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INDIAN JOURNAL OF MANAGEMENT SCIENCE (IJMS) ISSN 2231-279X 13

A STUDY ON INVESTORS’ PREFERENCE TOWARDS VARIOUS


INVESTMENT AVENUES IN MUTUAL FUNDS
AT SALEM CITY, TAMIL NADU

M. Gurusamy
Assistant Professor
Department of Management Studies
Paavai College of Engineering
Pachal, Namakkal – 637 018
Tamil Nadu, India

ABSTRACT

Mutual Funds are financial intermediaries concerned with mobilizing savings of those who
have surplus income and channelization of these savings in those avenues where there is
demand of funds. Objectives of the study are to study the risk appetite of the investors; to
identify the reasons for investments in Mutual fund; to estimate the investors’ satisfaction
with investment in mutual fund; to study the choice of investment for tax benefits. The
simple random sampling technique was employed in the selection of the sample. The study
covers the customers in Salem City. Weighted average, simple percentage analyses are used
for analyzing the data collected. Findings of the study are maximum of the respondents are
belong to 21-30 years; maximum of the investors are earned Rs.1 lakh to 2 lakh per annum;
maximum of the investors are invested their money through mutual funds between 1-3 years;
The study revealed that mutual fund ranks as the most popular avenue for investment
followed by life insurance and fixed deposits with regard to the risk appetite of the
investors; it is found that the investors perceive that investments in mutual funds carry
moderate risk. The study also reveals that a better and steady return is the main reason for
investment in mutual fund.

Keywords : Mutual Fund, Capital Market, Investment, Risk, NAV, Diversification, SEBI, Financial
Intermediaries.

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Introduction:
Investment means an asset or item that is purchased with the hope that it will generate income or appreciate in the
future. In economic sense, investment is the purchase of goods that are not consumed today but are used in the future to
create wealth. Investment goals vary from person to person, business to business. While some want security, others
give more weightage to returns alone.
There are various types of investments avenues like fixed deposits, post office schemes, bonds/debentures, Mutual
funds, Insurance, Shares, and Real estate etc. Mutual Funds are financial intermediaries concerned with mobilizing
savings of those who have surplus income and channelization of these savings in those avenues where there is demand
of funds.

Mutual Funds:
According to securities and exchange board of India (SEBI) regulations “Mutual Fund means a fund established in the
form of a trust by a sponsor to raise money by the trustee through the sale of units to the public under one or more
schemes for investing of securities in accordance with the regulations. Thus, a mutual fund collects money from the
investors, issues certificate to achieve mutual benefits in term of capital appreciation in such securities”.
Mutual fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities
in accordance with objectives as disclosed in offer document. The money that is collected is then invested in capital
market instruments such as shares, debentures and other securities. The income earned through these investments and
the capital appreciations realized are shared by its unit holders in proportion to the 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.
Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced.
Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the
same time. Mutual fund issues units to the investors in accordance with quantum of money invested by them. Investors
of mutual funds are known as unit holders. A mutual fund is required to be registered with Securities and Exchange
Board of India (SEBI), which regulates securities markets before it can collect funds from the public.
Mutual funds have a unique structure not shared with other entities such as companies or firms. India has a legal
framework within which mutual funds must be constituted. A MF in India is allowed to issue open end and close end
schemes under common legal structure. Therefore, a Mutual Fund may have several different schemes (open and close
end) at any point of time.
SEBI contemplated four-tier systems for managing the affairs of Mutual Funds ensuring arms length distance between
the sponsor and the fund. The four constituents were the sponsoring company, the fund, the custodians and the asset
management company. They are presented in a diagram

Review of Literature:
Mutual Fund sector poised growth had stated that the Indian Mutual Funds business stated to grow. Though there
are many challenges that need to be addressed to increase net mobilization of funds in sector. She concludes that
the Indian Securities market has bottomed out and the coming year could only show an up sharing (Vimalavasan,
2002). The growth, both in terms of size and choice in the Mutual Fund industry among emerging markets has
been impressive however; Mutual Fund research emerging markets hardly exist. In particular area the author
surveys the relative importance of factors considered important in the selection of Mutual Funds by financial
advisor. The impending liberalization of financial markets in the developing world, the findings would assist those
international Funds that are considering expand their operations in to these emerging markets (Balaramasamy,
2003). The Mutual Funds well small in size, few in number and were limited to simple concepts like equities,
bonds and balanced portfolios. The Mutual Fund industries or securities grew enormously in all measures from
number of assets. It increases the profits of investors and fund manager salaries. At last he conclude that the place
of investor’s assets placed in their care at the same level as their own profits will be remembered for many
decades to come better in future (Robert B.Gordon, 2002). Bankers admit that despite their conservative approach
to investments, it increases credit for double; a rate paper in the wake of triple “a” rated papers thinning out from
the market. Bankers, market participants always change their yield maximization strategies in keeping with
prevailing market conditions at any given time (Rukmani Vishwanth, 2003). The Indian Mutual Fund industry has

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drawn lessons from the FMCG sector. The fund houses just like the corporate managers of FMCG companies,
have introduced new products that are minor variants to the existing ones. Fund houses attribute the introduction
of such plans to “investor fatigue”. He concludes that the fund houses incur additional expenses to market the new
product which further reduces the Net Asset Value (Venketesh, 2004).

Need For The Study:


The researcher wanted to study on investors’ preference towards various investment avenues in mutual funds at
Salem city. He wanted to know the level of awareness about various investment methods and awareness about
‘Mutual funds’ in particular. With the opening up of the capital markets in a big way to Foreign Institutional
Investors (FII’s), mutual funds are becoming an attractive avenue. Due to the lack of detailed information about
the investment behavior of the population Salem City, there was a need to conduct this study to gather information
about the investment preferences in mutual funds.

Objectives of The Study:


• To study on investors’ preference towards various investment avenues in mutual funds.
• To study the risk appetite of the investors.
• To identify the reasons for investments in Mutual fund.
• To estimate the investors’ satisfaction with investment in mutual fund.
• To study the choice of investment for tax benefits.

Scope of The Study:


This study is helpful to understand the level of awareness about various investment methods and awareness
towards mutual fund. It may also applicable to other investment methods.

Limitations of The Study:


• The area of study is limited to Salem City only; hence the results may not be true for other geographical areas.
• Validity & Reliability of the data obtained depend on the responses from the customer.
• Structured questionnaire is the basis for collecting the data. It may have the disadvantage of not investigating the
reasons for their responses.
• The size of the sample comparing to the population is very less and hence it may not represent the whole population.
Research Methodology:
Research methodology is a way to systematically solve the research problems. It includes the overall research
design, the sampling procedure, data collection method and analysis procedure.
Research Design:
A research design is the arrangement of condition for collection and analysis of data in a manner which may result
in an economy in procedure. It stands for advance planning for collection of the relevant data and the techniques
to be used in analysis, keeping in view the objectives of the research and availability of time.
Descriptive Research Design:
Descriptive research includes survey and fact-finding enquiries of different kinds. The major purpose of this
research is description of state of affairs as it exits at present.
Sampling Techniques:
The simple random sampling technique was employed in the selection of the sample.
Sample Size
The number of items selected from the population constitutes the sample size. The study covers the customers in
Salem City. Total sample size for the study is 100.

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Data Collection Method:


The primary data are that which are collected afresh and for the first time and thus happens to be original in
character. The questionnaire is used to collect the primary data for this study.
Statistical Tools
The data are analyzed through statistical method. There are various statistical tools to analysis the data. Weighted
average, simple percentage analyses are used for analyzing the data collected.

Data Analysis And Interpretation:


Percentage Analysis Of Responses:
Table No.1: Gender of The Respondents
Gender No. of Respondents Percentage
Male 84 84
Female 16 16
Total 100 100

It is identified from the above table that 84.0% of the respondents are belonging to male category and 16.0% of
the respondents are belonging to female category.

Table No.2: Age Profile of The Respondents


Age No. of Respondents Percentage
< 20 years 0 0
21 to 30 years 44 44
31 to 40 years 35 35
41 to 50 years 15 15
51 to 60 years 6 6
> 60 years 0 0
Total 100 100

It is identified from the above table that maximum (44.0%) of the respondents belong to 21-30 years of age group
and respondents in the age group 31 to 40 years from another 35% of the sample. It can be inferred that majority
of the investors (nearly 79%) are in the age group of 21 to 40 years.

Table No.3: Marital Status of The Respondents


Marital status No. of Respondents Percentage
Single 31 31
Married 69 69
Total 100 100

It is observed from the above table that 31.0% of the investors are unmarried and 69.0% of the respondents are married.
Table No.4: Occupation of The Respondents
Nature of employment No. of Respondents Percentage
Salaried 48 48
Business 36 36
Professional 13 13
Retired 1 1
Others 2 2
Total 100 100

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It is noted from the above table that maximum (48.0%) of the investors are salaried people and 36% of the
respondents are business persons.

Table No.5: Annual Income of the Respondents


Annual Income No. of Respondents Percentage
Rs.50000 - Rs.1 lakh 21 21
Rs.1 lakh - Rs.2 lakhs 50 50
Rs.2 lakhs – Rs.3 lakhs 19 19
Rs.3 lakhs – Rs.4 lakhs 6 6
Rs.4 lakhs – Rs.5 lakhs 3 3
>Rs.5 lakhs 1 1
Total 100 100

It is known from the above table that maximum (50.0%) of the investors are earned Rs. 1 lakh to 2 lakh per
annum another 21% of the respondents had an annual income between Rs.50,000 to Rs.1,00,000 and 19% of the
respondents had annual income between Rs.2,00,000 to Rs.3,00,000. Thus 90% of all respondents had an annual
income Less than Rs.3,00,000. The median income of the group was Rs.1,50,000.

Table No.6: Choice of Investments Avenues


Opinion No. of Respondents Percentage
Fixed deposits 65 65
Post office Savings 37 37
Bonds / debentures 10 10
Mutual funds 83 83
Life insurance 70 70
Shares 58 58
National savings certificates 4 4

Since the respondents have used more than one Investment Avenue, the total number of responses is more than
100. In terms of popularity of Investment Avenue, the ranking can be inferred from the table above.

Rank Investment Avenue Percentage


I Mutual Funds 83
II Life Insurance 70
III Fixed Deposits 65
IV Share Deposits 58

Table No.7: Reasons For Investment In Mutual Fund


Opinion No. of Respondents Percentage
Best returns when compared to other avenues 40 48.2
Professional management 2 2.4
Consistency of steady returns 27 32.5
Trade off between risks and return 1 1.2
Diversification 12 14.5
Liquidity 1 1.2
Total 83 100

It is known from the above table that 48.2% of the investors who have invested in mutual fund invested their
money through mutual fund for the reason of best returns when compared to other avenues.
The second most important reason in consistency of steady returns, which was the reason given by 32.5% of the

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respondents who had invested in mutual funds. Combining both, it can be inferred that majority (80.7%) of the
people who invest in mutual funds choose this avenue due to either better returns or steady returns.

Table No.8: Period of Investment In Mutual Funds


Opinion No. of Respondents Percentage
Less than 1 year 7 8.4
1 year-3 years 59 71.1
3-5 years 16 19.3
More than 5 years 1 1.2
Total 83 100
It is observed from the above table that maximum 71.1% of the investors invested their money through mutual
funds for the period of 1 year- 3 years.

Table No.9: Type of Mutual Funds


Type of Fund No. of Respondents Percentage
Public 14 16.9
Private 23 27.7
Both 46 55.4
Total 83 100
It is identified from the above table that 55.4% of the investors invest their money through both public and private
mutual funds. Another 27.7% invested only through private mutual funds. Only 16.9% of the investors invested
only in public mutual funds. Since the investors have indicated that they are seeking steady or better returns, they
appear to feel that private mutual funds can meet their expectation on returns better.

Table No.10: Types of Mutual Fund Schemes


Type of Schemes No. of Respondents Percentage
Equity 66 79.5
Debt 0 0
Hybrid 17 20.5
Gilt fund 0 0
Total 83 100
It is known from the above table that most (79.5%) of the investors selected Equity type of schemes and 20.5% of
the investors chose Hybrid schemes. This result is also in line with the opinion expressed by the investment that
they invest in mutual funds for better or steady returns. Since equity schemes promise better returns and hybrid
schemes promise steady returns, the investors prefer only these two types of schemes. The responses are
consistent with the expectation of the investors.
Table No.11: Proportion of Income Invested In Mutual Fund
Opinion No. of Respondents Percentage
Less than 10% 49 59
11-20% 33 39.8
21-30% 1 1.2
31-40% 0 0
Above 40% 0 0
Total 83 100
It is seen from the above table that maximum (59.0%) of the investors invest less than 10% of their income
through mutual fund. Further 39.8% of the investors invest between 11-20% of their income invest in mutual
funds. Nearly all investors’ (99%) investment is up to a maximum of 20% of then income in mutual funds.

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Table No.12: Risk Perception about Mutual Fund


Opinion No. of Respondents Percentage
High risk 1 1.2
Moderate risk 59 71.1
Low risk 20 24.1
No risk 3 3.6
Total 83 100
It is identified from the above table that most (71.1%) of the investors feel that investment in mutual funds carry
moderate risk. Another 24.1% of the respondents feel that the risk in low. Combining the responses in Table No.7,
this reveals that investors in mutual funds are wiling to bear moderate risk in order to obtain better returns.
Table No.13: Level of Satisfaction Regarding the Returns in Mutual Fund
Opinion No. of Respondents Percentage
Highly satisfied 26 31.3
Satisfied 49 59
Neutral 8 9.6
Dissatisfied 0 0
Highly dissatisfied 0 0
Total 83 100
It is evident from the above table that maximum (59.0%) of the respondents are satisfied regarding the returns in mutual
fund investment, and another 31.3% of the respondents are highly satisfied. Taken together an overwhelming majority
(90.3%) of the investors are satisfied or highly satisfied will the returns they earn through investment in mutual fund.
Table No.14: Chances of Future Investment in Mutual Funds
Opinion No. of Respondents Percentage
Definitely invest 77 77
Very Likely 19 19
Probably invest 4 4
Definitely will not 0 0
Total 100 100
It is seen from the above table that 77.0% of the respondents will definitely invest in mutual fund schemes in the
forthcoming years. Another 19% of the respondents said that they are very likely to invest in mutual funds in the
future. No respondent said that he will definitely not invest in the future. This response accords well with the
response in Table No.13 where 90.3% of the respondents indicated that they are satisfied / highly satisfied with
the returns they got from their investment in mutual funds. It is natural that such satisfied customer will invest in
mutual funds in the future also.
Table No.15: Difficulties in Choosing the Right Investment
Opinion No. of Respondents Percentage
Too much choices 53 53
Lack of timely information 36 36
Lack of unbiased opinion 11 11
Total 100 100
It is seen from the above table that 53.0% of the respondents are facing too many choices and 36% feel that there
is lack of timely information. 11% of the respondents feel that the lack of unbiased information is the hurdle in
choosing the right investment
Table No.16: Mutual Funds as a Tool for Saving Tax
Mutual Fund for Saving Tax No. of Respondents Percentage
Yes 56 56
No 44 44
Total 100 100
It is evident from the above table that 56.0% of the respondents preferred mutual funds as a tool for saving tax.

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Table No.17: Proportion Invested in Tax Saving Schemes


Proportion of Taxable Income No. of Respondents Percentage
Less than 10% 38 67.9
11-20% 17 30.4
21-30% 1 1.8
31-40% 0 0
Above 40% 0 0
Total 56 100
Among 56 respondents who said that they use mutual funds as a tax shield, 68% said that they invest less
than 10% of their taxable income in tax saving schemes. Another 30.4% said that they invest between 11 to
20% of their taxable income in tax saving schemes.
Table No.18: Other Modes of Tax Saving
Other Tax Saving Modes No. of Respondents Percentage
Insurance 24 54.5
Housing loans 17 38.6
General provident fund 3 6.8
Total 44 100
Among the 44 respondents who did not choose mutual funds for tax saving purposes, Insurance was the
primary investment tool for tax saving purposes. The second most important avenue was housing loans. A
mere 7% used general provident fund for tax saving purposes.
Table No.19: Reasons for the Selection of Mutual Funds
Particulars Weightage score rank
Past performance 232 II
Financial advisors 174 III
Fund manager 131 IV
NAV appreciation 293 I
It is identified from the above table that the factor ‘NAV appreciation’ is the most important reason for selection
of mutual funds and it is ranked first by the respondents with score of 293 points. The third rank goes to the
‘financial advisors’ with score of 174 points. The fourth rank goes to the factor ‘fund manager’ with score of 131
points. It is concluded from the above analysis that maximum of the respondents’ opinion that the factor ‘NAV
appreciation’ makes to reason for selection of invested funds. The second most important reason for choosing a
mutual fund is its past performance. Financial advisors rank as the third major important factor. The reputation of
the fund manager is the least important factor. It is therefore safe to infer that expectation of future performance
(NAV) and record of past performance are the most important factors in the choice of mutual fund.
Findings:
• It is found from the analysis that maximum of the male respondents are invested their money through mutual funds.
• It is stated from the analysis that maximum of the respondents are belong to 21-30 years.
• It is noted from the analysis that 69.0% of the investors are married and 31.0% of the investors are unmarried.
• It is followed from the analysis that maximum of the investors are salaried people.
• It is known from the analysis that maximum of the investors are earned Rs.1 lakh to 2 lakh per annum.
• It is revealed from the analysis that 83% of the investors are invested through mutual funds.
• It is observed from the analysis that 48.2% of the investors are invested their money through mutual fund for
the reason of best returns when compared to other avenues.
• It is seen from the analysis that maximum of the investors are invested their money through mutual funds between 1-3 years.
• It is inferred from the analysis that maximum of the investors are invested their money through both the private
and public type of mutual fund.
• It is identified from the analysis that 79.5% investors are selected equity type of schemes.
• It is evident from the analysis that maximum of the investors invest less than 10%of their income through mutual fund.

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• It is revealed from the analysis that maximum of the investors’ opinion is moderate risk in mutual fund.
• It is found from the analysis that 59% of the respondents are satisfied and 31.3% of the respondents are highly
satisfied regarding the returns in mutual fund investment.
• It is noted from the analysis that 77% of the respondents are definitely invest through mutual fund in
forthcoming years.
• It is cleared from the analysis that maximum of the respondents are facing too much of choices as typical
hurdles of choosing the right investment.
• It is evident from the analysis that 56% of the respondents are preferred mutual funds as a tool for saving tax.
• It is stated from the analysis that maximum of the respondents are invested in tax saving scheme under mutual
funds as less than 10% of taxable income.
• It is inferred from the analysis that maximum of the respondents are having insurance as the other modes of
investment to save tax.
• It is identified form the above analysis that maximum of the respondents is that the factor ‘NAV appreciation’
makes to reason for selection of mutual funds.
Suggestions:
• The popularity of debt and gilt funds is very low. Emphasizing the fact that the risk level is low in such
schemes will help in increasing investments in such schemes.
• The time frame for most investors is 1 to 3 years. However investments in systematic investment plan (SIP) schemes
which are longer term investments can earn better returns. Hence investors must be educated about SIP schemes.
• Timely information regarding various schemes should be provided to investors so as to eradicate the hurdles
while choosing the right investment. So the role of financial advisors is prominent.
• While most of the investors are looking for better returns, only half are using the investments in mutual funds
for tax saving purposes. The investors must be educated about the tax benefits in investing in mutual fund to
attract more investments.
Conclusion:
The main objective of the study is to find out the investors preference towards various investment avenues like fixed
deposits, post-office schemes, bonds / debentures, share market, mutual funds and insurance. The study revealed that
mutual fund ranks as the most popular avenue for investment followed by life insurance and fixed deposits with regard
to the risk appetite of the investors; it is found that the investors perceive that investments in mutual funds carry
moderate risk. The study also reveals that a better and steady return is the main reason for investment in mutual funds.
The study in dictated that the majorities of the investors are satisfied with their investments in mutual fund.
Investments in insurance and housing are found to be the popular avenues for saving tax in addition to mutual funds
suggestions have been made to improve investments in mutual funds particular low risk schemes such as debt funds &
get funds and also by highlighting the tax advantages in investors in mutual funds.
References:
[1] Vimalavasan, “Mutual Fund sector period for Growth”, Business Line, November 8, 2002.
[2] Balaramasamy, “Evaluating Mutual Funds in an emerging market: Factors that matter to financial advisors”,
Journal of international journal of bank marketing, 2003 Vol-3.
[3] Robert B.Gordon sc.d: “Mutual Fund Profits Vs Investor welfare” rgordon145@aol.com, September 9, 2002.
[4] Rukmani vishwanath; “AA rated paper finds favor with mutual funds” Business Line, June 19, 2003.
[5] B.Venkatesh, “Investor Fatigue and Mutual Funds”, Business Line, June 21, 2004.

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