IDEAS home Printed from https://ideas.repec.org/p/fth/nystfi/98-085.html
   My bibliography  Save this paper

The Regulation of Fee Structures in Mutual Funds: A Theoretical Analysis

Author

Listed:
  • Sanjiv Ranjan Das
  • Rangarajan K. Sundaram

Abstract

Existing regulations require fee structures used to compensate advisers in the mutual fund industry to be the "fulcrum" variety, decreasing for underperforming a given index in the same way in which they increase for outperforming it. In this paper, we offer a new model for analysing the mutual fund industry, and use this model to examine the impact of restricting the fee structures that may be employed. We find little justification for existing regulations. Indeed, we find that "incentive fees" in which the advisor receives a flat fee plus a bonus for exceeding a benchmark index provide Pareto-dominant outcomes with a lower level of equilibrium volatility. Our model also offers some insight into fee structures actually in use in the asset-management industry. We find that when leveraging is not permitted and a fulcrum fee must be employed, the equilibrium fee is a flat fee with no performance component: while if incentive fees are allowed and leveraging is permitted the equilibrium fee is an incentive fee with large performance component. These results mesh well with observed fee structures in the mutual fund industry and the hedge fund industry, respectively.

Suggested Citation

  • Sanjiv Ranjan Das & Rangarajan K. Sundaram, 1998. "The Regulation of Fee Structures in Mutual Funds: A Theoretical Analysis," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-085, New York University, Leonard N. Stern School of Business-.
  • Handle: RePEc:fth:nystfi:98-085
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:pal:assmgt:v:19:y:2018:i:1:d:10.1057_s41260-017-0061-8 is not listed on IDEAS
    2. repec:bla:eufman:v:20:y:2014:i:4:p:825-855 is not listed on IDEAS
    3. Paul G. Mahoney, 2004. "Manager-Investor Conflicts in Mutual Funds," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 161-182, Spring.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fth:nystfi:98-085. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel). General contact details of provider: http://edirc.repec.org/data/fdnyuus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.