Investigation of determinants of mutual fund performance in Tanzania a case of unit trust of Tanzania

The objective of this study was to investigate the factors which determine the performance of mutual funds industry in Tanzania. Potential for growth and its newness in financial sector in Tanzanian economy has made this an exciting area for analysis. The study was carried out using monthly panel data of the four investment schemes managed by UTT covering a period of May 2005 to December 2014 with a total of 268 observations. Based on the foundation of Fama-French three factor model, analysis was done for macroeconomic and fund specific factors using Instrumental Variable Generalized Method of Moments (IV-GMM) estimation technique. Results show that inflation rate and age of the fund relate positively to fund performance while exchange rate, expense ratio, liquidity and high equity proportion in the portfolio have negative relationship with fund performance. Furthermore, rate of interest, fund size, turnover and loads are insignificant to fund performance in Tanzania. The results further confirmed greater influence of preceding fund return in performance of collective investment schemes. In view of the these findings the study recommends for Tanzanian mutual funds to incorporate macroeconomic conditions, debt-equity proportion and the trade-off between liquidity and return (profitability) in their key investment policies and decision so as to enhance fund performance and unit holders return. Furthermore, expenses should be controlled in a way that they will not harm return to investor