Final answer:
Management fees and other expenses of mutual funds cover operational costs such as salaries for fund managers, transaction costs, marketing, and administration. These fees are charged as a percentage of assets under management and can impact shareholder returns.
Step-by-step explanation:
The expenses that management fees and other expenses of mutual funds may include are generally broad and cover various operational costs. These can range from the salaries of fund managers and analysts, transaction costs when the fund buys or sells securities, marketing and distribution expenses, and administrative costs such as legal, accounting, and customer service expenses.
Most mutual funds charge these fees as a percentage of the assets under management, affecting the overall return on investment for the fund shareholders. For example, a mutual fund might have an annual management fee of 0.5%, which would cover the cost of portfolio management and the fund's day-to-day operations.
Additionally, other expenses, which might be separate from the management fee, could include costs for record-keeping, fund administration, shareholder communications, and custodial services. It's important for investors to review a fund's prospectus to understand the specific fees and expenses associated with investing in the fund.