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On the Impact of Regulating Commissions: Evidence from the Indian Mutual Funds Market

Author

Listed:
  • Santosh Anagol
  • Vijaya Marisetty
  • Renuka Sane
  • Buvaneshwaran Venugopal

Abstract

Commissions-motivated agents have historically helped the development of many markets, but research suggests brokers motivated by commissions sometimes steer consumers towards inappropriate products. This issue is particularly important in household financial markets where consumers may be unable to evaluate products on their own. While reforms attempting to limit commission payments have been undertaken worldwide, little research has evaluated the impact of these reforms. We study a major Indian investor protection reform that attempted to reduce commissions tied to mutual fund sales by banning the distribution fees that mutual funds had previously earmarked for commissions. We analyze the policy impact by comparing funds charging high versus low distribution fees pre-reform and find no evidence that the reform itself reduced fund flows. We argue that the most plausible explanation is that the Indian asset management industry maintained substantial commissions to brokers through other revenue sources apart from the banned distribution fees.

Suggested Citation

  • Santosh Anagol & Vijaya Marisetty & Renuka Sane & Buvaneshwaran Venugopal, 2017. "On the Impact of Regulating Commissions: Evidence from the Indian Mutual Funds Market," The World Bank Economic Review, World Bank, vol. 31(1), pages 241-270.
    • Handle: RePEc:oup:wbecrv:v:31:y:2017:i:1:p:241-270.
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    File URL: http://hdl.handle.net/10.1093/wber/lhv065
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    Citations

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    Cited by:

    1. Anagol, Santosh & Pareek, Ankur, 2019. "Should business groups be in finance? Evidence from Indian mutual funds," Journal of Development Economics, Elsevier, vol. 139(C), pages 229-248.
    2. Ajay Shah, 2023. "The journey of Indian finance," Working Papers 25, xKDR.
    3. Chauhan, Yogesh & Dey, Dipanjan Kumar, 2020. "Does financial literacy affect the value of financial advice? A contingent valuation approach," Journal of Behavioral and Experimental Finance, Elsevier, vol. 25(C).

    More about this item

    Keywords

    O16: Economic Development: Financial Markets; Saving and Capital Investment; G28: Financial Institutions and Services: Government Policy and Regulation;
    All these keywords.

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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