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Distribution fees and mutual fund flows: Evidence from a natural experiment in the Indian mutual funds market


  • Santosh Anagol


  • Vijaya Marisetty

    (RMIT University)

  • Renuka Sane

    () (Indira Gandhi Institute of Development Research)

  • Buvaneshwaran Venugopal

    (C.T. Bauer College of Business, University of Houston)


Mutual 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.

Suggested Citation

  • Santosh Anagol & Vijaya Marisetty & Renuka Sane & Buvaneshwaran Venugopal, 2013. "Distribution fees and mutual fund flows: Evidence from a natural experiment in the Indian mutual funds market," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2013-004, Indira Gandhi Institute of Development Research, Mumbai, India.
  • Handle: RePEc:ind:igiwpp:2013-004

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    References listed on IDEAS

    1. Dipak Ghosh & Eric Levin & Robert E Wright & The Centre for Economic Policy Research, "undated". "Gold as an Inflation Hedge?," Working Papers Series 96/10, University of Stirling, Division of Economics.
    2. Xavier Gabaix & David Laibson, 2006. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 121(2), pages 505-540.
    3. 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, vol. 66(6), pages 1933-1967, December.
    4. Justine S. Hastings & Brigitte C. Madrian & William L. Skimmyhorn, 2013. "Financial Literacy, Financial Education, and Economic Outcomes," Annual Review of Economics, Annual Reviews, vol. 5(1), pages 347-373, May.
    5. Panle Jia & Parag A. Pathak, 2010. "The Impact of Commissions on Home Sales in Greater Boston," American Economic Review, American Economic Association, vol. 100(2), pages 475-479, May.
    6. Santosh Anagol & Hugh Hoikwang Kim, 2012. "The Impact of Shrouded Fees: Evidence from a Natural Experiment in the Indian Mutual Funds Market," American Economic Review, American Economic Association, vol. 102(1), pages 576-593, February.
    7. 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, vol. 68(1), pages 201-235, February.
    8. 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 12-055, Harvard Business School, revised Oct 2015.
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    Cited by:

    1. 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 2013-007, Indira Gandhi Institute of Development Research, Mumbai, India.

    More about this item


    regulation; commission ban;

    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

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