Effect of Economic Growth on Performance of Mutual Trust Funds in Kenya

Abstract

Mutual trust funds in Kenya has continued to post a dwindling performance for the last 10 years, especially for the last one year, when the country recorded a major performance decline in 2020 as a result of global Covid-19 pandemic that affected nearly all sectors of the economy. This study therefore seeks to assess the effects of economic growth of Kenya on mutual trust funds performance. The study was based on Modern Portfolio Theory (MPT) and Capital Asset Pricing Model (CAPM). The research was guided by descriptive research design and all the 34 mutual trust funds schemes from the listed mutual trust fund firms by Capital Market Authority were involved in the study. The study used simple random sampling technique to obtain the firms and sourced for secondary data from Capital Market Authority on the sampled firms. The study used SPSS version 26 where data was analysed through descriptive statistics as well multiple linear regression analysis. The study found that economic growth of a country indicated by GDP, Interest Rate and Human Capital influenced significantly the financial performance of the mutual trust fund schemes in Kenya, with interest rate having a stronger influence followed by Gross Domestic Product then Human capital development or growth. The study therefore recommended that mutual trust fund firms should have in place a well thought out structures and policies that would help in mitigating adverse effects of volatile interest rate and also come up with ways in which the funds can be invested in diverse portfolio. Policy makers in the general economy of the county should come up with various stimulus programs or policies that enhance GDP growth rate, which would then augment the financial performance of the mutual trust funds. The government through various policies should work on plans that encourage human capital development and efficiency of a country through offering education and training incentives, since this was found to have influenced positively on the financial performance of mutual trust fund firms.