Mutual Fund Liquidity and Fiduciary Conflicts of Interest

9 Pages Posted: 7 Nov 2015

See all articles by Miles Livingston

Miles Livingston

University of Florida - Department of Finance, Insurance and Real Estate

David A. Rakowski

University of Texas at Arlington

Multiple version iconThere are 3 versions of this paper

Date Written: 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 non-trading 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 non-trading investors for providing liquidity. This procedure reduces the incentives for the use of mutual funds as short-term trading vehicles.

Suggested Citation

Livingston, Miles B. and Rakowski, David A., Mutual Fund Liquidity and Fiduciary Conflicts of Interest (2013). Journal of Applied Finance (Formerly Financial Practice and Education), Vol. 23, No. 2, 2013, Available at SSRN: https://ssrn.com/abstract=2685704

Miles B. Livingston (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainsville, FL 32611-7168
United States
352-392-4316 (Phone)
352-392-0301 (Fax)

David A. Rakowski

University of Texas at Arlington ( email )

Box 19449 UTA
Arlington, TX 76019
United States

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