Macroeconomic dynamics and financial performance of mutual fund companies: Evidence for rational investment decision

Abstract

Mutual funds are vulnerable to market risk. Maintaining an investment portfolio is challenging under such conditions. This study aims to investigate the macroeconomic variables and return on asset (ROA) of mutual fund firms to examine the impact of these factors on the firm's base performance in India by employing Panel Autoregressive Distributed Lag (ARDL) model. The technique of (ARDL) has been used to investigate long and short-run relationships between the independent variables (economic factors) and dependent variable (ROA). The study indicates short-run significant negative impacts of exchange rate (ER), and foreign direct investment (FDI) on mutual companies' performance, and a significant impact of interest rate (INT), gross domestic product (GDP), (FDI), (ER) and insignificant impact of inflation rate (INF) on the financial performance of mutual fund companies. For fund managers and investors, the study highlights the need to adopt prudent portfolio diversification and risk management strategies to safeguard returns against changing economic conditions and empower individuals to make rational investment decisions. For policymakers and regulators, the study highlights the importance of maintaining productive economic growth policies, by evaluating the adverse economic impact connected with initiatives that promote investor-friendly environment which can strengthen the resilience of the mutual fund industry.