An investor is comparing two Canadian equity mutual funds for their Registered Retirement Savings Plan (RRSP). Fund A is an actively managed fund with a stated MER of 2.20%, while Fund B is an index-tracking Exchange Traded Fund (ETF) structured as a mutual fund trust, with an MER of 0.25%. Assuming both funds track similar asset classes and have comparable performance before fees, what is the most significant long-term implication of the MER difference for the investor's RRSP portfolio?

Question: An investor is comparing two Canadian equity mutual funds for their Registered Retirement Savings Plan (RRSP). Fund A is an actively managed fund with a stated MER of 2.20%, while Fund B is an index-tracking Exchange Traded Fund (ETF) structured as a mutual fund trust, with an MER of 0.25%. Assuming both funds track similar asset classes and have comparable performance before fees, what is the most significant long-term implication of the MER difference for the investor's RRSP portfolio?

Answer options:

• Fund A will likely offer better tax efficiency due to its active management style.
• Fund B will require more active monitoring and rebalancing by the investor. ✅ Fund A's higher MER will directly reduce the investor's net returns compounding over time.
• Fund B's lower MER provides a guarantee of superior future performance.

Correct answer: Fund A's higher MER will directly reduce the investor's net returns compounding over time.

Explanation: A higher MER directly reduces the net return received by the investor. Over long periods, even small differences in MER can lead to substantial differences in accumulated wealth due to the power of compounding, making Fund A's 2.20% MER a significant drag compared to Fund B's 0.25%.