Mutual Fund Liquidity and Fiduciary Conflicts of Interest
Forthcoming, Journal of Applied Finance
24 Pages Posted: 8 Jun 2013
There are 3 versions of this paper
Mutual Fund Liquidity and Fiduciary Conflicts of Interest
Mutual Fund Liquidity and Fiduciary Conflicts of Interest
Mutual Fund Liquidity and Fiduciary Conflicts of Interest
Date Written: June 6, 2013
Abstract
Open-end mutual funds allow purchases and redemptions of shares daily at the closing net asset value. This practice imposes costs upon the mutual fund for portfolio adjustments and maintaining cash balances to handle inflows and redemptions. The cost of providing liquidity falls disproportionately on nontrading investors. This paper proposes charging fees for purchasing mutual fund shares and for redeeming mutual fund shares. The fees collected will become part of the assets of the fund and compensate nontrading investors for providing liquidity. This procedure reduces the incentives for the use of mutual funds as short-term trading vehicles.
Keywords: Mutual Funds, Fiduciary Conflicts of Interests
JEL Classification: G12, G23
Suggested Citation: Suggested Citation