MONEY MARKET FUND DIVERSIFICATION AND INVESTMENT PERFORMANCE OF MUTUAL FUNDS IN KENYA
MONEY MARKET FUND DIVERSIFICATION AND INVESTMENT PERFORMANCE OF MUTUAL FUNDS IN KENYA
Yusuf A. A. - Master of Science in Finance, School of Business and Economics, Jomo Kenyatta University of Agriculture and Technology, Kenya
Dr. Isaac Linus Ochieng’ - Lecturer, School of Business and Economics, Jomo Kenyatta University of Agriculture and Technology, Kenya
Dr. David Owuor Agong’ - Lecturer, School of Business and Economics, Jomo Kenyatta University of Agriculture and Technology, Kenya
ABSTRACT
When investors participate in investment activities, wealth maximization remains their primary objective. Money market fund diversification is therefore a critical consideration in investment decision-making because it determines the extent to which investors are willing to commit their financial resources to available investment opportunities. The purpose of this study was to establish the effect of money market fund diversification on the investment performance of mutual funds in Kenya. The study was anchored on Liquidity Preference Theory, A descriptive research design was adopted, and a census approach was employed involving all 40 mutual funds licensed and operating in Kenya. Secondary data were collected from Capital Markets Authority reports and the respective mutual fund websites for a ten-year period from 2015 to 2024. Data were analysed using STATA version 18. Descriptive statistics were used to summarize the data, while inferential analysis was conducted using Pearson correlation analysis and panel regression techniques. The findings revealed that money market fund diversification had a positive and statistically significant effect on investment performance (β = 0.3586, p < 0.05). The model summary results indicated an R² of 0.3750, implying that equity fund diversification explained approximately 37.50% of the variation in investment performance among mutual funds in Kenya, while the remaining 62.50% was attributable to other factors not included in the study. The study concludes that money market fund diversification significantly enhances the investment performance of mutual funds in Kenya. The study recommends that mutual fund managers adopt optimal portfolio allocation strategies that maintain an appropriate balance between growth-oriented, income-generating, liquidity-enhancing, and passive investment assets in order to maximize risk-adjusted returns. The findings provide valuable insights for investors, fund managers, policymakers, and regulators seeking to improve portfolio performance and promote the growth, stability, and sustainability of the mutual fund industry in Kenya.
