Incentive Fee

AAA

DEFINITION of 'Incentive Fee'

A fee paid to a fund manager by investors. Incentive fees are typically dependent upon the manager's performance over a given period and are usually taken in relation to a benchmark index. For instance, a fund manager may receive an incentive fee if his or her fund outperforms the S&P 500 Index over a calendar year, and may increase as the level of outperformance grows.

INVESTOPEDIA EXPLAINS 'Incentive Fee'

Incentive fees are usually in place to tie a manager's compensation to their level of performance, more specifically their level of financial return. However, such fees can sometime lead to increased levels of risk taking, as managers attempt to increase incentive levels through riskier ventures than outlined in a fund's prospectus.

RELATED TERMS
  1. Fund Manager

    The person(s) resposible for implementing a fund's investing ...
  2. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
  3. Portfolio Manager

    The person or persons responsible for investing a mutual, exchange-traded ...
  4. Incubated Fund

    A fund that is offered privately when it is first created. Investors ...
  5. Layered Fees

    Two sets of management fees that are paid by an investor for ...
  6. Nelson Peltz

    One of the most successful activist investors in the financial ...
Related Articles
  1. Mutual Funds & ETFs

    How To Pick A Good Mutual Fund

    Learn how to evaluate mutual funds and find the right one for you.
  2. Mutual Funds & ETFs

    Stop Paying High Mutual Fund Fees

    Discover how investment strategies and expense ratios impact your mutual fund's returns.
  3. Mutual Funds & ETFs

    Lower Your Fees With Mutual Fund Breakpoints

    The lower the sales charge you pay, the greater your returns. Find out how to cash in.
  4. Markets

    Get Tough On Management Puff

    Company managers are often skilled at fooling investors. Be critical and don't believe the hype.
  5. Mutual Funds & ETFs

    That's A (Mutual Fund) Wrap!

    These advisory programs offer professional supervision and other handy tools for building a diversified portfolio.
  6. Options & Futures

    Hedge Funds: Higher Returns Or Just High Fees?

    Discover the advantages and pitfalls of hedge funds and the questions to ask when choosing one.
  7. Schwab may not be the first company to offer a robo-advisor, but it's sure to make a big splash. Here's what it'll look like.
    Professionals

    Robo-Adviser Wave Gets Big Push From Schwab

    Schwab may not be the first company to offer a robo-advisor, but it's sure to make a big splash. Here's what it'll look like.
  8. With the addition of 'Bond King' Bill Gross, Janus is a changed firm. Here's what its fund lineup looks like now.
    Investing Basics

    How Does Janus's Fund Lineup Look Now?

    With the addition of 'Bond King' Bill Gross, Janus is a changed firm. Here's what its fund lineup looks like now.
  9. Fundamental Analysis

    How do I judge a mutual fund's performance?

    Evaluate mutual fund performance utilizing resources such as Morningstar; compare the fund with others in its peer group to find the best mutual fund for you.
  10. Blackrock has lowered its fees to snag money leaving Pimco's bond funds. But by how much and who's following suit? Read on.
    Investing Basics

    Thank You, Pimco: BlackRock Drops Bond-Fund Fees

    Blackrock has lowered its fees to snag money leaving Pimco's bond funds. But by how much and who's following suit? Read on.

You May Also Like

Hot Definitions
  1. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  2. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  3. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  4. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  5. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  6. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
Trading Center