EFFECTS OF MACRO ECONOMIC VARIABLES ON MUTUAL FUND PERFORMANCE (ANALYSIS IN PAKISTAN)

Abstract

This study examines how various macroeconomic factors influence the performance of mutual funds in Pakistan, specifically focusing on Equity, Income, and Money Market Funds over the last five years (2020-2024). The research analyzes the impact of interest rates, inflation, the unemployment rate, and Gross Domestic Product (GDP) growth on mutual fund returns. Using a regression model on data from 15 selected open-end mutual funds, sourced from MUFAP and mutual fund manager reports, the study reveals significant insights. It consistently finds that rising interest rates generally lead to better returns across all three fund types, while increasing inflation rates tend to diminish them. GDP growth exhibited a negative impact on Income and Money Market Funds but no statistically significant effect on Equity Funds. Notably, a counterintuitive positive relationship was observed between the unemployment rate and Equity Fund returns, challenging conventional economic expectations. These findings highlight the distinct sensitivities of various fund categories to macroeconomic shifts, providing crucial information for investors and fund managers to make more informed decisions and manage risks effectively in the dynamic Pakistani market.