Question

Samuel is the manager of a mutual fund. In exchange for his services, Samuel earns fees paid directly by the mutual fund. What are these fees called?

Answer 1

The fees earned by Samuel as a manager of a mutual fund are called management fees. These fees impact the net return of investments over time.

Step-by-step explanation:

The fees earned by Samuel, the manager of a mutual fund, are commonly referred to as management fees or advisory fees. These fees compensate the manager for selecting investments, overseeing the fund's portfolio, and performing other related services to manage the fund's assets. In the example provided, the distinction between investing directly and through a retirement fund that charges an administrative fee, which is a type of management fee, is highlighted. Alexx, who invests directly and earns a 5% return, and Spenser, who uses a retirement fund that earns 4.75% after deducting the 0.25% fee, will have different returns over 30 years. This difference arises from the compound interest earned on their investments.