The Effect Of Size On The Performance Of Mutual Funds In Kenya

Abstract

According to RBA, there has been a gradual and constant growth in the size of mutual funds in Kenya in the recent years. Theoretically, the expected relativity of fund size and their performance is not explicit; some studies insist on a positive relationship, others a negative relationship while others suggest no correlation at all between the two variables. Contextually most of the studies on mutual funds have been done in European, Asian and American markets but few studies have been done locally. A question that remains unanswered after these studies is, “How does size affect the performance of mutual funds in Kenya?” The research framework was descriptive one hence a descriptive survey research study was preferred. The population of interest in this study was the types of mutual funds in Kenya as at the start the year 2008. There were 33 registered Mutual Funds in Kenya at the end of 2008 under the management of 11 mutual fund managers. This paper utilized secondary data. Correlation coefficients between fund size and performance was computed to assess the degree of relationship between fund size and performance of mutual funds. The study used multiple linear regression equation and the method of estimation was Ordinary Least Squares (OLS) so as to establish the relationship between mutual fund size and performance. The study found that there was a positive relationship between fund performance and fund size. The study found that operation risks, transactions cost and fund size were statistically significant to affecting mutual fund performance in Kenya. The study found that risk in the management of mutual funds cannot be ignored in any investment venture. The risk of a security is the variability in its expected future returns. The study recommends that there is need for the management of mutual funds to mitigate operation risk involved in the mutual fund investment as it was found that high risk securities have high dispersion around the mean while low risk securities will have a low dispersion around the mean. There is need to reduce the transaction cost involved in the mutual funds acquisition, as it was found that increase in transaction cost negatively affects the performance of mutual funds in Kenya.