The cost of owning a mutual fund has not fallen as much as an industry-sponsored study previously suggested, says a new study released Friday by Morningstar, the independent, Chicago-based mutual fund tracker.

"The cost of owning an actively managed, no-load domestic stock fund has dipped less than 10%" since the mid-1980s, according to the Morningstar study. The study also found that, excluding Fidelity and Vanguard -- two fund behemoths with relatively modest costs -- "ownership costs have actually risen over the past 15 years" for no-load funds.

Last November, a report from the Investment Company Institute, the mutual fund industry's trade group, was greeted with skepticism for finding that "the average cost of investing in equity mutual funds had dropped by more than one-third since 1980."

Conventional wisdom suggests that costs in the mutual fund industry have been going up, or at least haven't gone down as much as might be expected given the huge swelling of assets that the industry has enjoyed during the last 20 years.

Morningstar also found that costs among load funds, or funds that levy a sales charge, have gone down by as much as 25% since the mid-1980s. But again, the study says that if you exclude the "huge, low-cost fund family American Funds," those costs have only decreased 15%.

Morningstar and the ICI approached their studies very differently. Morningstar's covers domestic, actively managed equity funds, while the ICI looked at all mutual funds.

Morningstar excluded index funds to discount the tremendous shift in investors' preferences to these low-cost funds. (Kudos to fee-only financial planner Steve Janachowski, who suggested doing that back in November.) Morningstar also excluded the operating costs of foreign funds, since they tend to be significantly higher than the average domestic fund. And finally, Morningstar didn't mingle load and no-load funds, as the ICI did in the bulk of its report.

John D. Rea, chief economist at the ICI who co-authored last November's report, says Morningstar's findings actually support his own.

"My general conclusion is that what they've done supports our findings," Rea says. "In order to get to Morningstar's conclusion of fee increases, you really had to whittle down the universe to these no-load, actively managed, domestic funds -- other than Fidelity, Vanguard and institutional and index funds -- to get that increase."

Scott Cooley, the analyst who wrote the Morningstar report, in turn says that the ICI report "was not dishonest. We just felt like we could design an approach from the bottom up and borrow the best parts of their methodology and improve on them.

"With the broad approach that the ICI took, it was essentially saying that if someone shifted from an actively managed fund to a no-load index fund, and that caused costs to go down, that was a legitimate comparison to make."

Rea says he didn't find any flaws with Morningstar's methodology and notes that it provides "additional insights." The reason fund watchers were skeptical of his report, he says, is because he's employed by the industry's trade group and "it was a novel result. It ran against conventional wisdom."

John Markese, president of the American Association of Individual Investors and a proponent of clearer fee-disclosure practices among mutual funds, says that while fees may be going down generally, they're not going down as much as they should given the growth of the industry.

"Clearly given the amount of assets going in, I don't see the dramatic decline you would expect," Markese says. But he contends that fund buyers are confused about the dizzying array of different charges associated with funds, from loads to 12b-1 marketing fees to expense ratios. And until there is a clearer disclosure, in dollar amounts, about how much investors pay in fees, he says, few people will get excited about these findings.

E*Trade Launches Online Index Fund

Online broker E*Trade ( EGRP) launched the first in a series of planned mutual funds this week. The E*Trade S&P 500 Index fund is a passively managed portfolio designed to mirror the popular S&P 500 benchmark.

The fund is yet another addition to an expanding class of S&P 500 funds that now compete with the granddaddy of index mutual funds -- the $74.2 billion ( VFINX) Vanguard 500 Index. And while all these funds look alike, their performance can differ dramatically. That difference boils down to cost. With an expense ratio of 0.32%, E*Trade's new offering is no bargain.

To appreciate the impact that higher costs have on an index fund's bottom line, compare returns on the two oldest S&P index funds. The Vanguard fund -- the oldest and, until recently, cheapest of the pack -- has no sales charge and an annual expense ratio of 0.19%. The $607.3 million ( SFCSX) Stagecoach Equity Index A fund carries a 4.5% front load and a hefty 0.89% expense ratio. A $10,000 investment in the Vanguard fund 10 years ago would have grown to $54,543 after fund expenses, according to Lipper. That same investment in the Stagecoach fund would total only $47,591. A difference of $6,952!

E*Trade's new fund is by no means the most expensive offering in the pool of 101 S&P 500 objective funds tracked by Lipper. In fact it's cheaper than the average S&P 500 index fund, which hovers around 0.55%. And you can buy it without a sales charge, though you will have to open and maintain a free account with E*Trade, and you must agree to conduct all correspondence by email. That means, of course, you also must shoulder the cost of Internet access.

The cheapest S&P fund to own is the ( USSPX) USAA S&P 500 index fund. The $2.3 billion fund carries no sales charge and its 0.18% annual expense ratio is just a pinch below Vanguard's. (USAA and Vanguard both charge an annual $10 maintenance fee for mutual fund accounts with total balances of less than $10,000.)

When it comes to passively managed funds, every little bit counts -- especially if you plan to be invested long-term.