Investment Behaviour of Retail Mutual Fund Investors · 3.3 AUM of Indian Mutual Fund Industry as on 31st March, 2014 38 3.4 Number of Schemes by Investment Objective as on 31-3-

Investment Behaviour of Retail Mutual Fund Investors

Thesis Submitted in Partial Fulfilment for the Award of the Degree of

Doctor of Philosophy

in Management

By

Radhakrishna

Research Guide

Dr. Sridhara Shetty K

Principal, S.M.Shetty College of Science, Commerce and Management Studies, Mumbai.

VINAYAKA MISSIONS UNIVERSITY

SALEM, TAMILNADU, INDIA

August- 2015

ACKNOWLEDGEMENT

At the very outset I would like to express that I am deeply indebted to

each and every one who has helped me directly or indirectly in the

First of all I would like to express my heartfelt gratitude and deepest

sense of indebtedness to my research guide, Dr.Sridhara Shetty,

Principal, S.M.Shetty College of Science, Commerce and Management

Studies, Mumbai for his valuable assistance, guidance and untiring help

at every stage in preparing this thesis.

I take this opportunity to express thanks to Dr. Rajendran, Dean,

Research, Vinayaka Missions University, Salem for extending me

academic support and guidance from time to time.

I would like to express thanks to Dr. Sankaran, Director, Justice K.S

Hegde Institute of Management, Nitte for the cooperation and support

extended to me as well as for the encouragement.

I am grateful to all the officials at Vinayaka Missions University, Salem

who have helped me during my research work.

I would like to thank all my colleagues at the Institute who have always

supported me during my research study.

I would be failing in my duty if I do not acknowledge the cooperation and

support of my parents and family members for bearing a lot of

inconvenience.

RADHAKRISHNA

CONTENTS

Chapter No. Title Page No.

List of Tables vii-xi

List of Graphs xii

List of Abbreviations xiii

I Introduction 1-11

II Review of Literature 12-31

III Overview of Mutual Fund Industry in India 32-59

IV Socio-Economic and Demographic Profile

of Retail Mutual Fund Investors

60-79

V Pre-Purchase and Post Purchase

Behaviour of Retail Mutual Fund Investors

80-178

VI Summary and Conclusion 179-197

Appendix-I: Questionnaire 198-213

Bibliography 214-217

vii

LIST OF TABLES

Table No.

Title Page No.

3.1 Market Share of Public and Private Sector Mutual Funds

at the End of May 2014

35

3.2 Assets under Management in Mutual funds in India 37

3.3 AUM of Indian Mutual Fund Industry as on 31st March,

2014

38

3.4 Number of Schemes by Investment Objective as on 31-3-

2014

41

3.5 AUM and Folios Liquid and Money Market Schemes as

on 31st March, 2014.

43

3.6 AUM and Folios Gilt Schemes as on 31st March, 2014. 44

3.7 AUM and Folios Debt oriented Scheme as on

31st March, 2014.

45

3.8 AUM and Folios Equity Oriented Schemes

as on 31st March, 2014.

46

3.9 AUM and Folios Balanced Scheme as on 31st March,

2014.

47

3.10 AUM and Folios Gold Exchange Traded Funds as on

31st March, 2014.

48

3.11 AUM and Folios ETFs other than Gold as on 31st March,

2014.

49

3.12 AUM and Folios FOFs Investing Overseas as on 31st

March, 2014

50

viii

3.13 Retail Participation in Indian Mutual fund Industry as on

31-3-2014

51

3.14 Age wise AUM as on 31-03-2014 53

3.15 Trends in Mutual Fund Transactions on Stock Exchanges 54

3.16 AUM by Geography as on 31-3-2014 56

4.1 Classification of Respondents on the Basis of Occupation 61

4.2 Number of Respondents in Different Occupation

Categories

62

4.3 Classification of Respondents on the Basis of Gender 63

4.4 Age of the Respondents 64

4.5 Classification of the Respondents on the Basis of Religion 65

4.6 Marital Status of the Respondents 66

4.7 Educational Qualifications of the Respondents 68

4.8 Number of Children per Family 69

4.9 Family Structure of the Respondents 70

4.10 Family Size of the Respondents 72

4.11 Number of Earning Members in the Family 73

4.12 Percentage of Income Saved per Month Investment 75

4.13 Percentage of Savings Invested in Mutual Funds Number

of Years of Investment Experience in Mutual Funds

76

4.14 Proportion of Money Invested in Mutual Funds out of Total

Financial Assets

78

5.1 Knowledge about Mutual Funds Number of Mutual Funds

Owned by the Respondents

81

ix

5.2 Level of Knowledge about Various Mutual Fund

Terminologies

82

5.3 Knowledge about Mutual Fund Terminologies 88

5.4 Consultation with Experts by Mutual Fund Investors 89

5.5 Sources Consulted by the Respondents 91

5.6 The Person Taking the Investment Decision 93

5.7 Encouragement from Spouse 94

5.8 Reasons for Not Receiving Encouragement from the

Spouse

95

5.9 Expected Return from Various Types of Funds 97

5.10 Expectation of Returns from Different Types of Mutual Funds According to Occupation Categories

98

5.11 Factors Motivated to Invest in Mutual Funds 103

5.12 Garret`s Mean Score for the Factors Motivating Mutual

Fund Investors

105

5.13 Social Beliefs of Mutual Fund Investors 106

5.14 Information Sources about Mutual Funds 107

5.15 Use of Borrowed Funds for Mutual Fund Investment 108

5.16 Factors Considered while Selecting the Fund Family 109

5.17 Preferred Time of Buying Mutual Fund Units 111

5.18 Objective of Investing in Mutual Funds According to

Occupation Categories

113

5.19 Objective of Investing in Mutual Funds 114

5.20 Objective of Investing in Mutual Funds: Garrett`s mean 115

x

score

5.21 Importance of Various Factors in Equity Mutual Fund 117

5.22 Rating the Features of Mutual Funds according to

Occupation Categories

119

5.23 Investment Instruments Used by the Respondents 121

5.24 Direct Investment in shares 124

5.25 Number of Years of Investment Experience in Mutual

Funds

125

5.26 Number of Mutual Funds Owned by the Respondents 126

5.27 Number of Schemes Owned by the Respondents 128

5.28 Current value of the Mutual Fund Units Owned 130

5.29 Types of Funds Used for Investment 132

5.30 Tax Savings Instruments Used by the Respondents 133

5.31 Time Horizon for Equity Oriented Funds Reaction to 135

5.32 Time Horizon for Debt Funds 136

5.33 Intention to Increase/Decrease Mutual Fund Investment 137

5.34 Investment Options Used by Respondents 139

5.35 Discussion about Mutual Fund Investment 140

5.36 Investors` Reaction to a Sudden Stock Market Fall 141

5.37 Reaction to Sudden Fall in NAV 143

5.38 Sudden Rise in NAV of Mutual Funds Units 144

5.39 Frequency of Finding out Current Value of Investments 145

5.40 Sources Used for Finding the Current Value of Mutual

Fund Investment

147

xi

5.41 Use of Derivatives by Mutual Fund Investors 148

5.42 Derivative Products Used for Hedging 149

5.43 Switching Behaviour 150

5.44 Reasons for Switching the Schemes 152

5.45 Frequency of Using of Switch Facility by Respondents 154

5.46 Funds Switched by Respondents 155

5.47 Mode of Buying the Mutual Fund Units 156

5.48 Frequency of Monitoring the Performance 158

5.49 Funds Used to Meet the Financial Goal 159

5.50 Products Used for Equity Exposure 160

5.51 Myths about Mutual Funds 161

5.52 Reading of Scheme Information Document 167

5.53 Importance of Items Contained in Scheme Information

Document to Investors Based on Occupation Categories

168

5.54 Importance of Items Contained in Scheme Information

Document to Respondents

176

xii

LIST OF GRAPHS

Graph No.

Title Page No.

3.1 Market Share of Public and Private Sector Mutual Funds at the End of May 2014

36

3.2 Growth of Assets under Management in Mutual funds in

India

38

3.3 Retail Participation in Indian Mutual fund Industry as on

31-3-2014

52

xiii

LIST OF ABBREVIATIONS

AMC: Asset Management Company

AMFI: Association of Mutual Funds in India

AUM: Assets Under Management

ELSS: Equity Linked Savings Scheme

ETF: Exchange Traded Fund

FII: Foreign Institutional Investor

FOF: Fund of Funds

MMMF: Money Market Mutual Fund

NAV: Net asset Value

NFO: New Fund Offer

NSC: National Savings Certificate

PMS: Portfolio Management Service

PPF: Public Provident Fund

SEBI: Securities and Exchange Board of India

SID: Scheme Information Document

SIP: Systematic Investment Plan

STP: Systematic Transfer Plan

SWP: Systematic Withdrawal Plan

ULIP: Unit Linked Insurance Plan

UTI: Unit Trust of India

xiv

1

Chapter I: Introduction

A mutual fund is an organization which collects the contribution in the form

of money from many investors for the purpose of deploying it in a well

diversified portfolio of assets as per the investment objective of the fund.

Even if the investors can put their money to work in various avenues, a

well-managed portfolio of stocks is one of the best investments for wealth

creation. It is a known fact that historically stocks have given superior long

run real returns relative to other investments all over the word. However,

stocks have the higher risk associated with them, and the average

investors find it difficult to understand the intricacies of equity investment.

For this reason, mutual funds have emerged as an investment option to

generate higher returns with lower risk by using the knowledge of

investment professionals.

Even if stocks have historically given higher returns, investors did not

benefit from them due to many mistakes committed by them, and many of

the mistakes are connected with human psychology. Human behavior in

general and investor`s behavior, in particular, is very complex and

challenging. People tend to behave in different ways in different situations.

Understanding investors` behavior is, for this reason, never simple. Many

of the theories in finance assumes that investors are rational and

unbiased but many of the research conducted recently indicate that

2

investors are not always acting in a rational manner and commit a number

of mistakes. Retail investors are more prone to such problems compared

to the high net worth individuals and institutional investors. The present

study analyses the various aspects of retail investors` pre purchase and

post purchase behaviour. Recently even psychologists have realized the

impact of various psychological factors in investment decision-making.

This study aims to deepen the existing knowledge on investor behavior

and decision-making processes of retail mutual fund investors.

Conceptual Framework Guiding the Present Research Study

The present study is based on the first hand information collected from the

respondents in Udupi District of Karnataka State in India. In addition to the

primary data, the existing available literature relating to the present study

behavior, in particular, is under-researched area. Most of the earlier

research studies are disintegrated, narrowly focused, and failed to answer

several research questions with supportive empirical evidences. In

addition, some of the earlier research studies were descriptive, conceptual

and prescriptive in nature by enforcing normative judgments without a

thorough theoretical grounding and rigorous research methodology. The

following figure gives a brief overview of the conceptual framework

developed to the present research work undertaken by the researcher.

3

Conceptual Framework for the Present Research Workk

Execution Process

Hypotheses

H1: Mutual fund investors tend to rely on the information provided by the mutual fund advisors.

H2: Mutual fund investors tend to take investment decisions on the basis of past performance of the mutual fund scheme.

H3: Mutual fund investors do not consider factors other than risk and return while investing in mutual funds

H4: Mutual fund investors demonstrate a behaviour of switching mutual fund schemes for diversifying their portfolio.

H5: Mutual fund investors do not consider the information contained in the scheme information document (SID).

Outcomes

Understanding investor behaviour

Implications for mutual fund industry

Directions for further research

Five research questions

Five research objectives

Exhaustive review of the literature

Five hypotheses

Survey based research

Data collection sources: Primary data from 422 Respondents and secondary data

Data collection instrument: Pretested structured and non disguised questionnaire.

Data analysis and interpretation: Statistical tools

Research Questions

1. What are the socio- -economic and

demographic characteristics of retail mutual

fund investors?

2. What are the sources mutual funds

investors consult while taking investment

decisions?

3. What is the pre-purchase and post-purchase

investment behaviour that retail mutual fund

investors demonstrate?

4. Do retail mutual fund investors sell winning

mutual funds and retain losing funds?

5. How important are the information contained

in the SID to the retail mutual fund investors?

Research Objectives

1. To provide an overview of Indian mutual fund

industry.

2. To draw a profile of retail mutual fund

investors and describe their demographic,

socio-economic and psychological

characteristics

3. To analyze the pre-purchase and post-

purchase mutual fund investor`s behavior.

4. To find out the factors motivating the retail

mutual fund investors to invest in mutual

funds

5. To compare the behavior of retail mutual

fund investors across different occupation

4

Need for the Study

Traditional finance is built on several theories based on the assumption

that investors are rational and unbiased about their predictions about

future but many of the research conducted recently indicate that investors

are not always acting in a rational manner and commit a number of

mistakes. Retail investors are more prone to such problems compared to

the high net worth individuals and institutional investors. Recently many

psychologists have realized the impact of various psychological factors in

investment decision making.

Review of literature suggests that relatively little attention has been given

to the study of behavioral aspects of investors in general and mutual fund

investors in particular. Stock market has rewarded investors with higher

returns in the long run but most of the investors are not able to earn higher

returns due to many psychological biases and various investment

mistakes. So, it is evident that considerable work remains to be done in

investigating in to the behavioral aspects of retail mutual fund investors.

Therefore, the present study aims at understanding the behavior of

individual retail investors in mutual funds mainly their fund selection,

redemption and switching behavior, their behavior during rising and falling

markets and various factors influencing their behavior. Therefore, the

present study focuses on the investment behavior of retail mutual fund

investors which helps policy makers to pass suitable laws and regulations,

5

mutual fund houses to introduce suitable products to the investors and

help investors to avoid costly mistakes that they may make in investment

decisions.

Research Questions

The present study intends to answer the following research questions.

1. What are the socio economic and demographic characteristics of

mutual fund investors?

2. What are sources mutual fund investors consult while taking

investment decisions?

3. What is the pre-purchase and post-purchase investment behaviour

that retail mutual fund investors demonstrate?

4. Do retail mutual fund investors sell winning mutual funds and retain

losing funds?

5. How important are the information contained in the SID the retail

mutual funds investors?

Objectives of the Study

District of Karnataka State in India.

1. To provide an overview of mutual fund industry in India

2. To find out the profile of retail mutual fund investors and describe

their demographic, socio-economic and behavioral characteristics

6

3. To analyze the pre-purchase and post purchase behavior of retail

mutual fund investors

4. To find out the factors motivating the retail mutual fund investors to

invest in mutual funds

5. To compare the behavior of retail mutual fund investors across

different occupation categories

Hypotheses

After an exhaustive review of literature by the researcher on the

investment behaviour of mutual fund investors, following research

hypotheses have been developed for the purpose of empirical scrutiny.

H1: Mutual fund investors tend to rely on the information provided by the

mutual fund advisors.

H2: Mutual fund investors tend to take investment decisions on the basis of

past performance of the mutual fund scheme

H3: Mutual fund investors do not consider factors other than risk and return

while investing in mutual funds.

H4: Mutual fund investors demonstrate behaviour of switching mutual fund

schemes for diversifying their portfolio.

H5: Mutual fund investors do not consider the information contained in the

scheme information document.

7

Research Methodology

The present study is mainly descriptive in nature and involves observing

and describing the mutual fund investors` behaviour without influencing

them in any manner. The study mainly deals with the behaviour of retail

mutual fund investors in Udupi District of Karnataka State in India. The

required data for the study was collected through a pretested structured

instrument that was personally administered on a sample of 500 randomly

selected respondents in Udupi District. Researcher personally

administered the questionnaire in English / Kannada to the respondents

either at their residence or at the workplace. Respondents were taken into

confidence before the administration of the questionnaire. The purpose of

the research was clearly told to them, and their cooperation was sought so

that desired information can be collected accurately. Prior appointment

was taken in most of the cases before meeting them for gathering the

primary data. A specimen of the questionnaire was given in appendix.

Researcher resorted to two-stage sampling process. In the first stage, out

of 172 active mutual fund distributors in Udupi District, 20 distributors were

selected at random. In the second stage, 25 mutual fund investors were

selected from each of the 20 mutual fund distributors. Simple random

sampling was used in both the stages resulting in a total of 500

respondents. Out of 500 sample respondents, information was collected

from only 454 respondents as the remaining 46 investors were reluctant to

8

give all the information. During the editing process, the incomplete and

unusable questionnaires were discarded (32 questionnaires) resulting in

422 valid questionnaires resulting a response rate of 84.4%. The data was

collected directly from the respondents during the year 2012 from the retail

mutual fund investors. For this research, retail investor is an individual who

has at least three years of mutual fund investment experience and who is

at present has invested in any one scheme of mutual fund including

exchange traded fund and has not invested more than Rs.10 lakhs in

mutual funds. The present study covers only retail mutual fund investors,

and institutional investors are not considered. The researcher has used

mainly the primary data to pursue the research objectives of the study.

However, secondary sources of data such as books, periodicals and other

relevant documents and literature was also used for the purpose of

gathering the data for the study.

The researcher has conducted informal interview with few mutual fund

investors and distributors to get an insight into the various dimensions of

the behaviour of mutual fund investors. This interaction together with the

review of the literature helped the researcher in designing the

questionnaire that was used to collect the primary data for the present

research.

9

The questionnaire was pretested with a pilot study undertaken on a

sample of 20 respondents during April to September, 2011. Based on the

pilot study suitable changes were made in the instrument.

The study uses statistical tools and methods which are appropriate for

different situations such as percentage, arithmetic mean, standard

deviation, Kruskal Wallis Test, Friedman Test, Chi-square test, Fisher`s

Exact Test and Garrett`s Mean Score for the purpose of analysis of the

behaviour of retail mutual fund investors.

Scope and Limitations of the Study

The analysis and inferences made in this study are based on the primary

data collected from a sample of 422 respondents in Udupi district of

Karnataka state. To that extent, it is a micro-study.

The sample size for the present study is 422 respondents selected from

Udupi district in India. For this reason, the study is subject to the limitations

of any such studies. Hence, the findings, generalizations and inferences

cannot be generalized exactly to other parts of India or abroad.

Nevertheless, the limitations inherent in this study should not be viewed as

serious limitations or deficiencies, and instead they should be seen as

opportunities for future research in this domain area. Despite the above

10

limitations, an earnest effort is made to make the study more scientific and

relevant.

Chapter Scheme

The present study titled Investment behaviour of retail mutual fund

investors undertaken by the researcher in Udupi District of Karnataka

State in India is co-ordinated into five chapters as detailed below.

presents introduction to the study. The chapter

includes statement of the problemm, research questions, objectives,

hypotheses, sources of data, sampling design and limitations of the study.

contains a comprehensive review of

various earlier studies with regard to the various dimensions of investors`

behaviour in general and mutual fund investors behaviour, in particular.

This chapter acted as an eye-opener for identifying the research gaps and

also for formulating the research hypotheses.

contains an

overview of Indian mutual fund industry as well as its history and growth.

Chapter IV: Socio-Economic and Demographic Profile of Retail

Mutual Fund Investors deals with the socio-economic and demographic

profiles of mutual fund investors.

11

Chapter V: Pre Purchase and Post Purchase Behaviour of Retail

Mutual Fund contains issues relating to pre-purchase and

post- purchase behaviour of mutual fund investors.

Chapter VI presents a summary of the

major findings, summary of earlier chapters, directions for future research

and final observations.

12

Chapter II: Review of Literature

One of the important vehicles for savings for retail investors in India is

mutual funds. So, understanding the investor behaviour is very important

not only to policy makers but also to the leaders of mutual fund industry for

successfully facing the challenges open to mutual fund industry. The

present study tries to deepen the existing knowledge of mutual fund

investor behaviour by examining different aspects that form the individual

investment behaviour. In recent years mutual funds have become an

important vehicle for indirect investment into different securities for

generating higher returns with lower risks. However, there are many

studies conducted on mutual fund performance, but not in the area of

investment behaviour in general and mutual fund investment behaviour, in

particular. Mutual funds are able to attract the attention of academicians,

researchers and policy makers and there are many research on fund

performance, comparison of mutual fund scheme with the benchmark,

investor`s risk orientation, information processing and decision making,

investor`s rationality, socially responsible investing, home bias, risk

adjusted performance evaluation, affluent investor behaviour and mutual

fund purchase behaviour.

One of the questions that are not answered in relation to mutual fund

industry is that why some investors tend to hold on to losing funds. A

13

number of studies have shown that there would be more inflow of funds to

winning funds rather than losing funds.

Behavioural finance assumes that investors behaviour is based on several

biases and heuristics that are against the assumption of most of the

models in finance that assumes that investors are rational. Psychologists

argue that economists models do not explain actual behaviour of

investors. On the other hand, economists contend that psychological

studies do not offer empirical evidence about decision-making processes

of investors. The efficient market hypothesis assumes that individuals are

rational and use the rules of probability and statistics for decision-making.

Behavioural finance involves the use of psychology in financial decision-

making and mostly focused on cognitive biases. According to them

emotion influences financial behaviour of investors. The study focuses

particularly on three aspects of emotion and its influence on financial

decision-making: 1. Emotional disposition and pricing in financial markets,

2. The investor`s feeling of regret and 3. Emotional response of investors

to information (Ackert, Church, & Deaves, 2003).

Several research studies provide conflicting evidence on the level of

knowledge of mutual fund investors and risk disclosures.

Mutual funds are one of the avenues where investors can park their

money. They are very useful for many individuals for getting the benefits of

14

portfolio diversification and professional management. Many investors

realize that mutual funds are not always the best investment choice.

Naimy (2008) compared the performance of actively managed funds with

that of the market. It was found that equity mutual funds always do not

outperform the passively managed fund or broad market index. Engstrom

and Westerberg (2004) documented investment behaviour using Swedish

market. They found evidence that management fee is more important than

the past performance of mutual funds in influencing investor behaviour.

Investors tried to avoid high fee funds as they were very sensitive to the

cost. So, Swedish mutual funds receive higher inflows from investors to a

fund with lower management fee when compared with foreign mutual

funds.

Investors tend to use heuristics or rule of thumb while taking investment

decisions (Tversky and Kahneman(1974)). People consider small sample

and assume that they represent the whole population.

Kahneman and Tversky (1979) found that people have the aversion to

loss. The effect of gain or loss of a certain amount is not equal. The pain

from the loss is much more than the pleasure of gaining the same amount

of money. So, mutual fund investors are likely to sell winning mutual funds

and keep the losing mutual funds for long.

15

Awan & Arshad (2012) explored the various factors that investors consider

for the purpose of making mutual fund investment decisions, as well as

their behaviour. Mutual fund investment is less risky investment when

compared to direct investment in shares. According to this study the

investor age group and the place of residence have different influence on

choice of mutual fund schemes. Education, income, and occupation did

not have any effect on mutual fund scheme selection. Investors believe

that low performance of their portfolio is because of incorrect advice of

friends and relatives and high performance is because of good

performance of the companies in the portfolio. Investors who are image

conscious are giving more importance to sponsor related services

when compared with professional investors. This study is very useful for

mutual fund houses and managers to develop new and innovative mutual

fund schemes to suit the needs of investors. The study will also help the

researchers to consider various factors that investors consider while taking

investment decisions especially in Pakistani context.

According to the study by Barber & Odean (2000) investors who trade

more in the stock market make less profit than the passive investors. In his

study of 66,465 household investors who have accounts with a large

discount stock broker between 1991 to 1996, those who trade more

frequently earned a return of 11.4% p.a., while the broad market recorded

16

17.9% return. The reason for high portfolio turnover and low portfolio

performance was over confidence. Trading with short term time horizon is

a dangerous game in the stock market while long term investment is more

likely to reward investors.

Ackert, Charupat, Church, & Deaves (2003) found that there is evidence

that investor`s profit earned or losses suffered influences the risk-taking

behaviour. People tend to take more risk when they are endowed with

house money. Using experimental research design authors compared the

investment outcomes under different situations when they are endowed

with different levels of cash endowments. The above study provides strong

support for the existence of house money effect. As trader`s behaviour is

influenced by several factors other than the amount of money, it is very

difficult to interpret the dynamic behaviour of investors as they are

conflicting in nature.

Adams, Füss, & Wohlschie (2012) investigated the performance potential

based on three investment choices, namely multi-management, multi-

asset and multi-instrument. These investment choices are used in the

mutual fund industry for providing investors with a number of options so

that they can earn higher risk-adjusted returns. The study is based 20

years and used bootstrapping simulation method and a set of performance

measures to show that: 1. Investment in five asset classes instead of

17

typically investing in a mix of bond and stock portfolio helps to earn higher

risk-adjusted returns measured in terms of Sharpe ratio on an average by

fifty percent. 2. Company specific risk can be considerably reduced by

allowing for third-party funds in an investor s portfolio. 3. Concentrated

portfolio including single asset portfolio construction will help skilled fund

managers to earn a higher return. According to the present study, active

management with multi investment approach helps investors to earn

higher risk-adjusted returns than the balanced mutual funds.

Alexander, Jones, & Nigro (1997) conducted a survey and used survey

data based on a sample of 2000 respondents and studied the investor

`s level of financial literacy and the mode of purchase of mutual funds.

Strong evidence was found between these two variables. A strong

relationship between distribution channels chosen and financial literacy of

investors was found in the study.

Ardehali (2004) suggested the best and most suitable portfolio for

investors based on the risk preference of the investors. This is an

important area in investment management, and not much has been done

by researchers in this regard. He used a non-parametric LP optimization

technique to measure risk tolerance assessment. This method can handle

multiple variables at the same time for risk tolerance assessment. It

18

measures risk tolerance on the basis of various psychological factors

representing a different dimension of risk tolerance.

Broihanne, Merli, & Roger (2008) documented the influence of psychology

on financial decision-making especially mental accounting and prospect

theory. This paper was devoted to present how mental accounting and

prospect theory impact investors behaviour and thereby asset prices.

Investors are subject to irrational decision making behaviour and do

commit several mistakes while taking investment decisions. These

mistakes are not explained by rational economic theories, and there are no

theoretical explanations for them.

It was found by Gupta & Chander (2011) in their empirical research that

the sources of information is one of the key determinants for fund

purchase and selection. There are many studies which investigated the

significance of various types of information sources for the retail mutual

fund investors. The present study makes an analysis of various sources of

information for all types of mutual fund investors and its significance in

choosing a mutual fund. This study is based on data collected from 450

mutual fund investors. A significant difference was observed between retail

and institutional investors with regard to the various factors considered

while selecting a fund. This study is expected to help mutual fund

19

companies in understanding the factors considered by investors while

purchasing and selecting mutual fund schemes.

Müller & Weber (2010) analyzed the relation between financial literacy of

investors and investment behaviour of mutual fund investors. They

constructed an objective score for financial literacy and found a positive

influence of financial literacy of investors. They found higher probability of

financially literate investors investing in low-cost mutual funds. In their

study, it was found that even the financially literate investors relied on

active funds for investment purposes. Superior fund selection ability was

not observed by financially literate mutual fund investors.

Weigand, Belden, & Zwirlein (2004) examined whether retail investors

should consider the weight fund managers assign on various stocks that

form part of the mutual fund portfolio while selecting stocks for their

portfolio. They compared the performance of stocks that were highly

weighted and the stocks with low weights. They found that the stocks with

higher weight in a portfolio in mutual funds did not perform better than the

stock with low weight. For this reason, it is not possible to earn excess

returns for individual investors by following the mutual fund managers

blindly. So the retail individual investors should not blindly follow mutual

fund managers and invest in top weighted stocks of mutual funds.

20

Prince & Bacon (2010) argued that according to the (EMH) efficient market

hypothesis active investment management is useless. An investor is better

off by investing his funds passively in a market portfolio through index

funds. However, the existence of mutual fund industry all over the world

explains a belief to the opposite. Mutual fund performance can be

quantitatively compared with the performance of the benchmark, and it is

established that the portfolio diversification reduces the unsystematic risk.

Mutual fund is a vehicle that helps unit holders to get the benefit of

professional management, higher return, and lower cost. The results

indicate that excess returns have been generated by some mutual funds

but not all. The study provides evidence to show that funds employing

active management style are not able to outperform their benchmarks.

Trading results of retail individual investors showed large losses in the

study conducted by Barber, Yi-Tsung, Yu-jane, & Odean (2009) using

trading history of all investors in Taiwan. The study found that the

aggregate portfolio of retail investors who followed active portfolio

management suffered an annual loss of 3.8% whereas institutions

enjoyed an annual performance boost of 1.5%. It is to be noted that both

the active and passive portfolio management styles of institutions were

profitable. Foreign institutional Investors accounted for nearly half of

institutional profits.

21

Barreda-Tarrazona, Matallín-sáez, & Balaguer-Franch (2011) studied

investor behaviour towards socially responsible (SR) mutual funds. The

research is based on an experimental study conducted on a sample of

investors who take investment decisions using information about the

various investment avenues and their expected returns. In this study, each

investor was asked to decide how he/she distributes an investment outlay

of two funds with uncertain and fluctuating returns. In the experimental

study, two treatments were conducted, each providing a different set of

information on the socially responsible feature of one of the two

investment avenues. The results of the study suggest that investors

criteria for investment are primarily guided by expected returns and

portfolio diversification; investors invest significantly more in a fund that is

socially responsible in nature. Further investors who are concerned about

socially responsible investment invest more in socially responsible mutual

funds. It was also evident that a small group of investors was ready to

suffer the return differential in socially responsible mutual funds. Providing

clear information to the investors by the mutual funds about the socially

responsible characteristics is very helpful in selecting their preferred

choice.

Irrational factors like; emotion, culture, religion and ideology are the

elements which play an important role on people's behaviour in different

22

deciding situations (Mcgoun, E, 1992). Such prejudgments can interfere in

decisions and cause to results lower than the optimized level because the

emotions overcome the person's control and reshape his behaviour (Rizzi,

2008).

Generally individual investors tend to make a mistake while investing in

mutual funds by chasing past performance. Even the professional mutual

fund distributors and investment advisors are also not immune from this

problem. So, they recommend the funds with good past performance for

investors. Even Mutual fund companies advertise prominently good

performance of any scheme for luring new investors into the scheme.

Even the independent financial advisors and media too pitch the same

tune. (Riepe, 2003).

One of the important factors that influence the buying and selling

behaviour of investors is perceptual errors. Sadi, Asl, Rostami, Gholipour,

& Gholipour (2011) in their study recognized investor`s perceptual errors

and its connectivity with the personality of investors. The recent study uses

the stock market. The required data was collected by administering

questionnaires to investors. The study used the parametric analysis and

correlation and found a significant correlation between perceptual errors

and investors personality. High coefficient of correlation was found in this

study between extroversion and openness with hindsight and

23

overconfidence bias. High correlation was also found between

randomness and neuroticism bias as well as between escalation of

commitment and availability biases.

Jeske (2001) made a study on home bias in equity holding in various

countries. It is believed that home bias in the U.S. is more when compared

with other countries. Home bias is based on the investor`s holding of

foreign assets in their portfolio. Based on a comprehensive measure of

home bias it was evident that among all the industrial nations, U.S.A has

the lowest home bias. The most frequently cited reason for home bias is

the cost of collecting information that is needed for investing in foreign

markets. The study was not able to account for the observed patterns of

home bias in USA.

Bitters & Ford (2004) found the factors that should be considered by an

investor while investing in mutual funds and retirement finds. First of all

one should consider the outlook of the global and domestic economy and

financial markets. Then portfolios should be constructed based on

expected returns for different asset classes and individual portfolios

instead of considering past returns. Performance evaluation should be

done on the basis of fund manager`s skill and not the market cycles.Lastly,

changing the weightings of portfolios on the basis of the outlook of

financial markets instead of greed and fear.

24

Cheng-Ru, Hsin-Yuan, & Li-Syuan (2008) investigated as to how investors

evaluate fund performance considering both quantitative and qualitative

aspects. The researchers developed the Modified-Delphi Method and the

Analytical Hierarchy Process (AHP) for the purpose of evaluating the

performance of mutual fund schemes. Fund style and general investment

climate are the two most important factors considered for evaluating the

performance of mutual fund schemes. It was found that mutual fund

investors concentrate more on gathering information about the style of

mutual fund scheme while taking decisions. Mutual fund houses can

capitalize from these results to help their clients in a better way.

Chuang (2003) suggested that the asset pricing models and the theory of

market efficiency may not hold water in several stylized facts observed in

financial markets. Overconfidence is one such explanation for the above

anomalies. From his theoretical work he derives four hypotheses about

investor overconfidence. Overconfident investors were found to react less

to public information and react more to private information. Gains or profits

increase overconfidence of investors while the losses decrease the same.

So, investors tend to trade more in periods after the market gains and vice

versa. Overconfident investors tend to underestimate risk and over

estimate the return and trade more the securities which are risky.

Excessive trading of overconfident investors is responsible for increased

25

volatility of financial markets. Various tests were employed by him to

examine the validity of above hypotheses regarding overconfidence. He

further found strong evidence that higher returns from the stock are

followed by higher trading volume. Higher returns also make investors

overconfident and take the higher risk. Overall, the test results provide

strong evidence in support of the hypothesis on overconfidence except for

the relationship between overconfidence and risk-taking.

According to the study of Coggan, (2001) over-confidence was highest

when the investors had a little knowledge of the subject. Many behavioural

finance studies indicate that over-confidence can lead to many investment

errors and proved to be costly. Many research surveys often show that

investors expect to earn a high rate of return on their investment over the

long term even if such returns are unlikely.

Mutual fund investors desire to invest in a fund that meets their investment

objectives. If the schemes continue to meet their objectives, they stay with

the funds. Otherwise, they may switch to other schemes within the fund

family. Lenard, Akhter, & Alam (2003) investigated investors` attitude

towards mutual funds. The study indicates that mutual fund investors

consider the investment risk, performance of the scheme, mix of various

assets and the size of the fund before switching to other schemes. This

model can also help in understanding switching behaviour of investors.

26

The majority of investors in Sweden are not aware of how their financial

situation will be at the time of their retirement. The situation of women was

found to be worse. One reason for this situation is that women are less

interested in personal investment management. Results of the study are

inconclusive about gender differences among investors. It was found that

males are more commercial and show higher interest to take personal

financial management decisions than females (Martenson, 2008).

The empirical study of Merli & Roger (2012) used the records of the

transactions of 87,373 individual investors of France for seven years

starting from1999. According to the study conducted by Lakonishok et al.

(1992) and Frey et al. (2007) it was found that herding behaviour is

strongly present among the investors in France. The study reveals that

herding is persistent among investors in France. If investors trade more a

particular stock at time t they are likely to trade more of such stock at time

t+1. The motivation for herding behaviour was found to be the investor-

specific characteristics. The study also reveals that herding was less in

professional investors and herding behaviour is strongly and negatively

related to investor`s past performance especially in the case of

unprofessional investors.

Saha & Dey (2011) evaluated the prospects of any product irrespective of

its nature on the basis of consumer behaviour. Expectation of investors is

27

a prime factor that needs to be analyzed by all alternative investment

avenues. The success of any mutual fund scheme depends on how

effectively it can meet the expectation of investors. The study focused on

measuring the expectation and preference for mutual funds and to identify

the factors that investors consider before making any investment decision.

The survey has been conducted in Kolkata city during November 2008-

January 2009. The study took a sample of 100 individual investors in

mutual funds and has been surveyed through a pre-tested undisguised

questionnaire. The individual investors surveyed include mutual fund

investors who have some knowledge about the basic concepts of mutual

funds. The study made an attempt to identify the factors perceived to be

important to the mutual fund investors before investing

Based on recent empirical evidence that as investors gain more and more

experience, their investment performance is likely to improve, Meyer,

Koestner, & Hackethal (2012) hypothesized that the specific mechanism

through which investment experience leads to better investment returns as

investors tend to learn from their investment mistakes. To test this

hypothesis, the present study uses the trading history of 19,487 individual

investors. The results of the study show that concentration of stocks in the

portfolio and the disposition effect do not reduce as investors gain more

and more experience. It has been found that more experienced investors

28

had less portfolio turnover and investors learn from overconfidence. The

study concludes that when compared to other investment mistakes it is

easy to identify and avoid the mistake of excessive trading. The study

found that as experience increases, portfolio returns also improves.

An empirical study by Mishra & Kumar (2012) based on a sample of 268

mutual fund investors suggests that objective knowledge and subjective

knowledge impact differently the width and depth of information search

and information processing by mutual fund investors.

Singh (2011) considered various factors influencing purchase decision

among mutual fund investors. His study investigated the impacts of

various socio economic and demographic factors on the attitude of mutual

fund investors.

A study has been conducted based on responses to a questionnaire to

mutual fund investors about recollections of past fund performance by

Goetzmann & Peles (1997). It was evident that mutual fund investor`s

memory exhibited a positive bias that is in line with current psychological

models. Due to psychological and economic frictions unusually high

frequency of poorly performing mutual funds was found. The study also

examined the differential responses of mutual fund inflow to past

performance by controlling survivorship.

29

Fernández, Garcia-Merino, Mayoral, Santos, & Vallelado (2011)

conducted an experimental research to observe the behaviour of investors

in three situations with three different levels of information. Results of this

study confirm the dependence of information, behavioural biases of

investors and herding phenomenon. This experiment showed that

information about the number of previous transactions in the market is

relevant in explaining the herding behaviour of investors. Herding

behaviour in general increases with the increasing in uncertainties. The

research findings described in the present paper measures cognitive

profile of the investors to identify the relationship between availability of

information, cognitive profile and herding phenomenon.

A detailed questionnaire survey for German Mutual Fund Companies was

administered by Arnswald (2001) which throws light on various aspects of

institutional investment behaviour. The research survey asked for fund

managers opinion about various aspects of investment and their practices

for the purpose of measuring the firm s performance and incentives for

mutual fund managers. It was found that professional equity fund

managers mainly recognize the value of underlying fundamental

macroeconomic information. The research also indicates that behavioural

factors also influence the choice of information source and the investment

styles and strategies. Fund managers were found to be influenced by their

30

personal benefits and agency problems have influenced equity fund

managers` investment behaviour.

Kumar (2012) studied 28 diversified equity funds based on the data

collected from January 2007 to June 2011.The study revealed mixed

performance of diversified equity funds in India. Only 60% of the

diversified equity fund schemes were able to outperform their respective

benchmarks. Funds producing a higher return are associated with higher

risk too. All the mutual fund schemes studied were relatively exposed

lower levels of risk when compared with that of the market with a higher

degree of volatility. Most of the funds were diversified reasonably and

reduced the unsystematic risk. For this reason, unsystematic risk and

returns were negatively correlated. The results of the study also revealed

that about 58% of the mutual fund schemes were capable of outperforming

the market because of superior stock selection abilities of fund managers.

But the mutual fund managers were not able to sell the stocks when the

prices are high and buy and accumulate the stocks when the prices are

low.

Review of literature suggests that relatively little attention has been given

to understanding retail investor behaviour in general and mutual fund

investor behaviour in particular, their behaviour regarding fund selection,

their reaction to rise and fall in the net asset value, their switching

31

behaviour and their behaviour to search and process information. So,

considerable work remains to be done in the above areas. The present

study tries to deepen the existing knowledge on retail mutual fund

investors` behaviour.

32

Chapter III: Overview of Mutual Fund Industry in India

In this chapter, an attempt is made to give an overview of Indian mutual

fund industry. The chapter starts with the meaning of mutual funds.

Different kinds of mutual funds, asset management companies and their

market share, assets under management (AUM) according to different

investor classifications and geographical distribution and retail participation

in Indian market are also covered in this chapter.

Meaning of Mutual Fund

A mutual fund is an entity that collects the contributions in the form of

money from the investors and deploys it in a diversified portfolio as per the

stated investment objective. The money can be invested in different

securities and markets. The investment of a mutual fund is managed by a

professional fund manager.

History and Growth of Indian Mutual Fund Industry

The mutual fund industry saw the light of the day in the year 1963 in India

with the incorporation of Unit Trust of India (UTI) which was set up by the

Central Government. We can classify the history of Indian mutual funds

industry into four unique phases.

33

First Phase During this phase (1964-87), UTI was formed in 1963 by the

Government of India and it launched its first scheme- Unit Scheme 64 in

1964 to the general public. UTI enjoyed the monopoly status in the mutual

fund business in India till the year 1987. At the end of 1987, the total

assets managed by UTI was Rs.6,700 crores.

Second Phase During this phase (1987-1993) the Government allowed

public sector banks and financial institutions to set up mutual fund

business in India. In 1987, State Bank of India and Canara Bank

established mutual fund business in India. Punjab National bank and

Indian Bank commenced mutual fund business in 1989. BOI Mutual Fund

was established in 1990 by Bank of India, and BOB Mutual Fund was set

up in 1992 by Bank of Baroda. Subsequently Life Insurance Corporation

of India (LIC) and General Insurance Corporation of India (GIC)

established their mutual fund arms in the year 1989 and 1990 respectively.

The total value of investment in Indian mutual fund industry reached

Rs.47,000 crores at the end of 1993. During the second phase, assets

under management (AUM) in the industry have grown at a compound

annual growth rate (CAGR) of 13.07%.

Third Phase (1993-2003)-- During this phase private sector mutual funds

were allowed in India. As a result, investors in India got an opportunity to

invest in a wider range of fund families and innovative schemes. For the

34

first time in 1993, Mutual Fund Regulations were formed for all mutual

funds with exception of UTI. But now the entire mutual fund industry is

regulated by SEBI under Mutual Fund Regulations, 1996. This phase has

witnessed a gradual increase in the number of mutual fund houses in India

and many mergers and acquisitions took place. By the end this phase, the

total number of mutual funds in India has increased to 33 and the total

investment value has increased to Rs.1,21,805 crores. During this period,

mutual fund AUM in India has grown at a compound annual growth rate

(CAGR) of 9.98%.

Fourth Phasee During this phase (From February 2003) UTI Act of 1963

was withdrawn and Unit Trust of India was divided into two organizations

in the year 2003. The first one being the Specified Undertaking of UTI with

the AUM of Rs.29,835 crores. The second one is the UTI Mutual Fund that

is registered with Securities and Exchange Board of India (SEBI). With

this, the industry has now public sector, private sector and foreign players

competing with each other. All the players within the mutual fund industry

started striving for efficiency, scale economies and higher market share.

This phase has witnessed consolidation and rapid growth with many

mergers and acquisitions taking place between mutual fund houses. For

the quarter ending March 2014, there were 49 mutual fund houses

operating in India with investment value of around Rs.10.8 trillion. During

35

this phase, total investment in Indian mutual fund industry has grown at a

compound annual growth rate (CAGR) of 21.94%.

Contribution of Public Sector and Private Sector Mutual Funds

In India, mutual funds are open to both public and private sector. The

Table below shows the share of public and private sector mutual funds at

the end of May 2014. It is evident that the contribution of UTI and other

public sector mutual funds in India has gradually declined from 100% in

2003 to the present level of 17.01% of total AUM. In the mean time, private

sector mutual funds expanded in India, and they have now a sizable

market share of 82.99% at the end of May 2014.

Table 3.1

Market Share of Public and Private Sector Mutual Funds at the End of

May 20144

Sl.No. Mutual Fund AUM (Rs. in crore) Percent

1. Private Sector 8,39,107.63 82.99

2. UTI 81,036.57 8.01

3. Other Public Sector 90,957.35 9.00

4. Total Public Sector 1,71,993.92 17.01

5. Grand Total 10,11,101.55* 100.00

Source: Association of Mutual Funds in India

36

Note: *Net assets of Rs.5929.69 crores pertaining to Funds of Funds

Schemes for May 2014 is not included in the above data.

Graph 3.1

Market Share of Public and Private Sector Mutual Funds at the End of

May 2014

(Rupees in crores)

Mutual Fund Asset under Management

Mutual fund business in India has commenced in the year 1964 and

thereafter the assets under management in Indian mutual fund industry

has increased continuously and reached to the level of Rs.8,25,200 crores

in the year 2014. The total AUM in Indian mutual fund industry from

1965- 2014 is presented in the following table.

82.99

8.01 9 17.01

0 10 20 30 40 50 60 70 80 90

8,39,107.63 81,036.57 90,957.35 1,71,993.92

Private Sector UTI Other Public Sector Total Public Sector

Percent

37

Table 3.2

Assets Under Management in Mutual Funds in India

Sl. No. Year AUM (Rs. in crore)

1 1965 0

2 1987 4600

3 1993 47000

4 2000 113000

5 2002 100600

6 2004 139600

7 2006 231900

8 2008 505200

9 2010 614000

10 2012 587200

11 2014 825200


38

Graph 3.2

Growth of Assets under Management in Mutual funds in Indiaa

Market Share based on Average Assets Under management (AUM)

The table below shows Assets Managed by all the mutual fund houses for the

quarter ending 31st March, 2014.

Table 3.3

AUM of Indian Mutual Fund Industry as on 31st March, 2014

(Quarter ended average AUM rounded to the two decimal places.)

Mutual Fund House (Rs. In Crore) Percent

1 HDFC Mutual Fund 141480.78 13.09

2 ICICI Prudential Mutual Fund 127663.50 11.81

3 Reliance Mutual Fund 122068.36 11.29

0 4600 47000

113000 100600 139600

231900

505200

614000 587200

825200

1965 1987 1993 2000 2002 2004 2006 2008 2010 2012 2014

AUM (Rs. In crore)

39

4 Birla Sun Life Mutual Fund 102615.86 9.49

5 UTI Mutual Fund 83249.91 7.70

6 SBI Mutual Fund 72849.89 6.74

7 Franklin Templeton Mutual Fund 55611.15 5.14

8 IDFC Mutual Fund 45737.97 4.23

9 DSP Black Rock Mutual Fund 37482.63 3.47

10 Kotak Mahindra Mutual Fund 37445.26 3.46

11 Tata Mutual Fund 24543.84 2.27

12 Axis Mutual Fund 22508.10 2.08

13 Deutsche Mutual Fund 22507.55 2.08

14 L&T Mutual Fund 20672.71 1.91

15 Sundaram Mutual Fund 18943.56 1.75

16 L&T Mutual Fund 18255.19 1.69

17 Religare Invesco Mutual Fund 17647.43 1.63

18 JPMorgan Mutual Fund 15379.68 1.42

19 JM Financial Mutual Fund 11976.14 1.11

20 HSBC Mutual Fund 8877.88 0.82

21 Canara Robeco Mutual Fund 8785.31 0.81

22 LIC NOMURA Mutual Fund 8158.50 0.75

23 Baroda Pioneer Mutual Fund 7100.59 0.66

24 IDBI Mutual Fund 7096.73 0.66

25 Goldman Sachs Mutual Fund 6498.21 0.60

26 PRINCIPAL Mutual Fund 4753.58 0.44

27 Taurus Mutual Fund 4410.85 0.41

28 BNP Paribas Mutual Fund 3921.45 0.36

40

29 Union KBC Mutual Fund 3191.64 0.30

30 Indiabulls Mutual Fund 2905.36 0.27

31 Morgan Stanley Mutual Fund 2572.09 0.24

32 BOI AXA Mutual Fund 2519.15 0.23

33 Peerless Mutual Fund 2494.24 0.23

34 Pramerica Mutual Fund 2060.22 0.19

35 Mirae Asset Mutual Fund 1244.86 0.12

36 Motilal Oswal Mutual Fund 1047.50 0.10

37 IL&FS Mutual Fund (IDF) 792.27 0.07

38 PineBridge Mutual Fund 666.25 0.06

39 ING Mutual Fund 534.58 0.05

40 Quantum Mutual Fund 489.57 0.05

41 PPFAS Mutual Fund 478.90 0.04

42 IL&FS Mutual Fund (IDF) 414.90 0.04

43 Edelweiss Mutual Fund 379.70 0.04

44 IIFCL Mutual Fund (IDF) 313.85 0.03

45 Escorts Mutual Fund 252.86 0.02

46 IIFL Mutual Fund 202.03 0.02

47 Sahara Mutual Fund 148.19 0.01

48 Shriram Mutual Fund 29.33 0.00

49 SREI Mutual Fund (IDF) 0.00 0.00

Total 10,80,980.06


41

Number of Schemes by Investment Objective

The total number of schemes in Indian Mutual fund industry as on 31-3-

2014 was 1,638. Out of the total schemes, 777 were open-ended,796

were close-ended and 65 were interval schemes. Total Debt oriented or

income schemes were 1178 which constitutes 71.91% of the total number

of schemes. Growth/equity oriented schemes totalled 363 constituting

22.16%. Balanced schemes, ETFs, and FOFs constituted only 1.83%,

2.44% and 1.64% of the total number of schemes as on March 31st, 2014.

Table 3.4

Number of Schemes by Investment Objective as on 31-3-2014

Schemes Open-ended

Close-ended

interval Total Percent

A) Income/Debt oriented schemes

Liquid schemes 53 0 0 53 3.23

Gilt schemes 44 0 0 44 2.68

Debt schemes 259 753 65 1077 65.75

Infrastructure debt 0 4 0 4 0.00

Total (A) 356 757 65 1178 71.91

B)Growth/equity oriented schemes

ELSS 38 14 0 52 3.17

Others schemes 287 24 0 311 18.98

Total (B) 325 38 0 363 22.16

C) Balanced schemes

Total (C) 29 1 0 30 1.83

42

D) Exchange Traded Funds(ETFs)

Gold ETF 14 0 0 14 0.85

Other ETF 26 0 0 26 1.58

Total (D) 40 0 0 40 2.44

E) Funds of Funds investing Overseas(FOFs)

Total (E) 270 0 0 27 1.64

Total (A+B+C+D+E)

777 796 65 1638 100.00


Assets under Management and Folios in Various Types of Funds

Mutual fund units can be subscribed by different types of investors such as

corporate, Banks and Financial Institutions (Fis), Foreign Institutional

Investors (FIIs), High Net worth Individuals(HNIs) and retail individual

investors.

Assets under Management and Folios Liquid and Money Market

Schemes:: In liquid and money market schemes, 81.30% of AUM is owned by

corporate but their contribution to the total folios is only 8.24%. Banks and

Financial institutions own 6.33% of AUM and high net worth individuals own

9.98% of AUM in liquid and money market schemes. The share of FIIs is

meagre with 0.66% of AUM. Even if the contribution of retail investors to total

AUM in liquid and money market schemes is only 1.73%, in terms of folios

their contribution is highest with 76.94% of the total folios in this category as

on 31-3-2014. These schemes are used mostly by the companies to park

43

their short term funds for generating higher returns. Individual investors may

also invest in these schemes for meeting their short term goals as these

funds are liquid and offers higher returns compared to other similar

investments.

Table 3.5

AUM and Folios Liquid and Money Market Schemes as on 31-3-2014

Investor Classification

AUM (Rs. In Crores)

Percent No. of Folios

Percent

Corporate 108353.52 81.30 23738 8.24

Banks/Fis 8438.63 6.33 445 0.15

FIIs 876.33 0.66 59 0.02

High Networth Individuals*

13306.71 9.98 42183 14.65

Retail 2304.73 1.73 221571 76.94

Grand Total 133279.92 100.00 287996 100.00


Assets under Management and Folios Gilt Schemes

Gilt schemes are those funds which invest mainly in Government securities.

An analysis of the above table reveals that out of the total AUM, corporate

and high net worth individuals have the major share in the amount of money

invested with 58.43% and 35.26% respectively. The share of other investors

in gilt schemes is negligible. Again in terms of number of folios retail investors

44

are having a lion`s share with 84.29% of the total folios in this category even

if they hold 5.5% of total AUM in this category.

Table 3.6

AUM and Folios Gilt Schemes as on 31st March, 2014..


AUM

(Rs. in Crore) Percent

No. of Folios

Percent

Corporates 3573.03 58.43 3464 6.05

Banks/Fis 41.87 0.68 32 0.06

FIIs 7.53 0.12 2 0

High Networth Individuals

2155.96 35.26 5502 9.6

Retail 336.3 5.5 48298 84.29

Total 6114.68 100.00 57298 100.00

Grand Total 139394.61 345294


Assets under Management and Folios Debt Oriented Schemes

In debt oriented schemes, 44orporate and high net worth individuals are

having 57.12% and 34.72% of total AUM respectively. However, their

share in the total folios is only 1.8% and 9.25% respectively. Even in debt

oriented schemes, retail investors are having 88.94% of the total folios

even if their share in total AUM is only 6.66%.

45

Table 3.7

AUM and Folios Debt Oriented Scheme as on 31st March, 2014..


AUM (Rs. in Crore)

Percent No. of Folios

Percent

Corporates 263290.69 57.12 117147 1.8

Banks/Fis 4219.05 0.92 1180 0.02

FIIs 2694.74 0.58 32 0


160063.44 34.72 603232 9.25

Retail 30706.58 6.66 5800416 88.94

Total 460974.50 100.00 6522007 100.00

Grand total 600369.11 6867301


Assets under Management and Folios Equity Oriented Schemes

Equity oriented schemes are most popular among the retail mutual fund

investors and high net worth individuals with 66.51% and 21.26% of AUM in

this category. The percentage share of retail investors in the total folios in

equity oriented schemes are 98.16%. The share of non-retail investors in the

total folios is negligible. The following table shows the assets under

management and folios of all the types investors in equity oriented schemes

as on 31st March, 2014.

46

Table 3.8

AUM and Folios Equity Oriented Schemes as on 31st March, 2014..


AUM

(Rs. in crore) Percent

No. of Folios

Percent

Corporates 19029.95 9.93 196192 0.67

Banks/Fis 1255.34 0.65 1990 0.01

FIIs 3148.74 1.64 90 0


40751.78 21.26 338411 1.16

Retail 127498.09 66.51 28644263 98.16

Total 191683.90 100.00 29180946 100.00

Grand total 7,92,053.01 3,60,48,247


Assets under Management and Folios Balanced Scheme

Balanced schemes invest partly is equity and partly in debt. Out of the total

AUM of Rs.16,792.62 crore in this category, retail investors account for

Rs.9,374.93 crore (55.83%) and high net worth individuals account for

Rs.5539.36 crore (32.99%).It is to be noted that retail investor`s share is

97.53% of the total folios under this category, and the share of other

categories of investors in balanced schemes is negligible.

47

Table 3.9

AUM and Folios Balanced Scheme as on 31st March, 2014


AUM

(Rs. in crore) Percent No. of Folios Percent

Corporates 1844.83 10.99 15591 0.6

Banks/Fis 30.41 0.18 58 0

FIIs 3.09 0.02 1 0


5539.36 32.99 48786 1.87

Retail 9374.93 55.83 2548872 97.53

Total 16792.62 100.00 2613308 100.00

Grand total 808845.64 38661555


Assets under Management and Folios Gold Exchange Traded

Funds (Gold ETFs)

Gold exchange traded funds have mobilised Rs.8,676.32 crore as on 31-3-

2014 out of which Rs.3,067.14 crore (35.35%) is accounted by retail

investors. High net worth individuals account for 15.91% of AUM in this

category. Again the share of retail investors in the total folios in this

category is highest with 97.37%. Share of other categories of investors in

the total folios in gold ETF is negligible. The following table gives the

details of assets under management and folios of different types of

investors in gold ETFs

48

Table 3.10

AUM and Folios Gold Exchange Traded Funds as on 31.03.2014..


AUM


No. of Folios

Percent

Corporates 4220.83 48.65 4175 0.83

Banks/Fis 4.72 0.05 6 0

FIIs 3.14 0.04 4 0


1380.49 15.91 9030 1.8

Retail 3067.14 35.35 489398 97.37

Total 8676.32 100.00 502613 100.00

Grand total 8,17,521.96 3,91,64,168


Assets under Management and Folios ETFs other than Gold

There are many other ETFs available to Indian investors other than gold

ETF such as Nifty ETF, Junior Nifty ETF, Banking Index ETF, Nasdaq 100

ETF etc. The percentage of investment made by various categories of

investors in this category is well spread. Banks and financial institutions

own 39.92% of AUM followed by 23.74% by corporate. Retail mutual fund

investors, FIIs and HNIs own 10.81%,11.98% and 13.54% of AUM

respectively. As far as folios are concerned, 96.2% of the total folios in this

49

category are accounted by retail category and the share of other category

of investors is negligible.

Table 3.11

AUM and Folios ETFs other than Gold as on 31st March, 20144


AUM


No. of Folios

Percent

Corporates 1075.23 23.74 4511 2.23

Banks/Fis 1807.76 39.92 34 0.02

FIIs 542.6 11.98 18 0.01

High Net worth Individuals

613.21 13.54 3131 1.55

Retail 489.68 10.81 194534 96.2

Total 4528.47 100.00 202228 100.00

Grand total 8,22,050.43 3,93,66,396


Assets under Management and Folios FOFs investing Overseas

Funds of funds schemes attracted only Rs.3,192.17 crore as on 31-3-

2014. The share of HNIs in the total AUM is highest with Rs.1,813.12 crore

(56.8%). Retail category own Rs.769.74 crore (24.11%).In this category

too, retail investors account for 92.24% of the total folios.

50

Table 3.12

AUM and Folios FOFs investing Overseas as on 31st March, 2014.


AUM

(Rs. in Crore) Percent No. of Folios Percent

Corporates 608.76 19.07 1765 0.97

Banks/Fis 0.55 0.02 2 0

FIIs 0 0 0 0

High Net worth Individuals*

1813.12 56.8 12353 6.79

Retail 769.74 24.11 167894 92.24

Total 3192.17 100.00 182014 100.00


From the above table, it may be noted that out of Rs.8,25,242.60 crore AUM

in Indian mutual fund industry only Rs. 174547.2 crores was owned by

retail mutual fund investors that form just 21.15% of total AUM as on 31-3-

2014.

High net worth individuals own Rs.1813.12 crore which constitutes 56.8% of

total AUM. However, retail investors account for 92.24% of the total folios in

this category.

51

Retail Participation in India in Mutual Fundss

The contribution of retail mutual fund investors in the total folios was 96.37%

of the total folios that stood at 3,94,48,410 as on 31-3-2014. It is worth

noting here that in liquid/money market, gilt and debt oriented schemes the

percentage of investment made by retail mutual fund investors was very low

as 1.73%, 5.5% and 6.66% respectively. However, in terms of percentage of

folios in these schemes the share of retail investors is significant with

76.94%, 84.29%, and 88.94% respectively. Only in equity and balanced

schemes the percentage of AUM held by retail mutual fund investors is more

than 50%. For this reason, it is clear that equity and balanced schemes are

popular among retail investors and other schemes are popular among non-

retail investors. The following table gives the details of the participation in

various schemes by retail individual investors.

Table No.3.13

Retail Participation in Indian Mutual Fund Industry as on 31-3-2014

Schemes

AUM

(Rs. in crore) Percent Folios Percentage

Liquid/MM 2304.73 1.73 221571 76.94

Gilt 336.3 5.5 48298 84.29

Debt oriented 30706.58 6.66 5800416 88.94

52

Equity oriented 127498.1 66.51 28644263 98.16

Balanced 9374.93 55.83 2548872 97.53

Gold ETF 3067.14 35.35 489398 97.37

Other ETF 489.68 10.81 194534 96.2

FOFs 769.74 24.11 167894 92.24

Total 1,74,547.2 3,81,15,246

Grand total 8,25,242.60 3,95,48,410

Percentage 21.15 96.37


Figure 3.3

Retail Participation in Indian Mutual fund Industry as on 31-3-20144

1.73 5.5 6.66

66.51 55.83

35.35

10.81 24.11

76.94 84.29 88.94

98.16 97.53 97.37 96.2 92.24

Liquid/MM Gilt Debt oriented

Equity oriented

Balanced Gold ETF Other ETF FOFs

AUM Percent Folios Percent

53

Age-wise AUM in India

Age-wise classification of investments in Indian mutual funds reveals that in

equity schemes all the types of investors have stayed for a longer period

when compared with non-equity schemes. It may be observed here that

64.07% of the AUM investment made by corporate in equity mutual funds

stayed for more than one year whereas the same percentage among Banks

and financial institutions, FIIs, HNIs and retail investors were

26.90%,75.02%,65.09% and 79.65 % respectively. In non-equity schemes,

the percent of AUM stayed for more than one year among the above

categories of investors were 20.87%,4.91%,21.42%,36.75% and 52.03%

respectively. A glimpse of age-wise AUM is given below.

Table No.3.14 Age wise AUM as on 31-03-2014


Equity schemes Non-equity schemes

AUM <1 year (%)

>I year

(%)

AUM < 1 year

(%)

< 1 year

(%)

Corporates 22724.30 35.93 64.07 380448.58 79.13 20.87

Banks/Fis 2972.48 73.10 26.90 12192.80 95.09 4.91

FIIs 3951.63 24.98 75.02 3869.35 78.58 21.42

HNIs 47052.28 34.91 65.09 178714.43 63.25 36.75

Retail 136696.22 20.35 79.65 36621.00 47.97 52.03

Total 213396.99 611846.25

Source: Source: Association of Mutual Funds in India

54

Trends in Mutual Fund Transactions on Stock Exchangess

The following table shows the trends in mutual fund transactions on stock

exchanges from 2008-09 to 2013-14 in India.

Table No.3.15

Trends in Mutual Fund Transactions on Stock Exchangess

Year Equity Funds

(Rs. in crore)

Debt Funds

(Rs. in crore)

Total

(Rs. in crore)

2008-09 6985 81803 88787

2009-10 -10512 180558 170076

2010-11 -19802 249153 229352

2011-12 -1358 334820 333463

2012-13 -22749 473460 450711

2013-14 -21224 543247 522023

Source: Securities and Exchange Board of India

From the above table, it is clear that the net investment of equity made by

Indian mutual fund houses through the stock exchanges was negative in

all the years except 2008-09. However, the net investment in debt

securities has shown and increasing trend in all the years from 2008-09 to

2013-14. This is in line with the trend that in India the percentage of

investment by mutual funds in debt funds are more than equity funds.

55

AUM by Geography

When compared with the developed nations, the penetration of mutual

funds in India as measured by the assets under management to gross

domestic product ratio is mere 4.7 percent. The above percent is 77.0 in

the US, 41.1 in Europe, 33.6 in the UK, 12.70 in Japan and 4.60 in

China. Even Global average figure is at 34 percent. Most AMCs and

mutual fund distributors have concentrated their efforts in top 20 cities

in India and the remaining cities were neglected due to various reasons.

The share of top five cities is 72.92 percent of the total AUM in FY

2014. Mumbai only accounts for about 42.04 percent. Top 15 cities

contribute to 86.35% of the total AUM of mutual fund industry. The

balance of AUM is spread across other smaller cities in India. For this

reason, it follows that mutual funds have not sufficiently penetrated into

smaller cities and rural areas in India. It is a matter of concern that

mutual funds in India have concentrated in major cities from the point of

view of financial inclusion. The following table shows the details on

AUM by geography in Indian mutual fund industry as on 31st March,

2014.

56

Table No.3.16

AUM by Geography as on 31-3-2014

Sl.

No. Location %

Sl.

No. Location %

Sl.

No. Location %

1 Mumbai 42.04 37 Jalandhar 0.17 75 Jammu 0.06

2 Delhi 15.32 38 Ranchi 0.15 76 Gorakhpur 0.06

3 Bangalore 5.87 39 Amritsar 0.15 77 Shimla 0.06

4 Kolkatta 5.07 40 Ambala 0.14 78 Kottayam 0.06

5 Chennai 4.62 41 Visakhapatnam

0.13 79 Bellary 0.05

Top 5 72.92 42 Vijayawada 0.13 80 Gwalior 0.05

6 Pune 3.93 43 Trivandrum 0.13 81 Ajmer 0.05

7 Ahmedabad 3.31 44 Allahabad 0.13 82 Cuttack 0.05

8 Hyderabad 1.82 45 Kolhapur 0.12 83 Vasco 0.05

9 Jaipur 0.76 46 Margao 0.11 84 Bharuch 0.05

10 Baroda 0.72 47 Durgapur 0.11 85 Calicut 0.05

11 Panaji 0.61 48 Madurai 0.11 86 Salem 0.05

12 Gurgaon 0.60 49 Vapi 0.11 87 Bareilly 0.04

13 Kanpur 0.58 50 Ghaziabad 0.10 88 Asansol 0.04

14 Surat 0.57 51 Jamnagar 0.10 89 Anantapur 0.04

15 Lucknow 0.53 52 Siliguri 0.10 90 Jalgaon 0.04

Top 15 86.35 53 Moradabad 0.10 91 Aligarh 0.03

16 Chandigarh 0.51 54 Sambalpur 0.10 92 Muzaffarpur 0.03

17 Ludhiana 0.45 55 Trichur 0.10 93 Bilaspur 0.03

18 Bhubaneshwar 0.40 56 Hubli 0.09 94 Amaravanthi 0.03

57

19 Nagpur 0.39 57 Bhilai 0.09 95 Haldwani 0.03

20 Cochin 0.38 58 Faridabad 0.09 96 Shillong 0.03

21 Indore 0.35 59 Aurangabad 0.09 97 Warangal 0.03

22 Patna 0.34 60 Meerut 0.09 98 Bhagalpur 0.03

23 Guwahati 0.30 61 Anand 0.08 99 Bokaro 0.03

24 Nashik 0.29 62 Trichy 0.08 100 Kharagpur 0.02

25 Rajkot 0.29 63 Panipat 0.08 101 Hisar 0.02

26 Coimbatore 0.28 64 Mysore 0.08 102 Rajahmundry 0.02

27 Udaipur 0.28 65 Pondicherry 0.08 103 Mehsana 0.02

28 Jamshedpur 0.23 66 Dhanbad 0.08 104 Burdwan 0.02

29 Varanasi 0.20 67 Valsad 0.07 105 Guntur 0.02

30 Bhopal 0.20 68 Bhavnagar 0.07 106 Bhuj 0.02

31 Noida 0.19 69 Kota 0.07 107 Tirupati 0.02

32 Mangalore 0.19 70 Belgaum 0.07 108 Alwar 0.02

33 Jodhpur 0.18 71 Rourkela 0.07 109 Vellore 0.02

34 Dehradun 0.18 72 Navasari 0.06 110 Junagadh 0.02

35 Raipur 0.18 73 Jabalpur 0.06 111 Other cities 2.61

36 Agra 0.18 74 Patiala 0.06 Grand Total 100.00


As per a report by PwC is likely to grow at the

real GDP growth rate of 5.8% between 2007-2050.The per capita income

is expected to rise from USD 2932 in 2008 to USD 20,000 in 2050. At

present almost 50% of India`s population is under the age of 25 and the

proportion of working population to the total population is likely to increase

58

significantly in the coming decade. India has at present a middle-class

population of 25-30 crore, which is expected to be in the region of 50 crore

by 2050. For this reason, India offers immense scope for asset

management business in the days to come. Providing stock exchange

platforms for mutual fund transactions and permission by SEBI to charge

additional expenses, up to 0.30 percent, proportionate to the inflows from

places other than the top 15 cities is a step in the right direction. This may

result in increasing mutual fund penetration in India.

Key challenges

Even if the Indian mutual fund industry has grown sufficiently over the `

years, there are some key challenges.

1. Low level of customer awareness and financial literacy: Financial

literacy levels in India are very low. They do not understand even the

simple concepts such as asset allocation, risk and return, investment

objectives, portfolio diversification.

2. Limited focus to increase retail participation beyond tier two and three

towns: Most of the public and private mutual fund houses have focused

on the bigger cities due to cost efficiency. Smaller towns are grossly

neglected by them.

3. Geographical Concentration: Most Mutual funds and mutual fund

distributors concentrated their efforts only in top 20 cities and the

remaining cities were not focussed.

59

4. Lack of innovative products: Mutual funds in India have concentrated

more on products rather than the requirements of customers. Real

estate mutual funds, commodity mutual funds, hedge funds, green

funds, socially responsible funds, etc. have not yet been offered to

Indian investors.

5. Rigid fee structure and pricing: Unlike, in other countries, Indian Mutual

funds do not have the flexibility in fee and pricing decisions. Fee

charged in India is not based on performance, investment objective and

services offered.

6. Quality of distributors: India does not have many well qualified and

knowledgeable mutual fund distributors. Hence, they are not in a

position to add much value to investors.

7. Limited focus on public and private sector network of banks and

financial institutions: Banks and financial institutions with a very wide

network of branches all over the country have played a limited role in

the mutual fund business in India.

Despite the above challenges Indian mutual fund industry is set to grow at

a rapid rate due to various favourable factors such as large and growing

middle class, rising levels of per capita income, technological

advancements, investor education and financial literacy programs etc in

the years to come.

60

Chapter IV

Socio-Economic and Demographic Profile of Retail

Mutual Fund Investors

INTRODUCTION

This chapter is devoted to project the socio-economic and demographic

profile of retail mutual fund investors in Udupi District of Karnataka State of

India. The researcher has undertaken a survey on a sample of 422

respondents in Udupi district. Respondents selected in the sample were

having at least three years of investment experience in mutual funds. The

study is based on the primary data which was collected with the help of a

pretested undisguised structured questionnaire which was administered

personally by the researcher to the respondents. Some of the issues

covered in this chapter include occupation, gender, age, education,

monthly income and savings, religion, family structure and size, number of

persons earning in the family and marital status of the respondents. The

analysis of the primary data relating to socio-economic and demographic

profile is presented in this chapter.

Occupation of the Respondents

In the present study an attempt has been made to compare the

behavioural aspects of retail mutual fund investors based on three

61

occupation categories namely, business and profession, employment and

others.

Table 4.1

Classification of Respondents on the Basis of Occupation

Occupation

Occupation Category

Total Business & Profession

Employment

Others

No. % No. % No. % No. %

Agriculture 0 0.0 0 0.0 9 8.1 9 2.1

Business 50 46.7 0 0.0 0 0.0 50 11.8

Employment 0 0.0 204 100.0 0 0.0 204 48.3

Profession 57 53.3 0 0.0 0 0.0 57 13.5

Retired 0 0.0 0 0.0 64 57.7 64 15.2

Student 0 0.0 0 0.0 3 2.7 3 0.7

Home maker 0 0.0 0 0.0 35 31.5 35 8.3

Total 107 100.0 204 100.0 111 100.0 422 100.0

Source: Field survey data.

The above table shows the classification of respondents based on the

occupation of the respondents. In the present study almost half (48.3%) of

the respondents were belonging to employment category and 13.5% of the

respondents were practicing profession. 15.2% of the respondents were

retired people and the respondents running business and doing agriculture

were 11.8% and 2.1% respectively. It may be noted here that just 8.3% of

62

the respondents consisted of home makers and only 0.7% of the

respondents were students.

Occupation Categories of the Respondents

Table No.4.2

Number of Respondents in Different Occupation Categories

Occupation Category No. Percent

Business & Profession 107 25.4

Employment 204 48.3

Others 111 26.3

Total 422 100.0


The above table depicts the classification of respondents on the basis of

occupation categories. It can be seen that out of the total 422

respondents, 107 (25.4%) were belonging to the occupation category of

business and profession, 204 (48.3%) respondents were employed and

111 (26.3%) respondents were belonging to others category. Out of 107

respondents with occupation belonging to the category of business and

profession, 50 were running business and 57 were professionals. Out of

the 111 respondents belonging to the others category, 64 respondents

were retired people, 35 were home makers and 3 were students. The

63

sample for the present study includes only the respondents with a

minimum of three years of investment experience in mutual funds.

Gender of the Respondents

Investment in mutual funds can be made by both males and females.

There may be gender differences in investment decisions and patterns. In

the present study, out of 422 respondents 74.9% were males and 25.1%

were females. Among the respondents belonging to business and

profession category, males and females were 85% and 15% respectively.

In employment category the percentage of males and females were 77.9%

and 22.1% respectively whereas in others category 59.5% were males and

40.5% were females.

Table 4.3

Classification of Respondents on the Basis of Gender

Gender

Occupation Category


Employment Others

No. % No. % No. % No. %

Male 91 85.0 159 77.9 66 59.5 316 74.9

Female 16 15.0 45 22.1 45 40.5 106 25.1

Total 107 100.0 204 100.0 111 100.0 422 100.0

Source: Field survey data. ² =20.929, p=0.000<0.01, d.f=2,HS.

64

Chi square test shows that there is a significant difference between the

respondents belonging to various occupation categories with respect to

gender as p=0.0000< 0.01, HS. In business and profession and

employment occupation category the percentage of female investors were

15.0% and 22.1% respectively while it was 40.5% in case of others

occupation category.

Age of the Respondents

Age influences the attitudes of a person towards risk. People with almost

all the age groups invest in mutual funds except the people with less than

18 years due to regulatory requirements. In the present study 10, 64, 154

and 32 respondents belong to the age group of 8-25 years, 25-35 years,

35-50 years and more than 50 years respectively.

Table 4.4 Age of the Respondents

Age (years)

Occupation Category


Employment Others

No. % No. % No. % No. %

18- 25 2 1.9 6 2.9 2 1.8 10 2.4

25-35 20 18.7 39 19.1 5 4.5 64 15.2

35-50 43 40.2 90 44.1 21 18.9 154 36.5

50-65 35 32.7 64 31.4 63 56.8 162 38.4

> 65 7 6.5 5 2.5 20 18.0 32 7.6

Total 107 100.0 204 100.0 111 100.0 422 100.0

Source: Field survey data. ²=61.334, p=0.000,d.f=8,HS.

65

It is to be noted here that the maximum percentage of respondents in

business and profession and employment occupation category belong to

the age group of 35-50 years whereas in others category 56.8% of

respondent`s age lies between 50-65 years.

Chi square test shows that there is a significant difference among the


age as p=0.000<0.01, HS. In business and profession and employment

occupation category 60.80% and 66.1% of the respondents were less than

the age 50 years while it was 25.2% in others occupation category.

Religion Table 4.5

Classification of the Respondents on the Basis of Religion

Religion

Occupation Category


Employment Others

No. % No. % No. % No. %

Hindu 91 85.0 159 77.9 82 73.9 332 78.7

Christian 16 15.0 38 18.6 26 23.4 80 19.0

Muslim 0 0.0 7 3.4 3 2.7 10 2.4

Total 107 100.0 204 100.0 111 100.0 422 100.0

Source: Field survey data. Fisher`s Exact Test, p=0.136, NS.

Investment in mutual funds need not be equally popular among the

respondents belonging to different religions. From the above table it is

clear that, out of 422 respondents 332 (78.7%) belong to the Hindu

66

religion, 80 (19.0%) respondents belong to the Christianity and the remaining

10 (2.4%) respondents were Muslims. There were no respondents belonging

to the religion other than the above three.

Among the 107 respondents in business and profession category, 85% were

Hindus and remaining 15% were Christians. Out of the total 204 respondents

with employment occupation category, 77.9% were Hindus, 23.4% were

Christians and the balance 2.7% were belonging to Muslim religion. In others

occupation category,out of 111 respondents, 73.9% were belonging to the

Hindu religion, 23.4% were Christians and the remaining 2.7% were

belonging to Muslim religion.

Fisher`s Exact Test shows that there is no significant difference among the

respondents belonging to the different occupational categories with respect to

religion as p=0.136>0.05, NS.

Table 4.6

Marital Status of the Respondents

Marital Status

Occupation Category


Employment Others

No. % No. % No. % No. %

Married 90 84.1 177 86.8 102 91.9 369 87.4

Unmarried 14 13.1 24 11.8 6 5.4 44 10.4

Divorced 3 2.8 3 1.5 3 2.7 9 2.1

Total 107 100.0 204 100.0 111 100.0 422 100.0

Source: Field survey data. Fisher`s Exact Test, p=0.222, NS

67

Out of 422 respondents 87.4% of the respondents were married and

10.4% of the respondents were unmarried. The above table also reveals

that only negligible proportion of the respondents (2.1%) were married and

at present divorced. In business and profession occupation category

84.1% were married, 13.1% were unmarried and 2.8% were divorced. In

employment category 86.8% were married, 11.8% were unmarried and

1.5% were married but divorced. In others occupation category these

percentages for married, unmarried and divorced were 91.9%, 5.4% and

2.7% respectively.

Fishers Exact Test reveals that there is no significant difference among the


marital status as p= 0.222 >.0.05,NS.

Educational Qualifications

The below table shows the highest educational qualification of

respondents.It can be seen clearly from the above table that out of 422

respondents, 17 were having less than SSLC qualification, 53 respondents

were having PU qualification, 160 respondents were graduates,169

respondents were post graduates and 23 respondents were having

doctoral degrees as their highest educational qualification.

68

Table 4.7

Educational Qualifications of the Respondents

Educational Qualification

Occupation Category


Employment Others

No. % No. % No. % No. %

Less than SSLC

5 4.7 0 0.0 12 10.8 17 4.0

PU Level 18 16.8 18 8.8 17 15.3 53 12.6

Degree level 43 40.2 56 27.5 61 55.0 160 37.9

PG level 30 28.0 119 58.3 20 18.0 169 40.0

Doctorate level 11 10.3 11 5.4 1 0.9 23 5.5

Total 107 100.0 204 100.0 111 100.0 422 100.0

Source: Field survey data. ² =83.162, p=0.000, HS, d.f=8.

Among the business and profession occupation category, 40.2% were

graduates, 28.0% were post graduates, 16.8% had only PU

qualification,10.3% of the respondents were doctorates and only 4.7%

had less than SSLC qualification. In employment category majority of the

respondents (58.3%) had post graduate qualification and in other category

majority (55.0%) of the respondents were graduates.

Chi square test reveals that there is a significant difference among the


69

educational qualifications as ²=83.162, p=0.00<0.01,d.f.=8, HS. In

business and profession and employment occupation category 38.3% and

63.7% of the respondents were having post graduate or above educational

qualifications respectively whereas in case of others category 18.9% of the

respondents had post graduate or above qualifications.

Number of Children per Family

Table 4.8

Number of Children per Family

No. of Children

Occupation Category


Employment

Others

No. % No. % No. % No. %

None 20 18.7 32 15.7 12 10.8 64 15.2

One 22 20.6 73 35.8 18 16.2 113 26.8

Two 59 55.1 94 46.1 66 59.5 219 51.9

Three or more 6 5.6 5 2.5 15 13.5 26 6.2

Total 107 100.0 204 100.0 111 100.0 422 100.0

Source: Field survey data. ²=31.771,p=0.000,d.f=6,HS.

From the above table it is clear that majority of the respondents (51.9%)

had two children in their families. 26.8% of the respondents had only one

child in their families and 15.2% of the respondents did not have even one

child in their families. It is to be noted here that only 6.2% of the

70

respondents had three or more children in their families. It can be

observed here that in business and profession, employment and others

category almost half of the respondents had two children in their families.



number of children per family as p=0.000< 0.01, HS. In business and

profession and employment occupation category 5.6% and 2.5% of the

respondents were having three or more children per family respectively

whereas in case of others category it was 13.5%.

Family Structure

Table 4.9

Family Structure of the Respondents

Family Structure

Category


Employment Others

No. % No. % No. % No. %

Joint family

20 18.7 29 14.2 8 7.2 57 13.5

Nuclear family

87 81.3 175 85.8 103 92.8 365 86.5

Total 107 100.0 204 100.0 111 100.0 422 100.0

Source: Field survey data. ²=6.320,d.f.=2,p=0.042,Sig.

People can live either in joint family or in nuclear family. The joint family

system takes care of the needs of individual members in the family in case

71

of any eventualities. So, the family structure tend to influence the type of

savings, investment and protection products opted by the investors. The

above table depicts that out of the 422 respondents, 365 (86.5%)

respondents were living in nuclear families and only 57 (13.5%)

respondents were living in joint families.

It may be observed that 81.3% of the respondents belonging to the

occupation category of business and profession, 85.8% of the

respondents belonging to employment category and 92.8% of the

respondents belonging to others category were living in nuclear families.

Chi square test reveals that there is a significant difference among the

various occupational categories with respect to the family structure as ²=

6.320, p=0.042<0.05,d.f.=2,Sig. In business and profession and

employment occupation category 81.3% and 85.8% of the respondents

were living in nuclear families respectively whereas in case of others

category it was 92.8%.

Family Size

The risk tolerance of an investor depends upon various factors. One of the

important factors that determine the risk tolerance of an individual is the

no. of members in the family and the no. of dependents. People with more

number of members in the family and more dependents tend to take lower

risk in their investments.

72

Table 4.10

Family Size of the Respondents

No. of Members

Occupation Category


Employment Others

No. % No. % No. % No. %

< 2 5 4.7 8 3.9 26 23.9 39 9.3

3 36 33.6 55 27.0 16 14.7 107 25.5

4 42 39.3 89 43.6 51 46.8 182 43.3

5 13 12.1 32 15.7 8 7.3 53 12.6

>5 11 10.3 20 9.8 8 7.3 39 9.3

Total 107 100.0 204 100.0 109 100.0 420 100.0

Source: Field survey data. ²=46.931,p=o.ooo, d.f.=8, HS.

In the present study, of the 422 mutual fund investors surveyed, 12.6% of

the respondents had five members in their families, 43.3% of the

respondents had four members in their families and 25.5% of the

respondents had three members in their families. It may be noted here that

9.3% of the respondents had two or less than two members in their

families and more than five members in their families respectively.

The result of the chi square test shows that there is a significant difference

between various occupation categories with respect to family size as

p=0.000<0.01, d.f.=8, HS. In business and profession and employment

73

occupation category, 77.6% and 74.5% of the respondents were having

the family size of four or less than four members respectively whereas in

case of others occupation category it was 84.50%.

Number of Earning Members in the Family

Table 4.11

Number of Earning Members in the Family

No. of Earning

Member/s

Occupation Category


Employment

Others

No. % No. % No. % No. %

One or zero

51 47.7 84 41.2 62 55.9 197 46.7

Two 45 42.1 90 44.1 43 38.7 178 42.2

Three 3 2.8 20 9.8 6 5.4 29 6.9

More than Three

8 7.5 10 4.9 0 0.0 18 4.3

Total 107 100.0 204 100.0 111 100.0 422 100.0

Source: Field survey data. ²=16.833,d.f.=6,p=0.010,Sig.

The above table contains information about the no. of persons earning in

the family of the respondents. Out of the total 422 respondents surveyed,

197 respondents had none or one person earning in their families, 178

respondents had two persons earning in their families, 29 respondents had

74

three persons earning in their families and in 18 families there were more

than three persons earning in the family.

It is worth noting here that among the respondents belonging to the

category of business and profession, the maximum number of

respondents (47.7%) had none or one earning member in the families. In

the occupation category of employment 44.1% of the respondents had two

earning members in their families and in others category 55.9% of the

respondents had none or one earning member in their families.


various occupational categories with respect to the number of persons

earning in the family as p=0.010<0.05, d.f.=6, Sig. In business and


respondents were having two or less than two members earning in their

families respectively whereas in case of others category it was 94.60%.

Percentage of Income Saved

The following table shows the details of the percentage of income saved

per month on an average by the 422 respondents of Udupi district in

Karnataka State. It is to be noted that majority (50.5%) of the investors

saved between 15-30% of their income per month on an average and

33.6% of the respondents saved less than 15% of their income per month.

75

Table 4.12

Percentage of Income Saved per Monthh

Savings Per Month

(%)

Category


Employment Others

No. % No. % No. % No. %

< 15 39 36.4 49 24.0 54 48.6 142 33.6

15-30 51 47.7 125 61.3 37 33.3 213 50.5

30-45 12 11.2 12 5.9 19 17.1 43 10.2

> 45 5 4.7 18 8.8 1 0.9 24 5.7

Total 107 100.0 204 100.0 111 100.0 422 100.0

Source: Field survey data. ²=41.881, p=0.00,d.f=6,HS.

The percentage of investors who saved between 30-45 % and more than

45% per month were 10.2% and 5.7% respectively. In business and

profession occupation category (47.7%) and in employment category

(61.3%) maximum number of respondents saved between 15-30% of their

income per month while in others category, maximum number of

respondents (48.6%) saved less than 15% of their monthly income.

Chi square test reveals that there is a significant difference between

various occupation categories with respect to the percentage of income

saved per month as p=0.000<0.01, d.f.=6, HS. In business and profession

and employment occupation category 36.4% and 24.0% of the

respondents were saving less than 15% of their income respectively

76

whereas in case of others category it was 48.0% of the respondents who

saved less than 15% of their income.

Percentage of Savings Invested in Mutual Funds

Mutual funds are one of the avenue in which investors can park their

savings. In order to find out the proportion of savings that respondents

invest in mutual fund a question was asked and the response to this

question is presented in the following table.

Table 4.13

Percentage of Savings Invested in Mutual Funds

Savings (%)

Occupation Category


Employment Others

No. % No. % No. % No. %

< 20 89 83.2 167 81.9 74 66.7 330 78.2

20-40 18 16.8 34 16.7 34 30.6 86 20.4

40-60 0 0.0 0 0.0 3 2.7 3 0.7

>80 0 0.0 3 1.5 0 0.0 3 0.7

Total 107 100.0 204 100.0 111 100.0 422 100.0

Source: Field survey data. Fisher`s Exact Test,p=0.001,HS

From the above table it is clear that out of 422 respondents, 78.2% invest

less than 20% of their savings in mutual funds and 20.4% of the

respondents invest 20-40% of their savings in mutual funds. Percentage of

77

respondents investing 40-60% and more than 60% of their savings in

mutual funds were 0.7% each.

In business and profession occupation category, 83.2% of the

respondents have invested less than 20% of their savings in mutual funds

and 16.8% of the respondents have invested between 20%-40% of their

savings in mutual funds. There were no respondents investing more than

40% of the savings in mutual funds. In employment category 98.5% of the

respondents have invested less than 40% of their savings in mutual funds

and the balance have invested more than 40%. In others category 97.2%

of the respondents have invested less than 40% of their savings in mutual

funds and the balance have invested more than 40% of their savings in

mutual funds.

Fisher`s Exact Test reveals that there is a significant difference between

the respondents belonging to various occupational categories with respect

to the percentage of savings invested in mutual funds as

p=0.001<0.01,HS. In business and profession and employment

occupation category 83.2% and 81.9%of the respondents invest less than

20% of their savings in mutual funds respectively whereas in case of

others category it was 66.7%.

78

Share of Mutual Fund Investment out of Total Financial Assets

Investor can invest part of their savings in financial assets and the

remaining part in real assets. From the above table it is clear that out of

422 respondents, 265 (62.8%) respondents have invested less than 10%

of their total financial assets in mutual funds and 118 (28.0%) respondents

have invested between 10% and 25%. Further 36 (8.5%) respondents

have invested between 25% and 50%. Only 3 (0.7%) respondents have

invested more than 50% of their total financial assets in mutual funds.

Table 4.14

Proportion of Money Invested in Mutual Funds out of Total Financial

Assets


Percent of Total

Financial Assets

Occupation Category


Employment Others

No. % No. % No. % No. %

< 10 75 70.1 125 61.3 65 58.6 265 62.8

10-25 24 22.4 67 32.8 27 24.3 118 28.0

25-50 8 7.5 9 4.4 19 17.1 36 8.5

>50 0 0.0 3 1.5 0 0.0 3 0.7

Total 107 100.0 204 100.0 111 100.0 422 100.0

79

From the above table it is clear that among the respondents belonging to

all occupation categories, maximum number of respondents had invested

less than 10% of the total financial assets in mutual funds. In this sense,

mutual funds are not a popular avenue among the retail investors in Udupi

district.

Fisher`s Exact Test shows that the proportion of investment in mutual

funds out of the total financial assets of the respondents varies

significantly across different occupation categories as p=0.002<0.01,HS.

In business and profession and employment occupation category 7.5%

and 5.9% of the respondents have invested more than 25% of their assets

in mutual funds respectively whereas in case of others category it was

17.1%.

80

CHAPTER V

PRE PURCHASE AND POST PURCHASE BEHAVIOUR OF RETAIL

MUTUAL FUND INVESTORS

This chapter is devoted to cover the pre purchase and post purchase

behaviour of retail mutual fund investors. The behaviour of investors are

analysed by classifying the respondents according to occupation

categories. Some of the important issues relating to pre purchase

behaviour covered in this chapter include consultation and information

gathering, sources consulted, factors motivating, social beliefs,

expectation of return from different types of schemes, factors considered

while selecting the fund family, preferred time of buying the units and the

importance of items contained in the scheme information document. The

chapter also throws light on issues relating to post purchase behaviour

such as time horizon, discussion about mutual fund investment, investor`s

reaction when the unit prices suddenly rises and falls, diversification of

investment, frequency of monitoring the performance, switching behaviour

and the use of financial derivatives. The analysis of primary data relating

to pre purchase and post purchase behaviour of retail mutual fund

investors is presented below.

Knowledge about Mutual Funds

In order to find out the perception of respondents about their knowledge

about mutual funds, they were asked to rate on a scale of 1-5 where 1 is

81

very poor and 5 is very good knowledge. The level knowledge about

mutual funds among the 422 respondents was found to be low with a

mean value of 2.86 + 0.985 standard deviation.

Table 5.1

Knowledge about Mutual Funds

Occupation Category

N Minimum

Maximum

Mean Std.

Deviation Medi

an

Level of knowledge

(%)

Kruskal Wallis Test value

d.f p

value

Business & Profession

107 1 5 2.89 0.839 3.00 57.80

20.353 2 0.000

HS

Employment 204 1 5 3.04 0.920 3.00 60.80

Others 111 1 2.49 1.127 3.00 49.70

Total 422 1 5 2.86 0.985 3.00 57.10

Source: Field survey data. Kruskal-Wallis Test, p=0.000,d.f.=2,HS.

In the present study, among the 107 respondents belonging to the

category of business and profession level of knowledge was 2.89+0.839.

Level of knowledge of the 204 respondents belonging to the employment

category was highest with mean value of 3.04+ 0.920 standard deviation

whereas it was 2.49+ 1.127 standard deviation in case of respondents

belonging to others category.

Kruskal Wallis Test shows that there is a significant difference among the


the level of knowledge about mutual funds as p=0.000<0.01,d.f.=2,HS.

82

Therefore, it is clear that among all the categories of respondents,

employment category had the above average level of knowledge

compared to the respondents belonging to business and profession and

others category.

Knowledge about Mutual Fund Terminologies

Investors may or may not be aware about the various mutual fund relating

terminologies. Investors may have the knowledge or they may entirely

relay of the mutual fund distributors for taking investment decisions. The

following table shows the level of knowledge about various mutual fund

related terminologies.

Table 5.22

Level of Knowledge about Various Mutual Fund Terminologies

Category

N Mean

Std. Deviati

on

Median

Level of

knowledge (%)

Kruskal

wallis test

value

d.f

p valu

e

Net Asset Value (NAV)


107 3.12 1.079 3.00 62.40 31.69

5 2

.000 HS

Employment 204 3.35 1.283 4.00 67.00 Others 111 2.48 1.313 3.00 49.50 Total 422 3.06 1.292 3.00 61.20

Investment Objective and asset

allocation of a scheme


107 2.68 1.069 3.00 53.60 30.00

1 2

.000 HS


Entry load, Exit load


107 2.74 1.127 3.00 54.80 38.18

9 2

.000 HS

83

and Expense

ratio

Employment 204 2.87 1.186 3.00 57.40 Others 111 1.97 1.116 2.00 39.50

Total 422 2.60 1.211 3.00 52.00

Dividend option and

growth option


107 3.08 1.038 3.00 61.70 22.17

7 2

.000 HS


Benchmark of a mutual

fund scheme


107 2.39 1.155 2.00 47.90

59.930

2 .000 HS

Employment 204 2.53 1.314 2.00 50.70 Others 111 1.48 .883 1.00 29.50 Total 422 2.22 1.254 2.00 44.40

ETFs and Gold ETFs


107 2.36 1.312 2.00 47.10

30.377

2 .000 HS


Open ended and close

ended scheme


107 2.70 1.215 3.00 54.00 36.27

7 2

.000 HS


SID and offer

document


107 2.15 1.123 2.00 43.00 44.25

0 2

.000 HS


Taxation of mutual fund

returns


107 2.86 1.136 3.00 57.20

38.752

2 .000 HS


Standard deviation, beta and duration


107 1.79 .978 2.00 35.90

52.714

2 .000 HS



Respondents were asked to rate their knowledge about ten commonly

used terminologies about mutual funds on a scale of 1-5 where 1 is very

84

poor and 5 is very good. Their responses for these ten terminologies are

analysed in the following paragraphs.

Net asset Value (NAV):: From the above table, it may be observed that

the level of knowledge of the respondents was highest to Net Asset Value

(NAV) with a mean score of 3.06 with1.292 standard deviation. Among the

respondents belonging to various occupation categories, respondents

belonging to employment category had better knowledge about NAV when

compared with other categories.

Investment objective and asset allocation of the scheme:: The level of

knowledge about Investment objective and asset allocation of the scheme

among all the respondents was less than the average with a mean score

of 2.58 with1.16 standard deviation. Among the various occupation

categories, respondents belonging to employment category had better

knowledge about this terminology when compared with other categories.

Entry Load, exit load and expense ratio: Load is the charge which the

investor has to bear while buying and selling the mutual fund units. This

amount is usually used to cover selling/marketing expenses of mutual fund

distributors. The level of knowledge of the respondents about these

terminologies was found to be low with a mean score of 2.60 with 1.211

standard deviation. Among the various occupation categories,

respondents belonging to employment category had better knowledge

about these terminology when compared with other categories.

85

Dividend option and growth option:: Most mutual fund schemes offer

dividend option and growth option within a scheme. The portfolio return

would be same for the both options but the structure of cash flows would

be different for dividend and growth options. In the present study, the level

of knowledge about this aspect among the respondents was found to be

good with a mean score of 2.93 with standard deviation of 1.322. Even for

this terminology respondents belonging to employment category had

better knowledge when compared with the respondents belonging to other

categories.

Benchmark of a mutual fund: EEvery mutual fund will have a benchmark

with which its performance can be compared. The level of knowledge

about this aspect among the respondents was found to be poor with a

mean score of 2.22 with standard deviation of 1.1.254 Here also, the


about the this terminology when compared with the respondents belonging

to other categories.

ETFs and Gold ETFs:: Exchange Traded Funds (ETFs) are open ended

index funds that are traded on a stock exchange. Generally they have

lower cost when compared with the index funds. In gold ETF, the

underlying would be the physical gold. At present there are many index

based (Indian and foreign) ETFs as well as gold ETFs in India. The level of

knowledge of all the respondents to this terminology was low with a mean

86

score of 2.34 with1.318 standard deviation. Among the respondents

belonging to various occupation categories, respondents belonging to

employment category had better knowledge about this concept when


Open ended and close ended schemes: In an open ended scheme

investors can buy or sell the units from the mutual fund at any time. In

close ended funds, investors can buy the units only during the new fund

offer. Later on these funds are traded in the stock exchange. The level of

knowledge of the respondents to this terminology was low with a mean

score of 2.64 with 1.291 standard deviation. Among the respondents

belonging to various occupation categories, respondents belonging to

employment category had better knowledge about open ended and close

ended schemes when compared with the respondents belonging to other

categories.

Scheme Information Document (SID) and Offer Document: Investors

can get the information about any scheme by reading the SID and offer

documents. The level of knowledge of the respondents to this terminology

was very low with a mean score of 1.99 with 1.120 standard deviation.

Among the respondents belonging to various occupation categories,


about SID/offer document when compared with the respondents belonging

to other categories.

87

Taxation of mutual fund returns: Mutual fund returns are taxed as per

Income Tax Act in India. The level of knowledge about tax aspects of

mutual fund investment among the respondents was good with a mean

score of 2.76 with a standard deviation of 1.285. Respondents belonging

to employment occupation category had a better knowledge about taxation

of mutual fund returns when compared to the respondents belonging to

business and profession and others category.

Risk measures such as standard deviation, beta and duration:: These

are different measures of risk. Generally investors compare the returns

from various mutual funds and ignore the risk. In the present study the

respondents had very poor knowledge about the risk measures such as

standard deviation, beta and duration. The mean score for this factor was

1.70 with a standard deviation of 1.014. Even in this case, the level of

knowledge of respondents belonging to employment category was higher

than the respondents belonging to business and profession and others

category.


Knowledge about mutual fund may influence the behaviour of investors. In

order to measure the level of knowledge about various terminologies,

respondents were asked to rate 10 mutual fund related terms on a scale of

1-5 (1=very poor and 5= very good).

88

Table 5.3


Terminology N Mean Std.

Deviation Median

Level of knowledge

(%)

Friedman Test

d.f

p valu

e

Net Asset Value (NAV)

422 3.06 1.292 3.00 61.20

774.978

9 .000

HS

Investment objective and asset allocation

422 2.58 1.160 3.00 51.60

Entry load, exit load and expense ratio

422 2.60 1.211 3.00 52.00

Dividend option and growth option

422 2.93 1.322 3.00 58.70

Benchmark of a mutual fund scheme

422 2.22 1.254 2.00 44.40

ETFs and gold ETFs 422 2.34 1.318 2.00 46.80

Open ended and close ended scheme

422 2.64 1.291 3.00 52.80

SID and offer document

422 1.99 1.120 2.00 39.70

Taxation of mutual fund returns

422 2.76 1.285 3.00 55.20

Standard deviation, beta and duration

422 1.70 1.014 1.00 34.00


The mean score of all the respondents to these terms ranged from 1.70

being lowest and 3.06 being highest. The median score ranged from 1-3

for the various terms. Overall the level of knowledge of investors was poor

as most of the terms got a mean score of less than 3. Therefore, mutual

fund investors are not having sufficient knowledge about mutual funds and

89

rely on the information provided by the mutual fund distributor for taking

investment decisions.

Friedman test reveals that there is a significant difference in the level of

knowledge about the various mutual fund terminologies among

respondents as p=0.000<0.01, d.f.=9,HS. Therefore, investors have better

knowledge on NAV and dividend option and growth option and poor

knowledge about scheme information document/ offer document and

measures of risk such as standard deviation, beta and duration.

Consultation with Experts

Retail investors generally do not have enough knowledge and expertise to

invest directly in to mutual funds and hence they tend to consult some

outside experts before making investment decisions. The following table

shows the details about the same.

Table 5.4

Consultation with Experts by Mutual Fund Investors

Consultation

Occupation Category


Employment Others

No. % No. % No. % No. %

Yes 66 61.7 159 77.9 94 84.7 319 75.6

No 41 38.3 45 22.1 17 15.3 103 24.4

Total 107 100.0 204 100.0 111 100.0 422 100.0

Source: Field survey data. ²=16.805,d.f.=2,p=0.000,HS.

90

From the above table it is clear that, out of 422 respondents, 319 (75.6%)

do consult experts before making investment decision and only 24.4% of

the respondents have indicated that they do not consult investment

advisors or mutual fund distributors. Higher percentage of respondents in

others category consult investment advisors (84.7%) when compared with

the respondents belonging to business and profession (61.7%) and

employment category (77.9%).

The statistical test shows that there is significant variation among the

respondents belonging to different occupation categories with regard to

the behaviour of consulting others before taking investment decisions as

p=0.000< 0.01,HS. So the respondents belonging to others category

consult financial advisors more than the respondents belonging to

business and profession and employment.

Sources Consulted for Investment Decision Making

Generally investors do not take investment decisions themselves but do

consult some sources/ experts before buying and selling mutual funds.

The following table shows the sources consulted by the respondents for

taking mutual fund investment decisions.

91

Table 5.5

Sources Consulted by the Respondents


In the present study, out of 422 respondents 319 respondents do consult

some experts before taking investment decisions and the balance 103

respondents do not consult experts for investment decision making. They

take investment decision without the help of any outside sources. It is to

be noted here that out of 319 respondents who consult some

sources/experts, 80.3% of the respondents had indicated that they consult

mutual fund advisors before taking investment decisions. 39.5% of the

respondents consult stock brokers who buy and sell mutual funds on

Source Consulted


(n=66)

Employment

(n=159)

Others

(n=94)

Total

(n=319)

No. % No. % No. % No. %

Mutual fund advisor

48 72.7 127 79.9 81 86.2 256 80.3

Stock broker 31 47.0 64 40.3 31 33.0 126 39.5

Friends 25 37.9 64 40.3 18 19.1 107 33.5

Relatives 3 4.5 19 11.9 3 3.2 25 7.8

Religious guru

3 3.2 3 0.9

Spouse 8 12.1 20 12.6 22 23.4 50 15.7

Family members

15 9.4 9 9.6 24 7.5

Media (TV, Radio,

Newspaper and internet)

24 36.4 63 39.6 26 27.7 113 35.4

92

behalf of investors, 35.4% of the respondents consult the media such as

TV, Radio, internet and newspapers, 33.5% of the investors consult their

friends, 15.7% of the investors consult their spouse, 7.5% of the

respondents consult their family members and only 0.9% of the

respondents consult their religious guru with whom they have faith.

H1: Mutual fund investors tend to rely on the information provided by the

mutual fund advisors.

The statistical test shows that there is a significance difference between

the various sources consulted by the respondents for taking investment

decision as p=0.000<0.01, d.f=7,HS. Therefore, the above hypothesis is

accepted. Out 319 respondents who consult experts, 80.3% of the

respondents consult mutual fund advisors, 39.5% of the respondents

consult stock brokers and 33.5% of the respondents consult their friends.

There are many respondents consulting more than one source. The

percentages of respondents consulting sources other than the above three

sources are negligible.

The Person Taking the Investment Decision for the Respondents

Retail investors may make investment decisions themselves with or

without consulting outside experts while buying and selling the units of

mutual funds. The following table gives the details about the person taking

the investment decisions for the respondents.

93

Table 5.6

The Person Taking the Investment Decision

Decision Maker

Occupation Category


Employment Others

No. % No. % No. % No. %

Self 70 65.4 101 49.5 53 47.7 224 53.1

Spouse 5 2.5 11 9.9 16 3.8

Jointly with the spouse

8 7.5 20 9.8 20 18.0 48 11.4

Jointly in consultation with an

outside expert 20 18.7 46 22.5 2 1.8 68 16.1

Outside expert/ MF advisor/Stock broker

15 14.0 40 19.6 28 25.2 83 19.7


It is evident from the above table that majority of investors (53.1%) take

decisions to buy and sell mutual fund units themselves. Further 19.7% of

the respondents depend on outside experts like brokers, advisors etc for

taking investment decisions while buying and selling mutual fund units.

Only 3.8% of the respondents depend entirely on their spouse to take

decisions and 11.4% of the respondents sit with their spouse and jointly

take investment decisions. There are 16.1% of the respondents who take

investment decision jointly with the help of outside experts. It is to be noted

94

here that in all occupational categories maximum number of respondents

take decisions themselves.

Encouragement from Spouse

People generally discuss the matters relating to investment with their

spouse. In order to find out whether the respondents are encouraged by

their spouse to invest in mutual funds, a question was asked in the

questionnaire and the following table gives the summary of the same.

Table 5.7

Encouragement from Spouse

Encouragement

Occupation Category


Employment Others

No. % No. % No. % No. %

Yes 62 66.7 99 55.0 73 69.5 234 61.9

No 31 33.3 81 45.0 32 30.5 144 38.1

Total 93 100.0 180 100.0 105 100.0 378 100.0

Source: Field survey data. ²=7.118,p=0.028<0.05,d.f.=2,Sig.

From the above table it is clear that out of the 422 respondents, 61.9%

respondents are encouraged by their spouse to invest in mutual funds and

38.1% of the respondents` spouse did not encourage. It can be observed

from the data that the encouragement received from their spouse was low

in case of respondents belonging to employment category compared to

95

the respondents belonging to business and profession and others

category.

Chi square test shows that there is a significant difference between

different occupation categories with regard to the encouragement received

by the respondents from their spouse as p=0.028<0.05,d.f.=2,Sig.

Reason for not Receiving Encouragement from the Spouse

The following table gives the information about the reasons for not receiving encouragement.

Table 5.8

Reasons for Not Receiving Encouragement from the Spouse


(n=31)

Employment (n=81)

Others(n=32) Total(n=144)

No. % No. % No. % No. %

Higher uncertainty of future return

(Risk) 21 67.7 60 74.1 21 70.0 102 71.8

Lower return 8 25.8 41 50.6 9 30.0 58 40.8 Losses suffered earlier in mutual

funds/shares 20 64.5 37 45.7 18 60.0 75 52.8

Lack of understanding of

mutual fund products

10 32.3 45 55.6 15 50.0 70 49.3

Better investment opportunity with

higher return 6 19.4 10 12.3 6 20.0 22 15.5

Other 2 6.5 6 7.4 6 20.0 14 9.9


96

In the present study, 144 respondents did not receive encouragement from

their spouse to invest in mutual funds. From the above table it can

observed that out of a total of 144 respondents who did not receive

encouragement from their spouse to invest in mutual funds, 71.8% of the

respondents` spouse did not encourage due to their perception of higher

risk involved in mutual funds. 52.8% of the respondents` spouses did not

encourage due to the losses suffered by them in the past in mutual funds.

49.3% of the spouses did not encourage due to lack of understanding the

mutual fund product, 40.8% of the spouses did not encourage due to lower

return potential of mutual fund products and only 15.5 % of the souses did

not encourage due to better investment opportunities available to them

when compared with the investment in mutual funds. Better investment

opportunity means an investment option with higher return for the same

level risk or same return with lower levels of risk. Only 9.9% of the

respondents` spouses have not encouraged investment in mutual funds

due to other reasons not mentioned above.

Expectation of Returns from Various Types of Funds

The researcher was interested in knowing the expectation of return per

annum of retail mutual fund investors from various types of mutual fund

schemes that they can invest in to. The following table contains the return

expected by the respondents from various types of mutual funds.

97

Table 5.9

Expected Return from Various Types of Fundss

Percent

Equity oriented

fund

Balanced

Fund

Debt oriented funds

Money market mutual funds

Gold Exchange traded funds

No. % No. % No. % No. % No. %

<6 8 1.9 7 2.9 12 6.3 86 47.5 5 2.6

6 -9 11 2.6 25 10.5 98 51.6 38 21.0 10 5.1

9-12 44 10.5 117 49.0 53 27.9 20 11.0 38 19.4

12-15 189 45.2 48 20.1 18 9.5 19 10.5 74 37.8

15-18 79 18.9 33 13.8 5 2.6 11 6.1 26 13.3

>18 87 20.8 9 3.8 4 2.1 7 3.9 43 21.9

Total 418 100.0 239 100.0 190 100.0 181 100.0 196 100.0


From the above table, it can be seen that out of 418 respondents who

answered this question 45.2% of the respondents expect 12-15% return

from equity oriented schemes. The percentage of respondents expecting

return between 9-12% and 15-18% are 10.5% and 18.9% respectively. It is

to be noted here that 20.8% of the respondents expect more than 18%

return from equity oriented schemes over a long period of time.

In case of debt oriented mutual funds schemes, the majority (51.6%) of the

respondents expect return between 6-9% p.a.

Investors were expecting higher return from gold exchange traded fund as

the gold has recently delivered higher return (2005-2012). It can be

98

observed that 37.8% of the respondents expect 12-15% return from gold in

the long run and 21.9% of the respondents expect more than 18% return

from gold exchange traded funds.

It is worth noting here that the return expected by the respondents from

various types of funds depends to some extent on the recent performance

and return produced by those funds.

Expectation of Returns from Different Types of Mutual Funds

According to Occupation Categories

Table 5.10

Expectation of Returns from Different Types of Mutual Funds

According to Occupation Categories

Category Return

(%)

Equity oriented

fund

Balanced fund

Debt oriented

funds

Money Market

mutual fund

Gold Exchange traded

No % No.

% No % No % No %

Business &

Profession

< 6 0 .0 0 .0 2 3.8 15 28.3 0 .0

6 -9 5 4.9 5 7.5 24 45.3 19 35.8 0 .0

9-12 15 14.6 36 53.7 19 35.8 9 17.0 12 23.1

12-15 40 38.8 14 20.9 5 9.4 7 13.2 22 42.3

15-18 25 24.3 12 17.9 3 5.7 0 .0 7 13.5

> 18 18 17.5 0 .0 0 .0 3 5.7 11 21.2

Total 103 100.0 67 100.0 53 100.0 53 100.0 52 100.0

99

Employment

< 6 2 1.0 4 3.4 7 8.2 36 45.6 2 2.2

6 -9 6 2.9 14 12.0 39 45.9 16 20.3 4 4.3

9-12 13 6.4 49 41.9 25 29.4 8 10.1 16 17.4

12-15 95 46.6 28 23.9 10 11.8 7 8.9 37 40.2

15-18 41 20.1 15 12.8 0 .0 8 10.1 9 9.8

>18 47 23.0 7 6.0 4 4.7 4 5.1 24 26.1

Total 204 100.0 11

7 100.0 85 100.0 79 100.0 92 100.0

Others

<6 6 5.4 3 5.5 3 5.8 35 71.4 3 5.8

6 -9 0 .0 6 10.9 35 67.3 3 6.1 6 11.5

9-12 16 14.4 32 58.2 9 17.3 3 6.1 10 19.2

12-15 54 48.6 6 10.9 3 5.8 5 10.2 15 28.8

15-18 13 11.7 6 10.9 2 3.8 3 6.1 10 19.2

>18 22 19.8 2 3.6 0 .0 0 .0 8 15.4

Total 111 100.0 55 100.0 52 100.0 49 100.0 52 100.0


Respondents were asked to state the expected return from mutual funds in

the long run for various types of mutual funds schemes. In the present

study, all the respondents did not indicate the expected return for all the

types of mutual fund schemes. In the following few paragraphs, an

analysis has been made based on the response of the respondents to this

question.

Among the respondents in the category of business and profession, for

equity oriented schemes none of them expect below 6% return, 4.9% of

100

the respondents expect between 6-9% return, 14.6% of the respondents

expect between 9-12% return, 38.8% of the respondents expect between

12-15% return, 24.3% of the respondents expect 15-18% return and

17.5% of the respondents expect above 18% return per annum.

In employment category 46.6% of the respondents expect 12-15% return

from equity oriented funds, 43.1% expect more than 15% return and

10.3% of the respondents expect less than 12% return.

In respondents belonging to others category, 48.6% expect 12-15% return

from equity oriented mutual fund schemes. 31.5% of the respondents in

this category expect more than 15% return and 19.8% of the respondents

expect less than 12 % return from equity oriented scheme.

The expectation of return from balanced mutual funds by the respondents

was less than the equity oriented mutual funds. This is in line with the

potential of these funds to generate returns. It may be noted here that

53.7% of the respondents from business and profession category, 41.9%

of the respondents in employment category and 58.2% of the respondents

in others category expect 9-12% return from balanced mutual fund

schemes in the long run.

The return expected by the respondents from debt oriented mutual fund

schemes was less when compared with other types of schemes. 45.3 % of

101

the respondents from business and profession category, 45.9% of the

respondents from employment category and 67.3% of the respondents

from others category expect 6-9% return from debt oriented mutual fund

schemes.

The return expected by the respondents from money market mutual fund

schemes was lowest. From the field survey results, it can be observed that

28.3% of the respondents from business and profession,45.6% of the


from others category expect less than 6% return from money market

mutual fund schemes.

higher than the long run returns of gold in India. This may be due to the

fact that the gold has given higher return in the recent past. Investors tend

to believe that recent past performance is likely to continue in the future.

17.5% of the respondents expect 12-15% return from gold exchange trade

funds. Only 9% of the respondents expect a return of 9-12% return from

gold exchange traded funds and 6.1% of the respondents expect 15-18%

return from this type of fund.

Factors Motivated to Invest in Mutual Funds

In the present study, respondents were asked to rank on a scale 1-7 the

factors that motivated them to invest in mutual funds.(Rank 1=most

102

important and rank 7=least important) The following table gives the details

of the factors that motivated to respondents belonging to business and

profession occupation category.

Respondents were given seven factors that may motivate them to invest in

mutual funds. Respondents were then asked to rank these factors on the

basis of importance of these factors. It can be seen from the table below

that 62.6% of the respondents gave first rank to professional management

in mutual funds that motivated them most to invest in mutual funds. 10% of

the respondents gave second rank, 10.4% gave third rank, 8.8% gave 4

fourth rank, 3.6% gave fifth rank, 2.8% gave sixth rank and 1.9% gave

seventh rank for professional management as a factor that motivated them

to invest in mutual funds. It is to be noted here that the maximum number

of respondents had given first rank to professional management as a

motivating factor to invest in mutual funds.

Table 5.11 shows the factors motivated the retail mutual fund investors to

invest in mutual funds.

103

T

ab

le 5

.11

Fa

cto

rs M

oti

vate

d t

o I

nve

st

in M

utu

al

Fu

nd

ss

Ra

nk

1

2

3

4

5

6

7

To

tal

To

tal

Fac

tors

N

o.

%

No

. %

N

o.

%

No

. %

N

o.

%

No

. %

N

o.

%

No

. %

Pro

fess

ion

al

Ma

na

ge

me

nt

in

the

mu

tua

l fu

nd

26

4

62

.6

42

1

0.0

4

4

10

.4

37

8

.8

15

3

.6

12

2

.8

8

1.9

4

22

1

00

.0

Div

ers

ifica

tion

an

d

risk

red

uct

ion

be

nef

it of

mut

ua

l fu

nd

4

7

11

.1

21

1

50

.0

76

1

8.0

5

5

13

.0

10

2

.4

11

2

.6

12

2

.8

42

2

10

0.0

Ta

x b

en

efit

in th

e m

utu

al f

un

d

67

1

5.9

5

2

12

.3

44

1

0.4

2

3

5.5

4

1

9.7

2

8

6.6

1

67

3

9.6

4

22

1

00

.0

No

em

otio

na

l in

volv

em

en

t 5

1

.2

16

3

.8

29

6

.9

47

1

1.1

4

1

9.7

1

71

4

0.5

1

13

2

6.8

4

22

1

00

.0

Co

nve

nie

nt

op

tion

s 0

.0

3

4

8.1

4

5

10

.7

33

7

.8

18

7

44

.3

85

2

0.1

3

8

9.0

4

22

1

00

.0

La

ck o

f tim

e to

ma

nag

e in

vest

me

nts

1

2

2.8

2

1

5.0

5

0

11

.8

16

5

39

.1

79

1

8.7

7

7

18

.2

18

4

.3

42

2

10

0.0

La

ck o

f e

xpe

rtis

e to

inve

st in

eq

uity

2

7

6.4

4

6

10

.9

13

4

31

.8

62

1

4.7

4

9

11

.6

38

9

.0

66

1

5.6

4

22

1

00

.0

So

urc

e: F

ield

su

rve

y d

ata

.

104

Mutual funds also help investors to reduce the unsystematic risk through

portfolio diversification that cannot be easily achieved by the retail

investors if they invest directly in shares. From the field data it is evident

that 11.1% gave first rank, 50.0% gave second rank, 18.0% gave third

rank, 13.0% gave forth rank, 2.4% gave fifth rank, 2.6% gave sixth rank

and 2.8% of the respondents gave seventh rank to this factor as a

motivating factor.

Tax benefit may be motivating factor for those who pay taxes. In the

present study,15.9% of the respondents gave first rank this factor. 12.3%,

10.4%,5.5%, 9.7%,6.6% and 39.6% of the respondents gave second, third,

fourth, fifth, sixth and seventh rank respectively for this factor.

Factors like no emotional involvement, options, lack of time and lack of

expertise were not most motivating factors for most of the respondents.

Garret`s Mean Score for the Factors Motivating Mutual Fund

Investors

Analysis of Garret`s mean score for various factors motivating mutual fund

investors is presented in the following table.

An analysis of the factors that motivated retail mutual fund investors

reveals that professional management was the most important factor that

motivated the investors to invest in mutual funds as it has a Garret`s mean

score of 68.74. Investors are also motivated to invest in mutual funds due

to the benefit of portfolio diversification. This factor got a mean score of

105

61.21 and resulted in the second most important motivating factor for retail

mutual fund investors. Lack of expertise to invest in equity was the third

important motivating factor. Lack of time, tax benefits of mutual funds,

convenient options and no need of emotional involvement were other

factors motivating retail mutual fund investors to invest in mutual funds.

Table 5.12

Garret`s Mean Score for the Factors Motivating Mutual Fund Investors

Factors

Category

Total Others Employment


Garret`s Mean Score

Rank Garret`s

Mean Score

Rank Garret`s

Mean Score

Rank Garret`s

Mean Score

Rank

Professional Management in the

mutual fund 71.33 1 66.82 1 69.69 1 68.74 1

Diversification and risk reduction benefit

of mutual fund 62.05 2 61.71 2 59.37 2 61.21 2

Tax benefit in the mutual fund

34.53 7 47.74 4 48.65 3 44.50 5

No emotional involvement

36.82 6 37.11 7 37.89 7 37.23 7

Convenient options 46.24 5 42.21 6 43.11 6 43.50 6

Lack of time to manage investments

49.50 4 46.05 5 47.39 4 47.30 4

Lack of expertise to invest in equity

51.53 3 50.36 3 45.89 5 49.53 3


106

Social Beliefs of Investors while Buying and Selling of Mutual Funds

Investors may have various social beliefs, and such beliefs may influence the

investment behaviour. In the present study, 4.0% of the respondents have beliefs

in horoscope/astrology and use them for taking investment decisions. 6.6% of the

respondents have belief in good and auspicious days, and they buy or sell

mutual funds on these days. Respondents using palmistry for taking investment

decisions are 9.2%.It is worth noting here that 82.2% of the respondents do not

have any belief in horoscope, astrology, palmistry and do not look for good and

auspicious days for investing. The following table gives the details of the social

beliefs present in the respondents under study.

Table 5.13

Social Beliefs of Mutual Fund Investors

Social Beliefs

Occupation Category

Total Business &

Profession Employment Others

No. % No. % No. % No. %

Horoscope/astrology

Good and auspicious days

Palmistry/ Other beliefs

None of the above

2 1.9 13 6.4 2 1.8 17 4.0

16 15.0 9 4.4 3 2.7 28 6.6

22 20.6 14 6.9 3 2.7 39 9.2

69 64.5 175 85.8 103 92.8 347 82.2


107

Information Sources about Mutual Funds

Investors use various sources of information about mutual funds for the purpose

for taking investment decisions. The following table gives information about the

sources of information used by mutual fund investors.

Table 5.14

Information Sources about Mutual Funds

Sources


Employment Others Total

No. % No. % No. % No. %

Print 57 53.3 153 75.0 79 71.2 289 68.5

Television 53 49.5 110 53.9 65 58.6 228 54.0

Internet 45 42.1 102 50.0 21 18.9 168 39.8

Other 12 11.2 13 6.4 24 21.6 49 11.6


From the field data, it is clear that 68.5% of the respondents use mainly print

media to get information about mutual funds. 54.0% of the respondents watch

television for the purpose of getting information and 39.8% of the respondents

use the internet for accessing the information about mutual funds. Only 11.6% of

the respondents use a media other than the above three medias.

108

Use of Borrowed Funds for Mutual Fund Investment

Investors can use their money for investing in mutual funds or borrow

money from various sources and then invest in mutual funds and construct

a leveraged portfolio. In a bullish market, such a strategy would magnify

the return to the investors. The following table shows the number of

respondents using borrowed funds for investment purposes.

Table 5.15 Use of Borrowed Funds for Mutual Fund Investment

Source: Field survey data. ²=1.287,d.f.=2,p=0.526>0.05,NS.

In the present study 86.3% of the respondents have not used borrowed

money for investing in mutual funds and the balance 13.7% have used

borrowed money to invest in mutual funds at some point in time in the past.

Chi-square test reveals that there is no significant difference between

various occupation categories with respect to the borrowing money for

investment purposes as p=0.526 >0.05, d.f.=2, NS.

Factors Considered while Selecting the Fund Family

Funds Borrowed

Category


Employment Others

No. % No. % No. % No. %

Yes 18 16.8 27 13.2 13 11.7 58 13.7

No 89 83.2 177 86.8 98 88.3 364 86.3

Totall 107 100.0 204 100.0 111 100.0 422 100.0

109

Investors consider various factors while choosing a fund family. The

importance given to various factors by different mutual fund investors need

not be the same. While some investors give more importance to past

performance others consider reputation of the sponsor. There are some

investors who give importance to fees and expenses of the mutual fund.

Variety of schemes offered and size of the fund are some other factors

considered at the time of investment

Table 5.16

Factors Considered while Selecting the Fund Family

Factors

Occupation Category

Total Business &

Profession

Employment

Others

No. % No. % No. % No. %

Past performance 97 90.7 173 84.8 108 97.3 378 89.6

Variety of schemes 17 15.9 42 20.6 18 16.2 77 18.2

Bigger size of the fund house

27 25.2 87 42.6 63 56.8 177 41.9

Reputation of the sponsor 50 46.7 113 55.4 77 69.4 240 56.9

Low fund expenses 28 26.2 58 28.4 24 21.6 110 26.1


In the present study, 89.6% of the respondents do consider past

performance of the mutual fund before investing. Reputation of the

sponsor is next important factor considered with 56.9% of the respondents

110

considering it. 41.9% respondents consider size of the mutual fund house

while selecting the fund house. Investors who consider variety of schemes

offered and low expenses are 18.2% and 26.1% respectively.

Individual mutual fund investors give importance to past performance while

investing. Regulation in India requires the mutual fund house to plaster on

the cover of every prospectus and advertisement material that past

performance is no guarantee of future performance. Even advertisers

spend a lot of money on a mutual fund product that has the good recent

past performance as it is likely to generate a lot of interest among the

investors. In order to know the importance of various factors and the

relative importance of each factor to investors while selecting the fund

family, an effort is made in the present study. From the field data, it is clear

that most of the respondents (97.3%) in others category consider past

performance of the fund while selecting the fund family while investing in

mutual funds. Majority of the respondents in others category consider size

of the fund (56.8%) and reputation of the sponsor (69.4%) while selecting

the fund family. These percentages are higher than the percentages

applicable to the respondents belonging to business and profession and

employment category.

H2: Mutual fund investors tend to take investment decisions on the basis of

past performance of the mutual fund scheme

111

The result of the statistical test shows that there is a significant difference

to the importance given by the investors to various factors while selecting a

fund house as p=0.000<0.01, HS. As 89.6% respondents consider past

performance while investing in mutual funds, the above hypothesis is

accepted.

Preferred Time of Buying Mutual Fund Units

Investors can buy the mutual fund units either during New Fund Offer

(NFO) or afterwards at on-going prices. Some investors may buy the units

during NFO and subsequently accumulate more units by buying them at

on-going prices.

Table 5.17

Preferred Time of Buying Mutual Fund Units

Time

Occupation Category


Employment Others

No. % No. % No. % No. %

During NFO only at face value

22 20.6 45 22.1 11 9.9 78 18.5

After NFO at ongoing prices

22 20.6 59 28.9 48 43.2 129 30.6

Both the above 63 58.9 100 49.0 52 46.8 215 50.9

Total 107 100.0 204 100.0 111 100.0 422 100.0

Source: Field survey data. ²=17.431,d.f.=4,p=0.002,HS.

112

Of the 422 respondents majority (50.9%) do purchase the mutual fund

units both during New Fund Offer as well as at ongoing prices based on

net asset value. 30.6% of the respondents buy the units after the NFO at

the ongoing prices. Only 18.5% of the respondents buy the units only

during the NFO period at the face value.

As per the chi-square test, there is a significant difference among various

occupation categories with respect to the preferred time to buy the mutual

fund units as p=0.002<0.01, HS. It is evident that the percentage of

respondents who prefer to buy mutual funds units during NFO is higher in

respondents belonging to business and profession and employment when

compared with the respondents belonging to others category.

Objective of Investing in Mutual Funds According to Occupation

Categories

From the table below, it is evident that 72. 9%, 66.7% and 91.0% of the

respondents belonging to the occupation category of business and

profession, employment, and others respectively invested in mutual funds

mainly with the object of earning a higher return. Liquidity and safety were

other important objectives of investing in mutual funds by the respondents.

Regular income, tax savings, and convenience were not important

objective of investing in mutual funds.

113

Ta

ble

5.1

8

Ob

jec

tive

of

Inve

sti

ng

in

Mu

tua

l F

un

ds

Ac

co

rdin

g t

o O

cc

up

ati

on

Ca

teg

ori

es

Ca

teg

ory

R

ank

1 R

ank

2 R

ank

3 R

ank

4 R

ank

5 R

ank6

T

ota

l

No

%

N

o.

%

No

. %

N

o.

%

N o.

%

N o.

%

No

. %

Bu

sin

ess

&

Pro

fess

ion

Hig

he

r e

xpe

cte

d r

etu

rn

78

72

.9

11

10

.3

7

6.5

5

4

.7

6

5.6

0

.0

1

07

10

0.0

Liq

uid

ity (

con

vers

ion

into

ca

sh q

uic

kly)

8

7

.5

37

34

.6

27

25

.2

22

20

.6

7

6.5

6

5

.6

10

7

100.

0 S

afe

ty

or

low

er

risk

10

9

.3

23

21

.5

27

25

.2

10

9

.3

21

19

.6

16

15

.0

10

7

100.

0 R

eg

ula

r in

com

e

0 .0

1

2

11.2

7

6

.5

18

16

.8

20

18

.7

50

46

.7

10

7

100.

0 T

ax

savi

ngs

(E

LS

S

Sch

eme

) 5

4.7

1

7

15.9

1

0

9.3

2

8

26.2

2

6

24.3

2

1

19.6

1

07

10

0.0

Co

nve

nie

nce

8

7.5

9

8

.4

31

29

.0

22

20

.6

25

23

.4

12

11

.2

10

7

100.

0

Em

plo

yme

nt

Hig

he

r e

xpe

cte

d r

etu

rn

136

66.7

2

8

13.7

2

0

9.8

5

2

.5

5

2.5

1

0

4.9

2

04

10

0.0

Liq

uid

ity (

con

vers

ion

into

ca

sh q

uic

kly)

3

1.5

7

7

37.7

7

2

35.3

2

3

11.3

1

8

8.8

1

1

5.4

2

04

10

0.0

Sa

fety

o

r lo

we

r ri

sk

26

12.7

5

7

27.9

5

5

27.0

4

1

20.1

1

8

8.8

7

3

.4

20

4

100.

0 R

eg

ula

r in

com

e

2 1

.0

6

2.9

2

1

10.3

2

6

12.7

5

1

25.0

9

8

48.0

2

04

10

0.0

Ta

x sa

vin

gs (

EL

SS

S

chem

e)

29

14.2

2

1

10.3

1

7

8.3

3

3

16.2

6

6

32.4

3

8

18.6

2

04

10

0.0

Co

nve

nie

nce

11

5

.4

16

7

.8

20

9

.8

73

35

.8

45

22

.1

39

19

.1

20

4

100.

0

Oth

ers

Hig

he

r e

xpe

cte

d r

etu

rn

101

91.0

1

0

9.0

0

.0

0

.0

0

.0

0

.0

1

11

10

0.0

Liq

uid

ity (

con

vers

ion

into

ca

sh q

uic

kly)

3

2.7

4

1

36.9

4

2

37.8

1

9

17.1

3

2

.7

3

2.7

1

11

10

0.0

Sa

fety

o

r lo

we

r ri

sk

1 .9

4

7

42.3

3

9

35.1

1

4

12.6

4

3

.6

6

5.4

1

11

10

0.0

Re

gu

lar

inco

me

3

2.7

1

.9

1

.9

1

6

14.4

4

9

44.1

4

1

36.9

1

11

10

0.0

Ta

x sa

vin

gs (

EL

SS

S

chem

e)

0 .0

2

1

.8

9

8.1

6

5

.4

39

35

.1

55

49

.5

11

1

100.

0 C

on

ven

ien

ce

3 2

.7

10

9.0

20

18

.0

56

50

.5

16

14

.4

6

5.4

1

11

10

0.0

So

urc

e:

Fie

ld s

urv

ey

da

ta.

Th

e t

ab

le 5

.19

sh

ow

s th

e r

an

ks g

ive

n b

y re

spo

nd

en

ts f

or

vari

ou

s o

bje

ctiv

es

of

inve

stin

g i

n m

utu

al

fun

ds.

114

Ta

ble

5.1

9

Ob

jec

tive

of

Inve

sti

ng

in

Mu

tua

l F

un

ds

So

urc

e:

Fie

ld s

urv

ey

da

ta.

Ca

teg

ory

R

ank

1 R

ank

2 R

ank

3 R

ank

4 R

ank

5 R

ank6

T

ota

l

No

. %

N

o.

%

No

. %

N

o.

%

No

. %

N

o.

%

No

. %

Hig

he

r

exp

ect

ed

retu

rn

315

74.6

49

11

.6

27

6.4

10

2.4

11

2.6

10

2.4

422

100.

0

Liq

uid

ity

14

3.3

155

36.7

14

1 33

.4

64

15.2

28

6.

6 20

4.

7 42

2 10

0.0

Saf

ety

37

8.

8 12

7 30

.1

121

28.7

65

15

.4

43

10.2

29

6.

9 42

2 10

0.0

Re

gu

lar

inco

me

5

1.2

19

4.5

29

6.9

60

14.2

12

0 28

.4

189

44.8

42

2 10

0.0

EL

SS

34

8.

1 40

9.

5 36

8.

5 67

15

.9

131

31.0

11

4 27

.0

422

100.

0

Co

nve

nie

nce

22

5.

2 35

8.

3 71

16

.8

151

35.8

86

20

.4

57

13.5

42

2 10

0.0

115

Table 5.20

Objective of Investing in Mutual Funds: Garret`s mean score

Objective



Garrets Mean Score

Rank Garrets Mean Score



Rank

Higher expected

return 70.36 1 68.44 1 75.74 1 70.85 1

Liquidity 54.34 2 53.66 3 55.28 2 54.26 2

Lower risk (Safety)

49.36 3 55.27 2 54.72 3 53.63 3

Regular income

36.00 6 34.33 6 34.59 5 34.82 6

Tax savings (ELSS

Scheme) 44.20 5 45.63 4 32.40 6 41.78 5

Convenience 47.38 4 43.41 5 47.27 4 45.43 4


From the above table, it can be observed that higher expected return is the

most important objective of mutual fund investors as the Garret`s mean

score for this factor was 70.85 and is top ranked by the investors. Liquidity

is the ability of an asset to be converted quickly and without much loss of

value. Liquidity factor was the second most important objective with a

Garret`s mean score of 54.26 and ranked second by the respondents.

Lower risk was the third most important objective with a Garret`s mean

116

score of 53.63 and got rank number 3. Convenience, tax savings, and

regular income potential of mutual funds got 4th, 5th and 6th rank

respectively base on Garret`s mean score. That means convenience, tax

savings, and regular income are not considered as important objectives by

the investors as their Garret.`s mean scores are 45.43, 41.78 and 34.82

respectively.

Respondents from all the categories of occupation ranked higher expected

return as the most important objective, and liquidity is ranked second by all

the categories except the respondents belonging to employment category

who ranked third. Safety or lower risk was ranked third by all the

categories except respondents belonging to employment who ranked

second. Convenience was ranked forth by the respondents belonging to

business and profession and others but ranked 5th by the respondents

belonging to employment category. Tax savings was ranked 4th by the

respondents belonging to employment category, ranked 5th by the

respondents belonging to business and profession and 6th by the

respondents belonging to others category. Similarly, regular income was

ranked 6th by the respondents belonging to business and profession and

employment category and ranked 5th by the respondents in the occupation

category of others. So, there are some differences in the ranking order

given by the respondents in different occupation categories.

117

H3: Mutual fund investors do not consider factors other than risk and return

while investing in mutual funds.

As indicated in the above table, it is clear that on the basis of the Garret`s

Mean Score, Higher return, and lower risk got Rank No.1 and 3

respectively. It is clear from the above table that investors do consider

factors other than risk and return while investing in mutual funds. For this

reason, the above hypothesis is rejected.

Importance of Various Factors in Equity Mutual Fund

Table 5.21

Importance of Various Factors in Equity Mutual Fund

Factors N Mean Std.

Deviation

Level of opinion

(%)

Friedman test

d.f

P

Value

Liquidity 422 3.71 0.98 74.12 212.578 5 .000

Safety 422 2.66 1.18 53.13 HS

Growth (Appreciation)

422 3.41 0.92 68.29

Return 422 3.29 0.94 65.73

Convenience 422 3.32 0.91 66.49

Tax benefits 422 3.44 1.34 68.77

Overall 422 3.30 0.62 66.09


118

Based on the responses of all the 422 respondents, the liquidity factor got

highest mean score of 3.71. The other factors such as growth, return,

convenience and tax benefits got a mean score of 3.41,3.29,3.32 and 3.44

respectively. Safety factor got lowest mean score of 2.66. So, mutual fund

investors think that equity mutual funds very liquid and offer fairly good

growth and return. They are helpful in saving the income tax for investors.

From the above table, it can be seen that liquidity was considered to be

good for equity oriented scheme by all the respondents with the level of

opinion of 74.12% that is highest among all the factors. For tax saving,

mutual fund was considered good by the respondents as it has got a mean

of 3.44 or 68.77%. Growth or appreciation was considered good

Ratings of Different Aspects of Equity Mutual Funds

The opinion of respondents about equity mutual fund scheme on various

factors was asked from the respondents to know as to what is in their

mind. The respondents were asked rank the six factors relating to equity

mutual fund on a scale of 1-5 where one is very poor, and 5 is very good.

The rating of the features of mutual funds by the respondents according to

different occupation categories is presented below.

If we compare the mean score of respondents belonging to different

occupational categories, the overall mean score of all the factors for

respondents belonging to business and profession was higher (3.41) than

119

the respondents belonging to employment (3.39) and others category

(3.04). Friedman`s Test reveals that there is a significant difference in the

level of importance given by investors to various factors such as liquidity,

safety, return, growth ,convenience and tax savings as p=0.000, d.f.=5,HS.

Liquidity was considered good, and safety was considered below average.

Table 5.22

Rating the Features of Mutual Funds according to Occupation

Categories

Occupation

Category Features N Mean

Std. Deviation

Level of

Opinion (%)

Friedman test

d.f P


Liquidity 107 3.73 .92 74.58

55.547 5 .000 HS

Safety 107 2.85 1.21 57.01

Growth 107 3.38 .83 67.66

Return 107 3.31 .94 66.17

Convenience 107 3.45 .79 68.97

Tax benefits 107 3.76 1.12 75.14

Overall 107 3.41 .49 68.26

Employ-ment

Liquidity 204 3.83 .91 76.57

141.114 5 .000 HS Safety 204 2.66 1.20 53.24

Growth 204 3.45 .96 69.02

Return 204 3.38 .89 67.65

120

Convenience 204 3.33 .92 66.67

Tax benefits 204 3.69 1.22 73.73

Overall 204 3.39 .58 67.81

Others

Liquidity 111 3.46 1.12 69.19

77.478 5 .000 HS

Safety 111 2.46 1.11 49.19

Growth 111 3.38 .92 67.57

Return 111 3.09 1.01 61.80

Convenience 111 3.19 .99 63.78

Tax benefits 111 2.68 1.45 53.51

Overall 111 3.04 .74 60.84

Total

Liquidity 422 3.71 .98 74.12

212.578 5 .000 HS

Safety 422 2.66 1.18 53.13

Growth 422 3.41 .92 68.29

Return 422 3.29 .94 65.73

Convenience 422 3.32 .91 66.49

Tax benefits 422 3.44 1.34 68.77

Overall 422 3.30 .62 66.09


Investment Instruments Used

Generally investors park their money in different financial products which

suits their risk return preferences. While choosing the various savings and

121

investment products, investors generally consider factors such as risk,

return, liquidity, convenience and tax savings. In the present study it is

evident that respondents investing in mutual funds have also invested in

other avenues such as bank/company deposits, debentures, post office

savings schemes, life insurance policies, gold/ commodities, shares, land

/property and antiques. In order to know the various avenues in which the

respondents have invested besides investment in mutual funds, a question

was asked to respondents and the same is presented in the table given

below.

Table 5.23

Investment Instruments Used by the Respondents

Investment Instruments

Occupation Category


Employment Others

No. % No. % No % No. %

Shares 83 77.6 138 67.6 79 71.2 300 71.1

Debentures/Bonds or Debt Instruments

15 14.0 54 26.5 12 10.8 81 19.2

Bank Fixed Deposits/Company Fixed

Deposits 91 85.0 178 87.3 99 89.2 368 87.2

Public Provident Fund/Post Office Savings

Products) 57 53.3 130 63.7 60 54.1 247 58.5

Life Insurance Products (Other than pure term

85 79.4 164 80.4 54 48.6 303 71.8

122

policies)

Mutual Funds and ETFs 107 100.0 204 100.0 111 100.

0 422 100.0

Gold/Commodities (other than for personal use)

16 15.0 54 26.5 22 19.8 92 21.8

Land and Property (Other than residential house)

42 39.3 60 29.4 24 21.6 126 29.9

Antiques 9 4.4 9 2.1

Other Avenues 2 1.9 11 5.4 3 2.7 16 3.8


It can be seen from the above table that out of 422 respondents who have

invested in at least one scheme of mutual funds have also invested in

other investment avenues. It may be observed from the above table that

87.2% of the respondents have invested in fixed deposits in

banks/companies, 71.8% of the respondents have invested in life

insurance investment products, 71.1% of the respondents have directly

invested in stocks and 29.9% of the respondents have invested in

land/property(other than their residential house). Gold/commodities,

debentures/bonds, antiques and other investments are not very popular

among the respondents as only 21.8%, 19.2%, 2.1% and 3.8% of the

respondents have invested in these investments respectively.

Bank deposits were found to be the most popular avenue of investment

among all the categories of respondents as it is considered as the safest

avenue with highest liquidity and convenience. Psychological reason for

123

investing in bank deposits is loss aversion principle. It is a known fact that

bank deposit is not suitable for meeting the long term financial goals over a

long period of say 20, 30 or 40 years in view of low/negative real returns.

Investors must avoid excessive sensitivity to loss aversion and invest in

different asset classes including equity, real estate and mutual funds that

give higher real returns in the long term. The reason for loss aversion

among investors is that the pain of loss is twice when compared with the

pleasure one experiences when he or she gains an equal amount.

In the present study 85.0% of the respondents in business and profession

category, 87.3% of the respondents in employment category and 89.2% of

the respondents in others category have invested in bank/company fixed

deposits. Life insurance product was more popular among the respondents

belonging to business and profession (79.4%) and employment categories

(80.4%) when compared to others category (48.6%). It is to be noted that

out of 422 respondents only 9 respondents (2.1%) belonging to

employment category have invested in antiques.

Direct Investment in Shares

Investors can start investing in shares indirectly through mutual funds and

after few years of experience they can start investing directly in equity

shares. The following table shows the number of respondents investing

directly in equity shares of the listed companies.

124

Table 5.24

Direct Investment in Shares

Direct Investme

nt

Category Total


Employment Others

No. % No. % No. % No. %

Yes 83 77.6 138 67.6 79 71.2 300 71.1

No 24 22.4 66 32.4 32 28.8 122 28.9

Total 107 100.0 204 100.0 111 100.0 422 100.0

Source: Field survey data. ²=3.363,d.f.=2,p=0.186>0.05,NS.

The above table shows that, out of 422 respondents, 71.1% of the

investors who have invested in mutual funds have also invested directly in

equity shares of listed companies through their accounts with the stock

brokers. The remaining 28.9% of the respondents have invested in mutual

funds but not invested equity shares directly.

Chi-square test reveals that there is no significant difference among the

various occupation categories with regard to direct investment in equity

shares as p=0.186>0.05, NS.

Investment Experience in Mutual Funds

In the present study the researcher has selected the sample with a

minimum of three years of investment experience in mutual funds. The

investment experience of respondents varies widely in the present study.

125

Table 5.25

Number of Years of Investment Experience in Mutual Funds

Investment

Experience (Years)

Category


Employment

Others

No. % No. % No. % No %

3- 5 44 41.1 82 40.2 52 46.8 178 42.2

5-10 41 38.3 70 34.3 39 35.1 150 35.5

10-15 15 14.0 31 15.2 12 10.8 58 13.7

15-20 4 3.7 19 9.3 6 5.4 29 6.9

>20 3 2.8 2 1.0 2 1.8 7 1.7

Total 107 100.0 204 100.0 111 100.0 422 100.0

Source: Field survey data. ²=12.382, p=0.260>0.05, d.f=-10,NS.

Out of the 422 respondents, 42.2% were having investment experience of

3-5 years in mutual funds, 35.5% of the respondents were having

investment experience of 5-10 years, 13.7% of the respondents were

having investment experience of 10-15 years. A small percentage (6.9%)

of the respondents were having investment experience of 15-20 years and

only 1.7% of the respondents were having more than 20 years of

investment experience in mutual funds.

126

Chi square test reveals that there is no significant difference between the

respondents belonging to different occupation categories with respect to

the number of years of investment experience as p=0.26> 0.05, NS.

Number of Mutual Funds Owned

Table 5.26

Number of Mutual Funds Owned by the Respondents

Number

Category


Employment Others

No. % No. % No. % No. %

<3 62 57.9 104 51.0 45 40.5 211 50.0

3-6 38 35.5 77 37.7 31 27.9 146 34.6

6 9 4 3.7 19 9.3 29 26.1 52 12.3

9-12 0 0.0 0 0.0 3 2.7 3 0.7

>12 1 0.9 4 2.0 3 2.7 8 1.9

Not aware 2 1.9 0 0.0 0 0.0 2 0.5

Total 107 100.0 204 100.0 111 100.0 422 100.0


Investors can invest their money either in one or more schemes of the

same mutual fund house or in many schemes of several mutual fund

houses. Rationally speaking investors need not invest in several mutual

127

fund schemes for the purpose portfolio diversification as mutual fund is by

nature, a well diversified portfolio. However, psychologically investors may

not be comfortable to park all their mutual fund investment in only one fund

house. So, investors tend to invest in many mutual fund houses leading to

over diversification. In order to find out the number of fund houses in which

the investors have invested, a question was asked to respondents and the

following results were obtained. As it is evident from the above table that

majority (50.0%) of the investors have used less than three fund houses

for investment purpose, 34.6% of the mutual fund investors have invested

in 3-6 fund houses and 12.3% of the investors have invested in 6-9 fund

houses. The investors investing in 9-12 fund houses and more than 12

fund houses were 0.7% and 1.9% respectively. It is to be noted that two

investors were not aware of the number of mutual funds in which they have

invested. These investors relied totally on the advice of the mutual fund

distributors for selecting the mutual fund houses and schemes.

It is to be noted that the largest number of respondents in business and

profession (57.9%), employment (51.0%) and other category (40.5%) have

invested in less than three mutual fund houses.

Fishers exact Test reveals that there is a significant difference among the

various occupation categories with respect to the number of mutual funds

in which they have invested as p=0.000<0.01,HS. In business and


128

respondents have used more than six fund houses respectively whereas in

case of others category 31.5% of investors have used more than six fund

houses.

Number of Mutual Fund Schemes Owned by Respondents

All Mutual fund schemes involve a diversified portfolio. So, there is no

need to own several mutual fund schemes of the same type by the

investors for the purpose of portfolio diversification. In the present study an

attempt is made to find out whether mutual fund investors have the

tendency to over diversify their mutual fund portfolio.

Table 5.27 Number of Schemes Owned by the Respondentss

Number of Schemes

Category


Employment Others

No. % No. % No. % No. %

< 5 83 77.6 137 67.2 52 46.8 272 64.5

5-10 18 16.8 41 20.1 33 29.7 92 21.8

10-15 3 2.8 20 9.8 20 18.0 43 10.2

15-20 1 .9 3 1.5 6 5.4 10 2.4

> 20 0 .0 3 1.5 0 0.0 3 0.7

Not aware 2 1.9 0 .0 0 0.0 2 0.5

Total 107 100.0 204 100.0 111 100.0 422 100.0


129

Out of the total 422 respondents 272 (64.5%) respondents owned less

than five mutual fund schemes and 92 respondents owned between 5 and

10 mutual fund schemes. Investors owning 10-15, 15-20 and more than 20

schemes are 43, 10, and 3 respondents respectively. Two respondents

were not aware of the number of schemes in which they have invested.

It is to be noted here that the maximum number of respondents in all

occupation categories owned less than three mutual funds schemes.

Fisher`s Exact Test shows that there is a significant difference between

various occupation categories with respect to number of schemes owned

by them as p=0.000<0.01,HS. In business and profession and employment

occupation category 77.6% and 67.2% of the respondents owned less than

five schemes respectively. But in case of others occupation category

46.8% of the respondents owned less than five schemes.

Current Value of Mutual Fund Investment

Total current market value of all mutual funds owned shows a wide

variation among the respondents belonging to different occupation

categories. The information collected from the respondents regarding the

current market value of mutual funds owned is presented in the following

table.

130

Table 5.28

Current value of the Mutual Fund Units Ownedd

Current Market value

(Rs.)

Occupation Category


Employment Others

No. % No. % No. % No. %

< 50,000 32 29.9 88 43.1 43 38.7 163 38.6

50,000-1,00,000 45 42.1 42 20.6 18 16.2 105 24.9

1,00,000- 2,00,000 20 18.7 38 18.6 14 12.6 72 17.1

2,00,000-5,00,000 10 9.3 22 10.8 22 19.8 54 12.8

>5,00,000 0 0.0 14 6.9 14 12.6 28 6.6

Total 107 100.0 204 100.0 111 100.0 422 100.0

Source: Field survey data. ²=41.488,p=0.000,d.f.=8,HS

Out of the total 422 respondents in the present study, 163 (38.6%)

respondents were having less than Rs.50,000 investment in mutual funds,

105 (24.9%) respondents were having Rs.50,000-Rs.1,00,000 investment

in mutual funds and 72 (17.1%) respondents were having Rs. 1,00,000-

Rs.2,00,000 investment in mutual funds. The total current market value of

mutual funds owned by 54 (12.8%) respondents were between

Rs.2,00,000 to Rs.5,00,000 and 28 (6.6%) respondents currently own

mutual fund investment of more than Rs.5,00,000.

131

Among the respondents belonging to the category of Employment and

others category, maximum number of respondents have invested less than

Rs.50,000 whereas in case of the respondents belonging to business and

profession the maximum number of respondents have invested between

Rs. 50,000 Rs.100,000.

It was found from the Chi square test that there is a significant variation in

the total market value of all the mutual funds owned by the respondents

as p=0.000<0.01,HS. In business and profession and employment

occupation category 9.3% and 17.7% of the respondents owned mutual

fund units of more than Rs.200,000 respectively whereas in case of others

category 32.4% of the respondents had mutual fund units of more than

Rs.200,000.

Types of Funds Used for Investment

Mutual fund investors have a choice to invest in a plethora of schemes

according to their return expectations and risk appetite. The following table

shows the various types of mutual funds in which respondents belonging to

various occupation categories have invested.

132

Table 5.29

Types of Funds Used for Investment

Type of Funds



No. % No. % No. % No. %

Diversified equity fund 73 68.2 161 78.9 95 85.6 329 78.0

Index fund/Exchange traded fund and Gold ETF

10 9.3 49 24.0 16 14.4 75 17.8

Large cap funds 30 28.0 101 49.5 75 67.6 206 48.8

Small cap fund 24 22.4 35 17.2 36 32.4 95 22.5

Sector Fund 31 29.0 53 26.0 29 26.1 113 26.8

International Fund 2 1.9 11 5.4 4 3.6 17 4.0

Balanced Fund 21 19.6 61 29.9 33 29.7 115 27.3

Long term or short term Debt Fund

5 4.7 26 12.7 23 20.7 54 12.8

ELSS (Equity Linked Savings Scheme)

31 29.0 102 50.0 36 32.4 169 40.0

I am not aware of the funds in which I have

invested 15 14.0 13 6.4 8 7.2 36 8.5


In the present study, 78.0% of the respondents have invested in diversified equity

funds and 48.8% of the respondents have invested in large-cap funds. 27.3% of

the respondents have invested in balanced funds that partly invests in debt and

the remaining part in equity. 26.8% of the respondents have invested in sectoral

funds that invest the money in one or few sectors. 22.5% of the investors have

133

invested in small cap funds and 17.8% of the investors have taken exposure in

index fund and exchange traded funds. The percentage of respondents investing

in long/short term debt funds was 12.8. It is worth noting here that 8.5% of the

respondents are not aware of the schemes in which they have invested. These

investors rely totally on mutual fund distributors for taking investment decisions.

Tax savings Instruments Used

Investors can invest in different avenues to get tax benefits under Income Tax

Act including Equity Linked Savings Scheme (ELSS).The following table gives

information about the various savings instruments used by respondents for the

purpose saving tax.

Table 5.30

Tax Savings Instruments Used by the Respondents

Tax saving instruments



No. % No. % No. % No. %

ELSS 31 29.0 104 51.0 36 32.4 31 29.0

PPF 57 53.3 130 63.7 60 54.1 57 53.3

Bank FD 10 9.3 21 10.3 8 7.2 10 9.3

NSC 13 12.1 35 17.2 8 7.2 13 12.1

LI Policy 52 48.6 121 59.3 26 23.4 52 48.6

Infra Bonds 15 14.0 75 36.8 14 12.6 15 14.0

None 24 22.4 25 12.3 27 24.3 24 22.4


134

In the present study majority (53.3%) of the respondents use PPF for tax

savings purposes, and 48.6% of the respondents have invested in life

insurance products for tax saving purposes. Equity Linked Savings

Scheme (ELSS) was used only by 29.0% of the respondents. Investment

in ELSS helps an investor to save tax. Other tax savings investments are

not popular among the investors as only 12.1% have invested in National

Savings Certificates, 14.0% have invested in infra bonds and only 9.3% of

the respondents have invested in tax savings fixed deposits of commercial

banks. About 22.4% of the respondents have not invested in any of the

above avenues of investment for tax savings purposes. It is to be noted

that PPF is most popular among the respondents of all the categories of

occupation. Life insurance is the next most popular avenue among the

occupation categories of business and profession and employment while it

was ELSS among the respondents belonging to the occupation category of

others. Tax savings bank fixed deposit was least popular avenue among

the respondents of all the occupation categories.

Time Horizon for Equity Funds

Equity is an asset class that is suitable for meeting long-term financial

goals of an investor. Equity as an asset class tends to be risky if invested

for short term but would be less risky if invested for longer period. Return

from equity fluctuates widely but over a long period it can give the higher

return with lower risk.

135

Table 5.31

Time Horizon for Equity Oriented Funds

Time horizon (Years)

Occupation Category


Employment Others

No. % No. % No. % No. %

< 3 27 25.2 12 5.9 15 13.5 54 12.8

3-6 36 33.6 86 42.2 39 35.1 161 38.2

> 6 26 24.3 51 25.0 20 18.0 97 23.0

Not invested in equity funds

18 16.8 55 27.0 37 33.3 110 26.1

Total 107 100.0 204 100.0 111 100.0 422 100.0

Source: Field survey data. ²=29.743, d.f.=6,p=0.000<0.1,NS.

From the field data relating to 422 respondents, 12.8% of the respondents

had invested in equity mutual funds with a time horizon of less than three

years. 38.2% of the respondents had a time horizon of 3-6 years, and

23.0% of the respondents had a time horizon of more than six years. It is

worth noting here that 26.1% of the respondents did not invest in equity

funds at all. From the above table, it is clear that almost half of the

respondents had a time horizon of less than six years.

Chi-square test reveals that there is no significant difference between the

respondents belonging to various occupational categories with respect to

the time horizon as P=0.000<0.01, d.f.=6, NS.

136

Time horizon for Debt Funds

Time horizon of investors, when they invest in debt mutual funds is

generally lower than that of equity funds. Investors invest in debt funds for

meeting their short-term financial goals. These funds offer lower return with

lower risk.

Table 5.32

Time Horizon for Debt Funds

Time horizon

Category


Employment Others

No. % No. % No. % No. %

< 3 5 4.7 9 4.4 13 11.7 27 6.4

3-6 0 0.0 9 4.4 1 0.9 10 2.4

> 6 0 0.0 8 3.9 10 9.0 18 4.3

No investment 102 95.3 178 87.3 87 78.4 367 87.0

Total 107 100.0 204 100.0 111 100.

0 422 100.0

Source: Field survey data. Fisher`s Exact Test, p=0.000,HS

Out of the total 422 respondents, 6.4% of the respondents had a time

horizon of less than 3 years while investing in debt funds, 2.4% of the

respondents had a time horizon of 3-6 years and only 4.3% of the

respondents had a time horizon of more than 6 years while investing in

debt funds. It is worth noting here that 87.0% of the respondents did not

invest in debt funds at all. In India, most of the investors are comfortable

137

with bank deposit that is a good substitute for debt scheme, which is why

most of the investors did not invest in debt funds.

Fisher`s Exact Test square test shows that there is a significant difference

between the respondents belonging to various occupational categories

with respect to the time horizon as P=0.000<0.01, HS.

Intention to Increase/Decrease Mutual Fund Investment

Mutual fund investors may wish to increase or decrease their investments

in the future. The following table shows the intention of the respondents to

increase or decrease their investment in mutual funds in the near future.

Table 5.33

Intention to Increase/Decrease Mutual Fund Investment

Intention

Category


Employment Others

No. % No. % No. % No. %

Purchased in the past and currently not interested in investing more.

53 49.5 99 48.5 55 49.5 207 49.1

Purchased in the past but now want

to decrease the investment.

24 22.4 23 11.3 21 18.9 68 16.1

Purchased in the past but want to

increase the investment.

30 28.0 81 39.7 35 31.5 146 34.6


138

The above table shows that, out of 422 respondents, 49.1% investors have

purchased the mutual funds in the past and currently not interested in

investing more. As much as 34.6% of the respondents have invested in the

past but want to increase the investment. Only 16.1% of the respondents

have purchased the mutual fund units in the past but now want to

decrease the investment.

Investment Options Used

Mutual fund investors have several options. These options are provided to

help investors to overcome the emotions and help them to use mechanical

methods that pre-decide the amount and timing of investment and

disinvestment. These options are provided by all mutual fund companies.

Out of the 422 respondents, 72.5% of the respondents have used

systematic investment plan (SIP) and around 8.0%, of the respondents

have used systematic transfer (STP), systematic withdrawal plan(SWP)

and trigger option each. Only 23.7% of the respondents have not used any

of the above options. It is to be noted that in all the occupation categories,

systematic investment plan was used by most of the respondents. Here

the investors are supposed to invest a fixed sum every month, quarter or

any other interval. This type of investment helps an investor to buy more

units when the prices are less and less units when the prices are high. In

this way, SIP helps an investor to improve the return when the market is

moving up and down.

139

Table 5.34

Investment Options Used by Respondents

Source: Field survey data

Discussion about Mutual Fund Investment

Investors do discuss the matters relating to their investments and

exchange knowledge and information at various places and with different

people. The following table contains the information about the places

where mutual fund investors discuss the matters relating to mutual funds.

Options Used

Occupation Category

Total Business &

Profession

Employment

Others

No. % No. % No. % No. %

Systematic Investment Plan

83 77.6 156 76.5 67 60.4 306 72.5

Systematic Transfer plan

7 6.5 19 9.3 11 9.9 37 8.8

Systematic Withdrawal Plan

15 14.0 17 8.3 2 1.8 34 8.1

Trigger option 18 16.8 13 6.4 6 5.4 37 8.8

Any other 3 2.7 3 0.7

I have not used any of the above options

20 18.7 42 20.6 38 34.2 100 23.7

140

Table 5.35

Discussion about Mutual Fund Investment

Discussion Places

Category

Total Business &

Profession

Employment

Others

No. % No. % No. % No. %

Home 44 41.1 125 61.3 86 77.5 255 60.4

Relatives house 19 17.8 44 21.6 23 20.7 86 20.4

Workplace 66 61.7 148 72.5 20 18.0 234 55.5

Public place 5 4.7 3 1.5 12 10.8 20 4.7

None of the above places

13 12.1 23 11.3 19 17.1 55 13.0


In the present study, 60.4% of the respondents do discuss about mutual

funds at their homes with their family members. 55.5% of the respondents

discuss their investments in mutual funds in the workplace with their

colleagues in the office whenever they are free. Some investors have the

habit of discussing about mutual funds in relatives house whenever they

visit. Only 4.7% of the respondents discuss mutual funds in the public

places when they meet their friends. The percentage of the respondents

who do not discuss the matters relating to mutual funds in any place was

13.0%. It is to be noted here that people can discuss the matters relating to

mutual funds in more than one place.

141

Investors` Behaviour in a falling market

The following table shows the reaction of the investors in a falling market.

Investors` Reaction to a Sudden Stock Market Fall

Mutual fund investor may react differently to a sudden stock market fall.

The following table shows the reactions of the respondents to a sudden fall

in prices.

Table 5.36

Investors` Reaction to a Sudden Stock Market Fall

Investor Reaction

Category


Employment Others

No. % No. % No. % No. %

Buy more units of the same scheme to average

down 31 29.0 79 38.7 33 29.7 143 33.9

Buy the units of other schemes to take

advantage of the fall in prices

3 2.8 36 17.6 3 2.7 42 10.0

Sell the units to get out of mutual funds

17 15.9 22 10.8 22 19.8 61 14.5

Sell the units now to purchase the same after

the price fall 4 2.0 3 2.7 7 1.7

Not do anything 74 69.2 99 48.5 75 67.6 248 58.8


142

It is the common behaviour of investors that they buy more when the

prices are rising in a bullish market and sell when the prices are falling in a

bearish market. This behaviour of overreaction is due to fear and greed

that is present in every human being. But this strategy is not in the best

interest of investors, in the long run.

In the present study, 33.9% of the respondents have indicated that they

would be buying more units whenever the prices of mutual fund units fall.

14.5% of the respondents have indicated that they would be selling the

units and get out of mutual funds either partially or fully in a falling market.

The majority of the investors (58.8%) have indicated that they would be

neutral and do not buy or sell the units if the market prices of mutual fund

units suddenly fall.

Reaction to Sudden Fall in Net Asset Value (NAV)

Investors react to the sudden rise or fall in the NAV of a mutual fund

scheme. Even if they do not react they would be uncomfortable in a falling

market. They may react to the falling market by buying more units of the

same scheme, sell all the units, switch to other schemes or remain neutral

whenever the NAV of the mutual fund scheme suddenly falls. The following

table gives information about the reaction of respondents to a sudden fall

in NAV.

143

Table 5.37

Reaction to Sudden Fall in NAV

Reaction

Category


Employment

Others

No. % No. % No. % No. %

Sell equity oriented mutual funds units

7 3.4 2 1.8 9 2.1

Purchase equity oriented mutual funds units

14 13.1 37 18.1 20 18.0 71 16.8

Switch to debt schemes 5 4.7 12 5.9 6 5.4 23 5.5

Neutral 84 78.5 144 70.6 81 73.0 309 73.2


Out of the total 412 response received, 73.2% have indicated that they will

remain neutral and, 5.5% of the respondents have indicated that they will

switch from equity to debt funds. As many as 16.8% of the respondents

have indicated that they would buy more units if there is a sudden fall in

the prices. Only 2.1% of the respondents revealed that they have the

intention of selling the equity funds if there is a sudden fall in the stock

market.

144

Reaction to Sudden Rise in Net Asset Value (NAV)

Investors have the tendency to overreact to market ups and downs even if

it is not in their best interest. The reason behind this psychological

phenomenon is the greed and fear which exists in all human beings. They

tend to buy more units when the prices are rising due to the influence of

greed and sell the units in a falling market due to the fear factor.

Table 5.38

Reaction to Sudden Rise in NAV of Mutual Funds Units

Reaction

Category


Employment

Others

No. % No. % No. % No. %

Neutral 64 59.8 133 65.2 69 62.2 266 63.0

Sell the units and book profits

49 45.8 81 39.7 51 45.9 181 42.9

Buy more units of the same scheme

6 5.6 6 2.9 3 2.7 15 3.6

Buy the units of other schemes

0 0.0 0 0.0 4 3.6 4 0.9


In the present study it is evident that 63.0% of the respondents had

indicated that they would remain neutral whenever there is a sudden rise in

the prices. 42.9% of the respondents intend to sell units to book profits.

145

3.6% of the respondents intend to buy more units, and 0.90% of the

respondents intend to buy the units of other schemes in such cases.

Frequency of Finding the Current Value of Investments

Investors have the habit of finding out the current value of their

investments out of curiosity after making investment. The following table

shows the frequency of finding out the current value of the investment by

the respondents.

Table 5.39

Frequency of Finding out Current Value of Investments

Frequency

Occupation Category


Employment Others

No. % No. % No. % No. %

Daily/Weekly/

Monthly 42 39.3 52 25.5 24 21.6 118 28.0

Quarterly 27 25.2 81 39.7 24 21.6 132 31.3

Half yearly 16 15.0 33 16.2 12 10.8 61 14.5

Yearly 9 8.4 15 7.4 18 16.2 42 10.0

Rarely 13 12.1 23 11.3 33 29.7 69 16.4

Total 107 100.0 204 100.0 111 100.0 422 100.0

Source: Field survey data. ²=40.105,d.f.=8,p=0.00<0.01,HS.

146

In the present study, 28.0% of the respondents had indicated that they find

out the value of their mutual fund investment daily/weekly or monthly.

31.3% of the respondents find out the current value of their investments

quarterly, 14.5% of the respondents find out the value of their investments

half yearly, 10% of the respondents find out the value of their investments

yearly and only 16.4% of the respondents rarely track the value of their

investments in mutual funds.

Chi-square test shows that there is a significant difference between the

various occupation categories with respect to the frequency of finding out

the current value of their investments as p=0.000<0.01, HS. In Business

and profession and employment category 39.3% and 25.5% of the

respondents find out the value of their mutual fund investments

daily/weekly or monthly whereas in others category only 21.6% of the

respondents find out the current value of their investments daily/weekly

monthly.

Sources Used for Finding the Current Value of Mutual Fund

Investment

Mutual fund investors can find out the current value of their investments

from various sources as shown below in the following table.

147

Table 5.40

Sources Used for Finding the Current Value of Mutual Fund

Investment

Source

Occupation Category


Employment Others

No. % No % No. % No. %

Newspapers 43 40.2 127 62.3 72 64.9 242 57.3

AMFI website 25 23.4 56 27.5 10 9.0 91 21.6

MFs website 19 17.8 41 20.1 10 9.0 70 16.6

Mutual fund advisor 27 25.2 80 39.2 57 51.4 164 38.9

Stock Broker 14 13.1 14 6.9 13 11.7 41 9.7

Communication from mutual fund

house/friends 23 21.5 54 26.5 24 21.6 101 23.9


In the present study, 57.3% of the respondents find the current value of

their investments from newspapers, 38.9% of respondents find out the

current value of their investments from mutual fund advisors/distributors

and 23.9% of the respondents use the communication received from the

mutual fund house to find out the current value of their investments. The

percentage of respondents who use AMFI`s website for finding out the

current value of their investment was 16.6%. Only 9.7% of the respondents

use stock brokers for finding out the current value of their investments.

148

Use of Derivatives by Mutual Fund Investors

Risk of fall in the value of investments can be hedged using financial

derivatives such as futures and options. Derivatives help to reduce or

avoid risk of fall or rise in the prices of mutual fund units without buying or

selling the units. Use of derivatives may not be convenient to retail mutual

fund investors for various reasons. Investors may not have the required

knowledge to use derivatives for hedging. Another reason for, not using

derivatives, is the minimum market lot of Rs.2,00,000 for all derivatives

products in our markets.

Table 5.41

Use of Derivatives by Mutual Fund Investors

Hedging

Occupation Category


Employment Others

No. % No. % No. % No. %

Yes

No

Total

2 1.9 5 2.5 2 1.8 9 2.1

105 98.1 199 97.5 109 98.2 413 97.9

107 100.0 204 100.0 111 100.0 422 100.0

Source: Field survey data. ²=0.193, d.f.=2,p=0.908>0.05,NS

In the present study, out of the 422 respondents 413 (97.9%) respondents

do not hedge the risk using options and futures. The balance 9 (2.1%)

respondents sometimes use derivatives to hedge the risk. It may be noted

149

here that out of nine respondents who have used derivatives for hedging,

five respondents belong to the occupation category of employment.

As indicated by the above statistical test, there is no significant difference

among various occupation categories with respect to hedging using

financial derivatives as p=0.908>0.05, NS.

Derivative Products Used

Investors can use stock futures, stock options, index futures or index

options for hedging the price risk. The derivative products used by the

respondents in the present study are presented below.

Table 5.42

Derivative Products Used for Hedging

Derivative Products Used

Category


Employment

Others

No. % No. % No. % No. %

Index futures 0 0.0 2 40.0 0 0.0 2 22.2

Stock futures 2 100.0 0 0.0 2 100.0 4 44.4

Index options 0 0.0 5 100.0 0 0.0 5 55.6

Stock options 0 0.0 0 0.0 0 0.0 0 0.0


From the above table, it is clear that out of 9 respondents who used

derivatives, 22.2% used index futures contract. 44.4% used stock futures

150

and 55.6% of the respondents used index options for hedging the risk.

Here the investors can use more than one product for hedging purposes.

No one ever used stock options to hedge the risk of the portfolio.

Switching Behaviour

Mutual fund investors can switch from one scheme to another within the

fund family for achieving the particular investment objective. For example,

if the investors expect good prospect for equity market they can switch

from debt fund to equity fund and if the investors expect good prospect for

debt funds they can switch from equity fund to debt fund. In this way,

investors can rebalance their portfolios depending upon the prospect of

different markets.

Table 5.43

Switching Behaviour

Category


Employment Others

No. % No. % No. % No. %

Yes 12 11.2 55 27.0 30 27.0 97 23.0

No 95 88.8 149 73.0 81 73.0 325 77.0

Total 107 100.0 204 100.0 111 100.0 422 100.0

Source: Field survey data. ²=11.220,d.f.=2,p=0.004<0.01,HS.

151

Of the 422 respondents, only 23.0% of the respondents used the switch

facility and the balance 77.0% did not use the switch facility so far. It may

be noted here that the percentage of respondents who used the switch

facility are 11.2% in business and profession, 27.0% in employment

category and 27.0% in others category.

As per the result of the Chi-square test, there is a significant difference in

the switching behaviour among the different occupation categories as

p=0.04<0.05, HS. Respondents who belonged to employment category

and others category used the switch facility more than the respondents

belonging business and profession category.

Reasons for Switching the Schemes

Switch facility is used by investors for achieving different investment

objective. Different investors use the switch facility for different purposes.

The various reasons for switching the schemes by respondents is

presented below.

152

Table 5.44

Reasons for Switching the Schemes


Out of the 97 respondents who used the switch facility, 57.7% used for

reducing the risk, 22.7% used for changing the debt equity mix, 16.5%

used to increase or reduce the exposure to a particular sector,11.3% used

for diversifying the portfolio,5.2% used to shift the funds to a good fund

Reasons for switching

Occupation Category


Employment

Others

No. % No. % No. % No. %

To reduce the risk and increase the

safety 10 83.3 25 45.5 21 70.0 56 57.7

To change debt equity mix

2 16.7 17 30.9 3 10.0 22 22.7

To diversify the portfolio

0 0.0 5 9.1 6 20.0 11 11.3

To lower fund expenses

0 0.0 2 3.6 0 0.0 2 2.1

To reduce or increase the

exposure to a particular sector

0 0.0 12 21.8 4 13.3 16 16.5

To shift funds to a good fund

manager or fund house

0 0.0 2 3.6 3 10.0 5 5.2

153

manager or fund house and only 2.1% used to lower the fund expenses.

Among all occupation categories, the maximum number of respondents

switched for reducing the risk of the investment and the least number of

respondents switched for lowering the fund expenses.

H4: Mutual fund investors demonstrate behaviour of switching mutual fund

schemes for diversifying their portfolio.

The result of the statistical test indicates that there is a significant

difference among the respondents about their purpose of switching as

p=0.000<0.01,d.f=5, HS. As only 11.3% of the respondents switched the

schemes to diversify the portfolio, the hypothesis is rejected.

Frequency of Using of Switch facility by respondents

Respondents may use the switch facility frequently or rarely. The

frequency of exercising the switch option by respondents is given below.

Researcher was interested in knowing how many times during the last five

years investors used the switch facility. From the above primary data, it is

clear out of the 97 respondents who switched from one scheme to another,

55.7% switched for less than two times during the last five years. 28.9% of

the respondents switched 2-4 times, 13.4% of the respondents switched

4-6 times and 2.1% of the respondents switched more than six times

during the last five years.

154

Table 5.45

Frequency of Using of Switch Facility by Respondents

Source: Field survey data. Fisher`s Exact Test,p=0.000,HS.

Fisher`s Exact test shows that there is a significant difference among the

various occupation categories about the number of times investors

switched during the last five years as p=0.000<0.01, HS.

In business and profession occupation category, all the respondents

switched less the two times during the last five years. None of the

respondents in others category switched for more than six times during the

last five years. In employment category respondents switched the

schemes for less than 2, 2-4 and 4-6 times more or less equally except for

more than six times.

No. of times switched

Occupation Category


Employment Others

No. % No. % No. % No. %

Less than two times

12 100.0 32 58.2 10 33.3 54 55.7

2-4 times 0 0.0 19 34.5 9 30.0 28 28.9

4-6 times 0 0.0 2 3.6 11 36.7 13 13.4

More than six times

0 0.0 2 3.6 0 0.0 2 2.1

Total 12 100.0 55 100.0 30 100.0 97 100.0

155

Funds Switched by Respondents

The data relating switching of funds by respondents is presented below.

Table 5.46

Funds Switched by Respondents

Switch

Category


Employment

Others

No. % No. % No. % No. %

Debt to equity 0 0.0 5 9.1 8 26.7 13 13.4

Equity to Debt 8 66.7 27 49.1 13 43.3 48 49.5

One equity to another

4 33.3 26 47.3 17 56.7 47 48.5

One debt to another

0 0.0 0 0.0 0 0.0 0 0.0


Investors may switch from equity to another fund or equity to debt fund.

They can also switch from one debt fund to another debt fund.

Out of 97 respondents who used switch option during the last five years,

49.5% of the respondents switched from equity funds to debt funds, 48.5%

switched from one equity fund to another equity fund. Only 13.4% of the

respondents used the switch option to switch from debt scheme to equity

scheme. None of the respondents switched from one debt scheme to

another. Generally investors want to switch from debt fund to equity fund in

156

rising market and equity fund to debt fund in anticipation of fall in prices of

equity shares in the market.

Mode of Buying the Mutual Funds

Mutual fund investors can purchase the units directly from the fund house

or stock through broker or through the mutual fund advisor. The mode of

buying the mutual fund units by the respondents in the present study is

presented below.

Table 5.47

Mode of Buying the Mutual Fund Units

Mode

Occupation Category


Employment

Others

No. % No. % No. % No. %

Mutual fund house

41 38.3 109 53.4 44 39.6 194 46.0

Stock Broker 34 31.8 54 26.5 33 29.7 121 28.7

Demat Account 17 15.9 15 7.4 7 6.3 39 9.2

Mutual fund advisor

43 40.2 106 52.0 70 63.1 219 51.9


Majority (51.9%) of the respondents in the present study bought mutual

funds units from mutual fund advisor. The percentage of respondents

buying directly from the fund house was 46.0%. 28.7% of the respondents

buy the units from the stock broker as most of the stock brokers are also

157

mutual fund advisors and only 9.2% of the respondents buy the units from

the stock brokers through Demat account. It is to be noted here that

investors may also buy the mutual fund units through multiple modes.

Frequency of Monitoring the Performance

Investors generally monitor the performance of their investments on a

regular basis, and mutual fund investment is not an exception. The

frequency of monitoring the performance of the mutual funds by

respondents is presented below.

In the present study, 26.8% of the respondents monitor the performance at

least once in three months, and 29.6% of the respondents monitor the

performance once in 3-6 months. 19.9% of the respondents monitor the

performance once in 6-12 months. Respondents monitoring once in 1-2

years and once in more than two years are 10.9% and 12.8% respectively.

158

Table 5.48

Frequency of Monitoring the Performance

Frequency

Occupation Category


Employment

Others

No. % No. % No. % No. %

Less than three months

40 37.4 59 28.9 14 12.6 113 26.8.

3- 6 months 31 29.0 60 29.4 34 30.6 125 29.6

Six months one year

11 10.3 48 23.5 25 22.5 84 19.9

1- 2 years 5 4.7 22 10.8 19 17.1 46 10.9

More than two years

20 18.7 15 7.4 19 17.1 54 12.8

Total 107 100.0 204 100.0 111 100.0 422 100.0

Source: Field survey data. ²=36.921, d.f.=8,p=0.000<0.01,HS.

Chi-square test reveals that there is a significant difference among the

respondents belonging to different occupation categories with respect to

the frequency of monitoring the performance of their mutual fund

investments as p=0.000,d.f.=8, HS. Therefore, the frequency of monitoring

the performance of mutual funds is not same among all the respondents. It

is higher in case of respondents belonging to the occupation category of

business and profession and employment when compared with the

respondents belonging to others category.

159

Funds used to meet the financial goal

Generally investors invest in mutual funds in order to meet their specific

financial goals. So, whenever they need money to meet particular financial

goals, they need to sell the units. The type of funds that is sold for meeting

the financial goal by respondents is presented below.

Table 5.49

Funds Used to Meet the Financial Goal

Funds

Occupation Category


Employment Others

No. % No. % No. % No. %

Funds with losses

27 25.2 56 27.5 33 29.7 116 27.5

Funds that are in profits

43 40.2 104 51.0 49 44.1 196 46.4

Funds that is expected to perform

badly in the future

12 11.2 45 22.1 26 23.4 83 19.7

Funds that has

appreciated most

40 37.4 38 18.6 36 32.4 114 27.0


Out of 422 respondents, 46.4% of the respondents sell the units of any

fund that is in profit. 27.0% of the respondents sell the funds that have

160

appreciated most. 19.7% of the respondents sell the units that are

expected to perform badly in the future, and 27.5% of the respondents

would sell the mutual fund units that are in losses.

Products used to take equity exposure

In the financial market, there are different products that take exposure to

equity. Mutual funds are one of the products that help investors to take

exposure to equity indirectly. There are also other products serving the

same purpose

Table 5.50

Products Used for Equity Exposure

Products

Occupation Category


Employment Others

No. % No. % No. % No. %

Unit Linked Insurance Plan

58 54.2 100 49.0 22 19.8 180 42.7

New Pension Scheme

8 7.5 4 2.0 0 0.0 12 2.8

Direct investment in

Shares 85 79.4 137 67.2 79 71.2 301 71.3

Portfolio Management

Service (PMS) 9 8.4 5 2.5 0 0.0 14 3.3


From the above table, it can be seen that out of 422 respondents,

301(71.3%) respondents have invested directly in equity shares. Unit

161

linked insurance plan (Life Insurance) is owned by 180 (42.7%)

respondents. Portfolio management service (PMS) is used by 14 (3.3%)

respondents, and 12 (2.8%) respondents have subscribed to New Pension

Scheme. All these products offer equity exposure to investors.

Myths about Mutual Funds

Mutual fund investors may have various kinds of myths about mutual

funds. The following table shows the degree of agreement to the nine

statements. Respondents were asked to specify their degree of agreement

or disagreement using 5-point scale (1 being strongly disagree, and 5

being strongly agree).

Table 5.51

Myths about Mutual Funds

Myths Category N Mean Std.

Deviation Median

Level (%)

Kruskal-Wallis

test value

d.f P

value

Equity oriented MFs are best

suited for achieving their

long-term financial goals of an investor

(above ten years)


107 3.66 1.220 4.00 73.27

2.045 2 0.360

NS

Employment 204 3.79 1.198 4.00 75.88

Others 111 3.83 1.306 4.00 76.58

Total 422 3.77 1.232 4.00 75.40

Equity mutual funds are

expected to give higher returns

than bank deposits/debentures, in the long


107 3.84 1.074 4.00 76.82

2.649 2 0.266

NS Employment 204 3.98 1.149 4.00 79.61

Others 111 3.86 1.385 4.00 77.30

162

run Total 422 3.91 1.197 4.00 78.29

Investors must always select

funds with good past

performance as they are

expected to perform well in

the future.


107 3.84 1.117 4.00 76.82

.961 2 0.618

NS

Employment 204 3.92 1.198 4.00 78.33

Others 111 3.82 1.309 4.00 76.40

Total 422 3.87 1.207 4.00 77.44

Dividend option is always better

than growth option in any

scheme


107 3.58 1.388 4.00 71.59

1.748 2 0.417

NS

Employment 204 3.56 1.453 4.00 71.18

Others 111 3.33 1.569 4.00 66.67

Total 422 3.50 1.468 4.00 70.09

It is better to purchase the units during

NFO rather than buying it later on at ongoing NAV


107 3.48 1.396 4.00 69.53

1.422 2 0.491

NS

Employment 204 3.37 1.367 4.00 67.35

Others 111 3.18 1.608 4.00 63.60

Total 422 3.35 1.442 4.00 66.92

It is always better to buy the units just before the declaration of dividend and sell it after the

payment of dividend


107 3.14 1.397 3.00 62.80

.528 2 0.768

NS

Employment 204 3.14 1.377 3.00 62.84

Others 111 3.23 1.494 3.00 64.50

Total 422 3.16 1.411 3.00 63.27

Mutual Fund Houses are

risky because they can go

bankrupt if the stock

market/bond


107 3.61 1.323 4.00 72.15

3.810 2 0.149

NS Employment 204 3.38 1.290 3.00 67.55

Others 111 3.59 1.365 4.00 71.71

163

market falls sharply Total 422 3.49 1.320 4.00 69.81

Mutual fund units are not liquid as they

can`t be encashed quickly by investors


107 3.36 1.417 3.00 67.29

8.398 2 0.015

sig.

Employment 204 3.24 1.530 3.50 64.80

Others 111 2.82 1.544 3.00 56.40

Total 422 3.16 1.517 3.00 63.22

Mutual funds are vehicles to

invest investor`s money in equity

shares


107 3.18 1.446 3.00 63.55

23.689 2 0.000

HS

Employment 204 3.92 1.391 5.00 78.43

Others 111 3.80 1.264 4.00 76.04

Total 422 3.70 1.404 4.00 74.03


Mutual fund investors may be subject to a number of misconceptions or

bias with respect to various aspects of mutual fund investment. This would

adversely affect the performance of the mutual fund investors. To know the

myths, the respondents were asked to state their degree of agreement with

nine statements. The analysis of these statements is given below.

1. Equity oriented MFs are best suited for achieving their long-term financial

goals of an investor (above 10 years): The mean score for this

statement based on the response of all the 422 respondents was 3.77 or

75.4%. Kruskal-Wallis Test shows that there is no significant difference

between the respondents belonging to various occupation categories

about this statement as p=0.36>0.05, d.f.=2, NS.

164

2. Equity mutual funds are expected to give higher returns than bank

deposits/debentures, in, the long run (above ten years). The mean score

for this statement by the 422 respondents was 3.91 or 78.29%. So

respondents almost strongly agree to this statement. The statistical test

shows that there is no significant difference between the respondents

belonging to various occupation categories about this statement as

p=0.266>0.05, d.f.,=2, NS.

3. Investors must always select funds with good past performance as they

are expected to perform well in the future. This statement has a mean

score of 3.87 or 77.44%. So respondents agree to this statement. The

result reveals that there is no significant difference between the

respondents belonging to various occupation categories about this

statement as p=0.618>0.05, d.f.=2, NS.

4. Dividend option is always better than the growth option in any scheme.

The mean score for this statement is 3.50 or 70.00%. This indicates that

the respondents agree to this statement. The result of the test indicates

that there is no significant difference among the respondents belonging

to different occupation categories about this statement as

p=0.417>0.05,d.f.=2, NS.

5. It is better to purchase the units during NFO rather than buying at

ongoing prices based on NAV. The mean score for this statement was

3.35 or 66.92%. This indicates that the respondents agree to the above

165

statement. The result shows that there is no significant difference


about this statement as p=0.491>0.5,d.f.=2, NS ( Kruskal-Wallis Test).

6. It is better to buy the units just before the declaration of dividend and sell

the units after the payment of dividend. The mean score for the above

statement by all the 422 respondents was 3.16 or 63.27% indicating a

neutral view. The result indicates that there is no significant difference


about this statement as p=0.768>0.05,d.f.=2, NS.

7. Mutual fund houses are risky because they can go bankrupt if the stock

market falls sharply. The mean score for this statement was 3.49 or

69.81% indicating agreement to this statement by the respondents. The

statistical test shows that there is no significant difference between the


statement as p=0.149>0.05,d.f.=2, NS.

8. Mutual fund units are not liquid as they cannot be encashed quickly by

the investors. The mean score for the above statement based on 422

respondents is 3.16 or 63.22% indicating that the respondents are

neutral to this statement. However, the mean score of respondents

belonging to others category was only 2.82 or 56.40%. Kruskal-Wallis

Test shows that there is a significant difference in the mean score for the

166


statement as p=0.015<0.05,d.f.=2, Sig.

9. Mutual funds are vehicles to invest investor`s money in equity shares.

The mean score for this statement based on all the 422 respondents was

3.70 or 74.13% that indicates agreement of the respondents to this

statement. The mean score of respondents belonging to business and

profession, employment, and other category are 3.18, 3.92 and 3.80

respectively. The result of the test shows that there is no significant

difference between the respondents belonging to various occupation

categories about this statement as p=0.00<0.01,d.f.=2, HS.

Reading Scheme Information Document by Investors

Scheme information document SID) contains the details of the scheme.

The contents of the SID need to flow in the same sequence as

prescribed by SEBI regulation. The scheme information document

contains information about the scheme that may be required by an

investor while investing in a scheme. The following table shows the

number respondents reading and not reading the contents of SID.

167

Table 5.52

Reading of Scheme Information Document

Reading scheme information document

(SID) or offer document

Category


Employment Others

No. % No. % No. % No. %

Yes

No

Total

54 50.5 82 40.2 19 17.1 155 36.7

53 49.5 122 59.8 92 82.9 267 63.3

107 100.0 204 100.0 111 100.0 422 100.0

Source: Field survey data. ²=28.117, p=0.000,d.f.=2,HS.

From the above table it is clear that out of 422 respondents, 155 respondents

(36.7%) do read the contents of scheme information document and the balance

267 respondents (63.3%) do not generally read the contents of scheme

information document. The percentage of respondents who read SID among the

occupation categories of business and profession, employment and others are

50.5%, 40.20%, and 17.1% respectively. Chi-square test shows that there is a

significant difference among the respondents of various occupation categories

about the habit of reading scheme information document as p= 0.000<0.01,

d.f=2, HS.

Importance of Items Contained in the Scheme Information Document

Scheme information document (SID) contains the information about the mutual

fund scheme that may be needed by an investor before investing. The

168

importance of various information contained in the SID to the respondents is

presented below.

Table 5.53

Importance of Items Contained in Scheme Information Document to

Investors Based on Occupation Categories

Items in SID Category N Mean Std.

Deviation

Median

Level of importanc

e

(%)

Kruskal-Wallis

Test d.f

p valu

e

Investment objective and

policy


107 2.82 1.393 2.00 56.45 4.126 2 .127

Employment 204 2.78 1.491 2.00 55.59 NS

Others 111 2.50 1.433 2.00 49.91

Total 422 2.72 1.454 2.00 54.31

Investment pattern and strategies


107 3.25 1.325 3.00 65.05 24.066 2 .000

Employment 204 3.02 1.534 3.00 60.39 HS

Others 111 2.33 1.364 2.00 46.67

Total 422 2.90 1.479 3.00 57.96

Asset allocation

plan and top holdings of the scheme


107 2.85 1.316 3.00 57.01 18.198 2 .000

Employment 204 2.67 1.464 2.00 53.43 HS

Others 111 2.12 1.249 2.00 42.34

Total 422 2.57 1.398 2.00 51.42

Major attributes of the scheme


107 3.09 1.363 3.00 61.87 48.779 2 .000

Employment 204 2.95 1.463 3.00 58.92 HS

Others 111 1.91 1.041 1.00 38.20

169

Total 422 2.71 1.420 3.00 54.22

Risk measures (standard deviation, beta and

duration) of the scheme


107 2.65 1.325 3.00 53.08 25.278 2 .000

Employment 204 2.71 1.550 2.00 54.22 HS

Others 111 1.92 1.329 1.00 38.38

Total 422 2.49 1.476 2.00 49.76

Tax benefits available to investors


107 3.59 1.353 4.00 71.78 14.980 2 .001

Employment 204 3.51 1.490 4.00 70.20 HS

Others 111 2.96 1.420 3.00 59.28

Total 422 3.39 1.457 4.00 67.73

Frequency and mode of distribution of income


107 3.03 1.489 3.00 60.56 16.934 2 .000

Employment 204 2.78 1.481 3.00 55.59 HS

Others 111 2.24 1.329 2.00 44.86

Total 422 2.70 1.471 3.00 54.03

Management fee and load

structure


107 2.94 1.466 3.00 58.88 13.005 2 .001

Employment 204 2.92 1.527 3.00 58.33 HS

Others 111 2.32 1.328 2.00 46.31

Total 422 2.77 1.483 3.00 55.31

Past performance

of the scheme


107 3.80 1.232 4.00 76.07 .801 2 .670

Employment 204 3.81 1.359 4.00 76.27 NS

Others 111 3.65 1.499 4.00 72.97

Total 422 3.77 1.366 4.00 75.36

Benchmark for the Fund


107 2.78 1.403 2.00 55.51 24.578 2 .000

Employment 204 2.56 1.350 2.00 51.27 HS

170

Others 111 1.95 1.231 1.00 39.10

Total 422 2.46 1.367 2.00 49.15

Fund manager of the scheme

and his profile


107 2.60 1.400 2.00 51.96 6.160 2 .046

Employment 204 2.72 1.430 3.00 54.41 sig.

Others 111 2.32 1.342 2.00 46.31

Total 422 2.58 1.406 2.00 51.66

Mutual fund ratings by

rating agencies


107 3.41 1.346 4.00 68.22 9.503 2 .009

Employment 204 3.46 1.412 4.00 69.12 HS

Others 111 2.93 1.548 3.00 58.56

Total 422 3.31 1.447 3.00 66.11


Respondents were asked to state how important are the items contained in

the scheme information document on a scale of 1-5 where 1 is not at all

important, and 5 is extremely important. The level of importance given to

various items contained in the scheme information document by the

respondents varies widely. For investment objective and policy, the level

importance given by 422 respondents were 54.31%. Kruskal-Wallis Test

shows that there is no significant difference among the respondents

belonging to various occupational categories with respect to the level of

importance given to this item as p=0.127> 0.05,d.f.=2, NS.

Information about investment pattern and strategies is included in scheme

information document. The level of importance given by mutual fund

investors for investment pattern and strategies was 57.96%. Kruskal-Wallis

171

Test shows that there is a significant difference among the respondents

belonging to various occupational categories with respect to the level of

importance given to the investment pattern and strategies as

p=0.000<0.01,d.f.=2, HS.

Asset allocation plan gives details of different assets such as debt, equity,

derivatives and securitized debt, and the indicative percentage of these

assets in the portfolio. Top holding of securities is also disclosed. For asset

allocation plan and top holding of the scheme, the level of importance

given by respondents was 51.42%. The level of importance given by the

respondents belonging business and profession occupational category

was 57.01%, and it was 53.43% for respondents belonging to employment

category. It is to be noted that level of importance given by the

respondents belonging to others category was only 42.34%. Kruskal-Wallis

Test shows that there is a significant difference among the respondents

belonging to various occupational categories with respect to asset

allocation plan and top holding of the scheme as p=0.00<0.01,d.f.=2, HS.

Investors may consider the major attributes of the scheme before investing

in mutual funds Major attributes of the scheme include factors such as the

scheme, investment pattern, and investment objectives. In the present

study, the level of importance given to the major attributes of the scheme

by the respondents was 54.22%. Kruskal-Wallis Test shows that there is a

172

significant difference among the respondents belonging to various

occupational categories with respect to major attributes of the scheme as

p=0.00<0.01,d.f.=2, HS. The level of importance given by respondents

belonging to business and profession, employment and others category

were 61.87%, 58.92%, and 38.20% respectively.

Mutual fund investors consider only historical return of the scheme but not

the measures of risk such as the standard deviation, beta or duration of the

scheme. The level of importance given by the 422 respondents to this

factor was only 49.76%. The level of importance given by the respondents

in business and profession, employment, and others to this factor was

53.08%, 54.22%, and 38.38% respectively. Kruskal Wallis Test shows that

there is a significant difference among the respondents belonging to

various occupational categories with respect to the risk measures as

p=0.00<0.01, d.f.=2, HS

Tax saving is an important objective of investing in mutual funds. As per

the Income Tax Act, investors can invest in Equity Linked Savings Scheme

(ELSS) up to Rs.1,00,000 per year and avail tax benefit. The limit has

been increased to Rs.1,50,000 per year from the Financial Year 2014-15.

The level of importance given to tax savings by the respondents was

67.73%. The level of importance given by the respondents to this factor is

more in the category of business and profession and employment when

173

compared with the others category while taking investment decisions.

Kruskal-Wallis Test shows that there is a significant difference among the


tax benefits available to investors as p=0.001<0.01,d.f.=2, HS.

Different schemes of mutual funds may differ on the basis of frequency

and mode of distribution of income. This is also a factor considered while

investing in mutual funds especially by the investors who do not have a

regular income. The level of importance given to frequency and mode of

distribution of income by the respondents was 54.03%. Kruskal-Wallis Test

shows that there is a significant difference among the respondents

belonging to various occupational categories with respect to frequency and

mode of distribution of income as p=0.00<0.01, d.f.=2, HS. Level of

importance given by the respondents belonging to business and profession

is highest and others category was lowest for this factor.

Mutual fund investors will have to bear the management fee and in some

cases exit loads. This will eat away the returns of the investor to some

extent. The level of importance attached by mutual fund investors to

management fee and load structure was 55.31%. The level of importance

given by respondents belonging to business and profession, employment,

and others category to this factor was 58.88, 58.33 and 46.31 percent

respectively. Kruskal-Wallis Test shows that there is a significant

174

difference among the respondents belonging to various occupational

categories with respect to the management fee and load structure as

p=0.001<0.01,d.f.=2, HS.

Mutual fund investors consider the past performance of the scheme before

investing. In the present study, the level of importance attached by the

respondents for past performance was highest with 75.36%. It can be

observed here that respondents belonging to all the categories did give

high importance to this factor while taking investment decisions. Kruskal-

Wallis Test shows that there is no significant difference among the


the importance given to past performance as p=0.670>0.05, d.f.=2, NS.

Every scheme of mutual fund has a benchmark with which investors can

compare the performance. Investors do not give importance to the

benchmark of a mutual fund scheme. The level of importance given by

mutual fund investors to the benchmark of the mutual fund scheme was

lowest with 49.15% which means it is not an important factor considered

by mutual fund investors while investing. The level of importance given by

the respondents in business and profession and employment category is

very much higher than the respondents in others category. Overall this

means that most investors are not comparing the historical performance of

a mutual fund scheme with its benchmark. K.W. Test shows that there is a

175

significant difference among the respondents belonging to various

occupational categories with respect to level of importance given to

benchmark of the scheme as p=0.00<0.01,d.f.=2, HS.

Investors may consider the profile of the mutual fund manager before

investing. The level of importance given to the fund manager and his

profile by the respondents was 51.66%. The level of importance given by

respondents in business and profession category to this factor was 51.96%

and in employment category it was 54.41%. Importance given by

respondents in others category was only 46.31%. Kruskal-Wallis Test


belonging to various occupational categories with regard to the

consideration of fund manager and his profile while taking investment

decisions as p=0.046<0.05,d.f.=2, Sig.

Mutual fund schemes are rated by different rating agencies. These ratings

may be considered by investors for investment decisions. The level of

importance given by mutual fund investors for this factor was 66.11%

which means that it is an important factor considered by the mutual fund

investors. The level of importance to this factor by the respondents

belonging to business and profession, employment, and others category

are 68.22, 69.12 and 58.56 percent respectively. Kruskal Wallis Test


176

belonging to various occupational categories with regard to the level of

importance attached to this factor as p=0.009<0.01,HS.

H5: Mutual fund investors do not consider the information contained in the

scheme information document.

Respondents were asked to state the importance of various item contained

in the Scheme Information Document on a scale of 1-5, where 1 is not at

all important and 5 is extremely important. The following table contains the

summary of the response received from the retail mutual fund investors.

Table 5.54

Importance of Various Items Contained in SID to Respondents

Items contained in

SID N Mean

Std.

Deviatio

n Median

Level

of Imp.

(%)

Freid

man

test

value d.f p value

Investment objective

and policy 422 2.72 1.454 2.00 54.31 807.8

0

13

.0001

HS

Investment pattern

and strategies 422 2.90 1.479 3.00 57.96

Asset allocation plan

and top holdings of

the scheme 422 2.57 1.398 2.00 51.42

Major attributes of

the scheme 422 2.71 1.420 3.00 54.22

Risk measures

(standard deviation, 422 2.49 1.476 2.00 49.76

177

beta etc.) of the

scheme

Tax benefits

available to investors 422 3.39 1.457 4.00 67.73

Frequency and mode

of distribution of

income 422 2.70 1.471 3.00 54.03

Management fee and

load structure 422 2.77 1.483 3.00 55.31

Past performance of

the scheme 422 3.77 1.366 4.00 75.36

Benchmark for the

fund 422 2.46 1.367 2.00 49.15

Fund manager of the

scheme and his

profile 422 2.58 1.406 2.00 51.66

Mutual fund ratings

by rating agencies 422 3.31 1.447 3.00 66.11


Mean score is above 3 only for three factors (Tax benefits, past

performance and ratings of mutual funds) out 12 factors contained in the

scheme information document. That means investors do not give

importance to all the information contained in the scheme information

document.

178

Freidman`s test shows that there is a significant difference in the

importance given by the respondents to various items contained in the

scheme information document (SID) as p=0.0001,<0.01, d.f=13, HS.For

this reason, the above hypothesis is rejected.

179

Chapter VI: Summary and Conclusion

This chapter gives a brief summary of the important results and

discussions presented in earlier chapters. The chapter also covers the

major implications for future research and concluding observations.

Summary

A mutual fund is an entity that receives small amount of money from the

investors and then invests it in a diversified portfolio as per the stated

investment objective. The mutual fund industry in India came in to being

with the formation of Unit Trust of India in 1963. Later on, the Government

permitted public sector, private sector and foreign mutual funds to operate

in India. Now we have a plethora of mutual fund schemes offered by these

mutual fund houses to suit the requirements of every type of investor with

regard to the risk appetite and return expectations. As on 31-3-2014 there

were 46 mutual fund houses in India with total AUM of Rs. 8,96,352 crore.

The market share of Public sector mutual funds which was 100% in 1993

came down to 17.01% in 2014. Now private sector contributes about 83%

of total assets under management. The assets under management have

grown from Rs.1,13,000 crores in the calendar year 2000 to Rs.8,25,200

crore in the calendar year 2014 registering a CAGR of 15.25% during the

last 14 years.

180

Indian mutual fund industry is dominated by few large and many small

mutual funds. Top 5 mutual funds account for 53.38% of the total AUM and

top 10 mutual funds account for 76.43% of AUM. The bottom 20 mutual

fund houses have just 1.81% of average total AUM of the mutual fund

industry in India.

Mutual fund investors broadly include retail individual investors, High net

worth people, corporate, FIIs and banks and financial institutions. As on

31st March, 2014 the share of retail investors in total AUM was just 21.15%

of total AUM. With regard to the folios, the share of retail mutual fund

investors was 96.37% of the total folios. It is worth noting here that in

liquid/money market, gilt and debt oriented schemes the percentage of

investment by retail mutual fund investors was very low at 1.73%, 5.5%,

and 6.66% respectively. However, in terms of percentage of folios in these

schemes the share of retail investors is significant with 76.94%, 84.29%,

and 88.94% respectively. Only in equity and balanced schemes the

percentage of AUM held by retail mutual fund investors is more than 50%.

Age wise classification of investments in the mutual fund industry in India

reveals that 64.07% of the AUM belonging to corporate in equity mutual

funds stayed for more than one year whereas the same percentage among

Banks and financial institutions, FIIs, HNIs and retail investors were

26.90%, 75.02%,65.09% and 79.65 % respectively. In non-equity

181

schemes, the percent of AUM stayed for more than one year among the

above categories of investors were 20.87%,4.91%,21.42%,36.75% and

52.03% respectively.

The penetration of mutual funds in India is very low at 4.7 percent. The

said percentage is 77.0 percent in the US, 41.1 percent in Europe, 33.6

percent in the UK, 12.70 percent in Japan and 4.60 percent in China. Even

Global average figure is at 34 percent. The top five cities account for

nearly 72.92% of the total AUM of the mutual fund sector, with the

contribution of Mumbai at 42.04% in FY 2014. Top 15 cities contribute to

86.35% of the total AUM of mutual fund industry in India. The balance of

AUM is spread across other smaller cities. Therefore, it follows that mutual

funds have not sufficiently penetrated into smaller cities and rural areas in

India.

Summary of Findings

The present study is based on the first hand information collected from 422

respondents in Udupi District of Karnataka State in India. In the present

study, 25.4% were belonging to the occupation category of business and

profession, 48.3% of the people surveyed were employed and 26.3% of

the respondents were belonging to others category which includes retired

people, homemakers and students. People of almost all the age groups

182

invested in mutual funds except the people with less than 18 years.

Largest numbers of investors were found in the age group of 50-65 years.

In the present study, 74.9% of the respondents were males and 25.1%

were females. Almost 40% of the people surveyed had monthly income of

Rs. 40,000 or above and around 60% of the respondents were having

monthly income of less than Rs.40,000.

Marital status of the respondents reveals that 87.4% of the respondents

were married, and 10.4% of the respondents were unmarried. Only

negligible proportion of the respondents (2.1%) were married and at

present divorced.

Majority of the respondents had two children in their families. 26.8% of the

respondents had only one child in their families, and 15.2% of the

respondents did not have any child in their families. It is to be noted here

that only 6.2% of the respondents had three or more children in their

families.

Investors belonging to all the religion invested in mutual funds. In the

present study, most of the respondents were belonging to the Hindu

religion. A small percentage of respondents belonged to the Christianity

and the Muslim religions.

Most of the respondents in the present study were well educated in terms

of formal educational qualification. Around 83% of the respondents were

183

graduates, post graduates or doctorates. A very small percentage of

respondents were having PU or less than PU qualifications as their highest

qualification.

It was found that most of the respondents (86.5%) were living in nuclear

families and small percentage (13.5%) of respondents were living in joint

families.

Almost half of the respondents had one or none member earning in the

family and majority of the respondents had two or more than two persons

earning in their families.

Bank deposits were found to be the most popular avenue of investment

among all the categories of respondents as it was considered as the safest

avenue with highest liquidity. Gold/ commodities, debentures/bonds and

antiques were not very popular among the respondents.

Majority of the investors were having more than 5 years of investment

experience in mutual funds.

Half of the people who surveyed have invested in less than three mutual

fund houses and the remaining half have invested in more than 3 mutual

fund companies.

Majority of respondents (64.5%) owned less than five mutual fund

schemes. It was found that there were some respondents owning more

than 20 schemes. Some of the respondents were not aware of the number

and type of schemes in which they have invested.

184

Among all categories of respondents, employment category had the above

average level of knowledge about various concepts of mutual funds

compared to the respondents belonging to business and profession and

others category.

The level of knowledge of the respondents was highest about Net Asset

Value (NAV). Among the various occupation categories, respondents

belonging to employment category had better knowledge about NAV when


Mutual fund investors were not having sufficient knowledge about mutual

funds and rely on the information provided by the mutual fund distributor

for taking investment decisions.

Investors have better knowledge about NAV as well as dividend option and

growth option and poor knowledge about scheme information document/

offer document and measures of risks such as the standard deviation, beta

and duration.

Even if there is a wide variation in the level of knowledge about various

terms of mutual funds among the respondents belonging to different

occupation categories, the level of knowledge about all the terms was

highest among the respondents belonging to employment category when

compared with other categories. The level of knowledge about all the

terms was lowest among respondents belonging to others category.

185

Majority of the investors invest less than 20% of their savings in mutual

funds.

Majority of the respondents had invested less than ten percent of their total

financial assets in mutual funds. In this sense, mutual funds are not yet a

popular avenue among the retail investors in Udupi district.

Majority of the respondents consult some advisors/experts before making

investment in mutual funds, and only a small portion of the respondents do

not consult investment advisors or mutual fund distributors.

Total market value of all mutual funds owned by the respondents showed a

wide variation among the different occupation categories. Majority of the

respondents in the present study invested more than Rs.50,000 in mutual

funds. A small percentage of investors currently own mutual fund

investment of more than Rs.5,00,000.

In the present study, almost all the respondents consult some

sources/experts while buying and selling mutual fund units. Majority of the

investors had indicated that they consult mutual fund advisors before

taking investment decisions. It was found that respondents also consult

stock brokers, their friends, spouse, family members, religious guru, the

internet, newspapers and media such as TV and Radio.

Majority of investors take decisions to buy and sell mutual funds

themselves. Few respondents depend on outside experts like brokers and

186

advisors for taking investment decisions while buying and selling mutual

fund units. There are respondents who depend on their spouse and

outside experts.

Majority of the respondents said that they were encouraged by their

spouse to invest in mutual funds, and a small percentage of the

respondents did not get the support from their spouse to invest in the

mutual funds. It can be observed from the data that the encouragement

received from their spouse was low in case of respondents belonging to

employment category compared to the respondents belonging to business

and profession and others category.

Most of the respondents did not get the support from their spouse to invest

in mutual funds due to the perception of higher risk associated in mutual

fund investments. Other reasons include losses suffered in the past in

mutual funds, lack of understanding the mutual fund product, lower return

potential of mutual fund products and better investment opportunities

available.

Most of the respondents in all occupation categories expect more than

12% return on equity oriented funds and a small percentage of

respondents expect less than 12% return in the long run.

The expectation of return from balanced mutual funds by the respondents

was less than the equity oriented mutual funds. It may be noted here that

187

53.7% of the respondents from business and profession category, 41.9%

of the respondents in employment category and 58.2% of the respondents

in others category expect 9-12% return from balanced mutual fund

schemes in the long run.

The return expected by the respondents from debt oriented mutual fund

schemes is less when compared with other types of schemes. 45.3 % of

the respondents from business and profession category, 45.9% of the


from others category expect 6-9% return on debt oriented mutual fund

schemes.

The return expected by the respondents from money market mutual fund

schemes was lowest. From the field survey results it can be observed that

28.3% of the respondents from business and profession, 45.6% of the


from others category expect less than 6% return from money market

mutual fund schemes.

higher than the historical long run returns of gold in India. This may be

because the gold has given higher return in the recent past. Investors tend

to believe that recent past performance is likely to continue in the future.

188

In the present study, most of the respondents have also invested directly in

equity shares of listed companies through their accounts with the stock

brokers. A small portion of the respondents have invested in mutual funds

but not invested directly in equity shares.

Majority of the respondents gave first rank to professional management in

mutual funds as the most important factor that motivated them to invest in

mutual funds. Mutual funds help investors to reduce the unsystematic risk

through portfolio diversification. So, it is another important motivating

factor. Lack of expertise to invest in equity, lack of time, tax benefits of

mutual funds, convenient options and no need of emotional involvement

were other factors motivating retail mutual fund investors to invest in

mutual funds.

Investors may have various social beliefs, and such beliefs may influence

the investment behaviour. In the present study, a very small percentage of

the respondents have beliefs in horoscope/astrology, palmistry and good

and auspicious days for investment.

Investors use various sources of information about mutual funds for the

purpose for taking investment decisions. Majority of the respondents use

mainly print media and television to get information about mutual funds.

Mutual fund investors have a choice to invest in a plethora of schemes

according to their return expectations and risk appetite. Most of the

189

respondents have invested in diversified equity funds, and nearly half of

the respondents have invested in large cap funds. Balanced funds, sector

funds, mid cap and small cap funds are not popular among the retail

mutual fund investors. Even debt funds are not popular among the retail

investors as the percentage of respondents investing in long or short term

debt funds was only 12.8.

Majority of the respondents use PPF for tax savings purposes, and almost

half of the respondents have invested in life insurance products for tax

saving purposes. Tax savings mutual fund schemes, national savings

certificates were not popular among the retail mutual fund investors. Tax

savings bank fixed deposit was least popular avenue among the

respondents of all the occupation categories.

Equity is an asset class that is suitable for meeting long-term financial

goals of an investor. By nature, equity is very risky in the short run but less

risky in the long run. Return from equity fluctuates widely but over a long

period it can give a higher return with lower risk. It was found that almost

half of the respondents had a time horizon of less than six years while

investing equity funds.

Debt funds are suitable for meeting their short-term financial goals. It is

interesting to note that 87.0% of the respondents did not invest in debt

funds at all. 6.4% of the respondents had a time horizon of less than 3

years, 2.4% of the respondents had a time horizon of 3-6 years and only

190

4.3% of the respondents had a time horizon of more than 6 years while

investing in debt funds.

Almost half of the respondents have purchased the mutual funds in the

past and currently not interested in investing more. The proportion of the

respondents who have invested in the past but want to increase the

investment is more than the investors who want to decrease the

investment.

Mutual fund investors are provided with several options. Most of the

respondents have used systematic investment plan, and a small

percentage of investors have used systematic transfer plan, systematic

withdrawal plan and trigger options. It is to be noted here that in all the

occupation categories, systematic investment plan was used by most of

the respondents.

Investors do discuss the matters relating to their investments and

exchange knowledge and information at various places and with different

people. In the present study, majority of the respondents do discuss

mutual fund matters at ir home with their family members and in the

workplaces with their colleagues whenever they are free. A small

percentage of respondents do discuss mutual fund matters with relatives

as well as in public places.

Most of the respondents have not used borrowed money for investing in

mutual funds. Majority of the investors have indicated that they would be

191

neutral and do not buy or sell the units if the market price of mutual fund

units suddenly falls. The percentage of investors buying the units was

more than the investors selling the units whenever prices of the mutual

fund units suddenly fall.

In the present study, it is evident that the majority of the respondents would

remain neutral whenever there is a sudden rise in the prices of mutual fund

units. Almost half of the respondents intend to sell units to book profits and

a very small percentage of investors intended to buy more units.

Mutual fund investors have the tendency to look for the performance of the

schemes in which they have invested. Almost one-fourth of the

respondents monitor the performance of their mutual fund investment

daily/weekly or monthly, and the remaining respondents do not monitor

their investments frequently.

Mutual fund investors can find out the current value of their investments

from various sources. Majority of the respondents find out the current value

of their investments from newspapers. A small percentage of respondents

find out the present worth of their investments from mutual fund

advisors/distributors and the communication received from the mutual fund

house. Some investors use the website of Association of Mutual Funds in

India (AMFI). A very small percentage of investors use stock brokers for

finding out the current value of their investments.

192

Out of the 422 respondents, almost all respondents do not hedge the risk

using options and futures. Only nine respondents have used derivatives for

hedging purposes, and 5 of them were belonging to the occupation

category of employment.

Respondents who used derivatives used index futures, index options and

stock futures for hedging purposes.

Almost three fourth of the investors did not use the switch facility to switch

the funds from one scheme to another within the fund family and nearly

one-fourth of the respondents used switch facility.

Majority of the respondents used the switch facility for the purpose of

reducing the risk. A small percentage of respondents used the switch

facility for various purposes like changing the debt equity mix, increasing or

reducing the exposure to a particular sector, diversifying the portfolio,

shifting the funds to a good fund manager or fund house and for lowering

the fund expenses.

Out of the respondents who switched, majority of the investors switched for

less than two times during the last five years. Almost half of the

respondents switched more than two times during the last five years.

Out of the 97 respondents who exercised the switch facility, majority of the

respondents used this facility to switch from equity to debt scheme and

from one equity scheme to another equity scheme. Only a small

193

percentage of respondents used the switch option to switch from debt

scheme to equity scheme.

Majority of the respondents bought mutual funds units from mutual fund

advisor or distributor. The percentage of respondents buying directly from

the fund house was 46.0%. 28.7% of the respondents buy the units from

the stock brokers. Only 9.2% of the respondents buy the units from the

stock brokers through Demat account.

Investors consider various factors while choosing a fund family. Almost all

the respondents do consider past performance of the mutual fund scheme

before investing. Reputation of the sponsor is next important factor

considered. Other factors such as size of the mutual fund house, variety of

schemes offered and low expenses were also considered by the investors

while selecting the mutual fund houses.

Majority of the respondents do purchase the mutual fund units both during

New Fund Offer (NFO) as well as at ongoing prices based on net asset

value. Some of the respondents buy the units after the NFO at the ongoing

prices. Only very few respondents buy the units only during the NFO

period at the face value.

Almost half of the respondents sell the units that are in profits whenever

they need money to meet their financial goals. Some of the respondents

sell the funds that have appreciated most. 19.7% of the respondents sell

194

the units that are expected to perform badly in the future, and 27.5% of the

respondents would sell the mutual fund units that are in losses.

Respondents from all the categories ranked higher expected return as the

most important objective. Liquidity was ranked second and safety was

ranked as the third important objective of investing in mutual funds.

Convenience, tax savings, and regular income are not considered as

important objectives by the retail mutual fund investors.

Liquidity was considered to be good for equity oriented scheme by the

respondents. They also believe that equity mutual funds were good for tax

savings and growth.

Respondents took different routes to take exposure to equity shares.

Majority of the investors have invested in equity directly. Unit linked

insurance plan was also popular among investors to get exposure to

equity. Other routes such as portfolio management service and new

pension schemes were also used by the respondents.

Mutual fund investors may be subject to a number of misconceptions or

myths with respect to various matters. Investors believe that the fund that

had performed well in the past would perform well in the future as well.

They regard dividend option is better than the growth option. Many

investors think that buying the mutual fund units at the time of new fund

offer is better than buying the units at ongoing prices later on. In the

195

present study, it was also found that investors consider the mutual fund

houses as risky and may even go bankrupt. Many investors believe that

mutual fund units are not liquid. It was also found that many investors think

that mutual fund is an entity that invests the money collected from

investors in only equity shares. These myths are true with the respondents

but not true in practice.

In the present study, only 36.7% of the respondents do read the contents

of scheme information document (SID) and the balance 63.3% do not read

the contents of scheme information document.

The level of importance given by mutual fund investors for various items

contained in the scheme information document varies widely for various

items. Investors have given high level of importance to past performance

of the fund, mutual funds ratings and tax benefits contained in the scheme

information document. Asset allocation plan, risk measures, benchmark of

the scheme and fund manager and his profile was given low importance by

the respondents.

Directions for Future Research

Mutual fund investor behaviour is an emerging area of empirical research

worldwide. There are various dimensions of mutual fund investor

behaviour experiments and models of research interest. There is also a

wide scope to do cross country and inter-regional studies on various

196

aspects of investor behaviour. Some of the important issues of interest are

identified below.

The limitations of this empirical research should be viewed as opportunities

for future research. The current study was confined to retail mutual fund

investor behaviour and hence, the future research should focus on

investors in other avenues such as equity, commodities and real estate.

The future research can also focus on non-retail investors such FIIs, NRIs,

Corporates, Domestic Institutional Investors (DIIs), and High Net-worth

Individuals (HNIs).

The present study was conducted on a sample of 422 respondents who

have attained 18 years of age. Future research can be undertaken on only

young or old investors as their investment behaviour tend to be different.

Gender differences and investment behaviour can be researched either

within a country or on cross country basis.

The present study has been undertaken in Udupi District of Karnataka

State in India, and the similar study can be replicated with larger sample

size in other regions and countries.

There is also a scope for doing research to investigate whether retail

mutual fund investors biases and prefer mutual funds

investing in home country rather than international funds.

197

Conclusion

Mutual funds are the investment products that are best suited for those

who want to invest in equity but do not have the expertise. In India mutual

funds are still a push product. Mutual fund distributors often mis-sell the

products to retail investors. Many investors also experience poor

investment performance due to several factors for which they cannot

blame anybody except themselves. Trend chasing behaviour, tendency to

buy the funds with more positive recent returns, too much diversification of

portfolio, lack of knowledge about mutual funds, short term view on equity

funds, too much caring about short term volatility, relying on the

information supplied by the distributor comes in the way of earning a good

return on investment and results in poor investment experience.

198

APPENDIX-I

Questionnaire

I, Radhakrishna Sharma, Faculty at Justice K.S.Hegde Institute of Management,

Nitte- Behavior

request you to kindly spare your valuable time and cooperate in completing this

questionnaire. Needless to say that the information collected will be kept

confidential. Please do not answer the questions that you do not know. If you

need any clarification, please contact me on my mobile No. 0974 111 7251.

1. Name and place of residence :

Tel/Mobile No.:

Place of Residence: Rural/Urban

2. Which of the following avenues have you invested?

(You can Tick more than one )

Sl. No. Avenues Tick

Mark

a Shares

b Debentures/Bonds or debt instruments

c Bank fixed deposits/Company fixed deposits

d Public provident fund/Post office savings products)

e Life Insurance products (Other than pure term policies)

f Mutual funds and exchange traded funds

g Gold/commodities (other than for personal use)

h Land and property (Other than residential house)

i Antiques

j Any other (Specify)-----

199

3. If you have invested in mutual funds, since how long have you been

investing in mutual funds?

a. Less than 3 years b)3- 5 years c) 5-10 years d)10-15 years e)15-20

years f) More than 20 years

4. Age of the respondent in years

a. less than 25 b) 25-35 c)35-50 d)50-65 e) More than 65

5. Sex of the respondent

a. Male b)Female

6. Monthly income from all sources in Rs.

a. Below 20,000 b) 20,000- 40,000 c) 40,000 60,000

d) More than 60,000 e) Any other (specify)

7. Marital status:

a. Married b) Unmarried c)Divorced d) Widow e) Widower

8. Occupation:

a. Agriculture b)Business c)Employment d)Profession e) Retired

f)Student g)Home maker

9. No. of children:

a. Less than two b) Two c)Three d) Four e)More than four

10. Religion:

a. Hindu b)Christian c) Muslim

d) Any other-----

11. Highest educational qualifications and branch

200

a. Less than SSLC b)PU Level c) Degree level d) PG

level e)Doctorate level

12. Family structure of the investor

a. Joint family b) Nuclear family

13. Family size

a. Two or less than two b)Three c)Four d)

Five e) More than 5

14. No. of persons earning in the family

a. One or zero b) Two c)Three d)More than three

15. What is the approximate percentage of your income do you generally

save every month?

a. Less than 15% b) 15%-30% c) 30%-45% d) More than 45%

16. In how many mutual fund houses have you currently invested in?

a. Less than three b)3-6 c)6-9 d) 9-12

e) More than 12 f)I am not aware

17. In how many schemes of mutual funds have you currently invested in?

a. Less than 5 b)5-10 c)10-15 d) 15-20 e)More than 20

schemes f) I am not aware

18. Rate your knowledge and understanding of mutual funds ( 1 is very

poor and 5 is Very good)

a) Very poor b) Poor c) fair

d) Good e) Very good

19. Rate your knowledge about the following technical terms relating to

Mutual Fund. (1=Very poor and 5=Very good)

201

Sl.

No.

Mutual Fund Terms V.

Poor

Poor

fair

Good

V.

Good

a) Net Asset Value (NAV)

b) Investment Objective and asset

allocation of a scheme

c) Entry load, Exit load and Expense

ratio

d) Dividend option and growth option

e) Benchmark of a mutual fund scheme

f) ETFs and Gold ETFs

g) Open ended and close ended

scheme

h) SID and offer document

i) Taxation of mutual fund returns

j) Standard deviation, beta and duration

20. Generally what percentage of your savings do you invest in mutual

funds?

a. Less than 20% b)20-40% c)40-60% d)60-80% e)More than 80%

21. What percentage of your total financial assets (All your investments

other than real estate) have you invested in mutual funds as on today?

a. Less than 10% b)10-25% c)25-50% d)50-75%

e)More than 75% f)I am not aware

22. What is the present total market value ( Rs. in thousand) of all the

mutual funds units that you own?

a. Less than 50 b)50-100 c) 100- 200 d)200-500

e)More than 500 f)I am not aware

202

23. Do you consult any one before buying and selling mutual funds units?

(If No, go to Q.No.25)

a. Yes b) No

24. If yes, the sources that you generally consult before buying or selling

MF units? (You can tick more than one)

Sl. No. Sources Tick the appropriate sources

A Mutual fund advisor

B Stock broker

C Friends

D Relatives

E Religious guru

F Spouse

G Family members

H Media (TV, Radio, TV etc)

25. Who takes the decision regarding the purchase and sale of mutual fund

units?

a. Self

b. Spouse

c. Jointly with the spouse

d. Jointly in consultation with an outside expert

e. Outside expert/ MF advisor/Stock broker

26. If you are married, does your spouse encourage you for investing in

Mutual fund? (If Yes , go to Q.No.28)

a. Yes b) No c) Not married

203

27. If No , the reason/s is/are (You can tick more than one)

Sl.No. Reasons Tick the appropriate

reason

a) Higher uncertainty of future return (Risk)

b) Lower return

c) Losses suffered earlier in mutual

funds/shares

d) Lack of understanding of mutual fund

products

e) Better investment opportunity with higher

return

f) Any other reason(Specify)

28. What would be your long term expectation while investing in the

following types of mutual funds?

Sl.

No.

Funds Below

6%

(1)

6 -9%

(2)

9-12%

(3)

12-15%

(4)

15-

18%

(5)

Above

18%

(6)

a) Equity oriented

fund

b) Balanced fund

c) Debt oriented

funds

d) Money market

mutual funds

e) Gold Exchange

traded funds

204

29. Have you invested directly in the equity shares of the companies listed

in India?

a. Yes b) No

30. Rank (1-7) the factors that motivated you to invest in mutual funds: (

Rank 1 should be for the most important factor ):

Sl.No. Factors Rank( 1-7)

a Professional Management in mutual fund

b Diversification and risk reduction benefit in mutual

fund

c Tax benefit in mutual fund

d No emotional involvement

e Convenient options in mutual funds

f Lack of time to manage investments

g Lack of expertise to invest in equity

31. Tick the factors that you consider before buying or selling the mutual

fund units?

a) Horoscope /astrology b) Good and auspicious days and time as

per calendar c) Palmistry d) Any other specify) e)None of the above

32. Which media do you use to get information on mutual funds? (You

can Tick more than one )

a. Print b) Television c) Internet d) Any other (specify)--------

205

33. Which of the following funds you are currently invested in? (You can

tick more than one)

Sl.No. Type of funds Tick the relevant

type of funds

a) Diversified equity fund

b) Index fund/Exchange traded fund and Gold

ETF

c) Large cap funds

d) Small cap fund

e) Sector fund

f) International fund

g) Balanced fund

h) Long term or short term Debt fund

i) ELSS (Equity Linked Savings Scheme)

j) I am not aware of the funds in which I have

invested

34. Which of the following investments did you use for tax savings

purposes during the last 3 years?

a) ELSS (Mutual Funds) b) PPF c) Bank FD d) NSC e) LI Policy

f) Infra Bonds g) None of the above

35. If you have invested in equity oriented mutual fund schemes, your time

horizon in Years is

a. Less than 3 b)3-6 c)6-9 d)More than 9

e)I have not invested in equity funds

206

36. If you have invested in debt schemes, your time horizon is

a. Less than 3 years b)3-6 years c)More than 6 years

d)I have not invested in debt funds

37. Which of the following statement is true in your case?

a. Purchased in the past and currently not interested in investing

more

b. Purchased in the past but now want to decrease the investment

c. Purchased in the past but want to increase the investment in

mutual funds

38. Which of the following options did you use for achieving your financial

goals? (You can Tick more than one )

a. Systematic Investment Plan

b. Systematic Transfer plan

c. Systematic Withdrawal Plan

d. Trigger option

e. Any other ,Specify---------------

f. I have not used any of the above options

39. Do you discuss matters relating to mutual funds in the following

places?( You can Tick more than one)) a)Home b) Relatives house

c) Work place d) Public place e)None of the above places

40. Have you ever used borrowed money for investing in mutual funds?

a) Yes b ) No

207

41. If the NAV of a Mutual Fund scheme falls steeply as soon as you buy the

units, you would :

a. Buy more units of the same scheme to average down

b. Buy the units of other schemes to take advantage of the fall in

prices

c. Sell the units to get out of mutual funds

d. Sell the units now to purchase the same after the price fall

e. Not do anything

42. How do you react to a sudden stock market fall?

a. Sell equity oriented mutual funds units

b. Purchase equity oriented mutual funds units

c. Switch to debt schemes

d. Neutral

43. How do you react to the sudden rise in the price of the mutual funds

that you have bought?

a. Neutral

b. Sell the units and book profits

c. Buy more units of the same scheme

d. Buy the units of other schemes

44. How often do you find out the current value of your mutual funds

investments?

208

a) Daily/Weekly/Monthly b)Quarterly c) Half yearly

d) Yearly e) Rarely

45. From where do you find the current value of your mutual fund

investments?

a. Newspapers b) AMFI website c) MFs website d)Mutual

fund advisor e)Stock broker

f) Communication from mutual fund house

46. Did you use derivatives to hedge the risk of fall or rise in the prices

a. Yes b) No

47. If yes, tick the products that you have used to hedge the risk?

a. Index futures b) Stock futures c) Index options/ long term

options d) Stock options

48. Have you switched from one scheme to another within the fund family

so far? (If No, go to question No.52)

a. Yes b) No

49. If yes, why did you switch funds?

a. To reduce the risk and increase the safety

b. To change debt equity mix

c. To diversify the portfolio

d. To lower fund expenses

e. To reduce or increase the exposure to a particular sector

209

f. To shift funds to a good fund manager or fund house

50. How many times did you switch the funds in the last five years?

a. Less than 2 times b) 2-4 times c) 4-6

times d) More than 6 times

51. If you have switched from one scheme to another, which one of the

following is applicable to you?

a ) Debt to equity b) Equity to debt c) One equity to another

d)One debt to another

52. Which option would you generally prefer?

a. Dividend option b) Growth option c)

Dividend reinvestment option

53. Your mode of buying the mutual funds: (You can tick more than one)

a) Direct from the mutual fund house b) Through

stock broker c) Through stock broker

demat account d) Mutual fund advisor

54. How often do you monitor the performance of mutual funds?

a. Less than 3 months b) 3- 6 months c)6 months one year d) 1-

2 years e) More than two years

55. Whatt factors do you consider in selecting a fund family? (You can Tick

more than one )

a. Good past performance b)Variety of schemes c) Bigger size

of the fund house d)Reputation of the sponsor e) Low fund

expenses

210

56. When do you prefer to buy the units?

a. During NFO only at face value b) After NFO at ongoing

prices c) Both the above

57. Which fund do you sell whenever you need money?

a) Funds with losses b) Funds which are in profits

c) Funds that is expected to perform badly in the future

d)Funds which has appreciated most

58. Rank (1-6) the objective of investing in mutual funds (Give 1st rank to

the most important objective)

Sl.No. Objectives Rank 1-6

a Higher expected return

b Liquidity (conversion in to cash

quickly)

c Safety or lower risk

d Regular income

e Tax savings (ELSS Scheme)

f Convenience

59. How do you rate the equity mutual fund investment on the following

factors:

Sl.No. Factors Very

Poor(1)

Poor(2) Fair(3) Good(4) Very

good(5)

a) Liquidity

b) Safety

c) Growth

211

(Appreciation)

d) Return

e) Convenience

f) Tax benefits

60. Which of the following products have you used to take exposure to

equity shares other than mutual funds?

Products Tick the appropriate product

a) Unit Linked Insurance Plan

b) New Pension Scheme

c) Direct investment in Equity

shares

d) Portfolio Management Service

(PMS)

61. Specify your degree of agreement with the following statements.(1 is

strongly disagree and 5 is strongly agree)

Statements 1 2 3 4 5

a) Equity oriented MFs are best suited for achieving their

long term financial goals of an investor (above 10 years)

212

b) Equity mutual funds are expected to give higher returns

than bank deposits/debentures in the long run (above 10

years)

c) Investors must always select funds with good past

performance as they are expected to perform well in

future.

d) Dividend option is always better than growth option in any

scheme

e) It is better to purchase the units during NFO rather than

buying it later on at ongoing NAV

f) It is always better to buy the units just before the

declaration of dividend and sell it after the payment of

dividend

g) Mutual Fund Houses are risky because they can go

bankrupt if the stock market/bond market falls sharply

h) Mutual fund units are not liquid as they can`t be encashed

quickly by investors

i) Mutual funds are vehicles to invest investor`s money in

equity shares

62. Do you read scheme information document (SID) or offer document

before investing in mutual funds?

a) Yes b) No

213

63. How important are the following information to you while investing in

mutual funds? (1= Not at all Important and 5= Extremely important )

Factors 1 2 3 4 5

Investment objective and policy

Investment pattern and strategies

Asset allocation plan and top holdings of the

scheme

Major attributes of the scheme

Risk measures (standard deviation, beta etc.) of

the scheme

Tax benefits available to investors

Frequency and mode of distribution of income

Management fee and load structure

Past performance of the scheme

Benchmark for the fund

Fund manager of the scheme and his profile

Mutual fund ratings by rating agencies

Thank you very much for your cooperation

214

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Websites Accessed

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https://www.amfiindia.com/research-information/aum-data

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https://www.amfiindia.com/research-information/amfi-newsletter

Documents

Investment Behaviour of Retail Mutual Fund Investors · 3.3 AUM of Indian Mutual Fund Industry as on 31st March, 2014 38 3.4 Number of Schemes by Investment Objective as on 31-3-