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The main purpose of the study is to understand the preference of investors investing in Mutual Funds. It tries to draw conclusions regarding how the investors are employing their resources in a manner to afford, combine benefits to low risks, steady or consistent returns, high liquidity & capital appreciation through diversification & Expert Management.
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“A STUDY ON INVESTOR PREFERENCE TOWARDS MUTUAL FUNDS IN BANGALORE CITY”
Submitted in partial fulfillment of the requirements for the award of the
Degree of Master of Commerce of Christ University during the year
2014-15
By
MELVIN RAJU
1321713
Under the guidance of
MS.VINNARASI.B
ASSOCIATE PROFESSOR
Department of Commerce
Christ University
Bengaluru- 560029
1
GUIDE CERTIFICATE
This is to certify that this project titled “A STUDY ON INVESTOR
PREFERENCE TOWARDS MUTUAL FUNDS IN BANGALORE CITY”
Submitted to Christ University in the partial fulfillment of MCom is based on an
original and independent work carried out by MELVIN RAJU under my guidance
and supervision.
This has not formed the basis for the award of any other Degree/ Diploma of any
University/ Institution.
PLACE: Bengaluru
DATE:
GUIDE: VINNARASI.B
SIGNATURE
2
DECLARATION
I hereby declare that this project titled“ A STUDY ON INVESTOR
PREFERENCE TOWARDS MUTUAL FUNDS IN BANGALORE CITY ”is
prepared by me during the academic year 2014-15 under the guidance of
MS.VINNARASI .B, Faculty of Department of Commerce, Christ
University.
I also declare that this project has been conducted in partial fulfillment of
the requirement for the degree of MCom offered by Christ University.
This project is not based on any previously submitted project for the
award of any degree or diploma offered by any University. It is a result of
my own efforts and hard work.
Date:
Place: Bengaluru
MELVIN RAJU
1321713
3
ACKNOWLEDGEMENT
I would like to express my sincere gratitude to all those who have been instrumental
in the presentation of this project report. I am thankful to Christ University for having
given me the opportunity to do this project. I am grateful to Dr. (Fr) Thomas C
Mathew, Vice Chancellor of Christ University, Prof. Thomas Joseph - Associate Dean
Commerce, Dr. Nithila Vincent, Head - Department of Commerce, Dr. Anuradha P S
– Coordinator of M.Com. I wish to place on records my profound thanks to
Prof.Vinnarasi.B, a highly esteemed and distinguished guide for her expert advice and
support. Last but not the least; I would like to thank each and every individual for
their help and support that has largely contributed to the successful completion of the
project.
Date:
Place: Bengaluru
MELVIN RAJU
4
CONTENT PAGE
CHAPTERS PARTICULARS PAGE NUMBERS
1 INTRODUCTION 1-20
2 REVIEW OF LITERATURE 21-30
3 RESEARCH DESIGN 31-34
4 ANALYSIS & INTERPRETATION 35-55
5 FINDINGS, SUGGESTIONS & CONCLUSION 56-58
BIBLIOGRAPHY 59-66
ANNEXURE 67-68
TABLE CONTENT
5
TABLENUMBER
PARTICULARS PAGENUMBER
Table 4.1 - 4.1.3 Reliability Analysis 35-37
Table 4.2 – 4.2.1 Average monthly Savings 38
Table 4.3 – 4.3.1 Preferred Investment 39
Table 4.4 – 4.4.1 Factor influencing investment 40
Table 4.5 – 4.5.1 Have you invested in mutual fund 41
Table 4.6 – 4.6.1 Percentage of savings invested in mutual funds
42
Table 4.7 – 4.7.1 How you come to know about mutual funds
43
Table 4.8 – 4.8.1 The kind of investment preferred by the investor
44
Table 4.9 – 4.9.1 Most attracted feature of mutual funds
45
Table 4.10 – 4.10.1 Preferred mode of investment 46
6
Table 4.11 – 4.11.1 Mutual Fund Scheme used by the investor
47
Table 4.12 – 4.12.1 Where do you find yourself as an investor
48
Table 4.13 – 4.13.1 Preferred sector to invest in mutual fund
49
Table 4.14 – 4.14.1 From where do you purchase mutual funds
50
Table 4.15 - 4.15.1 Expected rate of return from your investment 51
Table 4.16 – 4.16.1 If not invested in mutual fund, why? 52
Table 4.17 – 4.17.1 Have you faced any loss 53
Table 4.18 – 4.18.1 Did the loss deter you from any investment 54
Table 4.19-4.19.1 Are you satisfied in investing in mutual fund 55
INTRODUCTIONSavings form an important part of the economy of any nation. Savings represents that
part of disposable income that is not spent on final consumption of goods and
services1. It is defined as the difference between income and consumption. During
7
pre-independence period in India, people spent most of their income on consumption
and only a small amount of income was left
in the form of savings. As a result, the saving rate was very low. Since the attainment
of Independence in 1947, the major objective of the government has been the
promotion of savings and capital formations. Increase in the savings, use of increased
saving for financing the increasing required investment, use of the increased
investment for increasing savings and use of the increased savings for a further
financing the required investment constitute the strategy of economic growth. The
process may continue till the saving, investment ratio to income would get stabilized
and there would be steady and self-sustained increases in national income and
economic welfare. Investment is the sacrifice of certain present value for the uncertain
future reward. Investment is an activity that is engaged in by people who have
savings. Savings directed into investment. With the savings invested in various
options available to the people, the money act as the driver for the growth of the
country. Indian financial scene too presents a plethora of avenues to the investors. The
main objective of the investor is to minimize the risk and maximize the return. Mutual
funds represent the most appropriate investment opportunity for most investors. As
financial markets become more sophisticated and complex, investors need a financial
intermediary who provides the required knowledge and professional expertise on
successful investing. Here mutual funds act as an intermediary. In a modern economy
financial institutions act as an intermediaries between lenders and borrowers 4 .
Financial markets are the backbone of an economic system and aid collection of
scarce capital across the productive sectors of the economy. The Indian financial
system has always had a well-defined institutional structure.
1.1 MUTUAL FUNDS: AN OVERVIEW
Mutual funds are financial intermediaries that pool the financial resources of investors
and invest those resources in portfolios of assets5. Mutual funds are basically
institutional arrangement for pooling of funds from small investors and invest them in
the best financial instruments. Mutual fund is a trust that pools the saving of a number
of investors who share common financial goal.
The money thus collected is then invested in capital market instruments such as
shares, debentures and other securities. The income earned through these instruments
8
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. Mutual funds help
small and medium size investors to participate today’s complex and modern financial
scenario. The advantages for the investors are reduction in risk, expert professional
management, diversified portfolios, liquidity of investment, variety of schemes and
tax benefits. These varieties of schemes fulfill the need of different type of investors -
gold investment schemes,retirement plan, tax-saving schemes, insurance linked
schemes, systematic
investment plans. Mutual funds play a vital role in the mobilization of resources and
their efficient allocation. These funds play a significant role in financial
intermediation, development of capital markets and growth of the financial sector as a
whole. Changes in economic scenario, falling interest rates of bank deposits, volatile
nature of the capital market emphasis the increasing importance ofmutual funds.
Today mutual funds collectively manage money almost as much as or more than
banks.
1.2 ORIGIN OF MUTUAL FUND
The history of mutual funds institutions is very old in other countries particularly in
Europe and America and they are operating very successfully for the last five decades
in these countries. In the very beginning Egyptians and Phoenicians started selling
shares in vessels and caravans to share the risk involved in these transactions8.
Mutual funds originated in Belgium, where, in 1882, a company was started to
finance investments in national industries associated with high risks under the name
of ‘Societe Generale de Belgiue”. In the 1860s, this movement spread to England. In
1868, the ‘Foreign and Colonial Governemnet Trust’ was formed to spread risks for
investors over a large number of securities. The history of mutual funds started in the
USA from
the beginning of the 20th century. In the beginning, investments companies were
formed in America. The first open-end investment company was formed in America
in 1924. After World War II, due to great depression the growth of these investment
companies curtail towards the end of 1920s. ‘Massachusetts Investors Trust’(MIT)
9
organized the first modern mutual fund, State Street Investment Corporation is the
second followed just four months later in 1928, first
‘Investment counsel Trust’ , now ‘Scudder Income Fund’ was organized as a first no-
load fund9. Mutual funds emerged during the 1920’s in Canada, when many close
ended investment companies were organized. ‘The Canadian Investment Fund’ was
the first mutual fund set up in Canada in 1932. Subsequently, hundreds of mutual
funds emerged and expanded their wings in
many countries in Europe, the Far East and Latin America10. In 1929, market crash
and subsequent depression had tremendous adverse effects on the mutual fund
industry. The Securities Act of 1933 and the Investment Company Act 1940
established ground rules and oversight of the fund industry by the Securities and
Exchange Commission (SEC) to protect the investors11. Countries in Pacific area like
Hongkong, Thailand, Singapore and Korea have also entered this field in a long way.
Mauritius and Netherlands are emerging as tax havens for off-shore mutual funds.
Thus mutual fund culture is now global in scope.
1.3 CONCEPT OF MUTUAL FUND
A mutual fund is a fund managed by an asset management company with the financial
objectives of generating growth. These asset management companies collect money
from investors and invest in different stocks, bonds and other financial instruments in
a diversified manner. Before investing they perform a thorough research and detailed
analysis of market trends of stock and bond prices. That helps fund managers to invest
properly and in the right direction. The income earned through these investments and
the capital appreciation realized is 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 cost14. The investors,
who invest
their money in the mutual fund or any asset management company (AMC), receive an
equity position in that particular mutual fund. When the investors sell the units of the
mutual fund after a certain period of time, they receive the returns according to the
prevalent market conditions. The investment companies profit by allocating people’s
money in different stocks and bonds according to their analysis of the market trend.
10
1.4 TYPES OF MUTUAL FUNDS
There is a wide variety of mutual fund schemes that cater to the needs of investors
based on age, financial position, risk tolerance and return expectations.
(A) By Structure
1. Open-Ended Schemes
An open ended scheme accepts funds from investors by offering its units/shares on a
continuous basis likewise it permits investors to withdraw funds on a continuous basis
under a repurchase agreement15.
2. Close-Ended Schemes
A close-ended scheme accepts subscription for a specific period.They invite the
investor to invest through a new fund offer and further investments are allowed in a
specific period16.
3. Interval Schemes
These combine the features of open-ended and close-ended schemes. They may be
traded on the stock exchange or may be open for sale or redemption during
predetermined intervals at NAV related prices.
(B) By Investment Objective
1) Growth Schemes
Growth schemes’ main aim is to provide capital appreciation over the medium to long
term. These schemes normally invest a majority of their funds in equities and are
willing to bear short term decline in value for possible future appreciation. These
schemes are not for investors seeking regular income or needing their money back in
the short term. This is ideal for,
• Investors in their prime earning years.
• Investors seeking growth over the long term.
2) Income Schemes
Main aim of income scheme is to provide regular and steady income to investors.
These schemes generally invest in fixed income securities such as bonds and
corporate debentures. Capital appreciation in such schemes may be limited. Ideal for:
• Retired people and others with a need for capital stability and regular
11
income.
• Investors who need some income to supplement their earnings
3) Balanced Schemes
Aims to provide both growth and income by periodically distributing a part of the
income and capital gains they earn. They invest in both shares and fixed income
securities in the proportion indicated in their offer documents. In a rising stock
market, the NAV of these schemes may not normally keep pace or fall equally when
the market falls. Ideal for:
• Investors looking for a combination of income and moderate growth.
4) Money Market / Liquid Schemes
Aims to provide easy liquidity, preservation of capital and moderate income. These
schemes generally invest in safer, short term instruments such as treasury bills,
certificates of deposit, commercial paper and interbank call money. Returns on these
schemes may fluctuate, depending upon the interest rates prevailing in the market.
Ideal for:
• Corporate and individual investors as a means to park their surplus funds for short
periods or awaiting a more favourable investment alternative18.
5) Dividend Scheme
Under this scheme, dividend declared by the AMC for the investor’s holdings. The
investor can opt dividend payout scheme or dividend reinvestment scheme. Dividends
are distributed to the investors immediately,those who opt dividend payout option.
The dividend declared, again invested by issuing more units are called dividend
reinvestment scheme.
6) Bond Schemes
These are focused debt schemes, investing primarily in company debentures and
bonds or government bonds. This type of funds carries the advantage of secured and
steady income. However, such funds have little chance of capital appreciation and
carry no risk. A variant of this type of fund is called‘Liquid funds’ which specializes
in investing in short term money market
instruments. This focus on liquidity delivers the twin feature of lower risk and low
returns.
7) Gilt Schemes
These schemes invest exclusively in government securities20 and not in equity or
corporate debt securities. A portion of the corpus may be invested in the call money
12
market or RBI to meet liquidity requirement. Government securities carry zero credit
risk.
C) Other Schemes
1) Tax saving schemes
Tax saving schemes is basically equity schemes. It offers tax benefits to the investors.
Under sec 80CC allows a tax incentive up to the limit of `.100, 000.
2) Diversified Equity Scheme
These schemes invest most of the money that they collect, in stock markets. A small
portion of the money is invested in debt instruments. These schemes do not invest on
any particular sector, its portfolio contains the shares of all type of companies. So it is
called diversified schemes.
3) Sector Schemes
Sector schemes invest in any particular sector of the market such as Information
Technology, Banking, FMCG etc. This is beneficial to the investors who have
tremendous faith in a particular sector.
4) Index Schemes
An index is nothing but an average of the market prices of certain actively traded
equity shares. Index scheme of mutual funds invest in the companies, which form part
of the stock market index in the same proportion as these companies constitutes index.
The portfolio of the scheme and the weightage of the shares are as same in index. It
may be sensex or nifty or midcap etc. For
example, an index scheme investing in companies forming the BSE sensex will invest
in those companies in the same proportion as they make up the sensex. An actively
managed fund attempts to outperform a relevant index.
5) Fund-of- Fund mutual scheme
In this scheme funds of one mutual fund are invested in the units of other mutual
funds. There are a number of funds that direct investment into a specified sector of the
economy. The investors will benefit from the expertise and the skill of different
leading fund managers, as the fund managers have different types of skill sets in their
strategies. Convenience is another advantage of fund of funds. Whenever the market
is performing well in one component and dull in another, the fund manager of fund of
funds will take care of the portfolio.
6) Gold Exchange Traded Funds
13
Investors can buy gold linked units that would be traded on the stock exchange. One
unit of the gold exchange traded fund is equal to the value of one gram of gold. The
daily price of each unit is linked to the prices of gold in physical market. Like any
other mutual funds, the investor is able to buy and sellthe units of this ETF from the
stock market. The underlying asset is gold, which is held by mutual fund house in a
physical form through a gold receipt giving the right of ownership.
7) Real Estate Mutual Funds
Real estate mutual fund is a scheme which has an objective to invest directly or
indirectly in real estate and is governed by the provisions and guidelines under SEBI
regulations. The NAV of the scheme is declared daily and units are listed on the stock
exchange. These funds have their own share of drawbacks. Time span for one
transaction can be minimum six months or more than that. So evaluation of true value
of these assets is really a difficult task. In India these funds have started but not in full
flow – Prudential ICICI AMC started a branch called ICICI venture capital which
would be investing in real estates. Its main focus is on the high net worth individual
clients.
8) Capital Protection Schemes
Investments can be either in debt instruments or government bonds. This strategy
prevents the erosion of capital over the investment tenure and achieves capital
appreciation to certain extent. CPS has to be close-ended and the investors have no
option to exit before maturity. The basic aim is to assess the degree of achieving
capital protection.
9) International Fund/Offshore funds
When funds are launched to mobilize the finance from other countries they are known
as global funds. It gives an opportunity to the retail investors to be a part of global
investment. This fund involves currency risk and country risk.
10) Exchange Traded Funds
Exchange traded funds are open-end funds that trade on exchange.Like index funds
ETF’s are benchmarked to a stock exchange index.
14
1.5 MUTUAL FUND INVESTORS AND THEIR BEHAVIOUR
Due to the growth of mutual fund industry, the investors prefer mutual funds as an
investment. Mutual fund companies offer variety of schemes for all type of investors.
Now an investor can start his investments from `50. Investment in mutual funds has
grown very fast and has spread to even the remotest part of the country where a stock
exchange does not function. But the big question is the mutual fund investor has a full
knowledge about the capital market or not. The main reason for investing in mutual
funds are diversification, flexibility, professional management ,low cost etc., The
investment behaviour of the people is mainly based on the availability of fund,
availability of investment avenues, investment objective, duration of investment, risk,
nature of investment, selection of fund, attitude towards investment and also the
problems encountered in investing on mutual funds. Indian investors have not been
absolutely logical and rational in their investment behaviour and their investment
decisions are always affected by the definite behavioural factors. The classical
financial theories always suggest that external environmental factors like economic
factors, political factors, socio-cultural factors, etc., always affect the performance of
capital markets and decision making of the investor is always guided by a change in
these factors . The optimum portfolio composition will in general differ among
investors. It will depend both on their tastes and preferences that determine their
expected utility from return and risks, and on the shape and position of the efficient
opportunity available to them. Since the investor behaviours includes selection of
fund families, variables leading to select the mutual fund, attitude towards the
investment on mutual funds, reason for switching from are found to another and also
the problems encountered in investing on mutual fund industry covers all these areas.
1.6 CONCEPT AND DEFINITIONS
Mutual Fund
A fund established in the form of trust by a sponsor, to raise money by the trustees
through the sale of units to the public, under one or more schemes, for investing in
15
securities in accordance with these regulations.The company that offers the schemes
to collect money from the investor and invest the money into various financial
instruments like shares, debentures etc.
Asset Manangement Company (AMC)
A company, which manages the money collected from the investors. The AMC
manages the affairs of the mutual funds and its schemes26. Example, Tata Asset
Management Company, SBI Mutual Fund, Sundaram BNP Paribas Mutual Fund etc.
Fund Manager
The person who handles the money of the investors. He is concerned about the
following:
• Decision regarding the investments.
• Protection of value of the original investments.
• Generation of a steady return on the original investment.
Net Asset Value (NAV)
Net Asset Value indicates the intrinsic worth of a scheme. The investor invests in a
mutual fund at its NAV which is the Net Asset Value of each unit of a scheme. When
the fund invites an investor to invest for the first time through New Fund Offer
(NFO), it issues a “unit” for every `10 invested by the investor in a scheme, which
changes on the basis of the performance of the investments made by the mutual fund.
The NAV represents the market value of each unit of the mutual fund.
Market Value of all investments made by Mutual Fund
NAV= ---------------------------------------------------------------------
Number of units issued to investors
Systematic Investment Plan (SIP)
SIP refers to the practice of investing a constant amount regularly, generally every
month for a pre-decided period of time. When the market goes up, then the money
invested in that period gets translated into a fewer number of units for the investor. If
market goes down, then the same money invested gets translated into more units. SIP
helps the investor to average out the cost of
investment over the period and, thus overcome the short term fluctuations in the
market.
Dividends
Asset management companies distribute the return of the schemes to the investors as
dividend when they make profits from the investment. Some schemes declared
16
dividend in regular intervals like yearly etc. Mostly tax saving schemes offer higher
dividends every year.
New Fund Offer (NFO)
If a mutual fund company introduces a new scheme in market it is called New Fund
Offer (NFO).
1.7 ATTITUDE OF MUTUAL FUND INVESTORS
Attitude is a favourable or unfavourable evaluative reaction toward something or
someone exhibited in ones beliefs, feelings, or intended behaviour. A mental or
neutral state of readiness organized through experience, exerting a direct dynamic
influence upon the individuals response to all objects and situations with which it is
related. It is the reflection of how an individual feels about something and reach in a
certain manner towards an idea. Attitude is made up of three components namely
cognitive, affective and conative or behavioural. The cognitive component concerns
one's beliefs; the affective component involves feelings and evaluations and the
behavioural component consists of ways of acting toward the attitude object. The
cognitive aspects of attitude are generally measured by surveys, interviews, and other
reporting methods, while the affective components are more easily assessed by
monitoring physiological signs such as heart rate. Behaviour, on the other hand, may
be assessed by direct observation. This is the common idea of attitude. An investor is
a person who commits money to investment products with the expectation of financial
return. Generally, the primary concern of an investor is to minimize risk while
maximizing return, as opposed to a speculator, who is willing to accept a higher level
of risk in the hopes of collecting higher-than average profits. So his attitudes are
related to these financial activities. The investors’ attitude towards investment is
related with respect to their financial needs, investment objective, and time horizon of
investment, willingness to take risk, fluctuations in the value of investment,
investment experience, preference and degree of safety for financial assets. In the
financial industry, Mutual Funds have become a hot favourite of millions of people all
over the world. A mutual fund is a special type of institution, a trust or an investment
company which acts as an investment intermediary and invests the savings of large
number of people to the corporate securities in such a way that investors get steady
17
returns, capital appreciation and a low risk. It is essentially a mechanism of pooling
together the savings of a large number of investor for collecting investment with an
avowed objective of attractive yields and appreciation in their values. The concept of
'Mutual Fund' is a new feature in Indian capital market but not to international capital
markets. A mutual fund in the most suitable investment for the retail investors as it
offers an opportunity to invest in a diversified, professionally managed portfolio at a
139 relatively low cost. At the retail level, investors are unique and are a highly
heterogeneous groups. A large number of investment options are available to
investors. Currently there are large numbers of schemes available and asset
management companies (AMCs) compete against one another by launching new
products or repositioning old ones. Unless mutual fund schemes are tailored to the
changing needs, and the AMCs understand the fund selection behaviour of the
investors, survival of funds will be difficult in future. With this significance this
chapter made an attempt to study the attitude of mutual fund investors. This
chapter mainly focuses the investors attitude in selection of mutual fund i.e. factors
influencing to invest in mutual fund, expectations etc.
1.8 FACTORS INFLUENCING TO INVEST IN MUTUAL FUND
The investors prefer the investment on mutual funds for several reasons. The
important factors which drive the investors to invest in mutual funds considered were,
i) Brand Equity,
ii) Type of Fund,
iii) Fund Size,
iv) Schemes Portfolio,
v) Reputation of Fund Manager,
vi) Past Performance of the Fund,
vii) Liquidity Factors
viii) Risk Involved
Brand Equity
Brand equity means the brand value of the particular product. In 140 mutual funds
this brand equity represents mutual fund companies like Reliance, SBI, UTI, Franklin
Templeton, Birla Sunlife etc. They have high brand image and such fund houses are
most likely to have greater investors confidence in their funds. Chakarabarti and
Rungta (2000) stressed the importance of brand effect in determining the competitive
18
position of the AMCs. Their study reveals that brand image factor, though cannot be
easily captured by computable performance measures, influences the investor’s
perception2. The investors are asked to rate the brand equity of mutual fund at five
point scale according to their importance given on the investment of mutual funds.
Fund Size
Fund size means the total corpus of the particular fund. Fund size may be small,
medium or large. It must be ascertained that a larger fund size would mean a higher
amount of fund being invested and therefore a higher degree of involvement by the
fund family. It would therefore mean one of the most profitable investment decisions
that could be undertaken. In the present study, the investors asked to rate the fund size
as the discriminant of their investment on mutual funds at five point scale.
Type of Fund
A mutual fund may be a growth of fund, dividend fund, tax saving fund etc and
therefore, their impact on the mutual funds investment decision is largely related to
their respective functional intents. In the present study, the investors are asked to rate
the type of fund as the discriminant of their investment on mutual funds at five point
scale.
Type of portfolio and schemes
The type of portfolio could be mixed, equity, debt etc., which makes a sizeable impact
on investment decision on mutual fund. It helps the investors to assess their utmost
need to invest in either the mixed fund or equity fund or likewise. In the present study,
the importance of type of portfolio and schemes in the investment on mutual fund has
been measured at five point scale.
Risk involved in Mutual Funds
Mutual fund investment is having its own risk. There are different types of risks
associated with mutual funds. A fund with stable, positive earnings is less risky than a
fund with fluctuating total return. A higher risk is normally considered a demodulator
for mutual fund investment decision. In the present study, the investors are asked to
rate the importance of risk involved in mutual funds in the investment on mutual
funds at five point scale.
Reputation of Fund manager
Fund manager is a person who manages the particular fund. A fund manager is a high
authority in ascertaining an investor’s financial roadmap. The reputation of the fund
19
manager also plays a key role in determining the level and extent of profitable
investment one could make in mutual funds. Yadav R A and Mishra, Biswadeep
(1996)3 , Irissappane Aravazhi (2000)4, and Saha, Tapas Rajan (2003) 5 studied the
importance of the fund managers. Fund managers importance in the investment on
mutual funds among the investors is also rated at five point scale.
Past Performance of the Funds
A good track record of the fund is a reflection of its ingenuity and a high investor’s
confidence in it. Singh, Jaspal and Subhash Chander (2003)6 Irwin, Brown, FE
(1965)7 and many others studied the role of past performance while selecting the
scheme for investment. A past performance is generally undertaken through
ascertaining the annualized returns for the last five years and comparing it to
benchmarks like BSE, NSE, etc. In the present study, the importance of past
performance of funds in the investment on mutual funds among the investors is rated
at five point scale.
Liquidity Factors
Liquidity factors have their own relevance especially when the investor wishes to
rotate the profits for various investments for maintaining ones financial obligations. A
liquidity factor simply denotes their pace of convertibility into cash which therefore
serves as a major discriminant of the mutual fund investment. Gangadhar V (1992)
studied about mutual funds liquidity, In his study he found majority of the investors
opted for mutual funds with the expectation of liquidity8. In the present study, the
importance of liquidity factor in investment mutual funds is measured at five point
scale.
1.9 OTHER DIFFERENT INVESTMENT AVENUES
Different avenues and alternatives of investment include share market, debentures or
bonds, money market instruments, life insurance, real estate, precious objects,
derivatives, non marketable securities. All are differentiated based on their different
features in terms of risk, return, term etc
20
Equity Shares: Equity investments represent ownership in a running company. By
ownership, we mean share in the profits and assets of the company but generally,
there are no fixed returns. It is considered as a risky investment but at the same time,
they are most liquid investments due to presence of stock markets. Equity shares of
companies can be classified as follows:
Blue chip scrip
Growth scrip
Income scrip
Cyclical scrip
Speculative scrip
Debentures or Bonds: Debentures or bonds are long term investment options with a
fixed stream of cash flows depending on the quoted rate of interest. They are
considered relatively less risky. Amount of risk involved in debentures or bonds is
dependent upon who the issuer is. For example, if the issuer is government, the risk is
assumed to be zero. Following alternatives are available under debentures or bonds:
Government securities
Savings bonds
Public Sector Units bonds
Debentures of private sector companies
Preference shares
Money Market Instruments: Money market instruments are just like the debentures
but the time period is very less. It is generally less than 1 year. Corporate entities can
utilize their idle working capital by investing in money market instruments. Some of
the money market instruments are
Tressury Bills
Commercial Paper
Certificate of Deposits
They are one of the important parts of good investment portfolios. Life insurance is an
investment for security of life. The main objective of other investment avenues is to
earn return but the primary objective of life insurance is to secure our families against
21
unfortunate event of our death. It is popular in individuals. Other kinds of general
insurances are useful for corporates. There are different types of insurances which are
as follows:
Endowment Insurance Policy
Money Back Policy
Whole Life Policy
Term Insurance Policy
General Insurance for any kind of assets
Real Estate: Every investor has some part of their portfolio invested in real
assets. Almost every individual and corporate investor invests in residential and
office buildings respectively. Apart from these, others include:
Agricultural Land
Semi-Urban Land
Commercial Property
Raw House
Farm House etc
Precious Objects: Precious objects include gold, silver and other precious stones like
diamond. Some artistic people invest in art objects like paintings, ancient coins etc.
Derivatives: Derivatives means indirect investments in the assets. Derivatives market
is growing at a tremendous speed. The important benefit of investing through
derivatives is that it leverages the investment, manages the risk and helps in doing
speculation. Derivatives include:
Forwards
Futures
Options
Swaps etc
Non Marketable Securities: Non marketable securities are those securities which
cannot be liquidated in the financial markets. Such securities include:
22
Bank Deposits
Post Office Deposits
Company Deposits
Provident Fund Deposits
1.10 MUTUAL FUND INDUSTRY IN INDIA
Introduction
India is the fifth largest economy in the world and it ranks above France, Italy, the
United Kingdom, and Russia. It has the third largest GDP in Asia. It is the second
largest of the emerging nations. India is also one of the few markets in the world
which offer high prospects of growth and earning potential in all sectors of business.
The Indian capital market has been increasing tremendously during last few years.
With the reforms of economy, reforms of industrial policy, public sector, and the
financial sector, the economy has been opened up and many developments have been
taking place in the Indian capital market. In order to help the small investors, mutual
fund industry has come and occupies an important place1. A mutual fund is a trust or
an investment company that pools resources from thousands of investors who share
investment goals and then diversifies its investment into different types of securities
in order to provide potential returns and reasonable safety. The emergence and rapid
growth of mutual fund can be described to the diversified dimension of the Indian
capital market. It has become a major vehicle for the mobilization of savings,
especially from small and house hold savers for investments in capital market. Indian
households started allocating more of their savings into the capital markets in 1980s,
with investments flowing into equity and debt instruments, besides the conventional
mode of bank deposits. Until 1992, primary market investors were effectively assured
good returns as the issue price of new equity shares was controlled and low. After
introduction of free pricing of shares, new issue prices were higher and with greater
volatility in the stock markets, many investors who bought highly priced shares lost
money. Even those investors who continued as direct investors in the stock markets
realized that the key to successful investing in the capital markets lay in building
diversified portfolio, which in turn required substantial capital. Besides, selecting
securities with growth and income potential from the capital market involved careful
research and monitoring of the market, which was not possible for all investors.
Various scams in stock market like Harsheth Metha , Ketan Parek, Satyam Computers
23
etc reduced the confidence of investors those who are directly invest in shares. Under
these circumstances mutual funds are the best alternative investment to direct
investment in capital market.
1.11 HISTORY OF MUTUAL FUND IN INDIA
The mutual fund industry in India started in 1963 with the formation of Unit Trust of
India, at the initiative of the government of India and Reserve Bank of India. The
history of mutual funds in India can be broadly divided into four distinct phases.
First Phase – The Monolithic Phase (1964-87)
Unit Trust of India (UTI) was established on 1963 by an Act of parliament. It was set
up by the Reserve Bank of India and functioned under the regulatory and
administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from
the RBI and the Industrial Development Bank of India (IDBI) took over the
regulatory and administrative control in place of RBI. The first scheme launched by
UTI was Unit Scheme 1964 (US-64), which attracted the largest number of investors
in any single investment scheme over the years. UTI launched more innovative
schemes in 1970s and 80s to suit the needs of different investors. It launched ULIP in
1971, six more schemes between 1981-84,Children's gift growth fund and India fund
(India's first offshore fund) in 1986, Master share (India’s first equity diversified
scheme) in 1987 and monthly income schemes (offering assured returns) during
1990s. By the end of 1987, UTI's assets under management grew ten times to ` 6700
crores2.
Second Phase – 1987-1993 (Entry of Public Sector Funds)
The Indian capital market had undergone an unprecedented transformation in its over
100 years history by the end of 1987. This year marked the entry of non- UTI, public
sector mutual funds set up by public sector banks and Life Insurance Corporation of
India (LIC) and General Insurance Corporation of India (GIC). SBI mutual fund was
the first non- UTI mutual fund established in June 1987 followed by Canbank mutual
fund (Dec 87), Punjab National Bank mutual fund (Aug 89), Indian Bank mutual fund
24
(Nov 89), Bank of India (Jun90), Bank of Baroda mutual fund (Oct 92). LIC
established its mutual fund in June 1989 while GIC had set up its mutual fund in
December 1990. At the end of 1993, the mutual fund industry had assets under
management of ` 47,004 crores.
From 1987 to 1992-93, the fund industry expanded nearly seven times in terms of
asset under management. However, UTI remained to be the leader with about 80 per
cent market share.
Third Phase – 1993-2003 (Entry of Private Sector Funds)
A new era in the mutual fund industry began with the permission granted for the entry
of private sector funds in 1993, giving the Indian investors a wider choice of fund
families and increasing competition for the existing public sector funds. Also, 1993
was the year in which the first mutual fund regulations came into being, under which
all mutual funds, except UTI were to be registered and governed. The erstwhile
Kothari Pioneer (now merged with Franklin Templeton) was the first private sector
mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) regulations were
substituted by a more comprehensive and revised mutual fund regulations in 1996.
The industry now functions under the SEBI (Mutual Fund) regulations 1996. The
number of mutual fund houses went on increasing, with many foreign mutual funds
setting up funds in India and also the industry has witnessed several mergers and
acquisitions. As at the end of January 2003, there were 33 mutual funds with total
assets of ` 1,21,805 crores. The Unit Trust of India with ` 44,541 crores of assets
under management was way ahead of other mutual funds.
Fourth Phase – since February 2003
In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was
bifurcated into two separate entities. One is the specified undertaking of the Unit
Trust of India with assets under management of ` 29,835 crores as at the end of
January 2003, representing broadly, the assets of US 64 scheme, assured return and
certain other schemes. The specified undertaking of Unit Trust of India, functioning
under an administrator and under the rules framed by government of India and does
not come under the purview of the mutual fund regulations. The second is the UTI
Mutual Fund, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and
functions under the mutual fund regulations. With the bifurcation of the erstwhile UTI
which had in March 2000 more than ` 76,000 crores of assets under management. In
25
2007, mutual funds were permitted to introduce gold exchange funds and also the
guidelines for ‘Capital Protection oriented scheme’ were notified by SEBI. As on
March 31st 2010, the total AUM is ` 614545.98 crores.
1.12 MANAGEMENT OF MUTUAL FUNDS IN INDIA
A mutual Fund is set up in the form of a trust. The three tier structure of mutual fund
is as follows:
1. Sponsor
2. Trustee Company/Board of Trustees
3. Asset Management Company
1. Sponsor
Every mutual fund has a sponsor. The trust is established by a sponsor or more than
one sponsor who is like the promoter of the company. The 54 sponsor establishes the
mutual fund and registers it with SEBI. He also appoints the trustees, the custodian
and the asset management company in accordance with SEBI regulations. The
sponsor has to contribute at least 40 per cent of the net worth of the AMC3. For
example, for SBI Magnum, the sponsor is the State Bank of India.
2. Trustee
The trustees of the mutual fund hold its property for the benefit of the unit holders.
They are the first level regulators of the mutual fund and are governed by the
provisions of Indian Trust Act 1908. It is the responsibility of the trustees to protect
the interest of investors whose fund is managed by the AMC. Trustees must ensure
that the transaction of the mutual fund is in accordance with the trust deed. Trustees
must furnish to SEBI, on half yearly basis, a report on the activities of the AMC.
3. The AMC
The investment manager in a mutual fund is technically known as asset management
company. The trustees appoint the asset management company (AMC) with the prior
approval of the SEBI. The AMC is a company formed and registered under the
Companies Act 1956, to manage the affairs of
26
the mutual fund and operate the schemes of such mutual funds. It charges a fee for the
services it renders to the mutual fund trust. It acts as the investment manager to the
trust under the supervision and direction of the trustees.
1.13 MUTUAL FUNDS COMPANIES - SOME OF THE MUTUAL
FUNDS COMPANIES ARE:
ABN AMRO Mutual Fund
Birla Sun Life Mutual Fund
HDFC Mutual Fund
HSBC Mutual Fund
ING Vysya Mutual Fund
Prudential ICICI Mutual Fund
Sahara Mutual Fund
State Bank of India Mutual Fund
REVIEW OF LITERATURE
The review of previous studies related to investor’s attitude and behaviour towards
mutual fund investment are summarized below:
27
(Tripathy, 1996) pointed that, mutual funds creates awareness among urban and rural
middle class people about the benefits of investment in capital market, through
profitable and safe avenues. Mutual fund could be able to make up a large amount of
the surplus funds available with these people.
(Zaman, 1996) pointed out that the media played a significant part for retail investors
and also at the margins of the mutual funds market. Private investors are highly
dependent on additional comments and share-tipping in financial news columns
because they have little time or specialist knowledge to make considered decisions.
News media was either the only source of information for a particular investor or
there were few alternative source of information on a particular stock. The retail
investors reacted much more to media information than professional investors.
(Rajan, 1997,1998)high lightened segmentation of investors on the basis of their
characteristics, investment size, and the relationship between stage in life cycle of the
investors and their investment.
(sehgal, 1998)in their research paper “Investment Performance of Mutual Funds: The
Indian Experience” tried to find out the investment performance of 80 schemes
managed by 25 mutual funds, 15 in private sector and 10 in public sector for the time
period of June 1992-1996. The study has examined the performance in terms of fund
diversification and consistency of performance. The paper concludes that mutual fund
industry’s portfolio diversification has performed well. But it supported the
consistency of
performance pattern.
(Kapil, 1998) in its discussion paper printed that as the process of economic reform
continues and the share of the corporate sector in the economy increases the role of
securities markets as tax source of raising funds for investment is expected to become
more critical. If Indian markets are to serve the need of firms as well as a nationwide
community of convertors, it is essential that efforts to lover transaction cost and to
increase the integrity and fairness of Indian markets continue. While measures that
have been taken by the government, SEBI exchanges and market intermediaries in
this direction have led to an increase in capital market activity and investor
confidence, it is necessary to focus on further changes that are still required.
28
(Terrance, 1998) examined the behaviour of individual investors and found them
exhibiting disposition effects, that is, they realize their profitable stocks need as
investment at a much higher rate than their unprofitable ones. The disposition effect is
found to influence market price; yet its economic significance is likely to be the
greatest for individual investors.
(Chakrabarti, 2000)stressed the importance of brand effect in determining the
competitive position of the AMCs. Their study reveals that brand image factor,
though cannot be easily captured by computable performance measures, influences
the investor’s perception and hence his fund/scheme selection.
(Gupta, 2000)in their study pointed out that index funds have gained acceptance
among investors because it was found that fund managers often did worse than the
manipulation, speculation and insider trading. There was no effective regulation and
control as in the USA and the UK.
(Sarkar, 2001)made an attempt to make an operational analysis of various mutual
funds over a period of three years (1996-1999). The results revealed that the income
oriented products offered by the public as well as private mutual funds organizations
were less expensive than the others as these incurred comparatively low cost per
rupee of income generated. The results also indicated that the cost effectiveness is
favorable towards private sector mutual funds as against their rival operating in public
sector.
(Chalam, 2003) found the important factors influencing the investment on mutual
funds are return, capital appreciation, tax saving purpose, liquidity, marketability and
safety. Majority of the investors prefer in real estate investments, followed by mutual
fund schemes, gold and precious metals. Majority of the investors in mutual funds are
employees. They preferred only growth options compared to income options.
Majority of the investors are very much interested to take the re-investment benefit
rather than the regular dividend.
29
(Rajeswari, 2002) 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.
(Fernandes, 2003) evaluated index fund implementation in India. In this paper,
tracking error of index funds in India is measured .The consistency and level of
tracking errors obtained by some well-run index fund suggests that it is possible to
attain low levels of tracking error under Indian conditions. At the same time, there do
seem to be periods where certain index funds appear to depart from the discipline of
indexation.
(Lynch A.W., 2003) were of opinion that this decade will belong to mutual funds
because the ordinary investor does not have the time, experience and patience to take
independent investment decisions on his own.
(Mazza) argues that investors may subscribe to or redeem from specific mutual funds
in order to change their consumption of or exposure to attributes other than expected
return and risk.
(Rao, 2003) made the performance analysis of 269 open ended Indian mutual funds in
a bear market. This evaluation was carried out through Treynor ratio, Sharpe's ratio,
Jensen measure and Fama measure, the study period being September 1998 to April
2002. The study offered that 58 schemes were able to satisfy investor's expectations
based on both premium for systematic risk and total risk.
(Bhalla, 2004) concluded that investors do not need to be familiar with the
characteristics of the different types of mutual funds. Many investors do not
understand what they are buying. With so many choices,investors risk making the
wrong ones. Besides investing in appropriate and high-cost mutual funds, investors
also buy laggards. There is no shortage ofmediocre performers.
30
(Amitabh, 2004) evaluated investment performance of 80 mutual funds schemes of
the Indian market. They have examined performance in terms of fund diversification
and consistency. It indicated that there has been lack of adequate portfolio
diversification. But, it supported the consistency of performance.
(Jaspal Singh and Subash Chander, 2004) analysed that, the perceptions about mutual
funds in the view of general investor feels that different regulatory bodies like SEBI
and others have not been able to regulate and control the working of mutual funds so
as to safeguard the small investors’ interest.
(Singh, 2004) concluded that most of the growth oriented mutual funds performed
poorly as compared to the benchmark. They have also examined the growth of mutual
funds in India in terms of resource mobilization, promotion of various types of
schemes and NAV based risk and return. The cumulative resources of mutual funds
underwent a four-fold rise and found a threefold increase in the number of schemes
during the period 1990-91 to 1997-98.
(Sodhi, 2004) evaluated 26 equity mutual funds drawn from 22 Asset management
companies belonging to private and public sector. They concluded that the equity
mutual funds have overall inferior performance in comparison of risk free return.
They compared the rate of return generated by equity mutual funds and 364 days T-
bills for the period of 1993-2002.
(Gelade, 2005) examined the relationship between organization climate, employee
attitude, customer satisfaction and sales performance and concluded that teamwork
climate, job enablers and support climate are organizational climate variables,
commitment is an employee attitude and customer satisfaction and sales achievement
are organizational performance measures.
(Byrne) shows that risk and investment experience tend to indicate a positive
correlation and past experience of successful investment increases investor tolerance
of risk. Inversely, unsuccessful past experience leads to reduced tolerance to risk.
Therefore past investment behaviour affects future investment behaviour.
31
(Kulbhushan Chandel and Verma, 2005) studied the performance of mutual funds,the
study results indicate that the schemes have earned better return than the market
return, it also shows that the sample schemes performed better than the risk free
return.
(Dua, 2005) in his study analyses the perception of mutual fund investors, he reveals
that mutual funds are preferred by the small investor who taught that they themselves
did not have the expertise to deal directly with shares.
(Kumar, 2005) found that investors prefer growth schemes to take the reinvestment
benefit of regular income. The study also shows that, desire of higher return and
benefit of tax are the key motivating factors in boosting the business of mutual funds.
He also opined that lesser risk, higher return and easy liquidity are main qualities of
an ideal mutual fund.
(Kumar S. a., 2005) opined that most of the growth oriented mutual funds have been
able to deliver better return than the benchmark indicators. Growth oriented mutual
funds are expected to offer the advantage of diversification, market timing and
selectivity.
(Bello, 2005) matched a sample of socially responsible stock mutual funds matched to
randomly select conventional funds of similar net assets to investigate differences in
characteristics of assets held, degree of portfolio diversification and variable effects of
diversification on investment performance. The study found that socially responsible
funds do not differ significantly from conventional funds in terms of any of these
attributes. Moreover, the effect of diversification on investment performance is not
different between the two groups.
(Nigam, 2006) identified that there has been a tremendous growth in the mutual fund
industry in India, attracting huge investments from investors within the country and
abroad, however, there is still a long way to go. With the growing middle-class,
projected to be around 200 million, there is an immense potential for growth in the
country. India's young generation, accompanied by a high rate of savings and a
32
rapidly-liberalizing economy, is expected to elevate the mutual fund sector to new
heights.
(Ahuja, 2006) evaluated the cause and effect relationship between mutual fund
investment decision and fund family, fund size, type of fund, type of portfolio and
schemes, risk involved of the fund manager, past performance of the fund, liquidity
factors and current market conditions.
(Guptha, 2006) analysed the investor’s perception on various reasons to select the
mutual fund scheme. These are risk capacity and tolerance, liquidity needs, specific
objectives, credibility of the sponsors, investment philosophy of the fund,
performance of the scheme, dividends, entry and exit loads, expenses charged to the
fund and services offered by the fund.
(Mohanty, 2006) analyzed the weakness of mutual funds. These are non availability
of tailor-made schemes, no guarantee of returns, no control over costs, problem of
managing large corpus, volatility of return depends on market conditions, which is
subject to frequent market volatility and mostly investment period is medium term to
long-term where expected return is more. Market mutual funds scheme is for short
period where return is not lucrative and the instruments are lesser in number.
(Muttappan, 2006) in his study explains about the factors influencing mutual fund
investment decision making. The study reveals that tax exemption given to the
investments in mutual funds was the most influencing factor.
(Kim, 2006) have pointed out that there is no difference in risk attitude between
individuals of different gender, but between groups of such, males indicate a stronger
inclination to risk tolerance. That is, no gender difference was found at an individual
level, but in groups, males expressed a stronger pro-risk position than females.
(Singh S. C., 2006) studied the preference of investors, the study revealed that,
investor’s decision to invest in a particular mutual fund is affected by different
sources from where information about working of that fund becomes available to
33
investor, they also opined that the occupation groups differ significantly in their
perception about the returns received from the mutual fund.
(Sorescu, 2006) provide evidence that investors focus on the content of analyst
recommendations, and do not much consider the skill of the person making them,
which suggests that they may also be open to peer influence.
(Mohana, 2006) analysed the relationship between investors and mutual funds.
Investors have started believing in mutual funds to manage their hard- earned money.
Mutual funds are those institutions that can give maximum satisfaction to their
investors by diversifying the portfolio. The mutual funds are becoming popular
among the people who are more risk-average than pure equity nvestors. Carefully
managed mutual funds can ensure optimum returns even during turbulent times in the
market and that makes the mutual fund a good choice among the retail investors. Due
to the reduction in the bank interest rates and high degree of volatility in the Indian
stock market, investors are looking for an alternative for their small time investors
which will provide them a higherreturn and also safety to their investments.
(Verma, 2006) mentioned the advantages of mutual funds investors among the
investors are diversification, professional management, liquidity, affordability, tax
benefits, transparency, cost effectiveness, risk associated with mutual funds, market
risk, inflation risk, credit risk and effect of loss of key professionals. The investors
prefer the mutual funds since it has specified investment objectives such as growth of
capital, safety of principal, current income or tax exempt income. They also generated
decisional matrix for mutual fund investment on the basis of the relationship between
the fund size and NAV returns. By that they exhibited the decisional optimization,
decisional consideration, decisional reconsideration and decisional fallacy.
(Alexander G., 2007) reveal that mutual fund managers are able to value stocks and
motivation plays a vital role in the assessment of trade performance. As far as they are
concerned, valuationmotivated buys produce higher performance than their
benchmarks. In sharp contrast to this, liquidity-motivated buys underperform their
benchmarks, thus indicating that mutual fund managers are not able to beat the market
since they are compelled to pump additional cash from inflows.
34
(Srivastava, 2007) analysed the behaviour of investors in India, the study revealed that
Indian investors have not been absolutely logical and rational in their investment
decisions are always affected by definite behavioural factors.
(Balanaga Gurunathan, 2007) examined, the investors need protection from the
various malpractices and unfair practices made by the corporate and intermediaries.
As the individual investors’ community and the investment avenues are on the rise, it
is interesting to know how the investors shall be protected through various
legislations. The present positive attitude of investors is heartening though investor
sentiments have been shaken by the various scandals.
(Bodla, 2007) evaluate the performance of 24 growth schemes of mutual funds. They
reveal that most of the schemes have outperformed the market during the study period
in terms of return. However, the difference in market return and funds return is found
insignificant. There exists a moderate positive correlation between risk and return of
the sample schemes. A large majority of the schemes have succeeded in earning a risk
premium irrespective of the performance measurement model concerned. Most of the
schemes have performed better than the market on the basis of risk adjusted return
also.
(Hanumantha Rao and Vijay Kr. Mishra, 2007) Opinioned, The Indian Mutual Funds
industry has been growing at a healthy pace of 16.68 per cent for the past eight years
and the trend will move further. According to his study, it has been found out that
almost 54 % of people invests for security and certainty while 38 % of the people
invests for current spending. Some 53 % of
the people prefer long term investment whereas 23% people each prefer medium
term and small term investment.
(Mishra, 2007) revealed that the Indian mutual funds industry has witnessed several
structural and regulatory reforms. The people invest in mutual funds for the purpose
of earning higher rate of return by taking minimal risks. With entry of new fund
houses and the introduction of new funds into the market, investors are now being
35
presented with a broad array of fund choices. The global players are finding Indian
mutual funds industry a potential sector.
(Selvaraj, 2007) examine the performance of mutual funds, they opined that “ the
performance of an actively managed fund largely depends on the investment decisions
of its manager. Statistically, for every investor who outperforms the market, there is
one who underperforms. Among those who outperform their index before
expenses,though, many end up underperforming after expenses. Before expenses, a
well
run index fund should have average performance. By minimizing the impact of
expenses, index funds should be able to perform better than average”
(Vijayalakshmi, 2007) identified that the number of investors in systematic
investment plans (SIP) have been increased by 10 fold times compared to the previous
year. The important investors on SIP are salaried class, small corporates and SMEs.
The concept of diversification is there in fund of funds. The idea of hold Exchange
Traded Funds was first conceptualized by Benchmark Asset Management Company
in India.
(Arugaslan O., 2008) present that if the level of risk imposed by the fund is factored
in the analysis conducted, the mutual funds with greater average returns compared
with the others may not be attractive enough to investors as they are before. Similarly,
mutual funds with lower average returns may enhance their attractiveness if their low
level of risk is factored in their performance analysis. In addition, the authors
demonstrate convincingly that the returns on international mutual funds with low
level of risk can be boosted by means of financial leverage.
(Sasaki R., 2008) pointed out that the different variables which influence to invest on
mutual funds are safety, liquidity, stability, speculative values, diversification and low
cost. Through the study the researcher found that, the most important factors leading
to mutual fund investments are risk freeness and income, the next factors are savings
and cost.
36
(Sofat, 2008)Rakhi Arora and Rajni Sofat (2008) 48 says risk and return are the two
inseparable parts of an investment strategy. They have direct relationship between
them: higher the risks, higher are the returns and vice versa. The very basic
consideration of an investor while investing the money should be how to maximize
the returns and what are the risks involved in investing in a particular instrument.
(Ganapthy, 2008) in his study pointed that, “investors whom have hitherto been
investing in assured return schemes like fixed deposits and small savings, often refuse
to look at other smart options like mutual funds just because they do not offer
guaranteed returns. It will be quite a challenge for the industry to bring investors into
its fold. The industry will also have to ensure that as and when these investors decided
to begin investing in mutual funds, they select the right type of funds and invest with
a long-term view in mind”
(Mohan Nayak, 2008) has examined the service sector of mutual funds, he suggested
that, “Leading asset management companies are only those companies are successful
which offer customized services along with the innovative products. The investment
in mutual fund is not a one-time activity. It is a continuous activity. The same investor
if satisfied will come to the company again and again and become the loyal customer.
The information in the investor’s application if tabulated and analyzed would provide
important insight in to investor needs, preferences and behaviour”.
37
RESEARCH DESIGN
3.1 Title of the Study
“A STUDY ON INVESTOR PREFERENCE TOWARDS MUTUAL FUNDS IN
BANGALORE CITY”
3.2 Statement of the Problem
The main purpose of the study is to understand the preference of investors investing in
Mutual Funds. It tries to draw conclusions regarding how the investors are employing
their resources in a manner to afford, combine benefits to low risks, steady or
consistent returns, high liquidity & capital appreciation through diversification &
Expert Management.
3.3 Scope of the Study
With a vast economy like India’s, investors have a variety of investment avenues to
channelize their savings. In today’s world mutual funds has become so wide that
sometimes people take long time to choose the scheme they want to invest in. The
study aims to obtain a clear picture regarding the investors’ preferences while
investing in mutual funds. The study also aims to understand and analyze the level of
awareness of the investors regarding the same.
Geographical scope: The geographical scope of the study is restricted to the
Bangalore city only.
Functional scope: The study is conducted to understand the broad scope of mutual
funds and the factors that influence the choice of investors investing in mutual funds.
It also aims to study the investment potential and the extent of risk taken by the
investors.
38
3.4 Objective of the Study
To study various investment alternatives, in particular investors preference
towards mutual funds.
To obtain the percentage of savings being invested in mutual funds.
To study market potentiality of mutual fund among investors.
3.5 RESEARCH METHODOLOGY
Business research is a field of practical study through which a company obtains data
and analyzes it in order to manage the company effectively and efficiently. Business
research is of recent origin and is largely supported by business organizations that
hope to achieve competitive advantages. Business research can include financial data,
consumer feedback, product research and competitive analysis. Executives and
managers who use business research methods are able to gather a better understanding
of their company, the position it holds in the market and how to improve that position.
3.6 RESEARCH DESIGN
Research design encompasses the method and procedures employed to carry out the
research. It guides the collection and analysis of data required for the study. The study
intends to draw up conclusions on the investors’ preference towards mutual funds.
3.7 SAMPLING DESIGN
As the investor population of Bangalore is very large, researchers were unable to
gather information from the entire population due to lack of time and resources.
Therefore a part of this population is taken for analysis and generating findings and is
representative for the entire investing population in Bangalore.
39
1. Selection of study area: The area of the study is limited to Bangalore.
2. Selection of sample size: The number of units selected from the population
constitutes the sample size. The respondents of the study may be present or future
investors. The sample size taken is 100.
3.8 SAMPLING METHODS
Convenience method of sampling is used to collect the data from the respondents.
Researchers or field workers have the freedom to choose whomever they find, thus
the name ‘convenience’. About 100 samples were collected from Bangalore city.
40
3.9 METHOD OF DATA COLLECTION
a) Primary Data: It is that type of information or data which is obtained directly
from first-hand sources by means of surveys, observation or experimentation. It is
data that has not been previously published and is derived from a new or original
research study and collected at source.
b) Secondary Data: It is all the information collected for purposes other than the
completion of a research project and it is used to gain initial insight into the research
problem. The sources can be internal or external sources. The sources of secondary
data that have been used for this study are journals, newspapers, and websites.
3.10 TOOLS FOR DATA COLLECTION
A structured questionnaire is used as the instrument for collecting information from
individuals and the reliability test was conducted on the questionnaire with the help of
cronbach’s alpha test.
Statistical Tools Used
The Garrett Ranking Technique have been used to analyze the investors preference
in choosing mutual fund as the mode of investment .The interpretation has been made
based on the mean score and total scores derived through Garrett ranking Technique.
3.11 LIMITATIONS OF THE STUDY
Lack of knowledge among the respondents regarding mutual funds restricts
the scope of the study.
Time was a major limitation.
Reluctance on the respondent’s side for providing information regarding their
investment options was another limitation.
A structured questionnaire was the basis for collecting the data, so it has the
usual deficiencies attached to this technique of data collection.
Validity and Reliability of the data depends on the truthfulness of the
responses from the public.
41
4.1 RELIABILITY ANALYSIS
Case Processing Summary
Table 4.1
N %
Cases
Valid 100 100.0
Excluded 0 .0
Total 100 100.0
List wise deletion based on all variables in the procedure.
Reliability Statistics
Table 4.1.1
Cronbach's Alpha N of Items
.587 16
42
Item-Total Statistics
Table 4.1.2
Scale Mean
if Item
Deleted
Scale
Variance if
Item Deleted
Corrected
Item-Total
Correlation
Cronbach's
Alpha if Item
Deleted
AVERAGE
MONTHLY
SAVINGS
32.92 36.297 -.013 .609
INVESTMENT
PREFFERED33.33 36.062 -.013 .613
FACTOR PREFERED 32.84 35.873 .037 .599
EVER INV IN MF 33.86 33.051 .743 .537
HOW U COME TO
KNW ABT MF33.76 25.578 .643 .461
WHICH MF YOU
LIKE34.59 31.598 .591 .524
ATTRACTED
FEATURE30.88 34.693 .064 .603
PREFFERED MODE 34.30 36.798 .029 .591
SCHEME CHOOSED 32.94 35.006 .038 .609
WHERE U FIND UR
SELF AS INVESTOR33.80 28.040 .516 .502
PREFFERED
SECTOR FOR INV31.08 34.377 .025 .624
WHERE U
PURCHASE MF32.82 33.543 .178 .579
HOW TO GET UR
RETURN33.54 35.726 .077 .591
FACED ANY LOSS 34.62 32.056 .553 .531
LOSS DETER U 34.56 31.380 .599 .522
SATISFACTION 33.71 36.814 .052 .589
43
Scale Statistics
Table 4.1.3
Mean Variance Std. Deviation N of Items
35.57 37.157 6.096 16
4.2 GARRETT’S RANKING TECHNIQUE
Garrett’s ranking technique was used to rank the preference indicated by the
respondents on different factors. As per this method, respondents have been asked to
assign the rank for all factors and the outcomes of such ranking have been converted
into score value with the help of the following formula:
Percent position = 100 (Rij – 0.5)
Nj
Where
Rij = Rank given for the ith variable by jth respondents
Nj = Number of variable ranked by jth respondents
With the help of Garrett’s Table, the percent position estimated is converted into
scores. Then for each factor, the scores of each individual are added and then total
value of scores and mean values of score is calculated. The factors having highest
mean value is considered to be the most important factor
44
1. Average Monthly savings of your family?
PERCENTILE POSITION
Table 4.2
Rank Percentile position Garrett’s table value
1
2
3
4
5
100(1-0.5)/5
100(2-0.5)/5
100(3-0.5)/5
100(4-0.5)/5
100(5-0.5)/5
= 10
= 30
= 50
= 70
= 90
75
60
50
40
25
Table 4.2.1
Factor Total no. of
respondents
Garrett’s
score
Total score Mean score Rank
60000 and above 2 75 150 1.5 V
40000-60000 11 60 660 6.6 III
25000-40000 21 50 1050 10.5 II
10000-25000 56 40 2240 22.4 I
Below 10000 10 25 250 2.5 IV
Total 100 4350
Interpretation:
The table highlight the Garrett score, total score, the mean score and rank. Here, the
factors having highest mean value is considered to be the most important factor. There
fore the average savings of 10000-25000 has the highest mean value (22.4).So, it has
been ranked 1st and considered as the most important factor. The 2nd rank goes to the
savings 25000-40000, 3rd rank goes to the savings 40000-60000,4th rank goes to those
who have savings below 10000 and 5th rank goes to the savings 60000 and above.
45
2. What kind of investment do you prefer most?
Rank Percentile position Garrett’s table value
1
2
3
4
100(1-0.5)/4
100(2-0.5)/4
100(3-0.5)/4
100(4-0.5)/4
= 12.5
= 37.5
= 62.5
= 87.5
73
56
44
27
PERCENTILE POSITION
Table 4.3
Table 4.3.1
Factor Total no. of
respondent
Garrett’s score Total score Mean score Rank
Mutual funds 37 73 2701 27.01 I
Insurance 19 56 1064 10.64 III
Fixed deposits 27 44 1188 11.88 I1
Savings deposits 17 27 459 4.59 IV
Total 100 5412
Interpretation:
The table highlight the Garrett score, total score, mean score and rank. Here, the
factors having highest mean value is considered to be the most important factor. Here
mutual funds have highest mean score of (27.01) and ranked 1st.So it is considered as
the most important factor. 2nd rank goes to fixed deposits, 3rd rank goes to insurance
and 4th rank goes to savings deposits.
3. While investing which factor do you prefer most?
46
PERCENTILE POSITION
Table 4.4
Rank percentile position Garrett’s table value
1
2
3
4
100(1-0.5)/4
100(2-0.5)/4
100(3-0.5)/4
100(4-0.5)/4
= 12.5
= 37.5
= 62.5
= 87.5
73
56
44
27
Table 4.4.1
Factor Total no. of
respondent
Garrett’s score Total score Mean score Rank
Company
reputation
13 73 949 9.49 III
Low risk 21 56 1176 11.76 II
High return 46 44 2024 20.24 I
Liquidity 20 27 540 5.4 IV
Total 100 4689
Interpretation:
The table highlight the Garrett score, total score, mean score and rank. Here, the
factors having highest mean value is considered to be the most important factor.
Therefore High return has got the highest mean score of (20.24) and it has been
ranked 1st.So it interprets that high return is the most important factor considered by
the investor while investing.2nd rank goes to low risk,3rd rank goes to company
reputation and 4th rank goes to liquidity.
4. Have you ever invested in mutual funds?
PERCENTILE POSITION
Table 4.5
47
Rank Percentile position Garrett’s table value
1
2
100(1-0.5)/2
100(2-0.5)/2
= 25
= 75
63
37
Table 4.5.1
Factor Total no. of
respondents
Garrett’s score Total
score
Mean
score
Rank
No 29 63 1827 18.27 II
Yes 71 37 2627 26.27 I
Total 100 4454
Interpretation:
The table highlights the Garrett score, total score, mean score and rank. Here, the
factors having highest mean value is considered to be the most important factor.
Majority of people had invested in mutual funds and its mean score has come to
(26.27).So, the answer “yes” has been ranked 1st and has been considered as the most
important factor.
5. How much percentage of your savings will you invest in mutual funds?
Table: 5
48
PERCENTILE POSITION
Table 4.6
Rank Percentile position Garrett’s table value
1
2
3
4
5
100(1-0.5)/5
100(2-0.5)/5
100(3-0.5)/5
100(4-0.5)/5
100(5-0.5)/5
= 10
= 30
= 50
= 70
= 90
75
60
50
40
25
Table 4.6.1
Factor Total no. of
respondent
Garrett’s score Total score Mean score Rank
5-10% 24 75 1800 25.35 I
10-15% 17 60 1020 14.36 II
15-20% 8 50 400 5.63 IV
20-25% 13 40 520 7.32 III
25 and Above 9 25 225 2.25 V
Total 71 3625
Interpretation:
The table highlights the Garrett score, total score, mean score and rank. Here, the
factors having highest mean value is considered to be the most important factor. The
highest mean (25.35) goes to 5-10%.Therefore it has been ranked as 1 st and also
considered as the most important factor. The factors 10-15%, 20-25%,15-20%, 25%
and above is ranked respectively.
6. How did you come to know about mutual Funds?
PERCENTILE POSITION
Table 4.7
49
Rank Percentile position Garrett’s table value
1
2
3
4
100(1-0.5)/4
100(2-0.5)/4
100(3-0.5)/4
100(4-0.5)/4
= 12.5
= 37.5
= 62.5
= 87.5
73
56
44
27
Table 4.7.1
Factor Total no. of
respondents
Garrett’s score Total score Mean score Rank
Financial
advisor
16 73 1168 11.68 II
Banks 14 56 784 7.84 III
Peer groups 29 44 1276 12.76 I
Advertisement 12 27 324 3.24 IV
Total 71 3552
Interpretation:
The table highlights the Garrett score, total score, mean score and rank. Here, the
factors having highest mean value is considered to be the most important factor. Most
of the people came to know about mutual funds through peer groups which has the
highest mean score of (12.76).There for it is considered as the most important factor.
The rest of the factors Financial advisor, Banks and Advertisements are ranked
respectively.
7. In which kind of mutual fund would you like to invest?
PERCENTILE POSITION
Table 4.8
50
Rank Percentile position Garrett’s table value
1
2
100(1-0.5)/2
100(2-0.5)/2
= 25
= 75
63
37
Table 4.8.1
Factor total no. of respondents Garrett’s score total score mean
score
Rank
Public 44 63 2772 39.04 I
Private 27 37 999 27 II
TOTAL 71 3771
Interpretation:
The table highlights the Garrett score, total score, mean score and rank. Here, the
factors having highest mean value is considered to be the most important factor.
Majority of investors prefer public sector mutual funds to invest there money. The
mean score of public sector is (39.04) which is higher than private sector and has been
ranked 1st .So, it become the most important factor.
8. Which feature of mutual fund attracts you most?
PERCENTILE POSITION
Table 4.9
51
Rank Percentile position Garrett’s table value
1
2
3
4
5
6
100(1-0.5)/6
100(2-0.5)/6
100(3-0.5)/6
100(4-0.5)/6
100(5-0.5)/6
100(6-0.5)/6
= 8.3
= 25
= 41.6
= 58.3
= 75
= 91.6
77
63
54
46
37
23
Table 4.9.1
Factor Total no. of
Respondents
Garrett’s
score
Total
score
Mean
score
Rank
Investment
objectives
13 77 1001 10.01 II
Tax benefit 16 63 1008 10.08 I
Regular income 15 54 810 8.1 IV
Reduction in risk
and
transaction cost
12 46 552 5.52 V
Better safety and
return
27 37 999 9.99 III
Diversification 17 23 391 3.91 VI
Total 100 4761
Interpretation
The table highlights the Garrett score, total score, mean score and rank. Here, the
factors having highest mean value is considered to be the most important factor. Here,
52
Tax benefit is the most important factor considered by the investors because it has the
highest mean score of (10.08) and it is considered as the most important factor and
ranked as 1st.The other factors like investment objectives, Better safety and return,
regular income, Reduction in risk and transaction cost and diversification is ranked
respectively.
9. When you invest in mutual fund which mode of investment do you
prefer?
PERCENTILE POSITION
Table 4.10
Rank Percentile position Garrett’s table value
1
2
100(1-0.5)/2
100(2-0.5)/2
= 25
= 75
63
37
Table 4.10.1
Ranks Total no. of
respondents
Garrett’s score Total
score
Mean
score
Rank
Systemati
c
68 63 4284 42.84 I
One time 32 37 1184 11.84 II
Total 100 5468
Interpretation:
The table highlights the Garrett score, total score, mean score and rank. Here, the
factors having highest mean value is considered to be the most important factor. The
systematic investment plan has the highest mean score of (42.84) which is considered
as the most important factor.There fore it is ranked as 1st and one time investment
which has mean score of 11.84 is ranked 2nd.
10. Which mutual fund scheme have you used?
PERCENTILE POSITION
53
Table 4.11
Rank Percentile position Garrett’s table value
1
2
3
4
5
100(1-0.5)/5
100(2-0.5)/5
100(3-0.5)/5
100(4-0.5)/5
100(5-0.5)/5
= 10
= 30
= 50
= 70
= 90
75
60
50
40
25
Table 4.11.1
Factor Total no. of
respondent
Garrett’s score Total score Mean score Rank
Regular income
funds
13 75 975 13.73 II
Growth funds 22 60 1320 18.59 I
Liquid funds 10 50 500 7.04 III
Close ended
schemes
12 40 480 6.76 IV
Open Ended
schemes
14 25 350 4.92 V
Total 71 3625
Interpretation:
The table highlights the Garrett score, total score, mean score and rank. Here, the
factors having highest mean value is considered to be the most important factor. The
growth funds has the highest mean score of (18.59) which is ranked as 1st.Therefore
this is considered as the most important factor.The other factors such as Regular
iincome funds,liquid funds,close ended funds,and open ended funds are ranked
respectively.
11. Where do you find yourself as a mutual fund investor?
PERCENTILE POSITION
Table 4.12
54
Rank Percentile position Garrett’s table value
1
2
3
4
100(1-0.5)/4
100(2-0.5)/4
100(3-0.5)/4
100(4-0.5)/4
= 12.5
= 37.5
= 62.5
= 87.5
73
56
44
27
Table 4.12.1
Factor Total no. of
respondents
Garrett’s score Total score Mean score Rank
Fully aware 11 73 803 11.30 II
Aware of only
specific
schemes
invested
19 56 1064 14.98 I
Partial
knowledge of
mutual funds
3 44 132 1.85 IV
Totally
ignorant
5 27 135 1.90 III
Total 71 2134
Interpretation:
The table highlights the Garrett score, total score, mean score and rank. Here, the
factors having highest mean value is considered to be the most important factor. The
awareness of specific schemes invested has the highest mean score of (14.98) and
ranked 1st.This made them to find themselves as a mutual fund investor. And this is
considered as the most important factor.
12. Which sector would you prefer to invest in the mutual fund ?
55
PERCENTILE POSITION
Table 4.13
Rank Percentile position Garrett’s table value
1
2
3
4
5
6
100(1-0.5)/6
100(2-0.5)/6
100(3-0.5)/6
100(4-0.5)/6
100(5-0.5)/6
100(6-0.5)/6
= 8.3
= 25
= 41.6
= 58.3
= 75
= 91.6
77
63
54
46
37
23
Table 4.13.1
Factor Total no. of
respondents
Garrett’s score Total
score
Mean
score
Rank
Other 4 77 308 3.08 II
Automotive 12 63 756 7.56 I
Pharmaceuticals 8 54 432 4.32 IV
Oil & Gas 18 46 828 8.28 V
Information
technology
23 37 851 8.51 III
Banking and
Financial
services
Total
35
100
23 805
3980
8.05 VI
Interpretation:
The table highlights the Garrett score, total score, mean score and rank. Here, the
factors having highest mean value is considered to be the most important factor. Here,
Automotive sector has the highest mean value of (7.56).So, it is ranked 1st and has
considered as the most important factor.
13. From where do you purchase mutual funds?
56
PERCENTILE POSITION
Table 4.14
Rank Percentile position Garrett’s table value
1
2
3
4
100(1-0.5)/4
100(2-0.5)/4
100(3-0.5)/4
100(4-0.5)/4
= 12.5
= 37.5
= 62.5
= 87.5
73
56
44
27
Table 4.14.1
Factor Total no. of
respondents
Garrett’s score Total score Mean score Rank
Brokers and
sub brokers
22 73 1606 16.06 I
Other sources 12 56 672 6.77 IV
Brokers only 29 44 1276 12.76 II
Directly from
AMC
37 27 999 9.99 III
Total 100 4553
Interpretation:
The table highlights the Garrett score, total score, mean score and rank. Here, the
factors having highest mean value is considered to be the most important factor. The
highest mean value (16.06) is for other sources. So 1st rank is given to other sources
and it is considered as the most important factor. And the other factors such as
brokers only, directly from AMC and other sources are ranked respectively.
14. What is your expected rate of return from your investment?
PERCENTILE POSITION
Table 4.15
57
Rank Percentile position Garrett’s table value
1
2
3
4
100(1-0.5)/4
100(2-0.5)/4
100(3-0.5)/4
100(4-0.5)/4
= 12.5
= 37.5
= 62.5
= 87.5
73
56
44
27
Table 4.15.1
Factor Total no. of
respondents
Garrett’s score Total score Mean score Rank
Above
20%
8 73 584 5.84 III
15-20% 24 56 1344 13.44 II
10-15% 52 44 2288 22.88 I
5-!0% 16 27 432 4.32 IV
Total 100 4648
Interpretation:
The table highlights the Garrett score, total score, mean score and rank. Here, the
factors having highest mean value is considered to be the most important factor. Here,
the expected rate of return of 10-15%,and has the highest mean value of(22.88).So, it
is ranked as 1st and considered as the most important factor. The other rate of returns
such as 15-20%,above 20% and 5-10% are ranked respectively.
15. If not invested in mutual fund, why?
PERCENTILE POSITION
Table 4.16
58
Rank Percentile position Garrett’s table value
1
2
3
100(1-0.5)/3
100(2-0.5)/3
100(3-0.5)/3
= 16.66
= 50
= 83.33
69
50
31
Factor Total no. of
respondents
Garrett’s
score
Total score Mean score Rank
No
Specific
Reason
15 69 1035 35.6 I
High Risk 2 50 100 3.44 III
Not aware
of mutual
fund
12 31 372 12.8 II
Total 29 1507
Table 4.16.1
Interpretation:
The table highlights the Garrett score, total score, mean score and rank. Here, the
factors having highest mean value is considered to be the most important factor.
Those people who doesn’t invest in mutual fund have no specific reason for .The
highest mean score (35.6) is obtained for the factor “no specific reason” It has been
ranked as 1st and also considered as the most important factor. The 2nd rank goes to the
factor not aware of mutual funds and 3rd rank goes to the factor high risk.
16. Have you faced any kind of loss from investment in mutual funds?
PERCENTILE POSITION
Table 4.17
Rank Percentile position Garrett’s table value
59
1
2
100(1-0.5)/2
100(2-0.5)/2
= 25
= 75
63
37
Table 4.17.1
Factor Total no. of
respondents
Garrett’s score Total score Mean
score
Rank
No 48 63 3024 30.24 I
Yes 23 37 851 8.51 II
Total 100 3875
Interpretation:
The table highlights the Garrett score, total score, mean score and rank. Here, the
factors having highest mean value is considered to be the most important factor. The
factor “No” indicates the highest mean of (30.24).Therefore, 1st rank is given to it and
considered as the most important factor.The factor “No” indicates the mean value
8.51 which has been ranked 2nd.
17. Did the loss deter you from any further investments?
PERCENTILE POSITION
Table 4.18
Rank Percentile position Garrett’s table value
1
2
100(1-0.5)/2
100(2-0.5)/2
= 25
= 75
63
37
Table 4.18.1
60
Factor Total no. of
respondents
Garrett’s score Total score Mean
score
Rank
No 45 63 2835 28.35 I
Yes 26 37 962 9.62 II
Total 3797
Interpretation:
The table highlights the Garrett score, total score, mean score and rank. Here, the
factors having highest mean value is considered to be the most important factor. The
factor “No” indicates the highest mean score of (28.35).Therefore, 1st rank is given to
it and considered as the most important factor.
18. Are you satisfied with your investment option?
PERCENTILE POSITION
Table 4.19
Rank Percentile position Garrett’s table value
1
2
100(1-0.5)/2
100(2-0.5)/2
= 25
= 75
63
37
Table 4.19.1
61
Factor Total no. of
respondents
Garrett’s score Total score Mean
score
Rank
No 13 63 819 8.19 II
Yes 87 37 3219 32.19 I
Total 4038
Interpretation:
The table highlights the Garrett score, total score, mean score and rank. Here, the
factors having highest mean value is considered to be the most important factor. The
factor “Yes” indicates the highest mean of (32.19).Therefore, 1st rank is given to it
and considered as the most important factor.
FINDINGS
Most of the people among the 100 respondents have the average monthly
savings of 10000-25000.
Most of the people among the 100 respondents invest their money in mutual
funds. From the study it is found that the mutual fund is the most preferred
investment avenue.
While investing in mutual funds most of the respondents prefer high return.
The investors consider the rate of return as an important factor while other
62
factors liquidity, low risk and company reputation are considered to be
secondary.
Majority of the respondents from the selected sample has found to be invested
in mutual fund.
Majority of people invest 5-10% of their savings in mutual fund.
Most of the people came to know about the mutual funds by peer groups. The
next important source of information regarding the investments was from
financial advisors.
Majority of investors prefer public sector mutual funds to invest their money.
The most attracted feature of mutual funds for the investors is tax benefit as
well as the safety and return of the investment.
Majority of the respondents prefer the systematic investment plan over one
time investment plan.
The growth funds scheme is the scheme choosen by majority of the people.
Regular income fund is the next preferred mutual fund scheme.
Most of the mutual fund investors find themselves as an investor when they
are aware of specific schemes invested.
It is found that the investors prefer the automotive sector to invest when
comparing to the other sectors like pharmaceuticals, oil and gas etc.
The investors prefer to buy the investments from the brokers and the sub-
brokers
On analyzing the expected return of the investors from the investment, most of
the respondents reported that they expect a rate of 10-15% return.
Some of the respondents did not prefer to invest in mutual fund because they
are not aware of the mutual fund schemes.
Among the selected sample size, majority of the investors reported that they
haven’t faced any kind of loss on investing in mutual funds.
The majority of the investor agreed that the loss from an investment did not
deter the further investment.
63
Most of the investors from the selected sample are found to be satisfied with
their investment option.
SUGGESTIONS
The mutual fund companies should attempt to set up their branch presence in
smaller towns for tapping the potential.
There should be introduction of mandatory rating for mutual fund products
through Rating agencies to increase investor confidence.
Efforts should be put to increase the investor awareness and financial literacy,
resulting in an increase in the contribution of the retail investors to the mutual
fund industry.
The awareness of mutual fund & its various schemes should be increased
among the people by proper advertising, promotion and conducting investors
meets.
New fund offer (NFO) applications and other mutual fund applications should
be in regional languages also. This will help all type of the investors to
understand the details and risk factors more clearly.
All mutual fund companies should give a card named investment card to their
investors. This is just like an ATM card. The investors can use the card for
fresh investment, additional investment, redemption and dividend purpose.
Necessary investment machines like ATM machines should be arranged in all
mutual fund offices. It helps the investors to do the transactions without delay
and enable the asset management companies to reduce the complaints related
to redemption and dividend issues.
SEBI should take strong steps to control the biased investment
recommendation given by financial journals, dailies, websites and visual
medias.It is essential to take steps against misleading advertisements
especially in the launching of new fund offers (NFO).
Poor portfolio management is the major problem of investors in mutual fund.
This is inspite of the professional management of the funds. Hence efficiency
audit should be made mandatory.
64
SEBI should encourage to organize investor associations, so that they can
contribute more to the development of mutual fund industry. This helps in
providing necessary assistance to the needy investors.
To attract the younger generation into the mutual fund industry, mutual fund
should be included in school curriculam.
CONCLUSION
In today’s volatile market environment, mutual funds are looked upon as a transparent
and low cost investment vehicle, which attracts a fair share of investor attention
helping spur the growth of the industry. AMCs therefore need to reorient their
business towards fulfilling customer needs. As customers seek trusted advisors, the
manufacturer distributor-customer relationship is expected to be centered not on the
sale of products, but for collectively promoting the financial success of customers
across all facets of their professional and personal lives. This requires creating a
collaborative network of experts in funds management and financial advice,
innovative product offerings, efficient service delivery and supporting technology.
The mutual fund industry today needs to develop products to fulfill customer needs
and help customers understand how its products cater to their needs. Performance of
the industry has been strong and it is well-placed to achieve sustainable growth levels.
The way forward for the next couple of years for the mutual fund industry would be
influenced hugely by the journey undertaken till this point of time and the changing
demographic profile of investors.
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ANNEXURE
(First of all thanking you for participating in the survey. I request you to
spend few minutes for filling this questionnaire. The information you
provide will be kept confidential and anonymous. Results will be shown
in aggregate data only. Your answers will never be communicated to
anyone and will be used for academic purpose only)
73
1. Locality: Rural Urban Semi-urban
2. Gender: Male Female
3. Age in Completed years: 21-30 31-40 41-50
4. Marital Status: Married Single
5. Educational background: Undergraduate Graduate (Professional course)
Graduate (Non-Professional course) Post Graduation & above
6. Occupation/Employment: Employed Self Employed Student
7. Average Monthly savings of your family : Below 10000 10000 to25000
25000 to 40000 40000 to 60000 60000 & Above
8. What kind of investment do you prefer most?
Savings account Fixed deposits Insurance Mutual
funds
9. While investing which factor do you prefer most?
Liquidity High return Low risk Company
Reputation
10. Have you ever invested in mutual funds?
Yes No
If yes:
11. How much percentage of your savings will you invest in mutual funds?
5-10% 10-15% 15-20% 20-25% 25 and Above
12. How did you come to know about mutual Funds?
Advertisements Peer groups Banks Financial
Advisor
13. In which kind of mutual fund would you like to invest?
Private Public
14. Which feature of mutual fund attracts you most?
Diversification Better safety and Return Reduction in
risk and transaction cost Regular income
Tax benefit Investment objectives
15. When you invest in mutual fund which mode of investment do you prefer?
One time investment Systematic investment plan
16. Which mutual fund scheme have you used?
Open Ended schemes Close Ended Schemes Liquid Funds
Growth Funds Regular Income Funds
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17. Where do you find yourself as a mutual fund investor?
Totally ignorant Partial knowledge of mutual funds Aware of
only specific schemes invested in fully aware
18. Which sector would you prefer to invest in the mutual fund sector?
Banking and Financial services Information technology
Oil & Gas Pharmaceuticals Automotive Other
19. From where do you purchase mutual funds?
Directly from AMC’s Brokers only Brokers and Sub Brokers
Other sources
20. What is your expected rate of return from your investment?
5-10% 10-15% 15-20%
21. If not invested in mutual fund, why?
No specific reason High Risk Not Aware of Mutual
funds
22. Have you faced any kind of loss from investment in mutual funds?
Yes No
23. Did the loss deter you from any further investments?
Yes No
24. Are you satisfied with your investment option?
Yes No
75