1.

LITERATURE REVIEW

The mutual fund industry is expected to play a vital role infinancial intermediation in
the Indian economy; hence mutual fund’s collective ability to draw investment funds and
the use of those fundsare of considerable interest [Dr.Shantanu mehta, Charmi shah,
2012].

The global financial and economic crisis that unfolded in 2007 unsurprisingly had
an impact both on the amountof savings being channeled into mutual funds over the
world, and onthe distribution of resources among mutual fund classes embodying varying
degrees of risk.

Anecdotal evidence from across the globe suggests significant changes in

investors’ asset allocation patterns sincethe onset of the global financial crisis, as
heightened risk awareness and regulatory initiatives steered private investors towards
safer assets.Empirical evidence also confirms that globally there has been a movement
away from riskier to less risky assets during the crisis and through the recovery period.
Tracking the broad developments in the Indian mutual fundindustry helps to understand
how far the global crisis impacted over all investment flows to, and from,
domestic mutual funds and also to what extent the crisis-induced features such as risk
aversion are reflected in the investment patterns within the domestic mutual fund
industry.

The trends in resource mobilization by the industry give a fair idea about mutual
fund investors’ behaviour in the post-crisis period; the movements away from or towards
different types of mutual funds bearing various degrees of risk, are an indicator of mutual
fund investors’ collective risk appetite under differing economic circumstances. As
investor decisions are generally based on the returns generated by the funds, it is
important to see how mutual funds havefared in term of returns performance, particularly
during times of financial market stress. Further, the mutual fund industry’s role in the
Indian capital markets is also defined by both the amount and type of resources garnered
by it, as these jointly determine the deployment of resources by mutual funds [Dr.
Shantanu Mehta, Charmi Shah, 2012].

Also of significance is mutual funds’ role in counter balancing or reinforcing

foreign capital outflows and stabilizing or destabilizing the financial markets in periods
of uncertainty. The crisis adversely impacted an
important source of financial capital in India, namely investments by foreign institutional
investors (FIIs), with foreign institutional investors (FIIs) flows experiencing high
volatility during periods of heightened uncertainties.

There is reason to believe that with increased globalization of the fund industry,
mutual fund investment flows are correlated with flows of foreign institutional investors
(FIIs), and hence it is important to see how investments made by these two groups of
institutional investors impact each other and determine the overall capital flows to the
economy.

Rajeshwari T.R and Rama Moorthy V.E studied the financial behaviour and
factors influencing fund/scheme selection of retail investors by conducting Factor
Analysis using Principal Component Analysis, to identify the investor’s underlying
fund/scheme selection criteria, so as to group them into specific market segment for
designing of the appropriate marketing strategy [AnjanChakrabarti and Harsh Rungta,
2000,Kiran D. and Rao, 2004].
 Kiran D. and Rao U.S. identified investor group segments using the demographic
and psychographic characteristics of investors using two statistical techniques, namely –
Multinomial Logistic Regression (MLR) and Factor Analysis [Rajeshwari T.R and Rama
Moorthy V.E, 2002].

SEBI-NCAER survey was carried out to estimate the number of households and
the population of individual investors and their economic and demographic profile,
portfolio size, and investment preference for equity as well as other savings
instruments[SEBI, 2000].

Shankar (1996) points out that the Indian investors do viewMutual Funds as
commodity products and Asset Management Company’s, to capture the market should
follow the consumer product distribution model which is a study to assess the awareness
of Mutual Fund’s among investors, to identify the information sources influencing the
buying decision and the factors influencing thechoice of a particular fund.

This study reveals among other things that Income Schemes and Open Ended
Schemes aremore preferred than Growth Schemes and Close
EndedSchemes during the then prevalent market conditions [Shilpa
Sachdeva, Monika Bhatia, Rameesha Kalra, 2013].

Investor’s psychology affects mutual fund selection for investment in and to

withdraw from fund, the objective of mutual fund selection process isto choose a fund
from large number of available fund within the limits defined by investor preference,
economic climate and constraints. In this study researches argue that it is very complex
procedure to select appropriate fund and majority of investors lack awareness and
expertise’s. They developed a fuzzysystem to select appropriate fund [Ranganathan K,
2006]. This fuzzy system ofselection removes vagueness in selection process and novel
way of mutual funds selection.

“An Empirical study on factors influencing the mutual fund/scheme selection by

retail investors” and there study revealed that among product qualities the most important
factor was performance of the fund followed bybrand name of scheme [Walia, N. and R.
Kiran, 2009].

In sponsor related factor the most importance factor was expertise the sponsor by
managing money and in customer services the most
importance factorwas disclosure on investment objective then comes periodicityof
valuation in advertisements [Shilpa Sachdeva, Monika Bhatia, Rameesha Kalra, 2013].

Brown &Goetzmann (1997) emphasis on mutual fund styles. Mutual funds are
typically grouped by their investment objectives or the ‘style’ of their managers. This
approach is simple to apply,yet it captures nonlinear patterns of returns that result from
virtually all active portfolio management styles.

Interestingly, ‘growth’ funds typically break down into several categories that
differ in composition and strategy. Syriopoulos (2002) gave its review on an analysis of
investor’s risk perception towards mutual funds services. Being a part of financial
markets although mutual funds industry is responding very fast by analyze investor’s
perception and expectations.

Spiegel(2004) covers analyzed the security returns follow linear factor model
with constant coefficients.
 Bergstresser(2007) stipulates that many investors purchase mutual funds through
intermediated channels,paying brokers or financial advisors for fund selection and advice.

Fama (2009) emphasis on the skills required for cross section of mutual funds
returns. They focuses on the aggregate portfolio of U.S. equity mutual funds is close to
the market portfolio, but the highcosts of active management show up intact as lower
returns to investors.

Bootstrap simulations suggest that few funds produce benchmark adjusted

expected returns sufficient to cover their costs. Ivkovic and weisbenner (2009) studied on
Individual investor mutual fund flows and analyzed the relation between individuals
mutual fund flows and funds characteristics, establishing three key results.

Marco.et.al (2011) analyzed the risk-taking behavior of a fund managerin

response to prior performance by conducting a comparative analysis between ethical and
conventional investment portfolios. The study examined the influence on managerial risk
takingof the compensation and employment incentives.
 Cederburg (2008) reviewed on the mutual fund investor behavior across the
business cycle. Mutual fund investor behavior changes across the business cycle.

In economic expansions, investors strongly display the documented behaviors of

chasing returns and searching for managerial skill. In contrast, recession investors do not
chase returns and exhibit a weaker tendency to seek alpha. Even before controlling for
momentum, no smart money effect exists in recessions.

Zhao (2004) reviewed fund families typically claim that closing a fund protects
the fund superior performance by preventing it from growing too large tobe managed
efficiently.

Madhusudhan V Jambodekar (1996) conducted a study to assess the awareness of

Mutual Fund’s among investors, to identify the information sources influencing the
buying decision and the factors influencing the choice of a particular fund.
 Syama Sunder (1998) conducted a survey to get an insight into the mutual fund
operations of private institutions with special reference to Kothari Pioneer.The survey
revealed that awareness about Mutual Fund concept was poor during that time in small
cities like Visakhapatnam.

Anjan Chakarabarti and Harsh Rungta (2000) stressed the importance of brand
effect in determining the competitive position of the Asset Management Company’s.
Their study revealsthat brand image factor, though cannot be easilycaptured by
computable performance measures,influences the investor's perception and hence his
fund/scheme selection.

Berhein and Garnette (1996) affirmed Philip's findings and further stated that a
serious national Campaign to promote savings through education and information could
have a measurable impact on financial behaviour.

Madhusudhan V Jambodekar (1996) conducted a studyto assess the awareness of

Mutual Fund’s among investors, toidentify the information
sources influencing the buyingdecision and the factors influencing the choice of
aparticular fund.

SujitSikidar and Amrit Pal Singh (1996) carried out a survey with an objective to
understand the behavioural aspects of the investors of the North Eastern regiontowards
equity and mutual funds investment portfolio.

Syama Sunder (1998) conducted a survey to get an insight into the mutual fund
operations of private institutions with special reference to Kothari Pioneer. The survey
revealed that awareness about Mutual Fundconcept was poor during that time in small
cities like Visakhapatnam.

Shanmugham (2000) conducted a survey of 201 individual investors to study the

information sourcingby investors, their perceptions of various investment strategy
dimensions and the factors motivating share investment decisions, and reports that among
the various factors, psychological and sociological factors dominated the economic
factors in share investment decisions.
 Anjan Chakarabarti and Harsh Rungta (2000) stressed the importance of brand
effect in determining the competitive position of the Asset Management Company’s.
Their study revealsthat brand image factor, though cannot be easily captured by
computable performance measures, influences the investor's perception and hence his
fund/scheme selection.

Hirshleifer (2001) categorized different types of cognitive errors that investors

make i.e. self-deception,occur because people tend to think that they are better than they
really are; heuristic simplification, which occurs because individuals have limited
attention,memory and processing capabilities; disposition effect,individuals are prone to
sell their winners too quickly and hold on to their losers too long.