Investor Response to Mutual Fund Policy Variables

The effects of investment performance and macro-economic influences on money flow to individual mutual funds previously have been investigated and found to provide little explanatory power. In this article we investigate an additional category of factors that may logically be thought to affect the flow of money to funds, namely, the fund policy factors over which managers have some degree of control. These are: load/no-load status, sales commission structures, minimum dollar investment levels, and expenses. We establish associations between these factors and new money flows. Several significant relationships are found. Overall, however, the policy variables we investigated explain little of the variability in new money flows. A competitive equilibrium appears to exist such that no single fund attracts new money at disproportionately high rates through its policies. Our results, like those obtained for performance and macro-economic variables, highlight the inability of mutual fund research to date to explain adequately the flow of new money to individual funds.