Are mutual fund inflow restrictions intended to protect or promote? A profit-driven explanation based on China's mutual funds

Fund managers often pursue asset growth to maximize scale-based pay, but they sometimes voluntarily restrict inflows. We examine this puzzle at the fund family level and propose a profit structure dependence hypothesis wherein a family's reliance on interest versus spread income systematically shapes its use of inflow gates. Using a sample of China's open-end equity and equity-oriented hybrid mutual funds from 2010 to 2024, we demonstrate that families relying more on interest income are more inclined to adopt short-term, partly closed gates to keep the subscription channel open, whereas those that rely more on spread-based income prefer closed gates to protect investment capacity. In contrast, a single fund's profit structure has no significant association with inflow restrictions, indicating that inflow gates are primarily driven by family-level strategy. We also find that partly closed gates reduce the number of investors and the retail holding share but increase inflow—a phenomenon we call “investor-base pruning.” This is more pronounced for families dependent on interest income, which aligns with managers' incentives to maximize assets under management. Finally, we determine partly closed gates to be associated with performance reversals, whereas closed gates maintain performance without significant reversals. This study reveals pronounced heterogeneity in inflow restrictions across families, indicating that marketing ploy (Hu et al., 2024) and investor protection (Chen et al., 2012) hypotheses coexist based on the fund family's profit structure. The findings inform liquidity management and investor protection policy.