Sarah is comparing two Canadian equity mutual funds for her Registered Retirement Savings Plan (RRSP). Fund A has an MER of 2.25%, and Fund B has an MER of 1.75%. Assuming all other factors are equal, which statement about the impact of the MER is most accurate for Sarah's investment?

Question: Sarah is comparing two Canadian equity mutual funds for her Registered Retirement Savings Plan (RRSP). Fund A has an MER of 2.25%, and Fund B has an MER of 1.75%. Assuming all other factors are equal, which statement about the impact of the MER is most accurate for Sarah's investment?

Answer options: ✅ Fund B will likely provide a higher net return to Sarah compared to Fund A, due to lower fees.

• Fund A will automatically generate more income for Sarah because its fees are higher.
• The MER is only charged if Sarah sells her shares within a year, so it's not a primary concern for long-term RRSP investing.
• Fund B's lower MER indicates it is a more aggressive fund, hence suitable for younger investors.

Correct answer: Fund B will likely provide a higher net return to Sarah compared to Fund A, due to lower fees.

Explanation: The Management Expense Ratio (MER) represents the total annual costs of managing a fund, expressed as a percentage of the fund's average net assets. A lower MER means fewer fees are deducted from the fund's assets, leading to a higher net return for the investor, assuming similar gross investment performance.