What are "management fees" in mutual funds?

Management fees in mutual funds primarily refer to the fees charged by the fund manager for managing the fund's assets. These fees are an essential component of the mutual fund's overall expense structure and are typically calculated as a percentage of the fund's average assets under management (AUM).

This fee compensates the investment manager for their expertise in making decisions regarding the fund's investments, ensuring that the fund adheres to its investment objectives, and managing the day-to-day operations of the fund. Since these fees directly relate to the performance and operations of the fund, they play a crucial role in affecting the net returns that investors receive.

While there are other fees related to mutual funds, such as sales charges or administrative costs, management fees specifically pertain to the investment management aspect, distinguishing the role of the fund manager from other operational expenses. This clear definition helps investors better understand their costs and the value they receive in managing their investments.