As a mutual fund grows bigger, its fees should shrink. Here's why: When it's small, it has certain costs to keep the lights on, pay the managers, and so on. If it doubles in size, it doesn't typically need to pay for twice as much electricity and staff. It enjoys economies of scale, spreading its costs over a growing asset base.

Not surprisingly, though, many funds have not been cutting their fees much as they grow. I suppose they just don't like the idea of turning away dollars. When I covered this topic a few years ago, annual fees charged by fund companies had barely budged in 15 years, despite the fact that assets under management had increased more than 10 times.

Making matters worse was 2008, when the stock market plunged nearly 40%, taking net assets of mutual funds with it. With a smaller asset base, it's hard to argue for lower fees.

But look!
Yet according to the Investment Company Institute, the average expense fee for stock mutual funds in 2008 was 0.99% -- down a smidge from 2007 and down 15% over the past five years. That's the lowest level seen in the more than 25 years for which the ICI provides data. Bond fund fees now average 0.75%, down from 0.78% last year. Overall, stock and bond fund investors have seen fees and expenses drop more than 50% since 1980, partly fueled by a drop in average sales loads.

The recent market rebound also might help stave off (or reverse) increases caused by the loss of "breakpoints," which are reduced fees offered by various funds when their assets reach a certain size. As a fund shrinks, shareholders might no longer get the benefit of those discounts. But the recent rally may help bump assets back up to levels at which those discounts will apply.

Check out how significant the recent rally has been for some well-regarded funds:

Fund

Expense Ratio

2008 Return

2009 Return (YTD)

Recent Top Holdings Include

Homestead Value (HOVLX)

0.70%

(36%)

21%

Pfizer (NYSE:PFE)
Dell (NASDAQ:DELL)
Intel (NASDAQ:INTC)

Janus Contrarian (JSVAX)

1.00%

(48%)

30%

Vornado Realty
Denbury Resources (NYSE:DNR)

Columbia Value & Restructuring Z (UMBIX) 

0.89%

(47%)

38%

America Movil  (NYSE:AMX)
Petroleo Brasileiro (NYSE:PBR)
Freeport-McMoRan Copper & Gold (NYSE:FCX)

Data: Morningstar. YTD = year to date.

So there's reason to smile in mutual-fund-land. Fees are falling, if slowly. And many funds are poised to perform well.

To see which funds we recommend, sneak a (free) peek at our Rule Your Retirement newsletter. Our fund experts will get you pointed in the right direction.

Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article. Dell, Intel, and Pfizer are Motley Fool Inside Value selections. Petroleo Brasileiro is a Motley Fool Income Investor recommendation. America Movil is a Motley Fool Global Gains selection. Try any of our investing newsletters free for 30 days. The Motley Fool is Fools writing for Fools.