Efficiency of Mutual Funds and Portfolio Performance Measurement: A Case of Selected Mutual Funds in Tanzania

Abstract

This study examines the current efficiency trends in the Tanzanian mutual fund industry over a five-year span (2018-2022), focusing on six  specific  funds: Umoja Fund, WekezaMaisha, Watoto Fund, Jikimu Fund, Liquid  Fund, and Bond Fund. Employing a non-parametric  approach, specifically  Data Envelopment Analysis (DEA), the research collects secondary data  from diverse sources, including  newspapers, journals, books, periodicals,  and the websites of UTT and the Bank of Tanzania (BOT). Monthly Net Asset  Values (NAVs) of  the selected mutual funds are scrutinized from each  scheme's inception. Motivated by the limited understanding of mutual fund  efficiency in Tanzania despite reported successes in increased asset values,  profitability, and investor numbers, the study reveals  distinctive  performances under Constant Returns to Scale (CRS) and Variable Returns  to Scale (VRS) assumptions. Under VRS, all mutual  funds consistently  achieve nearly 100% efficiency, signifying optimal operational scales.  However, under CRS, efficiency scores fluctuate  over time, underscoring the  importance of mutual funds' adaptability for enhanced efficiency.  Furthermore, the research suggests that  mutual fund size significantly  influences efficiency and potential scale economies. Smaller mutual funds  demonstrate superior resource  utilization efficiency, attributed to their  focused investment approach. The analysis of inputs and output slacks  provides insights into  efficiency and resource utilization, identifying areas of  optimal resource management and highlighting opportunities for  improvement.  The findings offer valuable insights into mutual fund efficiency  under different scale assumptions, emphasizing the importance of scale  flexibility and efficient resource management for superior performance.  Implications suggest avenues for further research to explore  external factors,  efficiency fluctuations, portfolio management practices, and longitudinal  trends within the mutual fund industry.