Mutual fund fee structure with deceptive features

Details

Supervisors

Johnen, Johannes

Faculty

Faculté des sciences économiques, sociales, politiques et de communication

Degree label

Master [120] en sciences économiques, orientation générale, à finalité approfondie

Abstract

Mutual funds often face significant challenges in optimizing fee structures, particularly in balancing transparent and shrouded fees within the fixed fee framework. This paper investigates the implications of this interplay on fund profitability and long-term stability. A theoretical framework is developed, incorporating an extended Capital Asset Pricing Model that accounts for investor fairness concerns related to shrouded fees, alongside a model for fund profit maximization. The analysis reveals that: (i) a higher proportion of shrouded fees relative to transparent fees leads to increased short-term profits but undermines long-term sustainability; and (ii) prioritizing transparent fees promotes more stable profitability and enhances fund longevity. I connect these findings to practical implications for fund management strategies.