A management fee is the compensation that investment fund managers get in exchange for constantly trying to make a fund profitable. The money for management fees comes from investors, who pay into the management fee pot every time they invest in a fund.
The amount of the fee is determined in different ways. Sometimes it is a fixed rate and sometimes it is a percentage based on the manager’s investing success. Sometimes it’s both!
An exchange-traded fund (or ETF) is a fund that owns a basket of financial instruments (e.g., stocks or commodities) that reflect the composition of a market index (e.g., the Dow Jones Industrial Average). Somebody looking to buy ETF shares would do so the same way he or she would buy stocks, that is, on a stock exchange, with the help of a broker who charges a nominal fee.
An expense ratio, in the context of mutual fund investing, is a measure of how much it costs a financial institution to manage a mutual fund for every dollar it manages. If management of the fund costs $1 for every $100 managed, the expense ratio is 1%. This ratio is important to look at if you want to invest in a mutual fund, because higher expense ratios can eat into your returns. An expense ratio can also relate to the amount of money a company spends to produce $1 of revenue.