SEC unveils Internet tool for fund investors

The Securities and Exchange Commission this month unveiled a free Internet-based tool that allows investors to compare how much it costs to hold funds.

The Mutual Fund Cost Calculator ( will help users understand the actual dollar cost of holding one fund vs. another over time. This dollar figure is easier for users to understand than the percentage returns that brokerage firms commonly advertise.

For example, a brokerage firm might advertise a mutual fund with an 8 percent annual rate of return, with a 1 percent fee. Under those terms, a $10,000 investment would be worth more than $38,000 after 20 years. But with a 2 percent fee, the same investment would be worth about $31,000 - a $7,000 difference.

To most people, a percentage does not provide a clear cost picture, said Patrick Conroy, the economist in SEC's Office of Economic Analysis who designed the program. According to SEC research, most of the 77 million Americans investing in mutual funds do not know how much they pay for their funds. It gets even more complex when factoring in sales charges, or loads, and operating expenses, Conroy said.

"The basic idea is that [with] mutual funds [it is] pretty tough to figure out what you're paying," he said.

The project, a joint effort of Conroy's office and the Office of Investor Education and Assistance, started out as a purely online tool, developed and designed by 10 SEC employees. The staff created the program using Macromedia Inc.'s Authorware, a tool designed to let developers create interactive applications.

Originally, Conroy wanted to write the program to take advantage of Macromedia's downloadable Shockwave plug-in, which supports more powerful Web-based interactive applications. But at the testing phase, the development team became concerned that some people did not have enough bandwidth to handle the plug-in, especially those using the cost calculator over a modem.

SEC designed the calculator so that anyone can use it, no matter what platform they are working on or how much technical knowledge they have, Conroy said. "People here are very concerned that it be accessible to every technology," he said. "We don't want people to say that [the SEC] wrote this program, but you can't use it unless you have the latest technology."

If all of the correct information is used, this type of tool could be helpful to beginning investors trying to compare funds, said Whitney Knorr, interactive marketing manager for Legg Mason Wood Walker Inc.

"I certainly think that it would help if they had the performance numbers and the performance data for all these funds," she said.

A fund's fees play a large part in determining its return on investment, but because a fund's performance changes day by day, investors need to factor that information into the calculation to get an accurate value, she said.

The SEC worked with several universities and the investment firms Morningstar Inc. and the Vanguard Group to test the program, and the SEC let the investment industry know that this program would be available, Conroy said.

Vanguard posted information about the SEC cost calculator to its site last week, and provided a link to its Vanguard Plain Talk brochure on mutual fund costs.


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