As inflows into fixed income funds increased last year, overall average expense ratios for all mutual funds fell. On Friday Reuters reported that, in an annual review and outlook of fund expenses, Lipper noted that 2008 showed the biggest cost drop in four years. The average total expense ratio for all open-end funds in 2008 was 71.2 basis points, down from 74.8 in 2007.

The average decrease reported by Lipper does not, however, indicate a decrease across all asset classes. While the average expense ratios declined 3.6 basis points in global funds in all asset classes, the average expense ratios for equity funds actually increased from 93.7 basis points in 2007 to 94 basis points in 2008.

The Lipper review predicts that expense ratios for equity funds could be on a path to increase again this year based on growing costs such as custodian and legal fees.

Falling expense ratios and increasing assets in fixed-income funds balanced the increase in equity costs. The total assets of actively managed funds rose to $9.4 trillion in 2008 from $8.8 trillion in 2007, and fixed income funds comprised $4.45 trillion of assets. Fixed income funds showed average expense ratios of 45.5 basis points for 2008 as compared to 48.1 basis points in 2007. 

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