Our Country Open-end Equity Funds Competition To Fund Cash Flow Impact Study

After ten years’development, domestic mutual funds have become an important part of China’s capital market. Facing with increased market participants and expanded investment channels for investors, the competitive environment of domestic mutual fund industry is increasingly fierce. Domestic fund market has gradually developed from a monopoly to a competitive market. Under the premise of abundant Potential customers (investors)in the market, moderate competition can enhance quality of fund product, reduce cost of fund investments, standardize behaviors of fund administrator and improve the efficiency of fund market, which can create greater profit margins for inverters. In this case, competition can attract more investors and capital into the fund market, and of course increase fund flows. However, if client (investor) of the market has been saturated, competition will only lead to redistribution of inverters and funds between different fund management companies. In this case, the increasingly fierce competition will lead to greater risk of cash outflows.We examine the impact of the entry of new mutual funds on incumbents’funds using the overlap in their portfolio holdings (MOV) as a measure of competitive intensity. This simple metric delivers powerful economic results. Fund flows are associated with intra-industry competition. Incumbents that have a high overlap with Funds with high overlap experience higher fund flows. We conclude that domestic mutual fund market was a competition market with abundant Potential customers (investors). In such a market, horizontal competition can attract more funds, and then increase the fund flow. In addition, empirical results also confirmed the existence of "redemption puzzle" in domestic mutual fund market.Finally, combined empirical findings with reality of domestic mutual fund market, we give some suggestions of policy recommendations to promote the development of domestic mutual fund market.