Euro-area households invest significantly in mutual fund units to diversify their portfolios. However, given the complexity of the market, it can be difficult for retail investors to choose funds with the best risk-return profile. This paper uses granular data on a very large sample of open-ended mutual funds held by euro-area households to assess their returns and fees.
Mutual funds whose investor base consists mainly of euro-area households charge higher fees, on average, than funds held mostly by institutional investors and generate relatively lower risk-adjusted returns, all other things being equal. This is especially the case for equity funds, which are more difficult to evaluate for less financially sophisticated investors.
