What is a management fee in the context of mutual funds?

A management fee in the context of mutual funds refers to the annual fee paid to the mutual fund's money manager. This fee compensates the fund manager for their expertise in managing the fund's portfolio, making investment decisions, and maintaining the fund's operations. It is typically expressed as a percentage of the fund's assets under management and is calculated daily but charged annually, impacting the overall returns of investors in the fund.

This fee is essential for covering operational costs and ensuring that the managers are compensated for their work in optimizing the fund's performance. Unlike performance-based fees, which are contingent on how well the fund performs against a benchmark, the management fee is incurred regardless of the fund's actual performance. Therefore, it is a consistent cost that all investors in the mutual fund will face.