Distribution fees and mutual fund flows: Evidence from a natural experiment in the Indian mutual funds market
AbstractMutual fund companies typically charge investors distribution fees, such as 12b-1 fees in the United States, which they then use to pay commissions to brokers. We evaluate a major Indian investor protection reform that limited the ability of mutual funds to charge distribution fees to pay broker commissions. We identify the impact of this policy change by comparing funds charging high distribution fees prior to the reform to those charging low distribution fees; we show that trends in asset growth across these groups prior to the reform were similar, and argue that a comparison of their asset growth after the reform is indicative of the policy impact. Contrary to industry claims that banning distribution fees would dramatically reduce investment in mutual funds, we find no evidence that the post-reform asset growth was lower for funds charging higher distribution fees prior to the reform. We primarily find that asset growth in funds with previously high distribution fees was higher after the policy change. At the aggregate level, our results suggest that Indian mutual fund growth in the post-policy period was lower for reasons independent of this policy change, such as a general move away from mutual funds towards real assets such as gold and real estate following the 2008 financial crisis.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Indira Gandhi Institute of Development Research, Mumbai, India in its series Indira Gandhi Institute of Development Research, Mumbai Working Papers with number 2013-004.
Length: 56 pages
Date of creation: Feb 2013
Date of revision:
Contact details of provider:
Postal: Gen. A. K. Vaidya Marg, Goregaon (E), Mumbai 400065
Phone: (022) 840 0919/20/21
Fax: (022) 840 2752/2026
Web page: http://www.igidr.ac.in
More information through EDIRC
regulation; commission ban;
Find related papers by JEL classification:
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-04-20 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Shawn Cole & Thomas Sampson & Bilal Zia, 2011. "Prices or Knowledge? What Drives Demand for Financial Services in Emerging Markets?," Journal of Finance, American Finance Association, American Finance Association, vol. 66(6), pages 1933-1967, December.
- Santosh Anagol & Shawn Cole & Shayak Sarkar, 2012. "Understanding the Advice of Commissions-Motivated Agents: Evidence from the Indian Life Insurance Market," Harvard Business School Working Papers, Harvard Business School 12-055, Harvard Business School, revised Jan 2013.
- Susan E. K. Christoffersen & Richard Evans & David K. Musto, 2013. "What Do Consumers’ Fund Flows Maximize? Evidence from Their Brokers’ Incentives," Journal of Finance, American Finance Association, American Finance Association, vol. 68(1), pages 201-235, 02.
- Xavier Gabaix & David Laibson, 2005.
"Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets,"
NBER Working Papers
11755, National Bureau of Economic Research, Inc.
- Xavier Gabaix & David Laibson, 2006. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 121(2), pages 505-540, May.
- Laibson, David I. & Gabaix, Xavier, 2006. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," Scholarly Articles 4554333, Harvard University Department of Economics.
- Panle Jia & Parag A. Pathak, 2010. "The Impact of Commissions on Home Sales in Greater Boston," American Economic Review, American Economic Association, American Economic Association, vol. 100(2), pages 475-79, May.
- Monika Halan & Renuka Sane & Susan Thomas, 2013. "Estimating losses to customers on account of mis-selling life insurance policies in India," Indira Gandhi Institute of Development Research, Mumbai Working Papers, Indira Gandhi Institute of Development Research, Mumbai, India 2013-007, Indira Gandhi Institute of Development Research, Mumbai, India.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamprasad M. Pujar).
If references are entirely missing, you can add them using this form.