Fund fees hold near record lows as investors keep shifting to cheaper options

Mutual fund and ETF investors continued to benefit from historically low costs in 2025, with long-term fee compression driven by sustained demand for lower-priced products and the growing dominance of index strategies.

Average expense ratios for equity mutual funds held steady at 0.40% last year, while bond mutual fund costs edged down to 0.36%, extending a decades-long decline in fund pricing, according to a new Investment Company Institute study.

The latest data show how structural changes in distribution and investor behavior have steadily pushed fees lower. Over nearly three decades, the typical asset-weighted expense ratio for equity mutual funds has fallen from just above 1% in the mid-1990s to current levels, reflecting competition, scale and a persistent shift toward low-cost vehicles.

A major factor in declining fund costs has been the migration toward no-load share classes, which generally exclude front-end sales charges and carry lower ongoing expenses. In 2025, 92% of gross sales of long-term mutual funds were directed to no-load funds without 12b-1 fees, nearly double the share seen at the start of the century.

The change coincides with the rise of fee-based advisory relationships and the growth of retirement platforms, where advisors are compensated directly rather than through embedded distribution charges. Do-it-yourself investors using discount brokerages or transacting directly with fund firms have also accelerated the shift.

The expansion of passive investing has played a central role in the broader fee decline. By the end of 2025, index mutual funds and index ETFs together accounted for 52% of long-term fund assets, up from 19% in 2010.

Because index portfolios typically require less trading and research than actively managed funds, they tend to charge lower expenses. Larger average fund sizes in passive strategies also help reduce per-investor costs through economies of scale.

ETF pricing trends reinforced the pattern. Asset-weighted expense ratios for index equity ETFs were unchanged at 0.14% in 2025, while bond ETF costs slipped to 0.09%, underscoring ongoing competition among sponsors and the benefits of asset growth.

Not all fund categories saw declines. Money market fund expense ratios ticked up to 0.24% last year as managers scaled back fee waivers that had been used when short-term interest rates hovered near zero. With policy rates still relatively elevated compared with the post-financial-crisis period, fewer waivers were needed to maintain positive yields for investors.

The pricing pressure shows little sign of reversing. Fund flows in 2025 were heavily concentrated in the cheapest share classes across both active and passive strategies, suggesting investors remain highly fee-sensitive.

Industry analysts say the long-running trend toward lower costs — reinforced by advisor fee transparency, retirement plan design and the rapid scaling of passive vehicles — is likely to keep average fund expenses near historic lows even as product innovation continues.