Analysis of Factors Affecting Investors Perception of Mutual Fund Investment

Soumya Saha* and Munmun Dey**

Consumer behavior is an important area of research studies. To evaluate the prospects of any kind of product irrespective of its nature, one should be aware of the behavior of the consumer. If we look into the financial market in general, the research studies have been conducted based on statistical observation, technical analysis and fundamental analysis. Investors expectation is a very important factor in this regard that needs to be analyzed by all alternative investment avenues. The success of any mutual fund, a popular means of investment, depends on how effectively it has been able to meet the investor's expectation. The present study focuses on measuring the investors' expectation and their preference. It also attempts to gauge the factors that they take into consideration before making any investment in mutual fund as well as the awareness level among individual investors regarding mutual fund investment. The sample survey has been conducted in Kolkata city during the period November 2008-January 2009. A sample of 100 individual mutual fund investors has been surveyed through a pre-tested questionnaire. The individual investors include people who have invested in mutual funds and have some knowledge about the basic terminologies involved with mutual funds. An attempt has been made to identify the factors perceived to be important by the investors before investing in any mutual fund. This study will add value to the body of knowledge in this field, from the point of view of researchers and academicians.

Introduction
Indian Mutual Fund (MF) industry provides reasonable options for an ordinary man to invest in the share market. The plethora of schemes provides variety of options to suit the individual objectives whatever their age, financial position, risk tolerance and return expectations. In the past few years, we had seen a dramatic growth of the Indian MF industry with many private players bringing global expertise to the Indian MF industry.
* ** Lecturer, George College, Department of Management Studies, Kolkata, India. E-mail: soumyasaha2003@gmail.com Lecturer, Department of Commerce, St. Xavier s College, Kolkata, I ndia. E-mail: mun710@gmail.com 23

Analysis of Factors Affecting Investors Perception of Mutual Fund Investment 2011 IUP. All Rights Reserved.

The MF is structured around the mitigation of risk through the diversification of investments across multiple entities. This is achieved by pooling the small investments into a large bucket which are later allocated among various entities. The MFs came as a respite to the investors who neither had the expertise nor the time to conduct a careful analysis before investing their hard-earned money. MFs provide them professional portfolio management services at a lower cost. The MF industry has evolved as an important financial intermediary in the Indian capital market. As of March 2009, the industry comprising 37 (AMFI, www.amfiindia.com/mutualind.html) Asset Management Companies (AMCs) managed financial assets of over 4.89 trillions. Domestic MF industry is growing at a CAGR of 30% during the last three years, according to the Associated Chambers of Commerce and Industry of India (ASSOCHAM). According to the ASSOCHAM study, Asset Under Management (AUM) as percentage of GDP in India is 4.12% as against those of Australia 88.22%, Germany 10.54%, Japan 7.57%, UK 18.81%, USA 61.27%, Canada 34.33%, France 59.63%, Hong Kong 101.085 and Brazil 19.95%. The entry of commercial banks and private players in the MF industry coupled with the rapid growth of the Indian capital markets during the past couple of years has fostered an impressive growth in the MFs.

Literature Review
MF investments bring a new era in the history of investment world. On the one hand it reduces the tax burden of the investor, and on the other it gives a considerable amount of return without having a large amount of risk burden. Due to its multiple advantages as an investment avenue, it creates interest in researchers and academicians to do research on it. There have been a less number of studies conducted in India as compared to the developed capital markets. Here, in this literature review we discuss the studies done both in India and abroad regarding the fund selection behavior of individual investors. Bogle (1992), and Ippolito (1992) reported that the fund is selected by investors on the basis of its past performance. They also found that generally the money flows into the fund that gives positive return in comparison to those funds having negative return during a particular period of time. Malhotra and Robert (1997) reported that the preoccupation of MF investors with using performance evaluation as the selection criterion is misguided because of the volatility of returns, and it is difficult to determine the reason, which may be due to superior management or just good luck. The findings of Ferris and Chance (1987) are consistent with the findings of Malhotra and Robert (1997). Lu Zheng (1999) examined the fund selection ability of MF investors and found that the investors decisions are based on short-term future performance and they use fund-specific information in their selection decision.
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Gupta (1993) conducted a study based on the survey of household investor. The objective of the study is to provide data on investor preferences on MFs and other financial assets. Goetzman (1993) and Grubber (1996), in their study, try to find out how investors select funds. The study reveals the fact that active fund investors select the fund by using their selection ability only. Lu Zheng (1999), in his study, examined the fund selection ability of MF investors. He found that the investors choose funds based on the fund-specific information. The decisions regarding the fund is always based on short-term future performance. Sujit and Amrit (1996) try to find out how behavior of an individual investor impacts the selection of equity and MF investment portfolio. The study was conducted through a survey in the north-eastern region of India. The survey revealed that the salaried and self-employed were the major investors in MFs, primarily due to tax concessions. UTI and SBI schemes were popular in that part of the country during the time the survey was done and other funds had not proved to be a big hit then. Raja (1997a and 1997b; and 1998), in his studies, surveyed a number of investors and found that there exists segmentation among investors based on their characteristics, investment size and the relationship between stage in life cycle and their investment pattern. Syama (1998) conducted a survey to get an insight into the MF operations of private institutions with special reference to Kothari Pioneer. The survey revealed that the awareness about the MF concept was poor during that time in small cities like Visakhapatnam. The survey also revealed the following: agents play a vital role in spreading the MF culture; open-ended schemes were much preferred then; age and income are the two important determinants in the selection of fund/scheme; and brand image and return are their prime considerations.

The Problem
Investors expectation is a very important factor that needs to be analyzed by all investment alternatives. The success of any MF depends on how effectively it has been able to meet the investors expectation. The study focuses on measuring the investors expectation and their preference. It also attempts to gauge the factors that they take into consideration before making any investment in MF as well as their awareness level regarding MF investments. The strategic marketing decisions of the MF companies would be more effectively framed if they are supported by such a detailed study of the investors preference and expectations. This would further ensure the success of MFs.

Objectives of the Study

The present study has the following general objectives: To examine the savings objectives among individual investors.
25

Analysis of Factors Affecting Investors Perception of Mutual Fund Investment

To recognize the preferred savings avenue among individual investors. To understand the preferential feature in the savings instrument among individual investors.

To examine MF conceptual awareness among the present investors.

The study also attempts to test other specific objectives such as: To examine the fund/scheme preference of investors. To evaluate the fund qualities that would affect the selection of MFs. To perceive the preferred communication mode of investors. To identify the information sources influencing the scheme selection decision of investors. To assess the influence of demographic variables on the MF conceptual awareness level of individual investors. To evaluate fund-related services that would affect the selection of MFs.

Methodology
Preliminary Study
In the preliminary stage, we gathered a database of MF investors from different brokers and fixed appointments with them. One hundred investors accepted an appointment for personal interview.

Sampling Design
The target respondents include all such individual investors who have invested in MFs and have some knowledge about the basic terminologies of MFs. However, the sampling has turned out to be a convenient sampling systematically chosen from blocks of the area conveniently located for the enumerators. The sample size is 100 MF investors.

Data Collection
The enumerators visited the investors according to the appointment fixed with them. They filled up the interviewer administered questionnaire with feedback from the respondents. The data collection went on for 45 days during November 2008 and January 2009.

Analysis
The responses to the different questions have been represented using a pie chart. Ranks have been provided by the respondents for the different (1) savings instrument preference among individual investors; (2) current attitude of individual
26 The IUP Journal of Management Research, Vol. X, No. 2, 2011

investors towards the different financial instruments, in the Indian capital market; (3) MF scheme preference among individual investors; and (4) preferential feature in MFs among individual investors. Weights have been assigned to the ranks in increasing order, with the lowest rank number (signifying high importance) given the highest weight and the highest rank number (signifying low importance) assigned the lowest weight. A chi-square test has been done to examine whether there exists any dependency between awareness level and each demographic factor such as age, income and gender separately. Factor analysis has been done to sum up the different fund-related factors that are considered important by the investors in selecting the particular MF.

Data Analysis
Savings Objective of Individual Investors
The savings objective of majority of individual investors is to provide for purchase of assets followed by the objectives to meet contingencies and tax reduction (Figure 1). AMCs can attract investors by designing products that ensure a reasonable return and ensure safety of the capital. The tax saving instrument would also prove to be lucrative if marketed effectively.
24% 21% 16% 17% 22% To 1 meet Slice To 2 provide for Slice contingencies retirement

Figure 1: Objectives of Savings

Slice For3tax reduction

For4 purchase of Slice assets

Slice For5 children's

education

Savings Instrument Preference Among Individual Investors

The investment attitude of investors is highlighted by their asset preference pattern. The study reveals that bank deposits are the most popular savings instrument among individual investors of Kolkata, as they are unique financial products which enable an average salaried person to get a balanced proportion of reasonable returns, along with safety of capital and liquidity (Table 1). The liquidity provided will help investors meet the contingencies, which is one of their primary objectives of saving. This is followed by life insurance which again ensures safety of the capital along with reasonable returns and also provides tax savings. UTI MF occupies the third position highlighting its growing popularity among retail investors. The other saving instruments are not so popular due to the lack of awareness among investors.
Analysis of Factors Affecting Investors Perception of Mutual Fund Investment 27

Table 1: Preference for Savings Instruments

Currency Bank Deposit Life Insurance Pension and Provident Fund Shares UTI MF Postal Savings Chits Real Estate Gold 4.02 7.86 7.63 6.06 5.43 6.4 5.17 1.84 5.06 5.43 VIII I II IV V III VI IX VII V

Current Attitude of Individual Investors Towards Financial Instruments in the Indian Capital Market
Every financial product has unique Table 2: Preference characteristics to suit the requirements of for Financial Instruments different segments of investors. Stocks provide high total returns with Shares 3.08 commensurate level of risk, while bonds may Debentures 2.77 provide lower risks along with regular/lower MF 3.68 income. The attitude of every individual Bonds 3.09 investor towards financial instruments may be influenced by his investment objective, risk appetite, time horizon of investment, personal state of affairs or performance facet of the asset class. The various financial instruments, i.e., shares, MFs, bonds and debentures were rated on a 5-point scale. In the turbulent market conditions, MFs have been rated as the Most Favored Instrument followed by bonds and shares (Table 2). This demonstrates the growing popularity of MFs as avenues providing higher return at lower risk through diversification and professional management. MFs have exhibited consistent performance over the years. Moreover, MF is an ideal vehicle for both debt and equity products. Hence, it can be concluded that MF has the potential to emerge as one of the major growth drivers of the market in future.

MF Investment Preference in Future

Fifty six percent of the respondents have voted Yes as their preference for future MF investment, highlighting the fact that there is a fair opportunity for MF investments in future (Figure 2). However, 15% have voted No and 29% as Not Sure as their preference for future MF investment. The No and Not Sure categories
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should be a matter of concern for the AMCs. There must be ample reasons for 44% (15 + 29; No and Not Sure category) of the investors to have posed a negative approach towards MFs. The main task at hand for the AMCs is to examine the reasons for such negative perception and tackle investor sentiments with greater transparency credibility in its functions. and

Figure 2: Preference for MF Investment in Future

29% Yes 1 Slice No 2 Slice Not 3Sure Slice 15% 56%

MF Scheme Preference Among Individual Investors

MFs provide a plethora of options, ranging from growth schemes to fixed income schemes. Nowadays, investors are not offered just plain vanilla schemes but an assorted basket in tune with their personal preference. According to Table 3, MF scheme preference for the majority of investors is growth scheme followed by income schemes. The investors are interested in earning higher return rather than regular safe returns. Table 3: Preference for Different Schemes of MFs
Growth Balance Income Money Tax Index 5.25 3.72 4.21 3.40 2.37 2.16 I III II IV V VI

Scheme Preference by Operation Among Individual Investors

Analysis of scheme preference by nature of operation reveals the popularity of open-ended schemes. In India, majority of the schemes are open-ended as investors can buy or sell units at NAV related prices whenever they wish. The preference for open-ended scheme has also given due importance to liquidity and flexibility to enter and exit at wish, which is given high Figure 3: Preference for MF Schemes
6% Open-ended Slice 1 scheme Close-ended Slice 2 scheme 34% 60%

Slice 3 Interval
scheme

Analysis of Factors Affecting Investors Perception of Mutual Fund Investment

29

importance by the investors in selecting an investment avenue. On the other hand, only 6% of the respondents have voted for interval schemes, which shows lack of awareness with regard to this feature (Figure 3).

Preferential Feature in MF Among Individual Investors

M Damodaran, Chairman of UTI, has summarized the psyche of a typical Indian Investor in three wordsyield, security and liquidity. Table 4 shows that the investors need for safety is foremost, followed by good return, liquidity, flexibility, tax benefit, capital appreciation, diversification benefits and professional management. Table 4: Preference for Different Features of Mutual Funds
Safety Liquidity Flexibility Good Return Tax Benefit Capital Appreciation Professional Management Diversification Benefit 5.90 5.73 5.19 5.78 4.41 3.34 2.59 2.97 I III IV II V VI VIII VII

Preferable Route to MF Investing Among Individual Investors

Investors may use different sources as per their convenience to gain awareness regarding investing in MFs. The sources in the present study are confined to reference groups, newspapers (general and business), financial magazines, television, brokers/agents, e-mail and store display (Figure 4). Findings of the study Figure 4: Preferred Route to MF Investment
5% 1% 11% 21%

Slice 1 Reference Groups Slice 2 Newspaper (General)

Newspaper (Business) Slice 3 Financial Magazine Slice 4 Television Slice 5 Broker/Agent Slice 6 Mails Slice 7

16%

11%

16% 30

11%

Store Slice 8 Display

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divulge that investors attach high priority to reference groups, closely followed by published information, thereby preferring newspapers (general and business), and financial magazines. Though mostly they are prompted by advice of reference groups, they seem to also analyze the information provided, before deciding on the investment in MF.

Preferred Mode of Communication in MF Investing Among Individual Investors

The survey reveals that 44% of the respondents of Kolkata city prefer to telephone the office to know more about MF (Figure 5). Nowadays, financial services are just a phone call away. 23% of the respondents prefer to get routine or special information like NAV, dividend, bonus, change in asset mix, etc., by personally visiting the office. This proves that people are most comfortable in directly communicating with the officials verbally. While 22% of the respondents prefer automated responses and 12% in the survey have no preferences. This gives the evidence of propelling improvement in Internet and telecommunication services in India. Figure 5: Preferred Mode of Communication
11% 22% Automated Response Slice 1 Personal Visit Slice 2 44% 23% Telephone Office Slice 3 No Preference Slice 4

Preference of MF Investing over Equity Investing

The emergence of an array of savings instruments and the increase in the popularity of MFs in the recent years in India have opened up numerous investment options for average investors. For the average Indian investor, the hurdles for investing in financial markets are manylack of opportunity, lack of conceptual understanding and the influence of fixed income orientation in the Indian culture.

Figure 6: Preference of MF Investing over Equity Investing

7%

Yes 1 Slice 26% No 2 Slice Do not Slice 3 know 67%

Analysis of Factors Affecting Investors Perception of Mutual Fund Investment

31

Further, the study also revealed that 67% of the small investors of Kolkata preferred MFs to invest (Figure 6). The reason behind this is that MF provides the opportunity to participate in the market boom without proportionate amount of risk as the same gets spread among the participants in an MF. Through MF, one takes advantage of volume buying and scientific data analysis, professional expertise and so on. This seems to be an ideal option for the individual who does not have the time, knowledge and expertise to make a succession of judgments involving hard earned savings. On the other hand, 26% people belong to the category who prefer to apply their own strategy in planning investment after taking into consideration their own situation and risk preference. The study discloses yet another category of respondents, Do Not Know, which sums up to 7%. This category may include people who either have a low awareness level about MF industry or still do not completely believe that MFs can get returns similar to equity shares. This calls for a comprehensive education program to spread awareness among the people.

MF Conceptual Awareness Level of Individual Investors

Knowledge about the level of awareness about MFs among the investing public will enable AMCs to create an external environment that can influence investment decisions of investors. The study reveals that the general awareness level among individual investors regarding the concept and functioning of MFs is good. Awareness has been
72% 28% Aware Slice 1 Unaware Slice 2

Figure 7: Awareness Among Mutual Fund Investors

measured by collecting the responses to some basic facts related to MFs. Those respondents who have given more than 50% right answers have been categorized as aware and the rest as unaware. It was found that 72% of the respondents have good awareness level of MFs (Figure 7). This could be attributed to the wide publicity given to the MF industry by the media and investor education programs organized by AMFI from time to time. However, it should be noted that this study was based in the metropolitan city of Kolkata, where the awareness level would be considerably high. The challenge would be to educate the less aware investors about the advantages of investing
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in MFs compared to the traditional saving instruments in order to encourage investment in MFs. We further analyzed the relationship between awareness and the demographic variables like gender, age and income. We formulated three hypotheses to test their independence using the chi-square test. The results are tabulated and interpreted next.

Hypotheses
H01 : Awareness is independent of gender. H02 : Awareness is independent of age. H03 : Awareness is independent of income.

Gender
From chi-square tests (Table 5), it is evident that awareness of investors is independent of gender. Table 5: Results of Chi-Square Test for Hypothesis H01
Awareness 0.00 Gender 1.00 2.00 Total 21 7 28 Chi-Square Tests Value Pearson Chi-Square 0.375 df 1 Asymp. Sig. (2-Sided) 0.540 1.00 58 14 72 Total 79 21 100

Note: The different gender groups are: Male (1) and Female (2).

Age
From Table 6, we can infer that the conceptual awareness of investors is significantly dependent on age as we can reject the null hypothesis at significance level of 6.7% or more. In other words, awareness is dependent on age. It is found that respondents belonging to less than 40 age bracket are well aware of the MFs as compared to the respondents of higher than 40 age bracket. This can probably be attributed to the fact that they are risk-averse and are generally inclined towards parking their funds in government securities, bank deposits, LIC, etc. Thus AMCs have a major role in creating awareness amongst the respondents belonging to higher age group which in turn will fetch a considerable amount of investment for the industry.
Analysis of Factors Affecting Investors Perception of Mutual Fund Investment 33

Table 6: Results of Chi-Square Test for Hypothesis H02

Awareness 0.00 Age 1.00 2.00 3.00 4.00 Total 9 4 9 6 28 Chi-Square Tests Value Pearson Chi-Square 7.156 df 3 Asymp. Sig. (2-Sided) 0.067 1.00 31 21 9 11 72 Total 40 25 18 17 100

Note: The different age groups are: Below 30 (1), 31-40(2), 41-50(3), and above 50(4).

Income
From Table 7, we can infer that the conceptual awareness of investors is significantly dependent on their level of income. We can reject the null hypothesis at significance level of 11.1% or more. It is found that respondents having monthly income below 30,000 are well aware of the MFs in comparison to the respondents having monthly Table 7: Results of Chi-Square Test for Hypothesis H03
Awareness 0.00 Income 1.00 2.00 3.00 4.00 Total 6 7 9 6 28 Chi-Square Tests Value Pearson Chi-Square 6.004 df 3 Asymp. Sig. (2-Sided) 0.111 1.00 10 37 17 8 72 Total 16 44 26 14 100

Note: The different income groups are: Below 100000(1), 100000-300000(2), 300000500000(3) and above 500000(4).

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income more than 30,000. This can probably be attributed to the fact that people belonging to low income group are more cautious about their money. Hence, before parking their hard earned money in different available investment avenues, they always gather as much information as possible. But it is just the opposite in the case of the respondents belonging to the higher income bracket, who mostly depend on the brokers and advisors.

Factor Analysis for Fund-Related Qualities

We used the method of factor analysis to determine which factors influence the investors behavior in selecting a fund. Here we have taken nine variables to analyze fund-related quality. To examine the appropriateness of factor analysis, we used Bartletts test of sphericity and Kaiser-Meyer Olkin (KMO) measure of sampling adequacy. The approximate chi-square statistic is 191.595 with 36 degrees of freedom, which is significant at 0.000 levels (Table 8). The KMO statistic (0.643) is also considerable (>0.5). Hence factor analysis is considered an appropriate technique for further analysis of data. Retaining only the variables with eigenvalues greater than one (Kaisers criterion), we can infer that 30.038% of variance is explained by factor 1, 16.440% of variance is explained by factor 2, and 12.923% of variance is explained by factor 3. Together, all the factors contributed to 59.401% of variance (Table 9). Factor loadings are very high in the case of factor 1 (5 out of 9 variables have factor loading >0.5). Therefore, Varimax rotation was done to obtain factors that can be named and interpreted. Under Varimax rotation, 3 out of 9 variables have factor loadings >0.5 in case of factor 1. And 4 out of 9 variables have factor loadings >0.5 in case of factor 2 (Table 10). This reveals that 33.33% and 44.44% of variables are clubbed into factor 1 and factor 2, respectively. On the basis of Varimax rotation with Kaiser normalizations, 3 factors have emerged. Each factor is constituted of all those variables that have factor loadings greater than or equal to 0.5. Thus A4, A3 and A5 constituted the first factor. It is conceptualized as Intrinsic Fund Qualities (consistent performance and reliability). Table 8: Results of KMO and Bartletts Test
Kaiser-Meyer-Olkin Measure of Sampling Adequacy Bartletts Test of Sphericity Approx. Chi-Square df Sig.
Analysis of Factors Affecting Investors Perception of Mutual Fund Investment

0.643 191.595 36 0.000

35

Table 9: Total Variance Explained

Initial Eigenvalues % of Variance Cumulative % Component Extraction Sums of Squared Loadings % of Variance Cumulative % Total Rotation Sums of Squared Loadings % of Variance Cumulative % 3 0.072 0.252 0.295 0.054 0.552 0.147 0.186 0.584 0.550 Total 2 0.464 0.313 0.365 0.303 0.182 0.704 0.450 0.450 0.082

1 2 3 4 5 6 7 8 9

2.703 30.038 1.480 16.440 1.163 12.923 0.985 10.950 0.860 0.583 0.533 0.450 0.242 9.560 6.473 5.924 5.001

Total

30.038 2.703 30.038 30.038 46.478 1.480 16.440 46.478 59.401 1.163 12.923 59.401 70.351 79.911 86.384 92.308 97.309

2.257 25.081 25.081 1.738 19.307 44.388 1.351 15.013 59.401

2.691 100.000

Note: Extraction Method: Principal Component Analysis.

A7, A6 and A8 and A9 constituted the second factor and this is conceptualized as Flexible Investment Facilities (simplicity and tailor-made investment patterns). Table 10: Component Matrix
Component 1 Schemes Portfolio of Investment Schemes Expense Ratio Reputation of the Fund Manager/Scheme Minimum Initial Investment Withdrawal Facilities Product with Tax Benefit Entry and Exit Load Funds Reputation for Brand Name Fund Performance Record 0.763 0.752 0.645 0.603 0.553 0.253 0.402 0.339 0.359

Note: Extraction Method: Principal Component Analysis; 3 components extracted.

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A1 and A2 constituted the third factor and are conceptualized as Credibility of Image (trustworthy and reputable, with investors interests at heart) (Table 11). Table 11: Rotated Component Matrix
Component 1 A4 A3 A5 A7 A6 A8 A9 A2 A1 Schemes portfolio of investment Schemes expense ratio Reputation of the fund manager/scheme Product with tax benefit Withdrawal facilities Entry and exit load Minimum initial investment Funds reputation for brand name Fund performance record 0.880 0.765 0.758 0.205 0.380 0.069 0.306 0.048 0.191 2 0.012 0.041 0.185 0.716 0.656 0.620 0.555 0.255 0.006 3 0.170 0.373 0.168 0.162 0.262 0.099 0.237 0.769 0.634

Note: Extraction Method: Principal Component Analysis; Rotation Method: Varimax with Kaiser Normalization; and Rotation converged in 5 iterations.

Thus, after rotation, factor 1 (Intrinsic Fund Qualities) accounts for 25.081% of variance; factor 2 (Flexible Investment Facilities) accounts for 19.307% of variance and factor 3 (Credibility of Image) accounts for 15.013% of variance, and all 3 factors together explain for 59.401% of variance.

Principal Suggestions
Since the investors preference for liquidity is found to be high, we suggest more of the new schemes to be open-ended. AMCs should endeavor to design suitable schemes to meet the multiple needs of adequate returns, safety and liquidity in a reasonable proportion as these features have been rated high by individual investors. Investors can be categorized into various segments such as young families with small or no children looking for high returns, middle-aged people saving for retirement, retired people looking for regular income and suitable products can be designed to meet the preference of each class. Products such as growth and balanced schemes for young families and income schemes with regular and reasonable returns for retired people can be designed and marketed to the right customers.
Analysis of Factors Affecting Investors Perception of Mutual Fund Investment 37

There is a gradual rise in the elderly population in India from 5.4% in 1951 to 6.4% in 1981 and 8.1% in 2001. The decadal growth of elderly during the period 1991-2001 was close to 40%, which was more than double the rate of increase for the general population, all age groups taken together. Pension funds are likely to be a big driver for the MF industry in the new future. So they need to design suitable funds and market the same effectively.

Negative perceptions and unawareness among investors about MFs could be tackled through appropriate investor education measures. It is suggested that AMFI may set aside a percentage of membership fee that it collects from the AMCs and create a fund for Investor Education Programs. They can also circulate investor education literature in vernacular specially tailored to suit the regional needs to create/increase the awareness level of the investors.

Advisory services are becoming more critical to investors and independent financial advisors and planners are becoming popular. Banks are planning to enter the advisory services in a big way and this would open an extensive distribution channel given the customer base of the banks. An entirely new distribution channel can be created consisting of professional advisors, as in the case of life insurance agents, who will exert substantial influence on what products investors will buy.

Electronic sale of financial products is gaining volumes with the widespread acceptability of e-buying. Therefore, AMCs should establish friendlier and easily accessible automated response systems to encourage the establishment of a new low-cost distribution channel. These systems have the capacity to effectively convey information on products and services and also efficiently redress investor grievances.

Conclusion
MF industry in India has a large untapped market. There is a great potential for this industry as more people are falling back on professional management of their funds at low cost and minimum risk. This market potential can be tapped by closely scrutinizing investor behavior to identify their expectations and design products to suit their risk appetite and return expectations. Presently, as more and more funds are entering the industry, strategic marketing decisions of these companies are vital for their survival. Apart from other MF companies, these companies also face competition from saving instruments with varied risk-return combination. Investors have become more alert and choosy. Hence, the success of an MF depends on complete understanding of the psychology of the small investor. Under such a situation, the present exploratory study is an attempt to understand the
38 The IUP Journal of Management Research, Vol. X, No. 2, 2011

financial behavior of MF investors in connection with scheme preference and selection which would help the MFs to gauge the investor expectations and changing perception.

Limitations of the Study

Sample size is limited to 100 educated individual investors in the city of Kolkata, which may not be an adequate representation of the national market. This study has not been conducted over an extended period of time to incorporate the ups and downs of stock market conditions which have an important influence on investors buying pattern and preferences. @

References
1. Bhatt M Narayana (1993), Setting Standards for Investor Services, Economic Times, December 27. 2. Bogle J C (1992), Selecting Equity Mutual Funds, The Journal of Portfolio Management, Vol. 18, No. 2, pp. 94-100. 3. Ferris S P and Chance D M (1987), The Effect of 12b-1 Fees on Mutual Fund Expense Ratio: A Note, The Journal of Finance, Vol. 42, pp. 1077-1082. 4. Goetzman W N (1993), Cognitive Dissonance and Mutual Fund Investors, Working Paper, Columbia Business School. 5. Gruber M (1996), Another Puzzle: The Growth in Actively Managed Mutual Funds, Journal of Finance, Vol. 52, pp. 783-810. 6. Gupta L C (1993), Mutual Funds and Asset Preference, Society for Capital Market Research and Development, Delhi. 7. Ippolito R A (1992), Consumer Reaction to Measures of Poor Quality: Evidence from the Mutual Fund Industry, Journal of Law and Economics, Vol. 35, pp. 45-70. 8. Lu Zheng (1999), Is Money Smart? A Study of Mutual Fund Investors Fund Selection Ability, The Journal of Finance, Vol. LIV, No. 3. 9. Malhotra D and McLeod R (1997), An Empirical Analysis of Mutual Fund Expenses, Journal of Financial Research, Vol. XX, No. 2 (Summer), pp. 175-190 10. Raja Rajan (1997a), Chennai Investor is Conservative, Business Line , 23 February. 11. Raja Rajan (1997b), Investment Size Based Segmentation of Individual Investors, Management Researcher, pp. 21-28.
Analysis of Factors Affecting Investors Perception of Mutual Fund Investment 39

12. Raja Rajan (1998), Stages in Life Cycle and Investment Pattern, The Indian Journal of Commerce, Vol. 51, Nos. 2 & 3, pp. 27-36. 13. Sujit Sikidar and Amrit Pal Singh (1996), Financial Services: Investment in Equity and Mutual Funds A Behavioral Study, in B S Bhatia and G S Batra (Eds.), Management of Financial Services, Chapter 10, pp. 136-145, Deep and Deep Publications, New Delhi. 14. Syama Sundar P V (1998), Growth Prospects of Mutual Funds and Investor Perception with Special Reference to Kothari Pioneer Mutual Fund, Project Report, Sri Srinivas Vidya Parishad, Andhra University, Visakhapatnam.

Appendix
Questionnaire 1. 2. 3. 4. Name (Optional): Sex: Male Female

Contact No. (Optional) Age in completed years: Below 30 31-40 41-50 Above 50

5.

Occupation: Professional Business Salaried Retired

6.

Annual Income in : Below 1,00,000 3,00,001-5,00,000 1,00,001-3,00,000 Above 5, 00,000 Approx) 50,001 to 100000

7.

How much do you save annually (in Less than 50,000

Above 100000 8. Objectives of your savings are: To provide for retirement To meet contingencies For purchase of assets
40 The IUP Journal of Management Research, Vol. X, No. 2, 2011

For tax reduction For childrens education

Appendix (Cont.)
9. What is your current preference of savings avenue? (Rank from 1 first preference to 10 last preference) Currency Bank Deposit Life Insurance Shares Postal Savings Gold

Pension and Provident Fund Units of UTI and Mutual Funds Chits Real Estate

10. What is your current attitude towards the following financial instruments, in the Indian capital market? Highly Favorable a. Shares b. Debenture c. Mutual Fund d. Bonds 11. Do you prefer investment in mutual funds to other savings avenue in future? Yes No Not Sure Favorable Somewhat Favorable Not very Favorable Not at all Favorable

12. Generally you prefer (Please Rank from 1 first preference to 6 last preference) Growth Schemes Balanced Schemes Tax-saving Schemes 13. You prefer Open-ended Schemes Interval Schemes 14. You prefer investment in mutual funds due to (Rank from 1 to 8) Safety Good Return Liquidity Tax Benefit Flexibility Capital Appreciation Diversification Benefit Close-ended Schemes Income Schemes Money Market Schemes Index Schemes

Professional Management

Analysis of Factors Affecting Investors Perception of Mutual Fund Investment

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Appendix (Cont.)
15. There are many qualities that could affect your selection of mutual funds and specific schemes. Please indicate importance of the following in your decision. Highly Important a. Funds performance record b. Funds reputation or brand name c. Schemes expense Ratio d. Schemes portfolio of investment e. Reputation of the Fund Manager/ Scheme f. Withdrawal facilities g. Products with tax benefits h. Entry and Exit load i. Minimum initial investment 16. How did you come to know about mutual fund investment schemes? Reference groups Newspapers (general) Newspapers (business) Financial magazines Important Somewhat Important Not Very Not at All Important Important

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Appendix (Cont.)
Television Brokers/Agents Mail Stores display 17. While contacting the fund or trying to get routine/special information would you rather communicate with a computerized automated response system or a person (Please tick one response). I prefer automated response I prefer to personally visit the office I prefer to telephone the office I have no preferences 18. Do you think mutual fund investing is a best alternative to equity investing? Yes No Do not know

19. Name a few mutual funds existing in the Indian capital market at present that you know 1. 2. 3. 4. 20. Which mutual fund company did you like to invest?

Analysis of Factors Affecting Investors Perception of Mutual Fund Investment

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Appendix (Cont.)
21. Please read the following statements and indicate your views by putting a tick mark in the appropriate square. Yes 1. Investment in mutual fund helps you realize the benefits of stock market investing 2. Mutual fund investing gives a definite positive return 3. Return of the principal amount invested in any mutual fund is assured 4. Entry and exit out of mutual funds is easy 5. Due to professional investment, a good return can be expected of mutual fund 6. Ups and downs of stock market will not affect the return from mutual fund 7. There are many mutual fund schemes to meet the varied needs of investors No Do Not Know

Reference # 02J-2011-04-02-01

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