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The Impact of Shrouded Fees: Evidence from a Natural Experiment in the Indian Mutual Funds Market

  • Santosh Anagol
  • Hugh Hoikwang Kim

We study a natural experiment in the Indian mutual funds sector that created a 22-month period in which closed-end funds were allowed to charge an arguably shrouded fee, whereas open-end funds were forced to charge entry loads. Forty-five new closed-end funds were started during this period, collecting $7.6 billion US, whereas only two closed-end funds were started in the 66 months prior to this period, collecting $42 billion US, and no closed-end funds were started in the 20 months after this period. We estimate that investors lost and fund firms gained approximately $350 million US due to this shrouding. (JEL D14, G23, G28, O16)

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 102 (2012)
Issue (Month): 1 (February)
Pages: 576-93

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Handle: RePEc:aea:aecrev:v:102:y:2012:i:1:p:576-93
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  1. Fabian Duarte & Justine S. Hastings, 2012. "Fettered Consumers and Sophisticated Firms: Evidence from Mexico's Privatized Social Security Market," NBER Working Papers 18582, National Bureau of Economic Research, Inc.
  2. Carlin, Bruce I., 2009. "Strategic price complexity in retail financial markets," Journal of Financial Economics, Elsevier, vol. 91(3), pages 278-287, March.
  3. James Choi & David Laibson & Brigitte Madrian, 2008. "Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds," Yale School of Management Working Papers amz2369, Yale School of Management, revised 05 May 2008.
  4. Jeremy C. Stein, 2005. "Why are most Funds Open-end? Competition and the Limits of Arbitrage," The Quarterly Journal of Economics, MIT Press, vol. 120(1), pages 247-272, January.
  5. 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.
  6. Gruber, Martin J, 1996. " Another Puzzle: The Growth in Activity Managed Mutual Funds," Journal of Finance, American Finance Association, vol. 51(3), pages 783-810, July.
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