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Indian Equity Market

Indian Equity Market

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Published by jitendra jaushik

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Published by: jitendra jaushik on May 16, 2010
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08/01/2011

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 Fund Selection Behavior 
Executive Summary
The Indian equity market has gained significantly during the last one year and mutualfunds are not left far behind. Both the avenues have created wealth for investors. But theequity market has attracted much more attention than the mutual funds market. The reason behind this is that in India investment in the equity market has been there since long but themutual fund market is still growing. For the creation of wealth through this avenue a proper understanding of mutual funds is a must.A mutual fund is a trust that pools the savings of a number of investors who share acommon financial goal. The money thus collected is then invested in capital marketinstruments such as shares, debentures and other securities. The income earned through theseinvestments and the capital appreciation realized is shared by its unit holders in proportion tothe number of units owned by them. Thus a mutual fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.Mutual funds have opened up new vistas to millions of small investors by virtuallytaking investment to their doorstep. In India, a small investor generally goes for bank returns.He has limited access to price sensitive information and if available, may not be able tocomprehend publicly available information couched in technical and legal jargons. He findshimself to be an odd man out in the investment game. Mutual funds have come as muchneeded help to these investors. MF’s are looked upon by individual investors as financialintermediaries wherein portfolio managers process information, identify investmentopportunities, formulate investment strategies, invest funds and monitor progress at a very
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 Fund Selection Behavior 
low cost. Thus, the success of MF’s is essentially the result of the combined efforts of competent fund managers and alert investors. A competent fund manager should analyzeinvestor behavior and understand their needs and expectations to gear up the performance tomeet investor requirements.Consumer behavior from the marketing world and financial economics has broughttogether to the surface an exciting area for study and research: Behavioral Finance. Therealization that this is a serious subject is, however barely dawning. Analysts seem to treatfinancial markets as an aggregate of statistical observations, technical and fundamentalanalysis. A rich view of research waits this sophisticated understanding of how financialmarkets are also affected by the “financial behavior” of investors. With the reforms of industrial policy, public sector and financial sector and the many developments in the Indianmoney market and capital market, mutual funds, which has become an important portal for the small investors, is also influenced by their financial behavior. Hence this study is anattempt to examine the related aspects of the fund selection behavior of individual investorstowards mutual funds, in the city of Bangalore.
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 Fund Selection Behavior 
CHAPTER 1Introduction
The Indian capital market has been growing tremendously with the reforms inindustrial policy, reforms in public and financial sector, and new economic policies of liberalization, deregulation and restructuring. The Indian economy has opened up and manydevelopments have been taking place in the Indian capital market and money market with thehelp of financial system and financial institutions or intermediaries which foster savings andchannel them to their most efficient use. One such financial intermediary who has played asignificant role in the development and growth of capital markets is Mutual Fund (MF).The concept of MF’s has been on the financial landscape for long, though in a primitive form. The story of mutual fund industry in India started in 1963 with the formationof the Unit Trust of India, an initiative of the Government of India and Reserve Bank. Thelaunching of innovative schemes in India has been rather slow due to the prevailinginvestment psychology and infrastructural inadequacies; risk-averse investors are interestedin schemes which involve tolerable capital risk and return over bank deposit. This fact hasrestricted the launching of more risky products in the Indian capital market. But thisobjective of the MF industry has changed over the decades. For many years, funds weremore of a service than a product, the service being professional money management.However, in the last 15 years, MF’s have evolved to be a product. The term ‘product’ is used because MF is not merely to park investor’s savings but its schemes are ‘tailor-made’ to cater to investors needs, whatever their age, financial position, risk tolerance and returnexpectations might be. This issue of combing service and product will be important one for the next decade.There are more than 30 mutual funds in India offering 550 schemes, managed byvarious types of institutions like banks, the Unit Trust of India and international investment
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