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

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, collect...

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Bibliographic Details
Published in:The American economic review 2012-02, Vol.102 (1), p.576-593
Main Authors: Anagol, Santosh, Kim, Hugh Hoikwang
Format: Article
Language:English
Subjects:
Capital market
Closed end funds
Closed end investment companies
Economic models
Economic theory
Experiments
Fees
Fees & charges
Financial investments
Financial services industries
Fund management
Index funds
India
Investment analysis
Investment funds
Investor behavior
Investors
Laboratories
Liquidity
Mutual funds
Net assets
Public policy
Shorter Papers
Shrouded fees
Studies
Websites
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Summary: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
ISSN:0002-8282
1944-7981
DOI:10.1257/aer.102.1.576