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The total cost of investing in mutual funds

Author

Listed:
  • Giorgio Albareto

    (Bank of Italy)

  • Giuseppe Cappelletti

    (European Central Bank)

  • Andrea Cardillo

    (Bank of Italy)

  • Luca Zucchelli

    (Bank of Italy)

Abstract

The total costs of investment in an open-end fund include those that are charged on the fund and those directly attributed to subscribers (subscription and redemption fees). Subscriptions of funds characterized by the presence of costs directly attributed to investors have increased significantly in recent years. The paper presents an estimate of the Total Shareholders Cost (TSC) made using the information provided by the investment management companies in the supervisory reports. The estimates obtained show that in the period 2006-2016 the TSC was on average 1.58 per cent of the total assets of funds (1.74 per cent at the end of 2016). Subtracting direct and indirect costs borne by investors, the return on open-end funds is reduced from 3.5 per cent on average to 2 per cent. Based on preliminary results, the presence of subscription and redemption fees reduces the elasticity of subscriptions and redemptions with respect to returns.

Suggested Citation

  • Giorgio Albareto & Giuseppe Cappelletti & Andrea Cardillo & Luca Zucchelli, 2017. "The total cost of investing in mutual funds," Questioni di Economia e Finanza (Occasional Papers) 391, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_391_17
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    File URL: https://www.bancaditalia.it/pubblicazioni/qef/2017-0391/QEF_391_17.pdf
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    Cited by:

    1. Massimo Coletta & Raffaele Santioni, 2019. "Households' investments in foreign mutual funds made transparent," Questioni di Economia e Finanza (Occasional Papers) 533, Bank of Italy, Economic Research and International Relations Area.
    2. Giorgio Albareto & Andrea Cardillo & Andrea Hamaui & Giuseppe Marinelli, 2020. "Mutual funds' performance: the role of distribution networks and bank affiliation," Temi di discussione (Economic working papers) 1272, Bank of Italy, Economic Research and International Relations Area.

    More about this item

    Keywords

    mutual funds; Total Expense Ratio; Total Shareholders Cost;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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