ICI Reports Ongoing Decline in Mutual Fund and ETF Expense Ratios

The Investment Company Institute ("ICI") found that asset-weighted average expense ratios for long-term mutual funds and exchange-traded funds ("ETFs") continued a decades-long downward trend through 2025.

In its annual analysis of fund expenses, the ICI characterized the decline as a 29-year shift driven by intense competition, economies of scale, and investor preference for lower-cost products. The ICI found that between 1996 and 2025, the average expense ratio for equity mutual funds fell from 1.04% to 0.40%, a 62% reduction. Similarly, bond mutual fund expenses decreased by 57% over the same period, ending 2025 at 0.36%, while hybrid mutual fund expense ratios also declined meaningfully over the same period. The ICI highlighted that while equity fund expenses remained stable year-over-year, bond mutual funds saw a two-basis-point decline in 2025. The ICI noted that these figures are calculated on an asset-weighted basis, reflecting the actual expenses investors pay by accounting for the concentration of assets in lower-cost funds rather than the simple average across all funds offered.

The ICI underscored a major structural shift toward no-load funds as a primary driver of falling costs. By 2025, 92% of gross sales of long-term mutual funds went to no-load share classes without 12b-1 fees, a significant increase from 46% in 2000. ICI said that this transition reflected a broader move toward fee-based compensation for financial professionals outside of fund expense structures, as well as growth in retirement accounts and do-it-yourself investing. The ICI also highlighted the surge in index-based investing; by year-end 2025, index mutual funds and index ETFs together accounted for 52% of all long-term fund assets, up from just 19% in 2010. The ICI noted that passively managed funds generally maintain lower expense ratios due to lower turnover, broader concentration in lower-cost market segments, and economies of scale. The report also emphasized that investor flows in both mutual funds and ETFs continued to concentrate disproportionately in lower-cost funds and share classes.

The ICI also highlighted trends within the ETF and money market sectors. Index equity ETFs held steady with an average expense ratio of 0.14% in 2025, while index bond ETFs fell one basis point to 0.09%. The ICI noted that index mutual funds remained cheaper on average than comparable index ETFs in 2025. By contrast, money market fund expense ratios rose to 0.24% in 2025, continuing an upward trend from 2021. The ICI explained that this increase resulted from fund sponsors paring back expense waivers as short-term interest rates remained well above zero. The ICI explained that as interest rates rose, fund advisers were no longer required to absorb expenses to prevent negative net yields for investors. The ICI concluded that while small fund complexes face higher costs due to lack of scale, even as they contribute product diversity and niche offerings, the overall industry continues to benefit from a "virtuous cycle" of asset growth and declining costs.