The Management Expense Ratio is equal to: Management Fee + Administrative Costs.
This ratio is especially useful in obtaining a true picture of what costs are involved in investing in a fund.
A distinction between the management fee and the MER itself is that the MER incorporates estimated administrative expenses required to run the fund, these can include: transaction costs, custodial services and auditing fees.
The ratio is calculated by dividing the fund’s operating expenses by the assets under management (AUM).
The fee is not directly charged to investors, it is deducted from the returns the fund generates before allocation to investors.