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Analysis of Factors Affecting Investors’ Perception of Mutual Fund Investment

Soumya Saha* and Munmun Dey**

Consumer behavior is an important area of research studies. To evaluate the prospects of any kind of product irrespective of its nature, one should be aware of the behavior of the consumer. If we look into the financial market in general, the research studies have been conducted based on statistical observation, technical analysis and fundamental analysis. Investor’s expectation is a very important factor in this regard that needs to be analyzed by all alternative investment avenues. The success of any mutual fund, a popular means of investment, depends on how effectively it has been able to meet the investor's expectation. The present study focuses on measuring the investors' expectation and their preference. It also attempts to gauge the factors that they take into consideration before making any investment in mutual fund as well as the awareness level among individual investors regarding mutual fund investment. The sample survey has been conducted in Kolkata city during the period November 2008-January 2009. A sample of 100 individual mutual fund investors has been surveyed through a pre-tested questionnaire. The individual investors include people who have invested in mutual funds and have some knowledge about the basic terminologies involved with mutual funds. An attempt has been made to identify the factors perceived to be important by the investors before investing in any mutual fund. This study will add value to the body of knowledge in this field, from the point of view of researchers and academicians.

Indian Mutual Fund (MF) industry provides reasonable options for an ordinary man to invest in the share market. The plethora of schemes provides variety of options to suit the individual objectives whatever their age, financial position, risk tolerance and return expectations. In the past few years, we had seen a dramatic growth of the Indian MF industry with many private players bringing global expertise to the Indian MF industry.
* ** Lecturer, George College, Department of Management Studies, Kolkata, India. E-mail: Lecturer, Department of Commerce, St. Xavier ’s College, Kolkata, I ndia. E-mail: 23

Analysis of Factors Affecting Investors’ Perception of Mutual Fund Investment © 2011 IUP. All Rights Reserved.

The MF is structured around the mitigation of risk through the diversification of investments across multiple entities. This is achieved by pooling the small investments into a large bucket which are later allocated among various entities. The MFs came as a respite to the investors who neither had the expertise nor the time to conduct a careful analysis before investing their hard-earned money. MFs provide them professional portfolio management services at a lower cost. The MF industry has evolved as an important financial intermediary in the Indian capital market. As of March 2009, the industry comprising 37 (AMFI, Asset Management Companies (AMCs) managed financial assets of over 4.89 trillions. Domestic MF industry is growing at a CAGR of 30% during the last three years, according to the Associated Chambers of Commerce and Industry of India (ASSOCHAM). According to the ASSOCHAM study, Asset Under Management (AUM) as percentage of GDP in India is 4.12% as against those of Australia 88.22%, Germany 10.54%, Japan 7.57%, UK 18.81%, USA 61.27%, Canada 34.33%, France 59.63%, Hong Kong 101.085 and Brazil 19.95%. The entry of commercial banks and private players in the MF industry coupled with the rapid growth of the Indian capital markets during the past couple of years has fostered an impressive growth in the MFs.

Literature Review
MF investments bring a new era in the history of investment world. On the one hand it reduces the tax burden of the investor, and on the other it gives a considerable amount of return without having a large amount of risk burden. Due to its multiple advantages as an investment avenue, it creates interest in researchers and academicians to do research on it. There have been a less number of studies conducted in India as compared to the developed capital markets. Here, in this literature review we discuss the studies done both in India and abroad regarding the fund selection behavior of individual investors. Bogle (1992), and Ippolito (1992) reported that the fund is selected by investors on the basis of its past performance. They also found that generally the money flows into the fund that gives positive return in comparison to those funds having negative return during a particular period of time. Malhotra and Robert (1997) reported that the preoccupation of MF investors with using performance evaluation as the selection criterion is misguided because of the volatility of returns, and it is difficult to determine the reason, which may be due to superior management or just good luck. The findings of Ferris and Chance (1987) are consistent with the findings of Malhotra and Robert (1997). Lu Zheng (1999) examined the fund selection ability of MF investors and found that the investors’ decisions are based on short-term future performance and they use fund-specific information in their selection decision.
24 The IUP Journal of Management Research, Vol. X, No. 2, 2011

He found that the investors’ choose funds based on the fund-specific information. primarily due to tax concessions. open-ended schemes were much preferred then. investment size and the relationship between stage in life cycle and their investment pattern. The study was conducted through a survey in the north-eastern region of India. Sujit and Amrit (1996) try to find out how behavior of an individual investor impacts the selection of equity and MF investment portfolio. try to find out how investors select funds. The study reveals the fact that active fund investors select the fund by using their selection ability only. examined the fund selection ability of MF investors. The success of any MF depends on how effectively it has been able to meet the investors’ expectation. in their study. The survey revealed that the awareness about the MF concept was poor during that time in small cities like Visakhapatnam. in his studies. UTI and SBI schemes were popular in that part of the country during the time the survey was done and other funds had not proved to be a big hit then. The decisions regarding the fund is always based on short-term future performance. The survey revealed that the salaried and self-employed were the major investors in MFs. This would further ensure the success of MFs. The Problem Investors’ expectation is a very important factor that needs to be analyzed by all investment alternatives. The objective of the study is to provide data on investor preferences on MFs and other financial assets. It also attempts to gauge the factors that they take into consideration before making any investment in MF as well as their awareness level regarding MF investments.Gupta (1993) conducted a study based on the survey of household investor. Goetzman (1993) and Grubber (1996). age and income are the two important determinants in the selection of fund/scheme. Objectives of the Study The present study has the following general objectives: • To examine the savings objectives among individual investors. 25 Analysis of Factors Affecting Investors’ Perception of Mutual Fund Investment . and 1998). The survey also revealed the following: agents play a vital role in spreading the MF culture. and brand image and return are their prime considerations. Lu Zheng (1999). The strategic marketing decisions of the MF companies would be more effectively framed if they are supported by such a detailed study of the investors’ preference and expectations. surveyed a number of investors and found that there exists segmentation among investors based on their characteristics. in his study. Raja (1997a and 1997b. The study focuses on measuring the investors’ expectation and their preference. Syama (1998) conducted a survey to get an insight into the MF operations of private institutions with special reference to Kothari Pioneer.

To identify the information sources influencing the scheme selection decision of investors. 2011 . However. we gathered a database of MF investors from different brokers and fixed appointments with them. Analysis The responses to the different questions have been represented using a pie chart. Methodology Preliminary Study In the preliminary stage. To understand the preferential feature in the savings instrument among individual investors. To evaluate fund-related services that would affect the selection of MFs. The study also attempts to test other specific objectives such as: • • • • • • To examine the fund/scheme preference of investors. 2. (2) current attitude of individual 26 The IUP Journal of Management Research. Sampling Design The target respondents include all such individual investors who have invested in MFs and have some knowledge about the basic terminologies of MFs. To evaluate the fund qualities that would affect the selection of MFs. the sampling has turned out to be a convenient sampling systematically chosen from blocks of the area conveniently located for the enumerators. Ranks have been provided by the respondents for the different (1) savings instrument preference among individual investors. Vol. • To examine MF conceptual awareness among the present investors. X. They filled up the interviewer administered questionnaire with feedback from the respondents. The data collection went on for 45 days during November 2008 and January 2009. To perceive the preferred communication mode of investors.• • To recognize the preferred savings avenue among individual investors. Data Collection The enumerators visited the investors according to the appointment fixed with them. No. One hundred investors accepted an appointment for personal interview. To assess the influence of demographic variables on the MF conceptual awareness level of individual investors. The sample size is 100 MF investors.

investors towards the different financial instruments. along with safety of capital and liquidity (Table 1). Analysis of Factors Affecting Investors’ Perception of Mutual Fund Investment 27 . as they are unique financial products which enable an average salaried person to get a balanced proportion of reasonable returns. This is followed by life insurance which again ensures safety of the capital along with reasonable returns and also provides tax savings. Data Analysis Savings Objective of Individual Investors The savings objective of majority of individual investors is ‘to provide for purchase of assets’ followed by the objectives ‘to meet contingencies’ and ‘tax reduction’ (Figure 1). The other saving instruments are not so popular due to the lack of awareness among investors. and (4) preferential feature in MFs among individual investors. The tax saving instrument would also prove to be lucrative if marketed effectively. Weights have been assigned to the ranks in increasing order. UTI MF occupies the third position highlighting its growing popularity among retail investors. AMCs can attract investors by designing products that ensure a reasonable return and ensure safety of the capital. 24% 21% 16% 17% 22% To 1 meet Slice To 2 provide for Slice contingencies retirement Figure 1: Objectives of Savings Slice For3tax reduction For4 purchase of Slice assets Slice For5 children's education Savings Instrument Preference Among Individual Investors The investment attitude of investors is highlighted by their asset preference pattern. in the Indian capital market. (3) MF scheme preference among individual investors. The liquidity provided will help investors meet the contingencies. Factor analysis has been done to sum up the different fund-related factors that are considered important by the investors in selecting the particular MF. with the lowest rank number (signifying high importance) given the highest weight and the highest rank number (signifying low importance) assigned the lowest weight. income and gender separately. A chi-square test has been done to examine whether there exists any dependency between awareness level and each demographic factor such as age. which is one of their primary objectives of saving. The study reveals that bank deposits are the most popular savings instrument among individual investors of Kolkata.

Stocks provide high total returns with Shares 3.02 7.Table 1: Preference for Savings Instruments Currency Bank Deposit Life Insurance Pension and Provident Fund Shares UTI MF Postal Savings Chits Real Estate Gold 4.63 6.e. In the turbulent market conditions. 15% have voted ‘No’ and 29% as ‘Not Sure’ as their preference for future MF investment.17 1.43 6. MF is an ideal vehicle for both debt and equity products. time horizon of investment.09 investor towards financial instruments may be influenced by his investment objective.06 5. However. risk appetite. highlighting the fact that there is a fair opportunity for MF investments in future (Figure 2). bonds and debentures were rated on a 5-point scale.06 5.86 7. Vol. MFs. X. i.84 5.77 provide lower risks along with regular/lower MF 3. shares. MF Investment Preference in Future Fifty six percent of the respondents have voted ‘Yes’ as their preference for future MF investment. MFs have been rated as the ‘Most Favored Instrument’ followed by bonds and shares (Table 2). No.4 5.68 income. it can be concluded that MF has the potential to emerge as one of the major growth drivers of the market in future.43 VIII I II IV V III VI IX VII V Current Attitude of Individual Investors Towards Financial Instruments in the Indian Capital Market Every financial product has unique Table 2: Preference characteristics to suit the requirements of for Financial Instruments different segments of investors. 2. 2011 .08 commensurate level of risk. MFs have exhibited consistent performance over the years. Hence. This demonstrates the growing popularity of MFs as avenues providing higher return at lower risk through diversification and professional management. The ‘No’ and ‘Not Sure’ categories 28 The IUP Journal of Management Research. The attitude of every individual Bonds 3. The various financial instruments.. while bonds may Debentures 2. Moreover. personal state of affairs or performance facet of the asset class.

21 3. majority of the schemes are open-ended as investors can buy or sell units at NAV related prices whenever they wish. and Figure 2: Preference for MF Investment in Future 29% Yes 1 Slice No 2 Slice Not 3Sure Slice 15% 56% MF Scheme Preference Among Individual Investors MFs provide a plethora of options. The main task at hand for the AMCs is to examine the reasons for such negative perception and tackle investor sentiments with greater transparency credibility in its functions. There must be ample reasons for 44% (15 + 29. The preference for open-ended scheme has also given due importance to ‘liquidity’ and ‘flexibility’ to enter and exit at wish. Nowadays.25 3. MF scheme preference for the majority of investors is ‘growth scheme’ followed by ‘income schemes’.72 4. ranging from growth schemes to fixed income schemes.16 I III II IV V VI Scheme Preference by Operation Among Individual Investors Analysis of scheme preference by nature of operation reveals the popularity of ‘open-ended’ schemes. In India. The investors are interested in earning higher return rather than regular safe returns. investors are not offered just plain vanilla schemes but an assorted basket in tune with their personal preference. According to Table 3.40 2.37 2. which is given high Figure 3: Preference for MF Schemes 6% Open-ended Slice 1 scheme Close-ended Slice 2 scheme 34% 60% Slice 3 Interval scheme Analysis of Factors Affecting Investors’ Perception of Mutual Fund Investment 29 . No and Not Sure category) of the investors to have posed a negative approach towards MFs. Table 3: Preference for Different Schemes of MFs Growth Balance Income Money Tax Index 5.should be a matter of concern for the AMCs.

Table 4 shows that the investors’ need for safety is foremost. followed by good return.78 4.97 I III IV II V VI VIII VII Preferable Route to MF Investing Among Individual Investors Investors may use different sources as per their convenience to gain awareness regarding investing in MFs. brokers/agents. Chairman of UTI. On the other hand. has summarized the psyche of a typical Indian Investor in three words—yield. tax benefit.34 2. security and liquidity. The sources in the present study are confined to reference groups.73 5.19 5. Table 4: Preference for Different Features of Mutual Funds Safety Liquidity Flexibility Good Return Tax Benefit Capital Appreciation Professional Management Diversification Benefit 5. 2011 .59 2. television.90 5. X.importance by the investors in selecting an investment avenue. flexibility. capital appreciation. Vol. only 6% of the respondents have voted for ‘interval schemes’. liquidity. Preferential Feature in MF Among Individual Investors M Damodaran. which shows lack of awareness with regard to this feature (Figure 3). diversification benefits and professional management. Findings of the study Figure 4: Preferred Route to MF Investment 5% 1% 11% 21% Slice 1 Reference Groups Slice 2 Newspaper (General) Newspaper (Business) Slice 3 Financial Magazine Slice 4 Television Slice 5 Broker/Agent Slice 6 Mails Slice 7 16% 11% 16% 30 11% Store Slice 8 Display The IUP Journal of Management Research. newspapers (general and business). 2.41 3. financial magazines. No. e-mail and store display (Figure 4).

lack of conceptual understanding and the influence of fixed income orientation in the Indian culture. bonus. financial services are ‘just a phone call away’. While 22% of the respondents prefer automated responses and 12% in the survey have no preferences. change in asset mix. Figure 5: Preferred Mode of Communication 11% 22% Automated Response Slice 1 Personal Visit Slice 2 44% 23% Telephone Office Slice 3 No Preference Slice 4 Preference of MF Investing over Equity Investing The emergence of an array of savings instruments and the increase in the popularity of MFs in the recent years in India have opened up numerous investment options for average investors. This gives the evidence of propelling improvement in Internet and telecommunication services in India. before deciding on the investment in MF. and financial magazines. Preferred Mode of Communication in MF Investing Among Individual Investors The survey reveals that 44% of the respondents of Kolkata city prefer to telephone the office to know more about MF (Figure 5). closely followed by published information. For the average Indian investor. dividend. Figure 6: Preference of MF Investing over Equity Investing 7% Yes 1 Slice 26% No 2 Slice Do not Slice 3 know 67% Analysis of Factors Affecting Investors’ Perception of Mutual Fund Investment 31 . etc. 23% of the respondents prefer to get routine or special information like NAV. the hurdles for investing in financial markets are many—lack of opportunity. they seem to also analyze the information provided.divulge that investors attach high priority to reference groups. This proves that people are most comfortable in directly communicating with the officials verbally. thereby preferring newspapers (general and business). Nowadays. Though mostly they are prompted by advice of reference groups. by personally visiting the office..

knowledge and expertise to make a succession of judgments involving hard earned savings. The challenge would be to educate the less aware investors about the advantages of investing 32 The IUP Journal of Management Research. MF Conceptual Awareness Level of Individual Investors Knowledge about the level of awareness about MFs among the investing public will enable AMCs to create an external environment that can influence investment decisions of investors. it should be noted that this study was based in the metropolitan city of Kolkata. one takes advantage of volume buying and scientific data analysis. X. ‘Do Not Know’. 2. the study also revealed that 67% of the small investors of Kolkata preferred MFs to invest (Figure 6). Vol. However. Awareness has been 72% 28% Aware Slice 1 Unaware Slice 2 Figure 7: Awareness Among Mutual Fund Investors measured by collecting the responses to some basic facts related to MFs. The reason behind this is that MF provides the opportunity to participate in the market boom without proportionate amount of risk as the same gets spread among the participants in an MF. This category may include people who either have a low awareness level about MF industry or still do not completely believe that MFs can get returns similar to equity shares. The study discloses yet another category of respondents. 2011 . It was found that 72% of the respondents have good awareness level of MFs (Figure 7). Those respondents who have given more than 50% right answers have been categorized as aware and the rest as unaware.Further. This seems to be an ideal option for the individual who does not have the time. where the awareness level would be considerably high. No. On the other hand. This could be attributed to the wide publicity given to the MF industry by the media and investor education programs organized by AMFI from time to time. which sums up to 7%. 26% people belong to the category who prefer to apply their own strategy in planning investment after taking into consideration their own situation and risk preference. professional expertise and so on. Through MF. The study reveals that the general awareness level among individual investors regarding the concept and functioning of MFs is good. This calls for a comprehensive education program to spread awareness among the people.

we can infer that the conceptual awareness of investors is significantly dependent on age as we can reject the null hypothesis at significance level of 6. it is evident that awareness of investors is independent of gender.00 58 14 72 Total 79 21 100 Note: The different gender groups are: Male (1) and Female (2). Table 5: Results of Chi-Square Test for Hypothesis H01 Awareness 0.540 1.00 Gender 1. Sig. Age From Table MFs compared to the traditional saving instruments in order to encourage investment in MFs. Analysis of Factors Affecting Investors’ Perception of Mutual Fund Investment 33 .375 df 1 Asymp. The results are tabulated and interpreted next. This can probably be attributed to the fact that they are risk-averse and are generally inclined towards parking their funds in government securities. Gender From chi-square tests (Table 5).00 Total 21 7 28 Chi-Square Tests Value Pearson Chi-Square 0. (2-Sided) 0. age and income.00 2. We further analyzed the relationship between awareness and the demographic variables like gender. We formulated three hypotheses to test their independence using the chi-square test. LIC. H02 : Awareness is independent of age. Hypotheses H01 : Awareness is independent of gender. In other words. awareness is dependent on age. etc. Thus AMCs have a major role in creating awareness amongst the respondents belonging to higher age group which in turn will fetch a considerable amount of investment for the industry. It is found that respondents belonging to ‘less than 40’ age bracket are well aware of the MFs as compared to the respondents of ‘higher than 40’ age bracket.7% or more. bank deposits. H03 : Awareness is independent of income.

We can reject the null hypothesis at significance level of 11.00 Age 1.00 4.004 df 3 Asymp. X.1% or more.00 10 37 17 8 72 Total 16 44 26 14 100 Note: The different income groups are: Below 100000(1).00 3. and above 50(4). 34 The IUP Journal of Management Research.156 df 3 Asymp.00 Income 1. we can infer that the conceptual awareness of investors is significantly dependent on their level of income. Income From Table 7. 300000500000(3) and above 500000(4).00 Total 9 4 9 6 28 Chi-Square Tests Value Pearson Chi-Square 7. Sig. 41-50(3).00 2. 2011 .111 1. No.00 31 21 9 11 72 Total 40 25 18 17 100 Note: The different age groups are: Below 30 (1).Table 6: Results of Chi-Square Test for Hypothesis H02 Awareness 0. 2.00 4. It is found that respondents having monthly income below 30. Vol. 31-40(2). Sig.00 Total 6 7 9 6 28 Chi-Square Tests Value Pearson Chi-Square 6.00 2. (2-Sided) 0.000 are well aware of the MFs in comparison to the respondents having monthly Table 7: Results of Chi-Square Test for Hypothesis H03 Awareness 0.00 3. 100000-300000(2). (2-Sided) 0.067 1.

Under Varimax rotation.5 in case of factor 1. Therefore. Here we have taken nine variables to analyze fund-related quality.44% of variables are clubbed into factor 1 and factor 2. This reveals that 33.923% of variance is explained by factor 3.000 35 . Retaining only the variables with eigenvalues greater than one (Kaiser’s criterion). 16.income more than 30. 3 out of 9 variables have factor loadings >0.000. all the factors contributed to 59. And 4 out of 9 variables have factor loadings >0. Each factor is constituted of all those variables that have factor loadings greater than or equal to 0. Factor loadings are very high in the case of factor 1 (5 out of 9 variables have factor loading >0.5).643 191. The approximate chi-square statistic is 191. Together.000 levels (Table 8). we can infer that 30. The KMO statistic (0. On the basis of Varimax rotation with Kaiser normalizations. Thus A4. respectively. Factor Analysis for Fund-Related Qualities We used the method of factor analysis to determine which factors influence the investors’ behavior in selecting a fund. A3 and A5 constituted the first factor. Chi-Square df Sig. which is significant at 0. Table 8: Results of KMO and Bartlett’s Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy Bartlett’s Test of Sphericity Approx. Hence factor analysis is considered an appropriate technique for further analysis of data. Varimax rotation was done to obtain factors that can be named and interpreted. But it is just the opposite in the case of the respondents belonging to the higher income bracket.595 with 36 degrees of freedom. who mostly depend on the brokers and advisors. 3 factors have emerged.038% of variance is explained by factor 1. It is conceptualized as ‘Intrinsic Fund Qualities’ (consistent performance and reliability).595 36 0. we used Bartlett’s test of sphericity and Kaiser-Meyer Olkin (KMO) measure of sampling adequacy.440% of variance is explained by factor 2.5 in case of factor 2 (Table 10). To examine the appropriateness of factor analysis. Analysis of Factors Affecting Investors’ Perception of Mutual Fund Investment 0.33% and 44. This can probably be attributed to the fact that people belonging to low income group are more cautious about their money. Hence.401% of variance (Table 9). before parking their hard earned money in different available investment avenues. they always gather as much information as possible.5.5). and 12.643) is also considerable (>0.

384 92.478 1.691 100.704 0.950 0.440 46.552 –0.480 16. 2011 .339 0.401 2.703 30. A7.163 12.401 70.450 0.450 0.295 –0.440 1.533 0.252 –0.082 1 2 3 4 5 6 7 8 9 2.001 Total 30.401 1.038 1.307 44.163 12.351 15.038 46.242 9.645 0.923 59.147 –0.553 0.013 59.388 1.583 0.081 1. Vol.860 0.924 5.313 –0.000 Note: Extraction Method: Principal Component Analysis. 2.550 Total 2 –0. A6 and A8 and A9 constituted the second factor and this is conceptualized as ‘Flexible Investment Facilities’ (simplicity and tailor-made investment patterns).985 10.359 Note: Extraction Method: Principal Component Analysis.738 19.351 79. No.Table 9: Total Variance Explained Initial Eigenvalues % of Variance Cumulative % Component Extraction Sums of Squared Loadings % of Variance Cumulative % Total Rotation Sums of Squared Loadings % of Variance Cumulative % 3 0. 3 components extracted.464 –0.560 6.603 0.478 59.365 0.038 30.450 0. X.480 16.309 2.923 0.308 97.072 0. Table 10: Component Matrix Component 1 Scheme’s Portfolio of Investment Scheme’s Expense Ratio Reputation of the Fund Manager/Scheme Minimum Initial Investment Withdrawal Facilities Product with Tax Benefit Entry and Exit Load Funds Reputation for Brand Name Fund Performance Record 0.303 0.186 0.911 86.257 25.081 25.182 0.253 0.402 0.703 30.763 0.473 5.038 2. 36 The IUP Journal of Management Research.752 0.584 0.054 –0.

013% of variance.620 0.656 0. factor 2 (Flexible Investment Facilities) accounts for 19.758 –0. Principal Suggestions • Since the investor’s preference for liquidity is found to be high. and Rotation converged in 5 iterations.380 0.168 0. and all 3 factors together explain for 59. Rotation Method: Varimax with Kaiser Normalization.162 –0.A1 and A2 constituted the third factor and are conceptualized as ‘Credibility of Image’ (trustworthy and reputable.307% of variance and factor 3 (Credibility of Image) accounts for 15. Products such as growth and balanced schemes for young families and income schemes with regular and reasonable returns for retired people can be designed and marketed to the right customers. Thus. middle-aged people saving for retirement. • Investors can be categorized into various segments such as young families with small or no children looking for high returns.237 0.765 0. Analysis of Factors Affecting Investors’ Perception of Mutual Fund Investment 37 .185 0.716 0.099 0.048 0.262 0.880 0.012 0.401% of variance.170 0.041 0. retired people looking for regular income and suitable products can be designed to meet the preference of each class.306 –0. we suggest more of the new schemes to be open-ended.373 –0.081% of variance.069 0.205 0.769 0.191 2 0. factor 1 (Intrinsic Fund Qualities) accounts for 25. safety and liquidity in a reasonable proportion as these features have been rated high by individual investors.006 3 0. Table 11: Rotated Component Matrix Component 1 A4 A3 A5 A7 A6 A8 A9 A2 A1 Scheme’s portfolio of investment Scheme’s expense ratio Reputation of the fund manager/scheme Product with tax benefit Withdrawal facilities Entry and exit load Minimum initial investment Funds reputation for brand name Fund performance record 0. with investor’s interests at heart) (Table 11). after rotation.634 Note: Extraction Method: Principal Component Analysis. • AMCs should endeavor to design suitable schemes to meet the multiple needs of adequate returns.555 0.255 0.

X. who will exert substantial influence on what products investors will buy. 2011 . all age groups taken together.4% in 1951 to 6. as in the case of life insurance agents. 2. These systems have the capacity to effectively convey information on products and services and also efficiently redress investor grievances.• There is a gradual rise in the elderly population in India from 5. Apart from other MF companies. strategic marketing decisions of these companies are vital for their survival. the present exploratory study is an attempt to understand the 38 The IUP Journal of Management Research. the success of an MF depends on complete understanding of the psychology of the small investor. Vol. It is suggested that AMFI may set aside a percentage of membership fee that it collects from the AMCs and create a fund for Investor Education Programs. Under such a situation. these companies also face competition from saving instruments with varied risk-return combination. No. So they need to design suitable funds and market the same effectively. Banks are planning to enter the advisory services in a big way and this would open an extensive distribution channel given the customer base of the banks. as more and more funds are entering the industry. Therefore. Investors have become more alert and choosy.1% in 2001. The decadal growth of elderly during the period 1991-2001 was close to 40%. • Advisory services are becoming more critical to investors and independent financial advisors and planners are becoming popular. • Negative perceptions and unawareness among investors about MFs could be tackled through appropriate investor education measures. There is a great potential for this industry as more people are falling back on professional management of their funds at low cost and minimum risk. Pension funds are likely to be a big driver for the MF industry in the new future. This market potential can be tapped by closely scrutinizing investor behavior to identify their expectations and design products to suit their risk appetite and return expectations. Conclusion MF industry in India has a large untapped market. Hence. Presently. AMCs should establish friendlier and easily accessible ‘automated response systems’ to encourage the establishment of a new low-cost distribution channel. An entirely new distribution channel can be created consisting of professional advisors. They can also circulate investor education literature in vernacular specially tailored to suit the regional needs to create/increase the awareness level of the investors. which was more than double the rate of increase for the general population.4% in 1981 and 8. • Electronic sale of financial products is gaining volumes with the widespread acceptability of e-buying.

pp. 175-190 10. 6. 7. 45-70. Vol. 8. The Journal of Finance. 3. 5. Raja Rajan (1997a). 11. Ferris S P and Chance D M (1987). Lu Zheng (1999). Bogle J C (1992). @ References 1. Journal of Financial Research. Working Paper. “The Effect of 12b-1 Fees on Mutual Fund Expense Ratio: A Note”. “Mutual Funds and Asset Preference”. 783-810. Delhi. 18. 2. Goetzman W N (1993). December 27. 2. “Another Puzzle: The Growth in Actively Managed Mutual Funds”. • This study has not been conducted over an extended period of time to incorporate the ups and downs of stock market conditions which have an important influence on investor’s buying pattern and preferences. Limitations of the Study • Sample size is limited to 100 educated individual investors in the city of Kolkata. pp. 4. Business Line . 2 (Summer). Vol. 23 February. Columbia Business School. 35. Raja Rajan (1997b). “Selecting Equity Mutual Funds”. Management Researcher. 9. Vol. 21-28. 42. Gupta L C (1993). pp. “An Empirical Analysis of Mutual Fund Expenses”.financial behavior of MF investors in connection with scheme preference and selection which would help the MFs to gauge the investor expectations and changing perception. Bhatt M Narayana (1993). Society for Capital Market Research and Development. Malhotra D and McLeod R (1997). The Journal of Finance. Journal of Law and Economics. pp. 52. 94-100. LIV. pp. pp. No. Vol. The Journal of Portfolio Management. 1077-1082. “Setting Standards for Investor Services”. Analysis of Factors Affecting Investors’ Perception of Mutual Fund Investment 39 . Economic Times. “Chennai Investor is Conservative”. Gruber M (1996). “Investment Size Based Segmentation of Individual Investors”. Vol. 3. XX. Journal of Finance. which may not be an adequate representation of the national market. Ippolito R A (1992). No. “Cognitive Dissonance and Mutual Fund Investors”. “Is Money Smart? A Study of Mutual Fund Investors’ Fund Selection Ability”. “Consumer Reaction to Measures of Poor Quality: Evidence from the Mutual Fund Industry”. No. Vol.

Annual Income in : Below 1. Objectives of your savings are: To provide for retirement To meet contingencies For purchase of assets 40 The IUP Journal of Management Research. Appendix Questionnaire 1. Chapter 10. 14. Raja Rajan (1998). Nos.12. The Indian Journal of Commerce. pp. How much do you save annually (in Less than 50. 4. “Financial Services: Investment in Equity and Mutual Funds – A Behavioral Study”. Vol. 13. 27-36. 2. 136-145.).001-5. Deep and Deep Publications.000 3. No.001-3. “Stages in Life Cycle and Investment Pattern”.00. Name (Optional): Sex: Male Female Contact No.001 to 100000 7. 2 & 3. Management of Financial Services.00.000 Approx) 50. Sujit Sikidar and Amrit Pal Singh (1996). “Growth Prospects of Mutual Funds and Investor Perception with Special Reference to Kothari Pioneer Mutual Fund”. Vol. 2. New Delhi.00. Sri Srinivas Vidya Parishad.00. 00. in B S Bhatia and G S Batra (Eds. Occupation: Professional Business Salaried Retired 6.000 Above 100000 8. (Optional) Age in completed years: Below 30 31-40 41-50 Above 50 5. X. pp. Project Report. 2011 For tax reduction For children’s education .000 1. Syama Sundar P V (1998).00. 3. Visakhapatnam.000 Above 5. 51. Andhra University.

What is your current preference of savings avenue? (Rank from 1 – first preference to 10 – last preference) Currency Bank Deposit Life Insurance Shares Postal Savings Gold Pension and Provident Fund Units of UTI and Mutual Funds Chits Real Estate 10. Mutual Fund d. Generally you prefer (Please Rank from 1 – first preference to 6 – last preference) Growth Schemes Balanced Schemes Tax-saving Schemes 13. in the Indian capital market? Highly Favorable a.) 9. Do you prefer investment in mutual funds to other savings avenue in future? Yes No Not Sure Favorable Somewhat Favorable Not very Favorable Not at all Favorable 12. What is your current attitude towards the following financial instruments. Shares b.Appendix (Cont. You prefer Open-ended Schemes Interval Schemes 14. You prefer investment in mutual funds due to (Rank from 1 to 8) Safety Good Return Liquidity Tax Benefit Flexibility Capital Appreciation Diversification Benefit Close-ended Schemes Income Schemes Money Market Schemes Index Schemes Professional Management Analysis of Factors Affecting Investors’ Perception of Mutual Fund Investment 41 . Debenture c. Bonds 11.

Withdrawal facilities g. Entry and Exit load i. 2. No. Scheme’s expense Ratio d. Products with tax benefits h. Fund’s reputation or brand name c. Please indicate importance of the following in your decision. Vol. Reputation of the Fund Manager/ Scheme f. Scheme’s portfolio of investment e. There are many qualities that could affect your selection of mutual funds and specific schemes. Fund’s performance record b. X.Appendix (Cont.) 15. Highly Important a. Minimum initial investment 16. 2011 . How did you come to know about mutual fund investment schemes? Reference groups Newspapers (general) Newspapers (business) Financial magazines Important Somewhat Important Not Very Not at All Important Important 42 The IUP Journal of Management Research.

While contacting the fund or trying to get routine/special information would you rather communicate with a computerized automated response system or a person (Please tick one response). 20. 4. Do you think mutual fund investing is a best alternative to equity investing? Yes No Do not know 19. Name a few mutual funds existing in the Indian capital market at present that you know 1.Appendix (Cont. 3.) Television Brokers/Agents Mail Stores display 17. 2. Which mutual fund company did you like to invest? Analysis of Factors Affecting Investors’ Perception of Mutual Fund Investment 43 . I prefer automated response I prefer to personally visit the office I prefer to telephone the office I have no preferences 18.

Please read the following statements and indicate your views by putting a tick mark in the appropriate square. There are many mutual fund schemes to meet the varied needs of investors No Do Not Know Reference # 02J-2011-04-02-01 44 The IUP Journal of Management Research. Entry and exit out of mutual funds is easy 5. 2011 . Due to professional investment. Vol. 2. No. Ups and downs of stock market will not affect the return from mutual fund 7. X. Investment in mutual fund helps you realize the benefits of stock market investing 2. a good return can be expected of mutual fund 6. Mutual fund investing gives a definite positive return 3.Appendix (Cont.) 21. Yes 1. Return of the principal amount invested in any mutual fund is assured 4.

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