Evaluating mutual funds in an emerging market: factors that matter to financial advisors

Growth, both in terms of size and choice, in the mutual fund industry among emerging markets has been impressive. However, mutual fund research in emerging markets hardly exists. This paper intends to fill this gap. In particular, the paper surveys the relative importance of factors considered important in the selection of mutual funds by financial advisors in emerging markets. Our survey focuses on Malaysia where the mutual industry started in the 1950s but only gained importance in the 1980s with the establishment of a government initiated programme. The results of our survey point to three important factors which dominate the choice of mutual funds. These are consistent past performance, size of funds and costs of transaction. Factors which relate to fund managers and investment style are not considered to be relatively important. With the impending liberalization of the financial markets in the developing world, our findings would assist those international funds that are considering expanding their operations into these emerging markets.