As the Year of the Snake begins, there is a noteworthy trend unfolding in the asset management industry: a wave of fee reductions among mutual fundsRenowned players in the market, including Yinhua Fund, Hua’an Fund, and Haitai Baichuan Fund, made headlines on February 6, announcing significant cuts to management fees and custody fees for their Qualified Domestic Institutional Investor (QDII) fundsThis targeted approach to reducing costs has not only affected the QDII funds but has extended to active equity funds, mainstream broad-based ETFs, bond funds, and even money market fundsSome of these funds are demonstrating an impressive ability to halve management and custody fees.

Interviews with financial analysts have revealed two significant outcomes stemming from this fee reduction trendFirst, the diversification of fund categories that are lowering fees is becoming more apparent

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Data collected at multiple points throughout 2024 shows that the average management fee across the market has steadily declined, with rates reported at 0.76% at the end of December 2023, 0.74% by June 2024, and further to 0.72% as of February 6, 2025.

Secondly, the impact of fee levels on the overall fund industry is garnering increased scrutinyResearch institutions have expanded their focus from basic considerations such as “benefits to investors” and “profitability erosion for fund companies” to more sophisticated analyses that ask vital questions: “How do fee structures affect fund performance?” and “Which category of funds, high or low in fees, outperforms the average?”

The fee cuts, particularly in QDII funds, should be noted not just for their immediate financial implications but also for how they underscore broader structural changes in fund management strategies

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For instance, from February 8, Yinhua Fund is reducing the custody fee for its flagship Yinhua Hang Seng China Enterprises Index Securities Investment Fund from 0.28% to 0.20%. Earlier, it had announced that the management and custody fees for its overseas digital economy quantitative selection mixed fund and global new energy vehicle quantitative preferred stock fund would decrease from 1.50% to 1.20% and from 0.25% to 0.20%, respectively.

In parallel, Haitai Baichuan Fund also announced cuts on February 6 for its QDII productsNotably, the fees for the Haitai Baichuan Asian Leading Enterprises Mixed Fund will see management fees drop from 1.80% to 1.20% and custody fees from 0.35% to 0.20%. Similarly, Hua’an Fund reported that four of its QDII funds were also reducing fees simultaneouslyFor example, the management fee for Hua'an Greater China Upgraded Equity Fund and Hua'an Hong Kong Selected Equity Fund would shrink from 1.5% to 1.2%, along with corresponding cuts in custody fees.

This trend is not limited to just QDII products; various bond funds are also seeing similar reductions

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For example, the Changjiang Fund announced on February 5 that the management fee for its Changjiang Balanced Wealth Bond Fund would be slashed from 0.30% to 0.15%. Likewise, the China Europe Fund indicated that its Hong Kong Stock Digital Economy Fund would witness a decrease in its management fee from 1.80% to 1.20%. These fee engravings are revealing a trend that is not just isolated to the new lunar year but reflects a continuing shift that has been in motion since before the Chinese New Year.

Though the current landscape shows QDII funds at the center of this evolution, the recent reductions also encompass active equity funds, mainstream ETFs, bond funds, and money market productsThis broadening of the fee-cutting initiative signifies an enriching tapestry of choices for investors, which has begun to present clearer trends in the management and custody fees of various funds.

For instance, during late January, the Fangzheng Fund announced a significant cut in the management fee for its Fangzheng Huasheng 300 ETF, from 0.50% to an impressive 0.15%. The custody fee for the ETF will also decrease, now sitting at just 0.05%. From the beginning of 2024, Jia Shi Fund followed suit, lowering management fees for both its Jiashi CSI 2000 ETF and Jiashi CSI A100 ETF from 0.50% to 0.15%, aligning custodial fees closely with those reductions.

Moreover, the anticipated impact of these changes has been further corroborated by recent studies from Morningstar China

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They emphasize that the fee structure for funds consistently plays an essential role in assessing potential returnsTheir findings advocate that low-fee funds generally possess superior abilities to not only survive but also surpass the average performance metrics of comparable funds over an extended periodAs regulatory pressures mount to encourage fee reductions, the dialogue around management fees has transitioned from a mere consideration to a foundational element in competitive market strategies.

In observing these trends, the focus has shifted markedly from broad musings about profitability and consumer benefits to detailed analyses of performance dynamicsMorningstar China’s findings in the equity-focused fund sector reveal a stark disparity in performanceThey noted that funds within the lowest fee tier achieved a win-rate of 35.1%, while those in the highest fee bracket only managed a 10.8% win-rate, showcasing the tangible implications high fees can impose on investment yields.

Fund managers must navigate a complex landscape where performance metrics are directly linked to how fees are structured