Factors Affecting Mutual Funds Performance

Abstract

This paper attempts to provide evidence on the impacts of certain determinants of Mutual Funds, Some of the evidence that are Risk Factors, Expense factors, GDP Growth and Real Interest Rate in Performance of Mutual Funds (MF) in Pakistan. This study is carried out using Panel Least Square technique (of Ordinary Least Square OLS of regression) on four models. Three types of funds under open-ended schemes are selected for sample. There are total 57 companies from mutual funds were selected in which 21 companies were from Money Market Sector Funds, 29 companies from Income Mutual Funds and 7 companies from Aggressive Income funds are targeted for examination. The Data taken were of 4 years from 2016 to 2019 for micro factors and 10 years from 2010 to 2019 for macro-economic factors. The study finds out the necessary componential statistically significant relationships of each model (except one) with Mutual Funds Returns (taken as measure of performance). The application of OLS (Ordinary Least Square) enabled us to estimate that Risk factors (I.e. Coefficient of Variation and Sharpe ratio), Expense Factor (I.e. Selling and Marketing Expense) and GDP growth have positive relationship with Mutual Fund Returns. On the other hand, Expense Factor (I.e. Total Expense Ratio) and Interest Rate revealed negative relationship with the Returns. The result of all the models are significant from test of fits excepts the model prepared for country wide economic factors (I.e. Interest rate and GDP Growth due to data constraints. All the results intimations are however in alignment with respective finance and economic theories. Hence, the model on basis of statistic techniques and matchmaking with theories can be claimed evidently in its good faith.