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Retail Investors' Preferences towards Equity Mutual Funds: A Conjoint Analysis

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High Technology Letters ISSN NO : 1006-6748

Retail Investors’ Preferences towards Equity Mutual Funds: A

Conjoint Analysis
Dr. Baldeo B. Kakde
Assistant Professor, Department of Commerce Manoharbhai Patel Arts, Commerce and Science College, Sakoli
Dist: Bhandara, 441802, Rashtrasant Tukdoji Maharaj Nagpur University, Nagpur, Maharashtra, India

Dr Ashish A. Linge
Assistant Professor, Department of Business Management, C P and Berar College, Nagpur

Dr. Sanjeev Singh

Assistant Professor, P. R. Pote Patil College of Engineering and Management, Sant Gadge Baba Amravati
University, Amravati.

Abstract:
The main objective of this study is to understand the retail investors’ preferences for equity
mutual fund schemes and to examine the relative importance of the attributes of equity
mutual fund schemes considered by the retail investors while investing in various schemes.
This research study has used six attributes of equity mutual fund schemes viz., fund category,
plan, mode of investment, risk grade, annual return and investment time horizon to
understand which of these are the most and least preferred attributes among the retail
investors. A sample survey of 151 retail investors in Vidarbha, a geographic region in
Maharashtra State, India was conducted. Availability, snowball and purposive sampling
techniques were adopted for the final selection of the respondents. Primary data was collected
by administering a well-structured questionnaire. In this research, 25 conjoint cards (profiles)
were created by using orthogonal design and distributed to the participants. Conjoint analysis
was performed to understand the most preferred and the least preferred equity mutual fund
attributes by the retail investors. The researchers also evaluated the relative importance of
each choice under various attributes. The results show that the attributes of equity mutual
fund schemes are significantly different from each other (p<.05, F=13.578). It was also found
that, the retail investors are very clear about the choices in various attributes. Multi-cap fund
category is the most preferred category and small-cap is the least preferred category by the
retail investors. The retail investors prefer to invest in equity mutual fund schemes through
regular plan i. e. through the distributors instead of direct plan. It is also found that, SIP mode
of investment is preferred by the investors over lumpsum mode. The retail investors also

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prefer to invest in the funds in low-risk category than medium and high-risk category funds.
The retail investors prefer to invest in the equity mutual fund schemes giving annual returns
of more than 20% CAGR. The retail investors least prefer to invest in the schemes giving
annual return of less than 10% CAGR. The most preferred investment time horizon is 5
years; and the least preferred investment time horizon is one year. As far as the relative
importance of the attributes is concerned, annual return is found to have the maximum utility
score followed by investment time horizon, fund category, risk grade, mode of investment,
and mutual fund plan.
Keywords: Equity, Mutual Fund, Retail investors, Conjoint Analysis, Preference

Introduction:
The mutual fund industry was started in 1963 in India with the formation of Unit Trust of
India, at the initiative of the Government of India and Reserve Bank of India (Association of
Mutual fund of India). During 1987 to 1992, a few government players also launched their
mutual fund schemes. SBI launched its Mutual Fund in June 1987 followed by Can bank
Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual
Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC rolled out
its mutual fund in June 1989 followed by GIC in December 1990 (Association of Mutual
fund of India). After the economic reforms of 1991, the mutual fund industry in India
witnessed the entry of private players. The industry has grown several times both in terms of
the fund size and number of products offered since then. At present, 44 Asset Management
Companies (AMCs) are working in the industry and these companies are offering various
kinds of schemes to the investors (Panda and Moharana 2014).
These days the retail investors have plethora of options to invest their money such as bonds,
shares and short-term securities, banks’ term deposits, mutual funds etc. Among all the
existing investment avenues, mutual fund has become a very popular investment instrument
for the small investors (Singh 2019). A mutual fund is a financial product in which the
investments of retail and institutional investors is managed by professional fund managers
(Pandey et al., 2020). A mutual fund is a professionally managed pooled investment vehicle
that attracts funds from various investors and invests it in stocks, shares, short-term money
management instruments, and/or other assets (Manjare 2021). Mutual fund is a retail product
which is designed for those investors who do not directly invest in share market but want the
returns given by the market (Vyaas 2012). The fund managers process information, identify

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investment opportunities, formulate investment strategies, invest funds and monitor progress
at a very low cost. Thus, the success of mutual funds is essentially the result of the combined
efforts of competent fund managers and alert investors (Vyaas 2012).
Various factors like increasing household investments, a robust regulatory environment,
favourable tax policies, the launch of several new products, an investor education drive, and
the role of distributors have all contributed to the Indian mutual fund industry’s remarkable
growth in recent years (Manjare 2021). Taking into consideration the significant growth of
this industry, it is important for the mutual fund companies to understand the preferences of
the retail investors towards fund selection so that they could design the fund schemes
according to the retail investors’ preferences. The present study made efforts in this regard to
suggest the factors to be considered while designing a new mutual fund scheme.
Literature Review
(Gozbasi and Çitak 2010) used conjoint analysis to investigate the relative importance of the
attributes considered by Turkish portfolio managers and investment advisors in selecting
mutual funds. The results indicate that the attributes expense ratio, past performance and
experience of the fund manager matter the most. The fund managers and investment advisors
found to attach moderate importance to affiliation of the fund and size of the fund; and less
importance to the number of funds managed by a particular company and the fund manager’s
investment style.
A study conducted by (Ramasamy and Yeung 2003) investigated the relative importance of
factors considered in the selection of mutual funds by financial advisors in emerging markets.
The study was conducted in Malaysia. The results show that, consistent past performance,
size of funds and costs of transaction are the three important factors considered by financial
advisors while choosing the mutual funds. Investment style is not considered to be relatively
important by the advisors for selecting mutual funds.
(Wilcox 2003) examined the ways investors choose a mutual fund within a given class of
funds. It was found that the investors give importance to past performance and vastly
overweight loads relative to expense ratios when evaluating a fund’s overall fee structure.
The study conducted by (Tai, Wu, and Liao 2021) focused on mutual fund investment
preference, combining mutual fund type, channels, and way of subscription, for employees of
financial institutions. The result revealed that women with longer working years prefer fixed
period investment in fixed income funds via bank. On the other hand, younger men with
shorter working years prefer single investment in equity funds via bank and security firms.

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(Gorman 2003) used conjoint analysis to uncover investors’ preferences for different fee
structures, with information on the expected revenue generated from various fee structures to
suggest a set of “efficient” fees to mutual fund managers.
(Rathi and Yadav 2014) tried to review various studies on mutual funds in India and abroad.
The results show that the current scenario, growth prospects, industry structure, challenges
and performance of different mutual fund during the period of 2000-2013. It was concluded
that, there is huge growth potential in semi-urban and rural markets, mutual funds have not
out-performed the market, and equity funds are more popular among investors.
The main objective of (Hassan, Fazili, and Hamid 2018) is to find the factors important to
financial advisors while making recommendations about the mutual fund schemes to the
Indian mutual fund investors. The results revealed that the past performance, risk associated
with the fund, brand equity and the current market conditions are the important factors
considered by the fund advisors.
The study conducted by (Kasilingam and Jayabal 2011) revealed that the preference of
investors varies according to the investment experience, family income and number of
earning members in the family. The investors perceive large cap and sectoral fund schemes as
the same with respect to risk; and they also perceive the funds differently with respect to
liquidity and safety.
The past literature has focused on studying various dimensions of preferences of portfolio
managers and investment advisors towards selecting mutual funds. Most of these studies are
conducted in developed countries. But very a few studies are conducted in India to
investigate retail investors’ preferences towards selecting mutual fund schemes. This study
attempts to fill this gap
Conceptual Framework
The main objective of this study is to understand the retail investors’ preferences for equity
mutual fund schemes and to examine the relative importance of the attributes of equity
mutual fund schemes considered by the retail investors while investing in various schemes.
This study makes an effort to determine the most preferred and the least preferred attribute of
equity mutual fund schemes by the retail investors by computing their preference scores and
the choices within the attributes. The null hypothesis formulated for this study is:
H0: All the attributes of equity mutual fund schemes are not significantly different.

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On the basis of extensive literature review, a research model as shown in Figure: 1 is

prepared for this research study. The research model depicts the factors affecting retail
investors’ preferences.

Figure: 1 Research Model

Methodology:
Conjoint Analysis: Attributes and Levels
In this study, conjoint analysis is performed to determine the relative importance of the
attributes of equity mutual fund scheme. Conjoint analysis is a statistical method used to
determine the value of the attributes of a product for its consumers. It is a method for
analysing preferences of customers. It is also a useful tool for predicting and determining
responses of customers to new product features and totally new products (Hazar and Yilmaz
2018). In this research study, choice-based conjoint analysis is used to evaluate the retail
investors’ preferences toward various attributes of equity mutual fund schemes.
In this study, the researchers have selected six attributes of equity mutual fund schemes viz;
fund category, plan, mode of investment, risk grade, annual return, and investment time
horizon. All the attributes consist of different levels. For fund category there are three levels
(large cap, mid-cap, small-cap, multi-cap), for plan there are two levels (direct, regular), for
mode of investment, there are two levels (SIP, lump sum), for risk grade there are three levels
(low, medium, high); for annual return there are three levels (<10% CAGR, 10-20% CAGR,

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>20% CAGR), and for investment time horizon, there are three levels (1 year, 3 years, 5
years, 10 years). The various choices under each attribute are depicted in the conjoint lay-out
(Table:1) prepared by the researchers. 25 profiles were generated by using SPSS software
(Table:2). The retail investors were asked to rate each profile in a 1 to 10 scale. ‘1’ for the
least preferred profile and ‘10’ for the most preferred profile.
Table: 1 Conjoint Lay-out
Attributes Fund Plan Mode of Risk Grade Annual Investment
Category Investme Return Time
nt Horizon
Large cap Direct SIP Low < 10% 1 year
CAGR
Choices
Mid cap Regular Lump Medium 11 to 20% 3 years
Sum CAGR

Small cap High > 20% 5 years

CAGR

Multi-cap 10 years

Table:2 Conjoint profiles

Card Fund Plan Route of Risk Returns Investment

ID Category Investment grade Time
Horizon
1 Small Cap Direct Lump sum High > 20% 1 Year
CAGR
2 Small Cap Regular SIP Low < 10% 10 Years
CAGR
3 Multi-cap Regular Lump sum Medium 11 to 20% 1 Year
CAGR
4 Small Cap Regular SIP Medium < 10% 5 Years
CAGR
5 Small Cap Direct Lump sum Low 11 to 20% 3 Years
CAGR
6 Large cap Regular SIP High 11 to 20% 10 Years
CAGR
7 Small Cap Direct SIP Medium 11 to 20% 1 Year
CAGR
8 Mid cap Direct SIP Medium < 10% 1 Year
CAGR
9 Multi-cap Direct SIP Low < 10% 3 Years
CAGR
10 Large cap Direct Lump sum Medium 11 to 20% 10 Years
CAGR

11 Multi-cap Direct Lump sum High < 10% 5 Years

CAGR

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12 Large cap Direct Lump sum Low 11 to 20% 5 Years

CAGR

13 Large cap Direct SIP Low 11 to 20% 1 Year

CAGR

14 Mid cap Regular SIP High 11 to 20% 3 Years

CAGR

15 Large cap Regular SIP Low > 20% 5 Years

CAGR
16 Large cap Direct SIP Medium > 20% 3 Years
CAGR
17 Large cap Direct SIP Low < 10% 1 Year
CAGR
18 Mid cap Regular Lump sum Low > 20% 1 Year
CAGR
19 Large cap Regular Lump sum Medium < 10% 3 Years
CAGR
20 Large cap Direct SIP High < 10% 1 Year
CAGR
21 Mid cap Direct SIP Medium 11 to 20% 5 Years
CAGR

22 Mid cap Direct Lump sum Low < 10% 10 Years

CAGR
23 Multi-cap Direct SIP Medium > 20% 10 Years
CAGR
24 Multi-cap Regular SIP Low 11 to 20% 1 Year
CAGR

25 Large cap Regular Lump sum Medium < 10% 1 Year

CAGR

The meaning of all the key terms used in the conjoint profiles is explained below:
Fund category:
There are various categories of mutual funds. Each category represents the kind of securities
the fund has targeted for its portfolio and the type of returns it seek (Adam Hayes, 2022).
However, the researchers have considered only four equity fund categories viz; large cap,
mid-cap, small cap, and multi-cap fund for this research study. The large cap funds are the
funds which allocate their assets in the companies which have large market capitalization
(Pandey, et al., 2020). Mid cap funds are the funds which invests in mid-sized companies
with its market capitalization ranges from $2 billion to $10 billion (K Bhuva and R. Bantwa

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2012). According to (Gorman 2003), the small cap funds are the funds which focus on
investment in firms with small market capitalizations. Whereas, the multi-cap funds are the
diversified funds which invest in stocks across market capitalization (Times of India, 2022).
Plan:
There are two mutual fund scheme plans based on how the retail investors purchase the funds
viz direct and regular plans. In the direct plan, the retail investors buy funds directly from the
Asset Management Company (AMC) without involving an intermediary. While in regular
plan, the retail investors buy funds through mutual fund distributors (Mirae Assets Mutual
fund).
Mode of Investment:
There are two modes of investing in mutual fund schemes – SIP and lumpsum. The
‘Systematic Investment Plan’ (SIP), as the name indicates allows investors to invest money
into a mutual fund scheme periodically, such as daily, weekly, monthly, quarterly or half-
yearly. On the other hand, lump-sum investments are a one-time bulk investment in a
particular scheme (Templeton)
Risk grade:
The risk in a mutual fund scheme indicates the possibility of losing the investment (Value
Research, 2004). The researchers have considered three risk grades – low, medium, high.
Annual Return:
According to (Schmitt, M 2021), annual return is defined as the percentage change in an
investment over a one-year period. The researchers have considered three choices under
annual return – <10% CAGR, 11 to 20% CAGR, and >20% CAGR.
Investment Time Horizon:
According to (Vineeth, 2022), investment time horizon is the timeframe over which an
investor would stay invested in a mutual fund scheme. The researchers have considered 4
time horizons – 1 year, 3 years, 5 years, and 10 years.
Sampling
A sample survey of 151retail investors in Vidarbha, a geographic region in Maharashtra
State, India was conducted. Availability, snowball and purposive sampling techniques were
adopted for the final selection of the respondents.
Data Collection
This research study is based predominantly on the primary data. Primary data was collected
by administering a well-structured questionnaire. There are (4 × 2 × 2 × 3 × 3 x 4) i. e.576
profiles after combining all the attributes and levels. In this research, 25 conjoint cards

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(profiles) have been created by using orthogonal design and distributed to the participants.
Along with these profiles, socio-demographic and economic characteristics of the
respondents were also included in the questionnaire. The sample characteristics are presented
in Table:3. The data was collected by personally visiting the retail investors at their
respective residences and offices. The questionnaire was also circulated to the respondents
through their e-mail IDs and through social media. The primary data was collected by
conducting telephonic interview as well.
Results and Discussion
This study is conducted to evaluate the retail investors’ preferences towards various attributes
of equity mutual fund schemes and to determine their relative importance. The characteristics
of the retail investors included in the sample is presented below:

Table: 3 Sample characteristics

Characteristic Choices No. of Respondents %

Gender Male 117 77

Female 34 23

Marital Status Single 42 28

Married 109 72

Area of Residence Urban 141 93

Rural 10 7

Education Graduate 08 6

Post Graduate 132 87

Above post graduate 11 7

Occupation Salaried 134 89

Business 12 8

Professionals 05 3

Age 25 to 35 years 84 56
36 to 45 years 53 35
46 to 55 years 11 7
Above 55 years 03 2
Monthly Gross < Rs. 50,000 74 49

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Income Rs.50,000 – 1,00,000 61 40

Rs.1,00,000 –1,50,000 10 7
>Rs.1,50,000 06 4
% Monthly Saving <10% 17 11
(of gross income)
10% to 20% 69 46
21% to 30% 41 27

>30% 24 16

N=151

The hypothesis is that, all the attributes of equity mutual fund schemes are not significantly
different. This hypothesis is tested by performing conjoint analysis at .05 significance level.
The results show that the attributes of equity mutual fund schemes are significantly different
from each other (P<.05, F=13.578) (Table:4).

Table: 4 Conjoint Analysis

ANOVAa
Model Sum of df Mean F Sig.
Squares Square
1 Regression 10.647 12 .887 13.578 .000b
Residual .784 12 .065
Total 11.431 24

The R² for the model shows that the preferences for the attributes of equity mutual fund
schemes independently account for 93.1% of variance in different choices (Table:5). It
indicates that the retail investors are very clear about the attributes of each equity mutual fund
scheme.

Table 5: Model Summary

Model R R Square Adjusted R Square Std. Error of the
Estimate

1 .965a .931 .863 .25562

Partworth utility table (Table:7) is useful to compare the partworth utility of the choices in
each attribute. After comparing the utilities of ‘fund category’, it is found that, mutli-cap
funds are the most preferred funds followed by large-cap and mid-cap funds. The small-cap
funds are the least preferred funds. For the mutual fund plans, part-worth utility shows that
the regular-plan is preferred over direct-plan. This means, the retail investors prefer to invest

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in mutual fund schemes through intermediaries. In mode of investment, the systematic

investment plan (SIP) is preferred over lumpsum investment. The results also show that, 59%
retail investors prefer to invest through SIP mode; and only 12% retail investors prefer to
invest through lumpsum mode. 29% investors prefer to invest in mutual funds by using both
the modes i. e. SIP and lumpsum. The part worth utility of low-risk grade is found to be more
than medium and high-risk grade. In annual returns, the retail investors prefer more than 20%
CAGR followed by 11 to 20% CAGR and less than 10% CAGR. As far as investment time
horizon is concerned, the retail investors prefer to stay invested for a period of 5 years. The
second preferred time horizon is 10 years followed by 3 years. The least preferred investment
time horizon is found to be a period of 1 year.

Table 6: Coefficient Table:

Model Unstandardized Standardiz t Sig.

Coefficients ed
Coefficient
s
B Std. Error Beta
(Constant) 5.569 .148 37.73 .000
7
Fund-Mid-Cap -.051 .140 -.030 -.364 .722
Fund-Small-Cap -.169 .140 -.100 -1.210 .250
Fund-Multi-Cap .199 .140 .118 1.424 .180
Plan-Regular .092 .104 .066 .877 .397
Mode-Lumpsum -.238 .104 -.172 -2.281 .042
Risk-Medium -.078 .114 -.056 -.681 .509
Risk-High -.374 .140 -.221 -2.671 .020
Return-11 to 20% 1.069 .114 .775 9.352 .000
CAGR
Return- 1.405 .140 .831 10.03 .000
Morethan20% 4
CAGR
Horizon-3Years .148 .140 .087 1.055 .312
Horizon-5Years .402 .140 .238 2.871 .014
Horizon-10Years .323 .140 .191 2.309 .040
a. Dependent Variable: Rating

Conjoint calculator was used to calculate the part worth utilities of different attributes.
Table:8 shows the relative importance of each attribute used in the research. The results show
that, ‘annual return’ has maximum utility. It is interpreted that, ‘annual returns obtained
through an equity mutual fund scheme is the most preferred choice of retail investors while
investing in equity mutual fund scheme. Investment time horizon is the second most preferred

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attribute followed by fund category and risk grade. Mode of investment and plan are the least
preferred attributes of the retail investors while investing in equity mutual fund scheme. The
relative importance of fund category, plan, mode of investment, risk grade, annual return and
investment time horizon are 13%, 3%, 8%, 13%, 49%, and 14% respectively. The higher
percentage of relative importance indicate higher contribution of the attribute in making
investment decision.

Table 7: Part worth Utility Table

Attribute Choices Utility Preferences

Large Cap 0.0052

Mid Cap -0.045

Fund Category Multi-cap>Large-
Small Cap -0.163 cap>Mid-cap>Small-cap

Multi Cap 0.204

Direct plan -0.046

Plan Regular-plan>Direct-plan
Regular Plan 0.046

SIP 0.119
Mode of Investment SIP>Lumpsum
Lump sum -0.119

Low Risk 0.15

Risk Grade Medium Risk 0.072 Low-risk>Medium-

risk>High-risk
High Risk -0.223

< 10% CAGR -0.824

More than 20% CAGR>11
Annual Return 11 to 20% CAGR 0.244 to 20% CAGR>Less than
10% CAGR
> 20% CAGR 0.58

1 Year -0.218

3 Years -0.07
Investment Time 5-years>10-years>3-
Horizon 5 Years 0.183 years>1-year

10 Years 0.104

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Table: 8 Relative importances of different attributes

Attributes Relative Importance Preference

Fund Category (FC) 13%

Plan (P) 3%

Mode of Investment (MI) 8%

AR > ITH > FC = RG > MI > P
Risk Grade (RG) 13%

Annual Return (AR) 49%

Investment Time Horizon (ITH) 14%

0.8

0.6

0.4

0.2
Partworth Utility

-0.2

-0.4

-0.6

-0.8

-1
Choices

Figure: 2 Partworth Utilities of all the Choices with each attribute

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60%
49%
50%

Partworth Utilities
40%

30%

20% 14%
13% 13%
8%
10%
3%
0%
Fund Plan Mode of Risk Grade Annual Investment
Category Investment Return Time Horizon

Attributes

Figure: 3 Part worth Utilities of Each Attribute

Conclusion
This research study has used six attributes of equity mutual fund schemes viz., fund category,
plan, mode of investment, risk grade, annual return and investment time horizon to
understand which of these are the most and least preferred attribu
attributes
tes among the retail
investors. Conjoint analysis was performed to understand the most preferred and the least
preferred equity mutual fund attribute by the retail investors. The researchers also evaluated
the relative importance of each choice under various
various attributes. The results show that the
attributes of equity mutual fund schemes are significantly different from each other (P<.05,
F=13.578).

It was also found that, the retail investors are very clear about the choices in various
attributes. Multi-cap fund category is the most preferred category and small-cap
small cap is the least
preferred category by the retail investors. The retail investors prefer to invest in equity mutual
fund schemes through regular plan i.e. through the distributors instead of direct plan.
pla It is also
found that, SIP mode of investment is preferred by the investors over lumpsum mode.
Incidentally, the retail investors prefer to invest in the funds in low
low-risk
risk category than
medium and high-risk
risk category funds. The retail investors prefer to invest in the equity
mutual fund schemes giving annual returns of more than 20% CAGR. The retail investors
least prefer to invest in the schemes giving annual return of less than 10% CAGR. The most
preferred investment time horizon is 5 years; and the lea
least
st preferred investment time horizon
is 1 year. As far as the relative importance of the attributes is concerned, annual return is

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High Technology Letters ISSN NO : 1006-6748

found to have the maximum utility score followed by investment time horizon, fund category,
risk grade, mode of investment, and mutual fund plan.

This study is confined to the evaluation of investment preferences of only six attributes of
equity mutual fund schemes. The future studies could involve other investment options so
that further information on this topic can be explored in depth. The future studies may also be
conducted in various other geographic areas. The results of this research study would be
useful to the asset management companies (AMCs) to launch a new equity mutual fund
scheme or relaunching the existing ones. The fund managers must take the cognizance of the
attribute having the maximum preference score i. e. annual returns. This research also has
theoretical implications. The research model studied in this study will be useful for the
research scholar and academia as well.
References:
Adam Hayes, M. J. (2022, March 07). Investopedia, Mutual Fund. Retrieved from
investopedia.com: https://www.investopedia.com/terms/m/mutualfund.asp#toc-types-of-
mutual-funds
Association of Mutual fund of India. (n.d.). Research and Information. Retrieved from
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Gozbasi, Onur, and Levent Çitak. 2010. “An Evaluation of the Attributes Considered by
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