Impact of Fund Size on Performance of Mutual Funds in Bangladesh

Abstract

Mutual funds, traded as safer alternatives to common shares, have grown in popularity among institutional and individual investors over the last two decades. With that, an extensive study of mutual fund has also increased over the course of time in the western world. Despite the vast popularity of mutual fund investing as Retirement funds around the globe, only few research have been conducted on this subject in Bangladesh. This paper is an attempt to study the performance of 20 close-ended funds traded in Dhaka stock exchange on the basis of fund size. The methodologies applied in this study are risk adjusted performance measures suggested by the renowned Nobel Prize winners, Mr. Eugene Fama and Mr. Kenneth French, widely known as Th¬e Fama French Three Factor Model. Following this model, I added size and value as risk factors to the market systematic risk. I then further calculated Sharpe Ratio and Treynor Ratio to measure the outcome of each fund when comparing to Benchmark Index. According to this analysis, the research outcome shows that fund size performs a significant role in the performance of the fund. The relationship suggests that fund size and return reflect a positive correlation and it occurs as a result of diversification. On the last part of the study, I explore some of the strategies that are helpful in achieving specific investment objectives through these funds.