On the Impact of Regulating Commissions: Evidence from the Indian Mutual Funds Market

Abstract

We evaluate a major Indian investor protection reform that attempted to reduce commissions tied to mutual fund sales by banning the distribution fees that mutual funds had previously earmarked for commissions. We identify the policy impact by comparing funds charging high versus low distribution fees pre-reform. Contrary to industry claims that limiting these distribution fees has reduced mutual fund growth, we find no evidence that the reform itself reduced fund flows. We argue that the most plausible explanation is that the Indian asset management industry maintained substantial commissions to brokers through other revenue sources apart from the banned distribution fees.