Question

In about a paragraph or more, discuss why does a fund such as, Invesco CEF Income Composite ETF,  charges a fee. Justified why it can be fair and appropriate.

Also, how does a fund makes money for its owner, pays its' employees, and covers its expenses if it does not charge a fee? See what the fund manager says about their cost structure and how the fund manager profitably operates a 'no fee' fund, using the example. JPMorgan U.S. Aggregate Bond ETF.

Answer 1

All funds whether it's a ces,etf charges a fees from the investor which is necessary to compensate the operating expenditure of the firm and maintain profitability for the fund.operating expense is paying salary of fund managers, office expenditure and other administrative and selling expenditure.

Mainly there is 2 type of expenditure 1) gross expense and 2) net expense here net expense derived by deducting fees and expense reimbursement waiver given by the fund to the holder of security.

Fees structure if JP MORGAN US AGGREGATE BOND ETF

gross exp= 1.14% , net expense =0.07%

here fund contractually agreed to waive fees/ or reimbursement expense to the extent of total annual fund operating expense.( excluding acquired fund fees and expense , dividend and interest expen related to short sale, interest, tax , expense related to litigation and potential litigation and extraordinary expense) exceed 0.07% of the average daily net asset.

the fund may invest one or more money market funds advised by advisor or it's affiliate ( affiliated money market fund) here fund contractually agreed to waive fees or expense in an amount sufficient to offset the fees and expense of affiliated market fund because of fund investment in money market fund this is effective till 6/30/2022 at which time fund will decide whether to renew it .

here fund has contractually waived the normal operating expenditure hence net expense ratio is very nominal of 0.07% further here fund has not waived any abbormal expenditure of litigation and claim.

Further normally. funds with zero fees charges load from client at the time of entry and exit.

Moreover main source of income of no fees is by lending security to the persons who are short selling it in open market and charging fees and interest from them which is very lucrative.