Mutual Fund Growth and Financial Well-Being: Empirical Evidence from an Emerging Economy

Abstract

The study investigates the effects of different log-linear categories of mutual funds on financial well-being in Pakistan from 2021 to 2025 (time-series data). Assets under management, exhibiting financial inclusion, investor involvement and wealth growth, are used as a proxy for financial well-being. This quantitative study uses descriptive statistics, correlation analysis and a log-linear econometric model. Results show that mutual funds are significant in improving financial prosperity. Equity fund returns indicate that assets under management are the strongest driver of correlation with returns, thus highlighting its relevance in generating long-term wealth. Income and money market funds provide financial stability and liquidity, and this is in line with the risk-averse nature of investors in Pakistan. Macroeconomic conditions have a significant influence on mutual fund performance, with interest rates positively affecting income fund returns, while inflation has a relatively less effect on overall financial well-being. The paper also reveals that investors' preferences are far more restrictive than with other funds, with a strong preference towards low-risk funds, resulting in greater stability in the short-term but potentially lower growth in the long-term. Digitalisation, regulatory reforms, and Islamic mutual funds have positively reinforced financial inclusion and Industry development. The study proposes to reinforce the regulatory framework, enhance investor education, and promote digital financial inclusion.