Asset Management Fees is the remuneration paid to a professional manager by a client for handling his assets and trying to enhance the value of these assets. The assets under consideration are generally stocks, mutual funds, derivatives, fixed deposits, cash and bonds. However, some Asset managers also handle commodities, resorts, offshore companies and real estate for the client as well.
Asset Management Fees - Parameters
The amount of fees is generally expressed as a percentage of assets under management (AUM) or sometimes as a percentage of profits generated. The amount of fees varies according to the type of assets, the manager’s track record, the returns generated and so on. These fees are paid by the client periodically – either quarterly or annually as per mutual agreement.
Though Asset Management Fees concept is broad based, it is much talked about with regards to the mutual funds. The fees of these fund manager range anywhere between 0.15 to 4 % of AUM. These fees help cover costs for an asset management company like salaries for analysts and portfolio managers, legal compliance costs, reporting related costs, marketing expenses, infrastructure, etc. known as expense ratio. As fund size increases, lot of these fixed costs are spread over more AUM and so the percentage of fees typically reduces; similar to the economies of scale concept.
For index funds and passively managed portfolio, the charges are lower while for actively managed portfolio the charges are higher and can be as high as 4% of AUM depending on the past performance, experience of the fund managers and the returns generated. These fees are generally regulated by a regulatory like SEC in USA, SEBI in India.
In the mutual fund industry, the fees are generally collected by Asset management companies by reducing the NAV of the fund units on periodic basis; thereby the investor pays for these fees indirectly
