The management fee is the annual charge paid to the AMC for portfolio management and investment decisions — the largest single component of a fund's Total Expense Ratio (TER).
The management fee compensates the AMC for the fund manager's expertise, research team, investment processes, and risk management. It is set as a percentage of AUM and is included within the TER that investors pay. For actively managed equity funds, management fees typically range from 0.5% to 1.05% of AUM annually. Index funds have significantly lower management fees (0.05%–0.2%) because they simply replicate an index mechanically.
When you hire a professional to manage your money (the fund manager), they charge a fee. That's the management fee. For an active fund charging 0.8% management fee on ₹1,00,000 invested, the AMC earns ₹800/year from your investment. This is the price of expert portfolio management. For passive index funds that just track an index, the fee is much lower — closer to ₹50–₹200 per ₹1 lakh.
Management fee is set at scheme launch and disclosed in the SID.
SEBI limits the maximum management fee — it must stay within the overall TER cap.
Fee is accrued daily and deducted from the fund's assets before NAV is calculated.
For passive (index) funds, fee is substantially lower since no active stock-picking is involved.