There’s Gold in Managing Mutual Funds : Finance: Companies such as Merrill Lynch and Fidelity pocket millions in fees. Are they worth it?

You certainly can make a lot of money in the business of managing mutual funds.

This long-established fact of financial life has been reaffirmed, with an exclamation point, by a series of developments this spring.

Wall Street giant Merrill Lynch & Co. says it took in $1.74 billion in revenue last year from asset management and portfolio service fees, about 90% of which came from its mutual fund family.

That’s a 12% increase from 1993, which in turn was up 24% from 1992, Merrill says in its annual report.

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The biggest fund of them all, the $40-billion Fidelity Magellan Fund, by itself now pays management fees at the rate of $300 million a year to its adviser, Fidelity Management & Research in Boston. While it dwarfs all others, Magellan is just one of more than 150 funds in Fidelity’s stable.

Financial World magazine counts 18 top executives at mutual fund organizations who were paid $1.5 million or more in 1994. Leading the list is Lawrence Lasser, president at Putnam Investments, with a compensation package of $11.8 million.

That list was culled only from fund groups run by publicly traded enterprises. It doesn’t include anybody at firms such as Fidelity, Vanguard or Capital Research in Los Angeles, which rank with Merrill Lynch as the biggest companies in the fund business, or at dozens of the smaller to medium-sized organizations that have also prospered in the mutual fund boom.

No wonder so many people are eager to start up new funds these days.

From what source, you may ask, does this mighty river of revenue flow? And does it buy good value?

The first question is easily answered. All of it, in one way or another, comes from you, the mutual fund shareholder. Payment is generally made through deductions from the assets of the funds, so it doesn’t attract the kind of notice it would get if each shareholder were sent a bill and had to write a check.

The second question is a little more complicated. One obvious reply is that most of the 38 million or so Americans who invest in funds must think they’re getting a pretty fair deal. If they didn’t, they wouldn’t keep so much of their savings in the funds or continue pouring more in.

Consider money market mutual funds, which have attracted more than $600 billion since their invention 25 years ago. They have attained this immense popularity even though they don’t carry the government insurance that comes with deposits at their chief competitors, banks and thrift institutions.

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Money funds consistently offer better yields than comparable bank products, says IBC/Donoghue Inc. in Ashland, Mass., because “banks cannot compete with money funds’ expenses.

“A money fund can operate with an expense ratio of less than 1% (sometimes as little as 0.1%), while high overhead will not allow a bank to make a profit without charging a much larger spread,” it said.

As the mutual fund business grows, the supposed cost benefits of economies of scale could become much better. In the meantime, fund shareholders can’t be faulted for recalling the famous question asked at a resort where several stockbrokers had moored their pleasure boats: Where are all the customers’ yachts?