DEMOGRAPHIC FACTORS AND INVESTORS’ PREFERENCE IN MUTUAL FUND

NEHA CHOUDHARY

Royal School Business

Guwahati, India

Abstract

It is said that demographic factor plays a vital role in investment decision. Several studies have
found that attitude, perception and awareness level of the investors varies according to their
demographic profile and can be observed in their investment pattern. The present study has been
carried out to assess the association between the demographic factors and the preference in
mutual fund investment. The study was conducted in Tezpur, Assam with a sample size of 188
investors. The study concluded that age, gender and education level is associated with investors’
preference in mutual fund investment while occupation has no association with preference in
mutual fund investment

Introduction

Investment, in any form, is largely influenced by the demographic profile of the investors. Apart
from other factors, investment pattern varies according to age, gender, profession, education
level, qualification etc. This can be seen in the mutual fund market also and has been proved by
several studies. Mutual fund is an investment vehicle made up of a pool of funds collected from
many investors. This pool is invested in securities such as stocks, bonds, money market
instruments and similar assets (Bhowal & Paul, 2012). This is done under the guidance and
management of professional Fund Managers. An investor gets units for his investment, which
basically represent the portion of the fund that the investor hold, based on the amount invested.
Investors have indivualised set of preferences in selcting a particular avenue of investment. This
is equally applicable to mutual fund investment. Investment behavior is also influenced by
experience level of the investors which shapes their expectation (Bhowal & Paul, 2014). The
level of knowledge and awareness of the investors is also significant in shaping investment

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behaviour. The paper made an attemp to analyse the assoaction between the demographic factors
and investment pereference towards mutual fund as an investment avenue.

Literature Review

The study conducted by Singh & Chander, (2003) revealed that majority of the investors
belonging to salaried and retired categories and those in the age group of above 60 years of age
gives maximum importance to the past records before taking investment decision; salaried
people choose the return of funds to be the best criteria for the performance appraisal of a fund;
investors belonging to business category give importance to the option of ‘repurchase of the
units’ followed by ‘easy transferability’.

Jasmin (2008) found that investors’ socio-economic factors have significant effect on investors’
risk tolerance. The study showed that less educated investors are less likely to take risk; and
wealthy investors are more risk tolerant than the less-wealthy investors.

Mehta & Shah (2012) conducted a survey in Ahmedabad and Boroda city observed that the
mutual fund investors in the earlier age group gives preference to high risk high return securities
while investors belonging to the middle age group (41-50 years) gives equal preference to
liquidity, high return and low risk. Investors exceeding 50 years of age prefer low risk more than
any other factor. The study a revealed that qualification plays a little role in the knowledge level
about mutual funds; and investment in mutual fund is influenced by the income of the investors.

Viraparthi & Margam (2013) found that males are keener in various investments than females,
the investment of an individual is directly correlated with the income of the investors and
investors’ qualification has a significant impact on their share of investment in mutual funds.

The survey carried out by Sikdar & Singh (1996) revealed that the salaried and self-employed
formed the major investors in mutual fund.

Ajmi Jy (2008) reported that men are less risk averse than women; less educated investors are
less likely to take risk; age factor is also important in risk tolerance; wealthy investors takes more
risk than the less wealthy investors; and educated investors are less likely to take risk.

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Another study conducted by Paul & Garodia (2012) stated that demographic factors shape the
investors expectation level of the quity shareholders.

Paul & Bihani (2014) in their study ‘Expectation based customer oriented marketing mix’
mention that individuals use their past experience to make future predictions.

Paul & Bajaj (2012) found that demographic variable like age, gender, education level,
occupation etc., influence the level of awareness of the investors. Investors’ belonging to
different age group, gender, occupation have different level of awareness about various
investment avenues.

Objective of the Study

The study was conducted to assess whether there exists any association between demographic
factors and preference in mutual fund investment.

Hypothesis of the Study

H01: There is no significant association between investors’ demographic factors and preference
in mutual fund investment.

Methodology

A combination of secondary and primary data sources were employed for the study. Secondary
data was used for survey of past literature relevant to the study (e.g. Paul, 2014; Jasmin, 2008;
Paul, 2012; Singh & Chander, 2003; Paul, 2014; Sikdar & Singh, 1996; Paul & Bihani, 2014;
Viraparthi & Margam, 2013; Mehta & Shah, 2012; Bhowal & Paul, 2012; Paul, 2014). The
primary data was collected through structured questionnaire. A structured questionnaire was
designed with 13 items [refer Table 2] to elicit the responses of the investors relating to
preference in mutual fund investment. The preference level was measured in a five point scale
ranging from strongly agree to strongly disagree. The retail investors of mutual fund of Tezpur
area constituted the target population. As no exhaustive list of investors was available, the size of
the population is considered as unknown and hence, the snowball sampling technique was used.
The sample size of the survey was 188. The various statistical measures used for analysis include

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Cronbach’s Alpha (to measure the scale reliability), Chi-square test (to test the association
between perception level and demographic variable)

Analysis and Findings

As mentioned in the methodology section, the study was conducted in Tezpur area with 188
respondents. The respondents included the investors who have either invested in past or current
investors of mutual fund. The demographic profile of the respondents is furnished in the
following self explanatory table.

Table 1: Respondents Profile

Valid Cumulative
Frequency Percent Percent Percent
Gender Male 127 67.6 67.6 67.6
Female 61 32.4 32.4 100.0
Total 188 100.0 100.0
Age Below 30 years 39 20.7 20.7 20.7
30-45 years 62 33.0 33.0 53.7
45-60 years 60 31.9 31.9 85.6
Above 60 years 27 14.4 14.4 100.0
Total 188 100.0 100.0
Occupation Service 56 29.8 29.8 29.8
Business 68 36.2 36.2 66.0
Others 64 34.0 34.0 100.0
Total 188 100.0 100.0
Education Under Graduate 73 38.8 38.8 38.8
Graduate 71 37.8 37.8 76.6
Post Graduate 44 23.4 23.4 100.0
Total 188 100.0 100.0
Source: Survey data

The scale used in the study was found reliable and internally consistent as the value of
Cronbach’s Alpha was found to be 0.81. As regard to the assessment of association between
demographic profile and preference in mutual fund investment, the to score of the 13 items
divided into three level i.e. low level, moderate level and high level. As five point scale was
used, the scores ranging between 13 and 30.33 was considered as low level; scores ranging

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between 30.33 and 47.67 was considered as moderate level; and scores ranging between 47.67
and 65 was considered as high level

Table 2: Items Used in Scale with their mean score

Sl No I prefer Mutual fund because: Mean
1 I understand the mutual fund investment 3.78
2 Mutual fund provides me flexibility in investment 3.96
3 Investment in mutual fund provides me tax advantage 3.05
4 Mutual fund investments are safe 2.87
5 Mutual fund investment are risk free 3.16
6 Mutual fund provides well diversified portfolio 3.16
7 Mutual fund investment are convenient to make 3.25
8 Mutual fund investment provided reasonable return 2.89
9 Mutual fund provides me products as per my need 3.26
10 Mutual fund provides easy liquidity of my investment 3.18
11 Services of the fund houses are reliable 2.69
12 Mutual fund investment are transparent 3.31
13 Mutual fund investment are well regulated 3.19
The mean score as shown in Table 2 revealed that mean score in respect of investors’ preference
towards mutual fund is maximum while mean score of the services of the fund houses are
reliable is minimum amongst all the items. The mean sores of rest of the items can be seen as a
relative importance in the preference level of one item over the other.

Table 3: Test of Association

Asymp. Sig.
Statistics - Inferential Value df
(2-sided)
Gender and Preference Level Pearson Chi-Square 9.842a 2 0.007
Likelihood Ratio 10.763 2 0.005
Linear-by-Linear Association 9.155 1 0.002
Pearson Chi-Square 49.208a 6 0.002
Age and Preference Level Likelihood Ratio 49.520 6 0.016
Linear-by-Linear Association 12.972 1 0.024
Pearson Chi-Square 56.152a 4 0.000
Education and Preference Level Likelihood Ratio 52.030 4 0.000
Linear-by-Linear Association 20.458 1 0.000
Pearson Chi-Square 5.277a 4 0.260
Occupation and Preference Level Likelihood Ratio 5.646 4 0.227
Linear-by-Linear Association 3.032 1 0.082
Source: Survey data

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The Chi square statistics showed that there is significant association between gender and
preference level as the asymp sig. value is less than 0.05. This is also evident in can of age and
preference level. The association between education level and preference level is significant,
However, the association between occupation and preference level is insignificant as the asymp
sig. value is found to be greater than 0.05 at 5% level of significance.

Conclusion

Based on the findings of the study, it can be concluded that demographic factors play a
significant role in the mutual fund investment. Gender, age and education level is associated with
investment preference while occupation is not. Thus, the findings of the present study
corroborate with the findings of the earlier studies. Hence, it is suggested to the fund houses to
design products based on the perception and preference level of various group of investors who
are diverse in their investment behavior.

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