The structure of mutual fund charges

This paper provides an explanation for the diversity in investment strategies and fees of open-end mutual funds. Mutual funds seek to dissuade redemptions through front- and back-end load fees. The empirical evidence is consistent with model predictions that such fees dissuade redemptions in open-end funds, and that funds hold more cash when there is uncertainty about redemptions. Furthermore, funds with load and redemption fees hold less cash that their no-load counterparts. The results suggest that aggressive funds are sensitive to cash flows and are likely to rely on fees to dissuade redemptions.