Does High Fee Matter? Evidence from Thai Mutual Fund Industry

Evaluating Mutual Funds: Thailand’s Market Study

This study explores how mutual fund fees and bank relationships affect fund performance, focusing on Thailand’s growing mutual fund industry. Mutual funds, managed by professional fund managers, offer novice investors a way to earn potentially higher returns. Fund managers charge fees for their services, and it is debated whether higher fees lead to better performance. Recent research emphasizes the impact of the relationship between mutual funds and commercial banks, a less explored area in earlier studies. This relationship categorizes funds into bank-related (BR) and non-bank-related (NBR) funds, which differ in information access and investment constraints. BR funds, linked to banks, often have better liquidity and face different investment challenges compared to NBR funds. This study also investigates the bank-mutual fund relationship’s influence on mutual fund risk-taking behavior.

This research particularly examines the Thai mutual fund industry due to its significant growth and Thailand’s role in the ASEAN Economic Community. Thailand’s bank-based economy and its influence on mutual fund operations are central to this analysis. This study aims to provide empirical evidence on the different impacts of mutual fund fees and performance between BR and NBR funds.

Mutual Fund Charges: Thailand’s Market Analysis

Mutual funds, managed by Asset Management Companies (AMCs), charge fees to cover various expenses like management, research, and infrastructure. These fees are mainly of two types: annual charges (like management and custodian fees) based on the fund’s Asset Under Management (AUM), and one-time fees for investments and redemptions. High turnover ratio funds often have higher fees, and while active management can lead to superior returns, high transaction costs can lower the net gains.

Fees also vary due to external factors like market size, GDP, and judicial systems, and internal factors like investment goals, market focus, fund size, and fund family size. Competitive markets tend to have lower fees. While many studies focus on developed markets, research in emerging markets like Thailand is limited. Studies show fund family size influences fees in Thailand, and tax-benefit funds charge higher fees. However, these studies often overlook the crucial bank-mutual fund relationship.

BR vs. NBR: Thai Fund Insights

The relationship between commercial banks and mutual funds, categorized into bank-related (BR) and non-bank-related (NBR) funds, significantly influences mutual fund characteristics. BR funds, linked to banks, have access to better information and face different investment constraints compared to NBR funds. They also experience fewer liquidity constraints due to more new investment flows and lower information searching costs. However, this close bank-fund relationship can lead to conflicts of interest, where banks might influence BR funds to support certain investments, potentially leading to suboptimal fund performance.

This study specifically focuses on Thailand, an emerging market with a bank-based financing system, to explore this bank-fund relationship. Thailand’s economy has grown faster than the global average, making it a key player in the ASEAN Economic Community. Most Thai businesses rely on bank loans for financing, and recent evidence suggests BR funds dominate the Thai mutual fund industry. This setting provides an opportunity to examine if BR funds benefit from privileged information from banks, as banks have access to detailed client data. This advantage potentially leads to lower information searching costs for BR funds, attracting more investment and reducing liquidity constraints compared to NBR funds.

Decades of Development: Thailand’s Fund Industry

Thailand’s mutual fund industry, initiated in 1975 by the government and the International Finance Corporation, began with just one asset management company (AMC), Mutual Fund Public Co., Ltd. This company managed 22 funds, split between domestic and international investments. The industry expanded significantly following the Securities and Exchange Act of 1992, which allowed commercial banks and financial institutions to establish and operate new mutual funds. By January 2017, Thailand had 22 AMCs, equally divided between bank-related (BR) and non-bank-related (NBR) AMCs, with BR AMCs managing more funds.

The industry saw impressive growth between 2002 and 2016, with assets under management (AUM) increasing significantly, indicating a rising popularity of mutual funds over traditional savings options. The study uses data from Morningstar Direct, including all listed and de-listed fund net asset values (NAVs), AUM, and fund flows from 2008 to 2016. Mutual fund fees are measured using the annual expense ratio, and the study includes various investment objectives based on the Morningstar Global Classification. To differentiate between BR and NBR funds, the study matches the names of commercial banks with AMCs and verifies fund-bank relationships through mutual fund websites. By the end of 2016, the Thai mutual fund industry comprised 2,025 funds, with a majority being BR funds.


To assess Thai mutual funds, two main performance metrics are used: the total return and the Sharpe ratio. Total return measures the change in a fund’s net asset value, indicating performance linked to the fund manager’s skill. The Sharpe ratio evaluates risk-adjusted returns by dividing excess return by the fund’s volatility. Analysis from 2008 to 2016 shows that mutual fund expenses, as a percentage of assets under management (AUM), have progressively increased. Equity-focused funds, comprising equity and allocation funds, have the highest annual fees, whereas money market funds have the lowest. A statistical test (ANOVA) confirms significant differences in expenses across fund types, despite similar performance levels. The study also compares bank-related (BR) and non-bank-related (NBR) funds. It finds that NBR funds have increased their fees more than BR funds over time. However, BR funds are observed to charge higher fees for certain fund types, like equity and commodities, supporting the information advantage hypothesis which suggests that BR funds benefit from their banking connections.

In Thailand’s mutual fund market, the connection between banks and funds significantly affects how much investors pay in fees and how well the funds perform. From 2008 to 2016, the study shows that non-bank-related (NBR) funds have increased their fees more quickly than bank-related (BR) funds. However, it’s usually the BR funds that charge more for certain types of investments like stocks and commodities. This seems to support the idea that BR funds might have an advantage because of their close links to banks, possibly getting better information that they use to justify higher fees.

When it comes to how well these funds do, though, the story is different. The research indicates that paying more in fees does not always mean you will get better returns on your investment. In fact, NBR funds, which are less connected to banks, have slightly better performance than BR funds. But these differences are small and not consistent enough to make a firm conclusion across the whole market.

This tells us that while the relationships between banks and funds and the fees they charge are important parts of how mutual funds work, they don’t always lead to better results for investors. These findings challenge the common belief that higher fees mean better management and suggest that in Thailand, BR funds might use their bank connections to set higher fees, but this doesn’t necessarily mean investors will earn more money.