Religious Mutual Fund to Charge Fee for Small Shareholders

Religious mutual funds may be gaining in popularity among scandal-weary investors as their secular rivals struggle to lure money in a tough stock market.

But Christian money manager MMA Praxis showed this week that it is experiencing some of the same problems the rest of the industry faces.

The firm is slapping extra fees on small investors as the company and its rivals cope with the long stock slide, which has chipped away at the fees they earn from managing money.

An investor in an MMA Praxis fund whose assets fall below the $2,000 mark will be charged an annual fee of $14, beginning in December. The firm, which avoids casino, nuclear energy, pornography and defense stocks and other companies its managers see as unethical, disclosed the changes in a filing last week with the Securities and Exchange Commission.

“Most boards probably would have passed this without a lot of discussion,” said John Liechty, president of MMA Praxis, which adheres to Mennonite principles. “But given the fact of who we are, there was some lively discussion among some of our trustees about whether this was the right thing to do.”

But in the end it made sense, he said. Small shareholder accounts sometimes cost more to maintain than they generate in fees, and big investors end up subsidizing the small ones.

About 40% of MMA Praxis shareholders, Liechty said, have an account balance of less than $2,500.

A number of firms, hungry for assets with their stock funds depressed, have stuck investors with new or higher fees in recent months. Fidelity Investments and American Century are among the firms that have levied charges to try to weed out small investors who don’t generate much money for the firms.

The trend has upset investors, whose accounts often fall below minimum levels because their funds’ stock picks went sour, not because they withdrew their money.

The $17-million MMA Praxis Value Index Fund, which has lost about 21% over the last 12 months, is one of the latest funds to add the fees.

The firm said investors who have $10,000 invested across the firm’s portfolio would not face the extra charges. Investors who don’t meet the $2,000 threshold also can avoid the fee if they opt to make monthly deposits of $50 into their accounts, Liechty said.

The firm noted that, unlike many other companies, it is not raising the minimum investment it takes to get into one of its funds. That remains at $500.

“We don’t want to do anything to turn away the small investor,” Liechty said, adding that the firm is sending out detailed explanations of the changes to investors.

The change comes as the firm reported that religious mutual funds are more popular than ever before.

MMA Praxis said U.S. assets in those funds rose to $4.42 billion in March from $3.65 billion in March 1999, a climb of 21%, according to a survey by Thomson Financial’s Wealth Management Group.

Assets for all U.S. mutual funds, meanwhile, increased 11% in that three-year period, the data showed.

Religious funds make up only a tiny portion of the overall industry. Other portfolios in the group include the $59-million Ave Maria Catholic Values fund and the $9-million Noah Fund, which is guided by biblical principles.

MMA Praxis, meanwhile, has recorded gross sales of $47 million for the year, Liechty said, fairly high considering that the firm has only $300 million or so in total mutual fund assets. He declined to provide a number for net inflows, but said the money streaming in has easily exceeded redemptions this year.