimated that the total cost to shareholders of bond funds US$108 to US$90. Money market fund costs dropped from US$42 to US$36.

The study evaluated fee trends using a comprehensive measure called total shareholder cost. This measure represents the cost that an investor would expect to incur in purchasing and holding mutual fund shares. It accounts for all major fees, expenses and sales charges. The fees and expenses included in total shareholder cost consist of fund operating expenses, [trailer] fees and sales loads. In contrast, most other measures used to analyze mutual fund ownership cost do not account for sales loads.