Mutual funds are pinching pennies.

They are pushing brokers to cut the commissions they charge funds for trading stocks and finding other ways to reduce this large -- but largely invisible _ cost borne by investors.

Since 2002, the average commission that institutions, including mutual funds, paid to trade shares listed on the New York Stock Exchange has dropped 20 percent to 3.8 cents a share from 4.8 cents a share, according to the latest data from Los Angeles trading consultant Plexus Group. Ten years earlier, these investors paid an average of nearly six cents a share. For Nasdaq Stock Market-listed stocks, the average commission also has fallen and now stands at about 3.5 cents a share, Plexus says.

The trend is upsetting the traditional balance of power between brokers and mutual funds, but the clear winners could be fund investors.

The commissions funds pay to buy or sell securities are an important but often overlooked cost absorbed by investors. Commission costs are deducted directly from fund assets, reducing returns to investors. The amounts aren't included in a fund's annual expense ratio but can rival or even exceed those fees if a fund trades heavily.

While investors today can learn how much a fund spent on trading commissions only by wading deep into obscure fund filings, the Securities and Exchange Commission is mulling over suggestions to beef up disclosures. A National Association of Securities Dealers task force has suggested disclosing them alongside a fund's expense ratio in its prospectus and providing more detail. The figure should be expressed as a percentage of fund assets as well as an average amount spent to trade each share, the task force said. That would make comparisons among funds easier and likely would put more pressure on funds to lower these costs.

"The trend is clearly toward lower commissions and that trend has accelerated," says John Feng, an equity research and trading consultant with Greenwich Associates.

A penny saved here and there can add up. Greenwich Associates estimates that institutional managers overall _ a group that includes pension funds and hedge funds as well as mutual funds _ paid more than $2 billion less in brokerage commissions last year than the $13.4 billion they paid in 2002.

Fund giant Fidelity Investments long has been known for squeezing brokers on commissions. And many other fund families have followed its lead. After negotiations last summer, Massachusetts Financial Services Co. believes the average commission paid by its funds will drop to a little over four cents a share from a little over five cents a share, according to MFS Funds Chairman Robert Pozen.

American Funds, which cut commissions about a year ago, pays 3.5 cents a share, down from about five cents a share, say people familiar with the firm's trading. Vanguard Group, best known for its low-cost index funds, often pays two cents a share or less, according to Chief Investment Officer Gus Sauter.

One reason for falling commissions is that trading costs are being scrutinized more closely by fund board members and employers that sponsor retirement-savings programs offering mutual funds as investment choices for their employees. "They're all on us to drop these costs," says Ted Oberhaus, director of equity trading at Lord Abbett Funds. He adds that the funds managed by his firm have been negotiating lower commissions over the past several years.

Some players warn that funds haggling for low commissions could end up like the lowest tipper in a restaurant _ saddled with poor service, particularly on busy trading days.

"Cheap commissions are fine, but did you get a good price? That's the rub," says Andy Brooks, head of trading at T. Rowe Price Group Inc., who will say only that the average commission paid by funds the firm manages are in line with broad averages.

Others say firms paying low commissions might find brokers slow to alert them to new research and less inclined to commit their own capital to complete trades. When a client wants to sell a large number of shares and a broker agrees to commit capital, the broker buys at least some of the shares with its own money to get the trade done. This helps the client but could leave the broker stuck with big losses if it ends up selling those shares at a lower price than it purchased them.

Haggling isn't the only factor at work. Commissions also are falling because some funds, facing increased scrutiny, have scaled back their use of commissions as payment to brokerage firms for research and other services _ a practice known as paying with soft dollars. Instead, some firms that manage funds are paying for more research out of their own pockets.

"I think the brokerage industry is overbuilt and soft dollars are what made that happen," says Wayne Wagner, chairman at Plexus. "Now there's a lot of disdain for Wall Street research so a lot of the big (fund) shops are paying only for execution most of the time."

Electronic trading, which allows mutual funds to buy or sell securities with little or sometimes no help from a broker, also is a factor. Commissions on electronic trading systems range from just half a cent to two cents a share.

Part of the allure of these electronic trades is that they can offer a degree of anonymity for big investors by breaking up million-share orders into small, less-noticeable pieces that won't lead opportunistic traders to try to trade ahead of a fund and thereby ding fund returns.

At the same time, funds are reducing the number of brokers they trade with and concentrating more trading among their top brokers in order to get quick responses and get access to the conferences, conference calls and other research services they find useful.

But trading experts long have said that commissions are one of the smallest components of transaction costs, which also include vaguer costs such as market impact, broadly defined as a trade's impact on the price of a stock, and opportunity cost, which is generally the cost to an investor when there is a delay or failure to execute a given trade.

Some worry that hedge funds _ private investment funds typically sold to high-net-worth investors and institutions _ are studying the trading patterns of the new electronic systems to get a leg up on other investors, while paying brokers higher commissions of five cents a share or more in hopes of getting better service that could include quick responses in a market meltdown.

The question is how much lower commission rates can fall before mutual funds actually are hurt for their frugality. "At some point a balance needs to be struck," says Greenwich Associates' Mr. Feng. "But it's unclear where that is."