PERCEPTION OF MUTUAL FUNDS AS A RISKY INVESTMENT

Project Report submitted in partial

fulfilment of the requirements for the degree of
Master of Business Administration

Submitted By

UDDIPAN DE-1827931
SNEHASHISH DAS- 1828029

Under the Guidance of

PROF. S.G RAJA SEKHARAN

Christ Institute of Management

CHRIST (Deemed to be University), Bengaluru

MARCH 2020
 CONTENTS

1. INTRODUCTION ........................................................................................................ 1
1.1 MUTUAL FUNDS ................................................................................................. 2
1.1.1 TYPES OF MUTUAL FUNDS IN INDIA ....................................................... 2
1.2 LITERATURE REVIEW ........................................................................................ 4
1.2.1 STUDIES CONDUCTED ................................................................................ 4
2. OBJECTIVES OF THE STUDY ................................................................................. 8
2.1 PROBLEM BACKGROUND ................................................................................. 9
2.2 PROBLEM STATEMENT ..................................................................................... 9
2.3 OBJECTIVES ......................................................................................................... 9
2.3.1 PRIMARY OBJECTIVES ............................................................................... 9
2.3.2 SECONDARY OBJECTIVES ......................................................................... 9
3. DATA COLLECTION & RESEARCH METHODOLOGY ................................... 10
3.1 RESEARCH METHODOLOGY .......................................................................... 11
3.2 SOURCES OF DATA........................................................................................... 12
3.2.1 PRIMARY DATA ......................................................................................... 12
3.2.2 SECONDARY DATA ................................................................................... 12
3.3 LIMITATIONS ..................................................................................................... 12
4. DATA ANALYSIS ..................................................................................................... 13
4.1 GRAPHICAL ANALYSIS OF THE SURVEY ..................................................... 14
5. FINDINGS & RECOMMENDATIONS ................................................................... 19
5.1 FINDINGS ........................................................................................................... 20
5.2 RECOMMENDATIONS ...................................................................................... 20
6. LEARNINGS & CONCLUSION .............................................................................. 22
6.1 LEARNINGS........................................................................................................ 23
6.2 CONCLUSION..................................................................................................... 23
REFERENCES .................................................................................................................. 24
APPENDIX ........................................................................................................................ 26

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 CHAPTER 1

1 INTRODUCTION

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1.1 MUTUAL FUNDS

The financial sector of the country has a great impact on the economy with financial
services of companies responsible for the robust economic growth. There must be a direct link
between the regulatory institutions & the intermediary institutions while determining the
financial system of the country. Financial services provided by finance companies include
Insurance, Housing Finance, Mutual Funds, Credit Reporting, Debt Collection, and
Stockbroking.

Mutual funds are basically investment vehicles that comprise the capital of different
investors who share a mutual financial goal. A fund manager manages the pool of money that
is collected from various investors and invests the money into a variety of investment options
such as company stocks, bonds, and shares.

A mutual fund is a fund that needs to be registered with Securities and Exchange board
of India (SEBI) and is an ideal investment tool for today’s complex and modern financial
scenario.

1.1.1 TYPES OF MUTUAL FUNDS IN INDIA

Mutual funds in India are classified into different categories based on certain
characteristics such as structure, investment objectives, and risk.

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1.1.1.1 BASED ON STRUCTURE

• Open-ended Mutual Funds

Open-ended mutual funds have no constraints as far as the number of units that can be
traded, or the time is concerned. Investors can trade and exit from the funds at their own
convenience.

• Closed-ended Mutual Funds

The unit capital that is to be invested in closed-ended mutual funds is fixed and therefore,
it is not possible to sell more than the predetermined number of units. The maturity tenure
of the scheme is fixed.

1.1.1.2 BASED ON ASSET CLASS

• Equity Funds

Equity funds make investments mainly in stocks of companies. Equity funds are the most
preferred investment options among most investors as these offer high returns and quick
growth.

• Debt Funds

Debt funds chiefly invest in low-risk fixed-income instruments such as government

securities. Since these funds come with a fixed maturity date and interest rate these are
ideal for investors with low risk appetite.

• Money Market Funds

Money market funds invest in easily accessible cash and cash equivalent securities and
offer returns as regular dividends. These funds come with relatively lower risk and are
ideal for short term investment.

• Hybrid or Balanced Funds

Balanced or hybrid funds invest a certain amount of their corpus into equity funds and the
rest in debt funds. Though the risk involved with these funds is relatively high, the
generated returns are equally high.

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1.1.1.3 BASED ON RISK

• High Risk Funds

These funds are the equity-oriented funds with high return expectations. The expected rate
of return for these funds is above 12 %. Many funds are providing as high as 20 % returns
and some even to the extent of 30 %.

• Low Risk Funds

The corpus of low-risk funds is spread across a combination of arbitrage funds, ultra-short-
term funds, and liquid funds. These funds are ideal in times of unexpected national crisis
or when the rupee depreciates in value. These funds are the debt-oriented funds with low
return expectations of around 6-9 %.

• Medium Risk Funds

The funds which provide medium level of risk are the combination of equity and debt funds
can be called hybrid funds. They have expected return rate in the range 9- 12 %.

1.2 LITERATURE REVIEW

A literature review by referring to various articles has been conducted to better
understand about the automobile industry and the automobile service industry.

1.2.1 STUDIES CONDUCTED

(Reepu, 2017) has undertaken a study on “A Study of Mutual Funds”. Here the author
emphasised on mutual funds and how the investment flows from an investor after they invest
their money based upon the market fluctuations. The author has also emphasised on the
indicators of investment risk which includes different measures like Beta, R-square, Alpha etc.
Different types of risks have been mentioned based on individual dispositions like
conservative, aggressive and moderate. The advantages of investing in mutual fund includes
tax benefits, transparency, affordability, diversification etc but has certain disadvantages as
well which must be taken care of. There are ways of managing risks as well as availing the tax
benefits.

(Trivedi, Swain, & Dash, 2017) have made a detailed study of “Investor’s perception towards
mutual fund decision” from an Indian perspective. In the study the authors have mentioned the
major risks affecting the mutual fund decisions which has been categorized as risk factor, return

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factor, liquidity factor, consistency factor, awareness factor and specialization factor. They did
a detailed study on all the factors. The major objectives behind the study was to study the
perception of the investors and their awareness of mutual funds. Other objectives included the
effect of gender differences and the age factor. Chi square analysis was carried out to test the
hypothesis. Major findings that were found out were that low risk funds attracted more
investors, males are more interested in mutual funds than females etc. The authors reached to
a conclusion stating that right people at right time with right information will help to enhance
the mutual fund investment.

(Prabhu & Vechalekar, 2018) have analysed “The perception of Indian investor towards
investment in mutual fund with special reference to MIP funds”. In the analysis the authors
point out that MIPs invest maximum of their total corpus in debt instruments while they take
minimum exposure in equities. It gets benefit of both equity and debt market. Major objectives
behind the study include things such as finding the investment pattern, the awareness level of
the investors, type of scheme of mutual funds preferred by the investors etc. Their research
included analysis based on questionnaire which showed that most of the investors are aware of
various schemes of mutual funds. The Mutual Fund investors mainly belong to the age group
from 19 years to 55 years and fall in the income group of Rs 30,000 to Rs 70,000 and above.
Diversification of portfolio and tax benefit are the main factors of mutual fund that attract the
investors.

(Pandow, 2017) has done an extensive study on the “Performance of Mutual Funds in India”
where he has found that the growth of the mutual fund industry has been on the rise and the
industry has witnessed enough expansion and standardization in terms of products and services
offered, regulatory mechanism, and the proliferation of large number of private sector funds
both domestic and foreign. The parameters taken into consideration includes the number of
funds, Fund schemes offered, mobilization of funds, assets under management etc. The
launching of new schemes has grown at a compound rate of 23 percent from 1997-98 to 2010-
11. The author safely concluded that the scene in the Indian mutual fund industry is dominated
by the Regular Income Schemes followed by the Growth Schemes right through the period
under study i.e. 1997-98 to 2010-11. The Money Market Mutual Funds (MMMF) emerged as
a major contributor to the funds mobilized. The author ended with a conclusion stating that the
industry has witnessed enough growth on all parameters be it; number of fund houses, No. of
schemes, funds mobilised, assets under management etc. In terms of Assets Under

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Management (AUM), the industry recorded significant growth. Though, the mutual fund
industry has recorded significant progress on all fronts, yet it has not been able to utilize its
potential fully. The industry is confronted with number of challenges like low penetration ratio,
lack of product differentiation, lack of investor awareness and ability to communicate value to
customers, lack of interest of retail investors towards mutual funds and evolving nature of the
industry. Therefore, if the industry must utilize its potential fully, it must address these
challenges.

(Singal & Manrai, 2018) have conducted a research on “Factors affecting investment in mutual
funds” where they have found that the mutual fund setup is like a trust consisting of trustees,
sponsors, asset management companies and custodian. Mutual funds have many advantages
for marginal investors which include convenience, lower risk, expert management and
economies of scale. A study was conducted that showed that open-ended scheme is most
favoured among other things and that income schemes and open-ended schemes are preferred
over closed-ended and growth schemes. The methodology used to conduct the research
included a self-administered structured questionnaire that is used as a survey instrument for
primary data collection. From the results it was concluded that the fundamental factors and
investor perception play a very vital role in the investment decision making process.

(Kaur & Arora, 2018) have made a detailed study on “Investor’s Perception towards Mutual
Fund as an Investment Option”. Through the paper they attempted to know the point of view
of investors towards buying decision of mutual fund scheme and to know the factors affecting
their decisions. For the study a total of 150 investors belonging to three different districts of
Punjab namely Doaba, Malwa and Majha. From the study it is concluded that most of investors
have invested their money in mutual fund and invested their most of money because of return
and that’s why they preferred to invest the amount of money in growth fund schemes. They
also show their interest to reinvest the amount of money in mutual fund. It is also observed
from the study that each investor has own goal of mutual fund investment.

(Singh, 2011) did his research to understand the attitude of investors towards Mutual Funds as
an investment option. In this paper, structure of mutual fund, operations of mutual fund,
comparison between investment in mutual fund and bank and calculation of NAV etc. have
been considered. In this paper, the impacts of various demographic factors on investors’
attitude towards mutual fund have been studied. For measuring various phenomena and
analysing the collected data effectively and efficiently for drawing sound conclusions, Chi-

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square test has been used and for analysing the various factors responsible for investment in
mutual funds, ranking was done based on weighted scores. The study shows that most of
respondents are still confused about the mutual funds and have not formed any attitude towards
the mutual fund for investment purpose. It has been observed that most of the respondents
having lack of awareness about the various function of mutual funds.

(Sharma, 2012) through her article tries to understand the perception of specifically Indian
Investors towards mutual funds. The study uses principal component analysis as a tool for
factor reduction. The paper explored three factors named as fund/scheme related attributes,
monetary benefits and sponsor’s related attributes (having respectively six, four and four
variables) which may be offered to investors for securing their patronage. The study found out
that all benefits emerging from investment in mutual funds can be categorised into three
categories mentioned above. The results found that to secure the patronage of Indian Investors,
mutual fund companies are expected to ensure full disclosure and regular updates of the
relevant information along with the assurance of safety and monetary benefits.

(Kumar & Kumar, 2014) have conducted their research to understand the investor’s perception
of mutual funds as a low risk investment. The study is based on the primary data i.e. collected
through field survey by administering, well-structured questionnaire. The respondents were the
investors who invest in the mutual fund. By adopting random sampling, samples of 160
respondents have been taken from the Sirsa district. The data was analyzed by using various
statistical techniques and tools, such as mean, percentage, frequency and Chi-square has been
used at one percent level of significance. The study found out that most of the investors have
negative perception towards mutual funds as a low risk investment.

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 CHAPTER 2

2 OBJECTIVES OF THE STUDY

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2.1 PROBLEM BACKGROUND

Mutual funds have always been considered as one of the riskiest investments. Although
in foreign countries almost every second individual is owner of some mutual fund. In India
though, mutual funds are not considered as a good form of investment by most of the people.
Mutual funds are subjected to market risks but if analyzed carefully before investing they can
help anyone to earn good money.
This project aims to understand the perception of individuals belonging to different age
groups and income categories about mutual funds as a risky investment.

2.2 PROBLEM STATEMENT

Problem identified during the project:

• The mutual fund industry has always been the victim of bad reputation. People think
mutual funds are only for those who understand the market very well and are good with
numbers. The study aims to find out the major factors influencing the investors
perception towards mutual funds.

2.3 OBJECTIVES

2.3.1 PRIMARY OBJECTIVES

• To study the perception of investors towards mutual funds.
• To know the preference of portfolios.
• To find out the type of mutual fund an investor prefers the most.

2.3.2 SECONDARY OBJECTIVES

• To gain more knowledge about various types of mutual funds
• To study the level of awareness of mutual funds

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 CHAPTER 3

3 DATA COLLECTION &

RESEARCH METHODOLOGY

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3.1 RESEARCH METHODOLOGY

The study is basically an analytical study based on primary research as well as also related to
the analysis of the attitude of people towards mutual funds. To conduct this study, 30
respondents have been selected by sampling method and mainly questionnaire has been used
for collecting the data. All the data required for this analytical study has been obtained mainly
from primary sources, but at times, secondary sources of data have also been considered. The
data collection method used to obtain the desired information from primary sources has been
through direct interview and questionnaire has been used as an instrument. Basically, targeted
populations belong to different age groups to understand if there is any relationship between
age group and perception of mutual funds as a risky investment. Other characteristics
considered include marital status, income. Judgment sampling has been used for collecting the
sample. For measuring various phenomena and analysing the collected data effectively and
efficiently to draw sound conclusions, graphical analysis has been used. Techniques such as
histogram, bar graph, pie charts have been used.

An overview of the research methodology followed during this study shown in Figure

Defining Problem Defining

Literature Review
Statement Obejectives

Study of Solution Data Collection

Approaches through survey

Suggesting
Data Analysis
Recommendations

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3.2 SOURCES OF DATA

3.2.1 PRIMARY DATA

The source of primary data is mainly questionnaires and survey. To conduct the survey
the questionnaire was distributed amongst various individuals. The questionnaires were
distributed through online as well as paper-based form. The questionnaire consisted of a total
of 25 questions with 8 general questions and remaining 17 questions were related to the project.
2 questions also used the ranking method. The ranks were from 1-5 with 1 being lowest and 5
being highest.

3.2.2 SECONDARY DATA

• Books and journals relating to the subject

• Data collected from authorized websites

3.3 LIMITATIONS

• The sample size was limited to 30 because of the limited time which is small to
represent the whole population.
• The research was limited or confined to Bangalore only and if the same research would
have been carried out in some other city, the results may vary.
• Sometimes the respondents because of their busy schedule was unable to concentrate
properly while filling up the questions. However, the researchers tried their level best
to overcome the limitation by explaining the importance of research.

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 CHAPTER 4

4 DATA ANALYSIS

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4.1 GRAPHICAL ANALYSIS OF THE SURVEY

From the survey it was found that out of 30 respondents almost 36.7% respondents have
invested their money in some form or the other. 63.3% respondents have not invested their
money in anything.

The results clearly show that 80% of the respondents prefer bank deposits such as fixed
deposits, savings account etc for their investment purposes. Also, mutual funds and stock
markets are also preferred by almost 53.3% and 43.3% of the respondents respectively. These
results prove that mutual funds are considered as a risky investment regardless of the benefits.

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Out of 30 respondents 46.7% have “partial knowledge of mutual funds”, 33.3% are “aware of
the specific schemes” and around 13.3% are “totally” ignorant about mutual funds. This shows
that most of the respondents have proper knowledge regarding mutual funds.

When we account for the risk associated with mutual funds more than 80% of the respondents
think mutual funds to be moderately risky to highly risky. This analysis is further explained
based on age below.

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When we consider the different age groups, it is found out that the age group of 25-35 mainly
considers mutual funds to be moderately risky whereas the age group of 45 and above finds
mutual funds highly risky. This maybe because the age group of 45 and above are mostly
married and have a family to look after so they cannot afford too many risky investments.

Now, if we consider the plan preferred by respondents, youngsters belonging to the age group
of 25-35 mostly preferred the equity plans whereas the age group of 45 and above only
preferred the balanced plans. This again proves the fact that the age group of 45 and above
avoid risky investments.

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The above two graphs show that most individuals prefer investing from 7-10 years and they
prefer investing in between 20000-50000. Many individuals also preferred investing for 4-6
years amounting to 50000-80000. Experienced individuals who are earning more than 10lpa
prefer to invest more. This point is further proved by the graph that is given below. People
earning more than 10lpa and more than 15lpa mainly prefer investing more than 50000-80000.

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This graph shows that lack of knowledge regarding mutual funds, inefficient investment
advisors and lack of confidence in service provided to be the main factors that prevent people
from investing in mutual funds. Some individuals also found selection of investment schemes
to be difficult which prevents them from investing.

This graph explains how various factors affect the investors decision. The various factors
considered are liquidity, high return, professional management, diversification, brand image,
price and risk. It is observed that high return, brand image and price are the most important
factors that the investors consider. Other important factors that investors give importance are
liquidity, professional management and risk.

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 CHAPTER 5

5 FINDINGS &
RECOMMENDATIONS

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5.1 FINDINGS:
• Most of the respondents do have proper knowledge regarding mutual funds, but there
are many individuals who are totally ignorant regarding mutual funds.
• Regardless of the age, people still consider mutual funds to be risky.
• Lack of knowledge and inefficient investment advisers are the main factors which
prevents people from investing in mutual funds.
• High return, brand image and Price are the main factors that people considers before
investing in mutual funds.

5.2 RECOMMENDATIONS:

Recommendation can be divided into 2 parts:

a) For Mutual Fund Companies

b) For Mutual Fund Investors

For the companies:

• It is recommended that Mutual fund companies should conduct different courses at

Universities and colleges to make the students aware about the various types of mutual
fund available.
• Mutual fund companies should dispatch their annual report in time to their investors so
that the investors are informed about the company’s financial position. This will help
the investor to know the status of their investment.
• Most of the respondents were ready to invest in SIP (systematic investment plan). This
shows the popularity of SIP Scheme. The mutual fund companies should publicize SIP
and encourage investors to invest more in SIP as it will help in compulsory savings.
• Mutual fund companies should launch new and innovative schemes according to the
varied needs of the investors as there is a lack of innovative products in the market.
• Besides relying on brokers, friends, media, newspapers, professional advisors, mutual
fund investors should be encouraged to use other sources of information such as
financial journals, internet and brochures of mutual funds

For the investors:

• Mutual Fund Investors should choose the right Mutual Fund Scheme which suits their
requirements. The offer document of the Mutual Fund Scheme should be thoroughly
read and scrutinized before investing.

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 • Investing in one Mutual Fund scheme may not meet all the investment needs of an
investor. They should consider investing in a combination of schemes to achieve their
specific goals.
• It is suggested that the investors should not consider only one or two factors for
investing in mutual funds, but they should consider other factors as well such as higher
return, degree of transparency, efficient service, fund management and reputation of
mutual fund in selection of mutual funds.

In general, educational institutions should educate students and conduct classes like
Personal Financial Planning, to provide better knowledge regarding the investment
patterns and areas of investments.

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 CHAPTER 6

6 LEARNINGS & CONCLUSION

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6.1 LEARNINGS

• From this project we came to know about the perceptions of various investors regarding
mutual funds and what kind of investment modes they prefer investing into.
• Detailed understanding about mutual funds and the different schemes available.
• Various factors affecting investor’s decisions while investing in mutual funds.
• We learnt how the perception of mutual funds changes w.r.t demographic factors such
as age, marital status, income etc.

6.2 CONCLUSION

Mutual funds are among the most profitable investment instruments. For middle aged
individuals, investing in mutual funds yields higher interest and comes with good principal
amount at the end of the maturity period of the mutual fund investment and therefore they are
more interested in taking risks than the higher aged group. It is important to gain good
understanding of mutual fund investments, companies in the field, and mutual fund experts, as
customers are easily misguided by the advertisements and offers promoted by various financial
institutions. Mutual fund companies should come forward with full support for the investors in
terms of advisory services, participation of investor in portfolio design, ensure full disclosure
of related information to investor, proper consultancy should be given by mutual fund
companies to the investors in understanding terms and conditions of different mutual fund
schemes, such type of fund designing should be promoted that will ensure to satisfy needs of
investors, mutual fund information should be published in investor friendly language and style,
proper system to educate investors should be developed by mutual fund companies to analyse
risk in investments made by them, etc.

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 REFERENCES

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 • Kaur, J., & Arora, N. (2018). A Study on Investor’s Perception towards Mutual Funds
as an Investment Option. International Journal of Latest Engineering and
Management Research (IJLEMR), 107-111.
• Kumar, S., & Kumar, V. (2014, March). Investors’ Perception Towards Mutual
Funds: A Study Of Low Risk Investments. International Journal Of Management
Research And Review, 4(5), 388-395.
• Sharma, N. (2012, August). Indian Investor’s Perception towards Mutual Funds.
Business Management Dynamics, 1-9.
• Singh, B. K. (2011). A Study on Investors’ Attitude towards Mutual Funds as an
Investment Option. Journal Of Asian Business Strategy, 1(2), 8-15.
• Pandow, B. A. (2017). Performance of Mutual Funds in India. International Journal
of Research in IT, Management and Engineering, 07(01), 14-23.
• Prof Gauri Prabhu, D. N. (2018). Perception of Indian Investor towards investment in
mutual funds with special reference to MIP Funds. IOSR Journal of Economics and
Finance, 8, 66-74.
• Rajesh Trivedi, P. K. (2017). A Study of Investor’s Perception Towards Mutual Fund
Decision: An Indian Perspective. International Journal of Economic Research, 14(9),
2-12.
• Reepu. (2017). A Study Of Mutual Funds. International Journal of Management,
08(03), 213-219.
• Varun Sagar Singal, D. R. (2018). Factors Affecting Investment in Mutual Funds.
Journal Of General Management Research, 05(02), 96-107

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 APPENDIX

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FORM FILLED BY ONE OF THE RESPONDENTS:

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