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

51 Pages Posted: 11 Nov 2008

See all articles by Sanjiv Ranjan Das

Sanjiv Ranjan Das

Santa Clara University - Leavey School of Business

Rangarajan K. Sundaram

New York University (NYU) - Department of Finance

Date Written: February 1998

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.

Suggested Citation

Das, Sanjiv Ranjan and Sundaram, Rangarajan K., The Regulation of Fee Structures in Mutual Funds: A Theoretical Analysis (February 1998). NYU Working Paper No. FIN-98-085. Available at SSRN: https://ssrn.com/abstract=1298290

Sanjiv Ranjan Das (Contact Author)

Santa Clara University - Leavey School of Business ( email )

Department of Finance
316M Lucas Hall
Santa Clara, CA 95053
United States

HOME PAGE: http://algo.scu.edu/~sanjivdas/

Rangarajan K. Sundaram

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0308 (Phone)
212-995-4233 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
55
Abstract Views
646
rank
385,952
PlumX Metrics