Price competition in the mutual fund industry

Parida, Sitikantha; Tang, Zhenyang

doi:10.1016/j.econmod.2017.10.005

Cited by 19 publications

(23 citation statements)

References 23 publications

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“…However, management company shareholders are in a better position than fund investors, due to the fund manager's behavior potentially aligning with the profit maximization of the company -rather than of the fund investors (Reynolds et al, 2006). This might be a reason as to why the level of a management fee does not reward a realized fund performance (Cooper et al, 2021;Gil-Bazo & Ruiz-Verdu, 2009;Parida & Tang, 2018); though the recent literature also considers the opposite scenario (He et al, 2018;Sheng et al, 2022;Vidal et al, 2015). This study works towards solving this problem since, unlike the demand side of the mutual fund market, its supply side is always very attentive.…”

Section: Literature Reviewmentioning

confidence: 99%

Actual rate of the management fee in mutual funds of different styles

Perez

Szymczyk

2022

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Research background: Exponential growth of passive mutual funds after 2007?2008 global financial crisis put pressure on active fund managers to lower the management fees. The real costs of active fund management are, however, very often higher than the values of management fees reported publicly. Thus it is not easy to decide on the quality of the fund management and estimate the level of management charges optimal for the future fund performance. Purpose of the article: In this study, we propose to utilize an actual rate of the management fee (ARMF) disclosed in the management company financial statements as a measure of the real value of the management costs and investigate its determinants in mutual funds of different styles. Methods: Using a dataset of 21,618 monthly observations for 500 mutual funds from a market of diversified structure and high management fees charged we test the operating model of a mutual fund performance, and derive the formula of a before-fee return with the ARMF as its component. The fund performance is measured by a raw before-fee return and two types of risk-adjusted alphas based on the multifactor model of Carhart (1997) and the fund attributes. Later, using panel data we explain ARMF by mutual fund performance and attributes. We also compare the results to the ones obtained for the total operational cost (TOC) ? a value similar to ARMF that is disclosed in mutual fund financial reports. Findings & value added: We find that the proposed ARMF is related more to the size and not to the performance, age or a cash flow of mutual funds. We observe it among all studied fund styles. The largest deviations of the average ARMF are seen in the management companies that belong to the banks? capital groups. The proposed measure of the management fee included in the operating model of a mutual fund performance can be used for any local mutual fund worldwide, and compared with other fund markets of more or less diversified style structures.

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Section: Literature Reviewmentioning

confidence: 99%

Actual rate of the management fee in mutual funds of different styles

Perez

Szymczyk

2022

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“…Increased market competition on its own does not decrease the expenses of the fund. Regulatory interventions are equally urging investors to realize the fee structure [28]. It became a global standard that while the mutual fund company board management has control over marketing decisions, regulators enforce caps on the marketing expenses.…”

Section: E Marketing Expensesmentioning

confidence: 99%

Application of Marketing 4.0 Principles By the Indian Mutual Fund Industry

Polisetty*¹,

Manda²

2020

IJRTE

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The competitive Indian Mutual Fund Industry requires the use of Marketing 4.0 principles owing to changing marketplace dynamics and increased competition. Traditional advertising forms got saturated with mutual funds, and the new redefined marketing principles reinforced the need to move to digital media. The recent addition of the fifth A (Advocacy) to the marketing jargon became necessary because of the increased connectedness and social nature of the customers (investors). The O-Zone factor increasingly influences investor decision making and helps in driving loyal investors from Aware to Advocate. This article discusses the social media marketing of Indian Asset Management Companies (AMCs). Improving brand curiosity and extending product reach to prospective clients are some potential advantages of the activity. Engagement marketing practices, marketing expense impact, four C's marketing mix, and online customer care are some new marketing principles. AMCs can use these to build better marketing campaigns for building investor-centric financial products. Different dimensions of social media usage are specified, and their utilization by various Indian mutual fund houses is measured. This understanding can help in better marketing of financial products and services, particularly that of mutual funds.

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“…Gil-Bazo and Ruiz-Verdú (2008) also proposed a model in which worse-performing funds set fees that are greater or equal to those set by betterperforming funds. As Parida and Tang (2018) have demonstrated, the huge development of the mutual fund industry during the last decades, together with the subsequent rise in competition in the industry, may have not been sufficient to reduce their management and operating expenses, regardless of their pervasive implications on fund performance and performance persistence. In addition, Chang et al (2019) report evidence on the detrimental effect of portfolio fees on fund performance, since funds bearing low levels of expenses achieved significantly higher risk-adjusted funds than other comparable funds.…”

Section: Introductionmentioning

confidence: 99%

On management risk and price in the mutual fund industry: style and performance distribution analysis

2021

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This study shows how investing in mutual funds involves an additional risk, which we call management risk as a consequence of the uncertainty in the results of active management. To address this issue, we analyze a sample of 2,539 US equity mutual funds. For comparative purposes, we differentiate among index funds and actively managed mutual funds with different investment styles. We observe that performance distribution shows negative mean, negative skewness, and excess kurtosis. Results also show that management risk is not rewarded with higher abnormal performance. Moreover, higher active management prices are linked to funds with higher management risk and negative asymmetry. Therefore, investors seem to be risk-seeking since they are paying more to participate in high asymmetric bets.Finally, we attempt to solve this puzzle from the behavioral finance perspective.

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Price competition in the mutual fund industry

Cited by 19 publications

References 23 publications

Actual rate of the management fee in mutual funds of different styles

Actual rate of the management fee in mutual funds of different styles

Application of Marketing 4.0 Principles By the Indian Mutual Fund Industry

On management risk and price in the mutual fund industry: style and performance distribution analysis

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