“a study on investor preference towards mutual funds in bangalore city”

“A STUDY ON INVESTOR PREFERENCE TOWARDS MUTUAL FUNDS IN BANGALORE CITY”

Submitted in partial fulfillment of the requirements for the award of the

Degree of Master of Commerce of Christ University during the year

2014-15

By

MELVIN RAJU

1321713

Under the guidance of

MS.VINNARASI.B

ASSOCIATE PROFESSOR

Department of Commerce

Christ University

Bengaluru- 560029

1

GUIDE CERTIFICATE

This is to certify that this project titled “A STUDY ON INVESTOR

PREFERENCE TOWARDS MUTUAL FUNDS IN BANGALORE CITY”

Submitted to Christ University in the partial fulfillment of MCom is based on an

original and independent work carried out by MELVIN RAJU under my guidance

and supervision.

This has not formed the basis for the award of any other Degree/ Diploma of any

University/ Institution.

PLACE: Bengaluru

DATE:

GUIDE: VINNARASI.B

SIGNATURE

2

DECLARATION

I hereby declare that this project titled“ A STUDY ON INVESTOR

PREFERENCE TOWARDS MUTUAL FUNDS IN BANGALORE CITY ”is

prepared by me during the academic year 2014-15 under the guidance of

MS.VINNARASI .B, Faculty of Department of Commerce, Christ

University.

I also declare that this project has been conducted in partial fulfillment of

the requirement for the degree of MCom offered by Christ University.

This project is not based on any previously submitted project for the

award of any degree or diploma offered by any University. It is a result of

my own efforts and hard work.

Date:

Place: Bengaluru

MELVIN RAJU

1321713

3

ACKNOWLEDGEMENT

I would like to express my sincere gratitude to all those who have been instrumental

in the presentation of this project report. I am thankful to Christ University for having

given me the opportunity to do this project. I am grateful to Dr. (Fr) Thomas C

Mathew, Vice Chancellor of Christ University, Prof. Thomas Joseph - Associate Dean

Commerce, Dr. Nithila Vincent, Head - Department of Commerce, Dr. Anuradha P S

– Coordinator of M.Com. I wish to place on records my profound thanks to

Prof.Vinnarasi.B, a highly esteemed and distinguished guide for her expert advice and

support. Last but not the least; I would like to thank each and every individual for

their help and support that has largely contributed to the successful completion of the

project.

Date:

Place: Bengaluru

MELVIN RAJU

4

CONTENT PAGE

CHAPTERS PARTICULARS PAGE NUMBERS

1 INTRODUCTION 1-20

2 REVIEW OF LITERATURE 21-30

3 RESEARCH DESIGN 31-34

4 ANALYSIS & INTERPRETATION 35-55

5 FINDINGS, SUGGESTIONS & CONCLUSION 56-58

BIBLIOGRAPHY 59-66

ANNEXURE 67-68

TABLE CONTENT

5

TABLENUMBER

PARTICULARS PAGENUMBER

Table 4.1 - 4.1.3 Reliability Analysis 35-37

Table 4.2 – 4.2.1 Average monthly Savings 38

Table 4.3 – 4.3.1 Preferred Investment 39

Table 4.4 – 4.4.1 Factor influencing investment 40

Table 4.5 – 4.5.1 Have you invested in mutual fund 41

Table 4.6 – 4.6.1 Percentage of savings invested in mutual funds

42

Table 4.7 – 4.7.1 How you come to know about mutual funds

43

Table 4.8 – 4.8.1 The kind of investment preferred by the investor

44

Table 4.9 – 4.9.1 Most attracted feature of mutual funds

45

Table 4.10 – 4.10.1 Preferred mode of investment 46

6

Table 4.11 – 4.11.1 Mutual Fund Scheme used by the investor

47

Table 4.12 – 4.12.1 Where do you find yourself as an investor

48

Table 4.13 – 4.13.1 Preferred sector to invest in mutual fund

49

Table 4.14 – 4.14.1 From where do you purchase mutual funds

50

Table 4.15 - 4.15.1 Expected rate of return from your investment 51

Table 4.16 – 4.16.1 If not invested in mutual fund, why? 52

Table 4.17 – 4.17.1 Have you faced any loss 53

Table 4.18 – 4.18.1 Did the loss deter you from any investment 54

Table 4.19-4.19.1 Are you satisfied in investing in mutual fund 55

INTRODUCTIONSavings form an important part of the economy of any nation. Savings represents that

part of disposable income that is not spent on final consumption of goods and

services1. It is defined as the difference between income and consumption. During

7

pre-independence period in India, people spent most of their income on consumption

and only a small amount of income was left

in the form of savings. As a result, the saving rate was very low. Since the attainment

of Independence in 1947, the major objective of the government has been the

promotion of savings and capital formations. Increase in the savings, use of increased

saving for financing the increasing required investment, use of the increased

investment for increasing savings and use of the increased savings for a further

financing the required investment constitute the strategy of economic growth. The

process may continue till the saving, investment ratio to income would get stabilized

and there would be steady and self-sustained increases in national income and

economic welfare. Investment is the sacrifice of certain present value for the uncertain

future reward. Investment is an activity that is engaged in by people who have

savings. Savings directed into investment. With the savings invested in various

options available to the people, the money act as the driver for the growth of the

country. Indian financial scene too presents a plethora of avenues to the investors. The

main objective of the investor is to minimize the risk and maximize the return. Mutual

funds represent the most appropriate investment opportunity for most investors. As

financial markets become more sophisticated and complex, investors need a financial

intermediary who provides the required knowledge and professional expertise on

successful investing. Here mutual funds act as an intermediary. In a modern economy

financial institutions act as an intermediaries between lenders and borrowers 4 .

Financial markets are the backbone of an economic system and aid collection of

scarce capital across the productive sectors of the economy. The Indian financial

system has always had a well-defined institutional structure.

1.1 MUTUAL FUNDS: AN OVERVIEW

Mutual funds are financial intermediaries that pool the financial resources of investors

and invest those resources in portfolios of assets5. Mutual funds are basically

institutional arrangement for pooling of funds from small investors and invest them in

the best financial instruments. Mutual fund is a trust that pools the saving of a number

of investors who share common financial goal.

The money thus collected is then invested in capital market instruments such as

shares, debentures and other securities. The income earned through these instruments

8

and the capital appreciations realized are shared by its unit holders in proportion to the

number of units owned by them. Thus a mutual fund is the most suitable investment

for the common man as it offers an opportunity to invest in a diversified,

professionally managed basket of securities at a relatively low cost. Mutual funds help

small and medium size investors to participate today’s complex and modern financial

scenario. The advantages for the investors are reduction in risk, expert professional

management, diversified portfolios, liquidity of investment, variety of schemes and

tax benefits. These varieties of schemes fulfill the need of different type of investors -

gold investment schemes,retirement plan, tax-saving schemes, insurance linked

schemes, systematic

investment plans. Mutual funds play a vital role in the mobilization of resources and

their efficient allocation. These funds play a significant role in financial

intermediation, development of capital markets and growth of the financial sector as a

whole. Changes in economic scenario, falling interest rates of bank deposits, volatile

nature of the capital market emphasis the increasing importance ofmutual funds.

Today mutual funds collectively manage money almost as much as or more than

banks.

1.2 ORIGIN OF MUTUAL FUND

The history of mutual funds institutions is very old in other countries particularly in

Europe and America and they are operating very successfully for the last five decades

in these countries. In the very beginning Egyptians and Phoenicians started selling

shares in vessels and caravans to share the risk involved in these transactions8.

Mutual funds originated in Belgium, where, in 1882, a company was started to

finance investments in national industries associated with high risks under the name

of ‘Societe Generale de Belgiue”. In the 1860s, this movement spread to England. In

1868, the ‘Foreign and Colonial Governemnet Trust’ was formed to spread risks for

investors over a large number of securities. The history of mutual funds started in the

USA from

the beginning of the 20th century. In the beginning, investments companies were

formed in America. The first open-end investment company was formed in America

in 1924. After World War II, due to great depression the growth of these investment

companies curtail towards the end of 1920s. ‘Massachusetts Investors Trust’(MIT)

9

organized the first modern mutual fund, State Street Investment Corporation is the

second followed just four months later in 1928, first

‘Investment counsel Trust’ , now ‘Scudder Income Fund’ was organized as a first no-

load fund9. Mutual funds emerged during the 1920’s in Canada, when many close

ended investment companies were organized. ‘The Canadian Investment Fund’ was

the first mutual fund set up in Canada in 1932. Subsequently, hundreds of mutual

funds emerged and expanded their wings in

many countries in Europe, the Far East and Latin America10. In 1929, market crash

and subsequent depression had tremendous adverse effects on the mutual fund

industry. The Securities Act of 1933 and the Investment Company Act 1940

established ground rules and oversight of the fund industry by the Securities and

Exchange Commission (SEC) to protect the investors11. Countries in Pacific area like

Hongkong, Thailand, Singapore and Korea have also entered this field in a long way.

Mauritius and Netherlands are emerging as tax havens for off-shore mutual funds.

Thus mutual fund culture is now global in scope.

1.3 CONCEPT OF MUTUAL FUND

A mutual fund is a fund managed by an asset management company with the financial

objectives of generating growth. These asset management companies collect money

from investors and invest in different stocks, bonds and other financial instruments in

a diversified manner. Before investing they perform a thorough research and detailed

analysis of market trends of stock and bond prices. That helps fund managers to invest

properly and in the right direction. The income earned through these investments and

the capital appreciation realized is shared by its unit holders in proportion to the

number of units owned by them. Thus a mutual fund is the most suitable investment

for the common man as it offers an opportunity to invest in a diversified,

professionally managed basket of securities at a relatively low cost14. The investors,

who invest

their money in the mutual fund or any asset management company (AMC), receive an

equity position in that particular mutual fund. When the investors sell the units of the

mutual fund after a certain period of time, they receive the returns according to the

prevalent market conditions. The investment companies profit by allocating people’s

money in different stocks and bonds according to their analysis of the market trend.

10

1.4 TYPES OF MUTUAL FUNDS

There is a wide variety of mutual fund schemes that cater to the needs of investors

based on age, financial position, risk tolerance and return expectations.

(A) By Structure

1. Open-Ended Schemes

An open ended scheme accepts funds from investors by offering its units/shares on a

continuous basis likewise it permits investors to withdraw funds on a continuous basis

under a repurchase agreement15.

2. Close-Ended Schemes

A close-ended scheme accepts subscription for a specific period.They invite the

investor to invest through a new fund offer and further investments are allowed in a

specific period16.

3. Interval Schemes

These combine the features of open-ended and close-ended schemes. They may be

traded on the stock exchange or may be open for sale or redemption during

predetermined intervals at NAV related prices.

(B) By Investment Objective

1) Growth Schemes

Growth schemes’ main aim is to provide capital appreciation over the medium to long

term. These schemes normally invest a majority of their funds in equities and are

willing to bear short term decline in value for possible future appreciation. These

schemes are not for investors seeking regular income or needing their money back in

the short term. This is ideal for,

• Investors in their prime earning years.

• Investors seeking growth over the long term.

2) Income Schemes

Main aim of income scheme is to provide regular and steady income to investors.

These schemes generally invest in fixed income securities such as bonds and

corporate debentures. Capital appreciation in such schemes may be limited. Ideal for:

• Retired people and others with a need for capital stability and regular

11

income.

• Investors who need some income to supplement their earnings

3) Balanced Schemes

Aims to provide both growth and income by periodically distributing a part of the

income and capital gains they earn. They invest in both shares and fixed income

securities in the proportion indicated in their offer documents. In a rising stock

market, the NAV of these schemes may not normally keep pace or fall equally when

the market falls. Ideal for:

• Investors looking for a combination of income and moderate growth.

4) Money Market / Liquid Schemes

Aims to provide easy liquidity, preservation of capital and moderate income. These

schemes generally invest in safer, short term instruments such as treasury bills,

certificates of deposit, commercial paper and interbank call money. Returns on these

schemes may fluctuate, depending upon the interest rates prevailing in the market.

Ideal for:

• Corporate and individual investors as a means to park their surplus funds for short

periods or awaiting a more favourable investment alternative18.

5) Dividend Scheme

Under this scheme, dividend declared by the AMC for the investor’s holdings. The

investor can opt dividend payout scheme or dividend reinvestment scheme. Dividends

are distributed to the investors immediately,those who opt dividend payout option.

The dividend declared, again invested by issuing more units are called dividend

reinvestment scheme.

6) Bond Schemes

These are focused debt schemes, investing primarily in company debentures and

bonds or government bonds. This type of funds carries the advantage of secured and

steady income. However, such funds have little chance of capital appreciation and

carry no risk. A variant of this type of fund is called‘Liquid funds’ which specializes

in investing in short term money market

instruments. This focus on liquidity delivers the twin feature of lower risk and low

returns.

7) Gilt Schemes

These schemes invest exclusively in government securities20 and not in equity or

corporate debt securities. A portion of the corpus may be invested in the call money

12

market or RBI to meet liquidity requirement. Government securities carry zero credit

risk.

C) Other Schemes

1) Tax saving schemes

Tax saving schemes is basically equity schemes. It offers tax benefits to the investors.

Under sec 80CC allows a tax incentive up to the limit of `.100, 000.

2) Diversified Equity Scheme

These schemes invest most of the money that they collect, in stock markets. A small

portion of the money is invested in debt instruments. These schemes do not invest on

any particular sector, its portfolio contains the shares of all type of companies. So it is

called diversified schemes.

3) Sector Schemes

Sector schemes invest in any particular sector of the market such as Information

Technology, Banking, FMCG etc. This is beneficial to the investors who have

tremendous faith in a particular sector.

4) Index Schemes

An index is nothing but an average of the market prices of certain actively traded

equity shares. Index scheme of mutual funds invest in the companies, which form part

of the stock market index in the same proportion as these companies constitutes index.

The portfolio of the scheme and the weightage of the shares are as same in index. It

may be sensex or nifty or midcap etc. For

example, an index scheme investing in companies forming the BSE sensex will invest

in those companies in the same proportion as they make up the sensex. An actively

managed fund attempts to outperform a relevant index.

5) Fund-of- Fund mutual scheme

In this scheme funds of one mutual fund are invested in the units of other mutual

funds. There are a number of funds that direct investment into a specified sector of the

economy. The investors will benefit from the expertise and the skill of different

leading fund managers, as the fund managers have different types of skill sets in their

strategies. Convenience is another advantage of fund of funds. Whenever the market

is performing well in one component and dull in another, the fund manager of fund of

funds will take care of the portfolio.

6) Gold Exchange Traded Funds

13

Investors can buy gold linked units that would be traded on the stock exchange. One

unit of the gold exchange traded fund is equal to the value of one gram of gold. The

daily price of each unit is linked to the prices of gold in physical market. Like any

other mutual funds, the investor is able to buy and sellthe units of this ETF from the

stock market. The underlying asset is gold, which is held by mutual fund house in a

physical form through a gold receipt giving the right of ownership.

7) Real Estate Mutual Funds

Real estate mutual fund is a scheme which has an objective to invest directly or

indirectly in real estate and is governed by the provisions and guidelines under SEBI

regulations. The NAV of the scheme is declared daily and units are listed on the stock

exchange. These funds have their own share of drawbacks. Time span for one

transaction can be minimum six months or more than that. So evaluation of true value

of these assets is really a difficult task. In India these funds have started but not in full

flow – Prudential ICICI AMC started a branch called ICICI venture capital which

would be investing in real estates. Its main focus is on the high net worth individual

clients.

8) Capital Protection Schemes

Investments can be either in debt instruments or government bonds. This strategy

prevents the erosion of capital over the investment tenure and achieves capital

appreciation to certain extent. CPS has to be close-ended and the investors have no

option to exit before maturity. The basic aim is to assess the degree of achieving

capital protection.

9) International Fund/Offshore funds

When funds are launched to mobilize the finance from other countries they are known

as global funds. It gives an opportunity to the retail investors to be a part of global

investment. This fund involves currency risk and country risk.

10) Exchange Traded Funds

Exchange traded funds are open-end funds that trade on exchange.Like index funds

ETF’s are benchmarked to a stock exchange index.

14

1.5 MUTUAL FUND INVESTORS AND THEIR BEHAVIOUR

Due to the growth of mutual fund industry, the investors prefer mutual funds as an

investment. Mutual fund companies offer variety of schemes for all type of investors.

Now an investor can start his investments from `50. Investment in mutual funds has

grown very fast and has spread to even the remotest part of the country where a stock

exchange does not function. But the big question is the mutual fund investor has a full

knowledge about the capital market or not. The main reason for investing in mutual

funds are diversification, flexibility, professional management ,low cost etc., The

investment behaviour of the people is mainly based on the availability of fund,

availability of investment avenues, investment objective, duration of investment, risk,

nature of investment, selection of fund, attitude towards investment and also the

problems encountered in investing on mutual funds. Indian investors have not been

absolutely logical and rational in their investment behaviour and their investment

decisions are always affected by the definite behavioural factors. The classical

financial theories always suggest that external environmental factors like economic

factors, political factors, socio-cultural factors, etc., always affect the performance of

capital markets and decision making of the investor is always guided by a change in

these factors . The optimum portfolio composition will in general differ among

investors. It will depend both on their tastes and preferences that determine their

expected utility from return and risks, and on the shape and position of the efficient

opportunity available to them. Since the investor behaviours includes selection of

fund families, variables leading to select the mutual fund, attitude towards the

investment on mutual funds, reason for switching from are found to another and also

the problems encountered in investing on mutual fund industry covers all these areas.

1.6 CONCEPT AND DEFINITIONS

Mutual Fund

A fund established in the form of trust by a sponsor, to raise money by the trustees

through the sale of units to the public, under one or more schemes, for investing in

15

securities in accordance with these regulations.The company that offers the schemes

to collect money from the investor and invest the money into various financial

instruments like shares, debentures etc.

Asset Manangement Company (AMC)

A company, which manages the money collected from the investors. The AMC

manages the affairs of the mutual funds and its schemes26. Example, Tata Asset

Management Company, SBI Mutual Fund, Sundaram BNP Paribas Mutual Fund etc.

Fund Manager

The person who handles the money of the investors. He is concerned about the

following:

• Decision regarding the investments.

• Protection of value of the original investments.

• Generation of a steady return on the original investment.

Net Asset Value (NAV)

Net Asset Value indicates the intrinsic worth of a scheme. The investor invests in a

mutual fund at its NAV which is the Net Asset Value of each unit of a scheme. When

the fund invites an investor to invest for the first time through New Fund Offer

(NFO), it issues a “unit” for every `10 invested by the investor in a scheme, which

changes on the basis of the performance of the investments made by the mutual fund.

The NAV represents the market value of each unit of the mutual fund.

Market Value of all investments made by Mutual Fund

NAV= ---------------------------------------------------------------------

Number of units issued to investors

Systematic Investment Plan (SIP)

SIP refers to the practice of investing a constant amount regularly, generally every

month for a pre-decided period of time. When the market goes up, then the money

invested in that period gets translated into a fewer number of units for the investor. If

market goes down, then the same money invested gets translated into more units. SIP

helps the investor to average out the cost of

investment over the period and, thus overcome the short term fluctuations in the

market.

Dividends

Asset management companies distribute the return of the schemes to the investors as

dividend when they make profits from the investment. Some schemes declared

16

dividend in regular intervals like yearly etc. Mostly tax saving schemes offer higher

dividends every year.

New Fund Offer (NFO)

If a mutual fund company introduces a new scheme in market it is called New Fund

Offer (NFO).

1.7 ATTITUDE OF MUTUAL FUND INVESTORS

Attitude is a favourable or unfavourable evaluative reaction toward something or

someone exhibited in ones beliefs, feelings, or intended behaviour. A mental or

neutral state of readiness organized through experience, exerting a direct dynamic

influence upon the individuals response to all objects and situations with which it is

related. It is the reflection of how an individual feels about something and reach in a

certain manner towards an idea. Attitude is made up of three components namely

cognitive, affective and conative or behavioural. The cognitive component concerns

one's beliefs; the affective component involves feelings and evaluations and the

behavioural component consists of ways of acting toward the attitude object. The

cognitive aspects of attitude are generally measured by surveys, interviews, and other

reporting methods, while the affective components are more easily assessed by

monitoring physiological signs such as heart rate. Behaviour, on the other hand, may

be assessed by direct observation. This is the common idea of attitude. An investor is

a person who commits money to investment products with the expectation of financial

return. Generally, the primary concern of an investor is to minimize risk while

maximizing return, as opposed to a speculator, who is willing to accept a higher level

of risk in the hopes of collecting higher-than average profits. So his attitudes are

related to these financial activities. The investors’ attitude towards investment is

related with respect to their financial needs, investment objective, and time horizon of

investment, willingness to take risk, fluctuations in the value of investment,

investment experience, preference and degree of safety for financial assets. In the

financial industry, Mutual Funds have become a hot favourite of millions of people all

over the world. A mutual fund is a special type of institution, a trust or an investment

company which acts as an investment intermediary and invests the savings of large

number of people to the corporate securities in such a way that investors get steady

17

returns, capital appreciation and a low risk. It is essentially a mechanism of pooling

together the savings of a large number of investor for collecting investment with an

avowed objective of attractive yields and appreciation in their values. The concept of

'Mutual Fund' is a new feature in Indian capital market but not to international capital

markets. A mutual fund in the most suitable investment for the retail investors as it

offers an opportunity to invest in a diversified, professionally managed portfolio at a

139 relatively low cost. At the retail level, investors are unique and are a highly

heterogeneous groups. A large number of investment options are available to

investors. Currently there are large numbers of schemes available and asset

management companies (AMCs) compete against one another by launching new

products or repositioning old ones. Unless mutual fund schemes are tailored to the

changing needs, and the AMCs understand the fund selection behaviour of the

investors, survival of funds will be difficult in future. With this significance this

chapter made an attempt to study the attitude of mutual fund investors. This

chapter mainly focuses the investors attitude in selection of mutual fund i.e. factors

influencing to invest in mutual fund, expectations etc.

1.8 FACTORS INFLUENCING TO INVEST IN MUTUAL FUND

The investors prefer the investment on mutual funds for several reasons. The

important factors which drive the investors to invest in mutual funds considered were,

i) Brand Equity,

ii) Type of Fund,

iii) Fund Size,

iv) Schemes Portfolio,

v) Reputation of Fund Manager,

vi) Past Performance of the Fund,

vii) Liquidity Factors

viii) Risk Involved

Brand Equity

Brand equity means the brand value of the particular product. In 140 mutual funds

this brand equity represents mutual fund companies like Reliance, SBI, UTI, Franklin

Templeton, Birla Sunlife etc. They have high brand image and such fund houses are

most likely to have greater investors confidence in their funds. Chakarabarti and

Rungta (2000) stressed the importance of brand effect in determining the competitive

18

position of the AMCs. Their study reveals that brand image factor, though cannot be

easily captured by computable performance measures, influences the investor’s

perception2. The investors are asked to rate the brand equity of mutual fund at five

point scale according to their importance given on the investment of mutual funds.

Fund Size

Fund size means the total corpus of the particular fund. Fund size may be small,

medium or large. It must be ascertained that a larger fund size would mean a higher

amount of fund being invested and therefore a higher degree of involvement by the

fund family. It would therefore mean one of the most profitable investment decisions

that could be undertaken. In the present study, the investors asked to rate the fund size

as the discriminant of their investment on mutual funds at five point scale.

Type of Fund

A mutual fund may be a growth of fund, dividend fund, tax saving fund etc and

therefore, their impact on the mutual funds investment decision is largely related to

their respective functional intents. In the present study, the investors are asked to rate

the type of fund as the discriminant of their investment on mutual funds at five point

scale.

Type of portfolio and schemes

The type of portfolio could be mixed, equity, debt etc., which makes a sizeable impact

on investment decision on mutual fund. It helps the investors to assess their utmost

need to invest in either the mixed fund or equity fund or likewise. In the present study,

the importance of type of portfolio and schemes in the investment on mutual fund has

been measured at five point scale.

Risk involved in Mutual Funds

Mutual fund investment is having its own risk. There are different types of risks

associated with mutual funds. A fund with stable, positive earnings is less risky than a

fund with fluctuating total return. A higher risk is normally considered a demodulator

for mutual fund investment decision. In the present study, the investors are asked to

rate the importance of risk involved in mutual funds in the investment on mutual

funds at five point scale.

Reputation of Fund manager

Fund manager is a person who manages the particular fund. A fund manager is a high

authority in ascertaining an investor’s financial roadmap. The reputation of the fund

19

manager also plays a key role in determining the level and extent of profitable

investment one could make in mutual funds. Yadav R A and Mishra, Biswadeep

(1996)3 , Irissappane Aravazhi (2000)4, and Saha, Tapas Rajan (2003) 5 studied the

importance of the fund managers. Fund managers importance in the investment on

mutual funds among the investors is also rated at five point scale.

Past Performance of the Funds

A good track record of the fund is a reflection of its ingenuity and a high investor’s

confidence in it. Singh, Jaspal and Subhash Chander (2003)6 Irwin, Brown, FE

(1965)7 and many others studied the role of past performance while selecting the

scheme for investment. A past performance is generally undertaken through

ascertaining the annualized returns for the last five years and comparing it to

benchmarks like BSE, NSE, etc. In the present study, the importance of past

performance of funds in the investment on mutual funds among the investors is rated

at five point scale.

Liquidity Factors

Liquidity factors have their own relevance especially when the investor wishes to

rotate the profits for various investments for maintaining ones financial obligations. A

liquidity factor simply denotes their pace of convertibility into cash which therefore

serves as a major discriminant of the mutual fund investment. Gangadhar V (1992)

studied about mutual funds liquidity, In his study he found majority of the investors

opted for mutual funds with the expectation of liquidity8. In the present study, the

importance of liquidity factor in investment mutual funds is measured at five point

scale.

1.9 OTHER DIFFERENT INVESTMENT AVENUES

Different avenues and alternatives of investment include share market, debentures or

bonds, money market instruments, life insurance, real estate, precious objects,

derivatives, non marketable securities. All are differentiated based on their different

features in terms of risk, return, term etc

20

Equity Shares: Equity investments represent ownership in a running company. By

ownership, we mean share in the profits and assets of the company but generally,

there are no fixed returns. It is considered as a risky investment but at the same time,

they are most liquid investments due to presence of stock markets. Equity shares of

companies can be classified as follows:

Blue chip scrip

Growth scrip

Income scrip

Cyclical scrip

Speculative scrip

Debentures or Bonds: Debentures or bonds are long term investment options with a

fixed stream of cash flows depending on the quoted rate of interest. They are

considered relatively less risky. Amount of risk involved in debentures or bonds is

dependent upon who the issuer is. For example, if the issuer is government, the risk is

assumed to be zero. Following alternatives are available under debentures or bonds:

Government securities

Savings bonds

Public Sector Units bonds

Debentures of private sector companies

Preference shares

Money Market Instruments: Money market instruments are just like the debentures

but the time period is very less. It is generally less than 1 year. Corporate entities can

utilize their idle working capital by investing in money market instruments. Some of

the money market instruments are

Tressury Bills

Commercial Paper

Certificate of Deposits

They are one of the important parts of good investment portfolios. Life insurance is an

investment for security of life. The main objective of other investment avenues is to

earn return but the primary objective of life insurance is to secure our families against

21

unfortunate event of our death. It is popular in individuals. Other kinds of general

insurances are useful for corporates. There are different types of insurances which are

as follows:

Endowment Insurance Policy

Money Back Policy

Whole Life Policy

Term Insurance Policy

General Insurance for any kind of assets

Real Estate: Every investor has some part of their portfolio invested in real

assets. Almost every individual and corporate investor invests in residential and

office buildings respectively. Apart from these, others include:

Agricultural Land

Semi-Urban Land

Commercial Property

Raw House

Farm House etc

Precious Objects: Precious objects include gold, silver and other precious stones like

diamond. Some artistic people invest in art objects like paintings, ancient coins etc.

Derivatives: Derivatives means indirect investments in the assets. Derivatives market

is growing at a tremendous speed. The important benefit of investing through

derivatives is that it leverages the investment, manages the risk and helps in doing

speculation. Derivatives include:

Forwards

Futures

Options

Swaps etc

Non Marketable Securities: Non marketable securities are those securities which

cannot be liquidated in the financial markets. Such securities include:

22

Bank Deposits

Post Office Deposits

Company Deposits

Provident Fund Deposits

1.10 MUTUAL FUND INDUSTRY IN INDIA

Introduction

India is the fifth largest economy in the world and it ranks above France, Italy, the

United Kingdom, and Russia. It has the third largest GDP in Asia. It is the second

largest of the emerging nations. India is also one of the few markets in the world

which offer high prospects of growth and earning potential in all sectors of business.

The Indian capital market has been increasing tremendously during last few years.

With the reforms of economy, reforms of industrial policy, public sector, and the

financial sector, the economy has been opened up and many developments have been

taking place in the Indian capital market. In order to help the small investors, mutual

fund industry has come and occupies an important place1. A mutual fund is a trust or

an investment company that pools resources from thousands of investors who share

investment goals and then diversifies its investment into different types of securities

in order to provide potential returns and reasonable safety. The emergence and rapid

growth of mutual fund can be described to the diversified dimension of the Indian

capital market. It has become a major vehicle for the mobilization of savings,

especially from small and house hold savers for investments in capital market. Indian

households started allocating more of their savings into the capital markets in 1980s,

with investments flowing into equity and debt instruments, besides the conventional

mode of bank deposits. Until 1992, primary market investors were effectively assured

good returns as the issue price of new equity shares was controlled and low. After

introduction of free pricing of shares, new issue prices were higher and with greater

volatility in the stock markets, many investors who bought highly priced shares lost

money. Even those investors who continued as direct investors in the stock markets

realized that the key to successful investing in the capital markets lay in building

diversified portfolio, which in turn required substantial capital. Besides, selecting

securities with growth and income potential from the capital market involved careful

research and monitoring of the market, which was not possible for all investors.

Various scams in stock market like Harsheth Metha , Ketan Parek, Satyam Computers

23

etc reduced the confidence of investors those who are directly invest in shares. Under

these circumstances mutual funds are the best alternative investment to direct

investment in capital market.

1.11 HISTORY OF MUTUAL FUND IN INDIA

The mutual fund industry in India started in 1963 with the formation of Unit Trust of

India, at the initiative of the government of India and Reserve Bank of India. The

history of mutual funds in India can be broadly divided into four distinct phases.

First Phase – The Monolithic Phase (1964-87)

Unit Trust of India (UTI) was established on 1963 by an Act of parliament. It was set

up by the Reserve Bank of India and functioned under the regulatory and

administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from

the RBI and the Industrial Development Bank of India (IDBI) took over the

regulatory and administrative control in place of RBI. The first scheme launched by

UTI was Unit Scheme 1964 (US-64), which attracted the largest number of investors

in any single investment scheme over the years. UTI launched more innovative

schemes in 1970s and 80s to suit the needs of different investors. It launched ULIP in

1971, six more schemes between 1981-84,Children's gift growth fund and India fund

(India's first offshore fund) in 1986, Master share (India’s first equity diversified

scheme) in 1987 and monthly income schemes (offering assured returns) during

1990s. By the end of 1987, UTI's assets under management grew ten times to ` 6700

crores2.

Second Phase – 1987-1993 (Entry of Public Sector Funds)

The Indian capital market had undergone an unprecedented transformation in its over

100 years history by the end of 1987. This year marked the entry of non- UTI, public

sector mutual funds set up by public sector banks and Life Insurance Corporation of

India (LIC) and General Insurance Corporation of India (GIC). SBI mutual fund was

the first non- UTI mutual fund established in June 1987 followed by Canbank mutual

fund (Dec 87), Punjab National Bank mutual fund (Aug 89), Indian Bank mutual fund

24

(Nov 89), Bank of India (Jun90), Bank of Baroda mutual fund (Oct 92). LIC

established its mutual fund in June 1989 while GIC had set up its mutual fund in

December 1990. At the end of 1993, the mutual fund industry had assets under

management of ` 47,004 crores.

From 1987 to 1992-93, the fund industry expanded nearly seven times in terms of

asset under management. However, UTI remained to be the leader with about 80 per

cent market share.

Third Phase – 1993-2003 (Entry of Private Sector Funds)

A new era in the mutual fund industry began with the permission granted for the entry

of private sector funds in 1993, giving the Indian investors a wider choice of fund

families and increasing competition for the existing public sector funds. Also, 1993

was the year in which the first mutual fund regulations came into being, under which

all mutual funds, except UTI were to be registered and governed. The erstwhile

Kothari Pioneer (now merged with Franklin Templeton) was the first private sector

mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) regulations were

substituted by a more comprehensive and revised mutual fund regulations in 1996.

The industry now functions under the SEBI (Mutual Fund) regulations 1996. The

number of mutual fund houses went on increasing, with many foreign mutual funds

setting up funds in India and also the industry has witnessed several mergers and

acquisitions. As at the end of January 2003, there were 33 mutual funds with total

assets of ` 1,21,805 crores. The Unit Trust of India with ` 44,541 crores of assets

under management was way ahead of other mutual funds.

Fourth Phase – since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was

bifurcated into two separate entities. One is the specified undertaking of the Unit

Trust of India with assets under management of ` 29,835 crores as at the end of

January 2003, representing broadly, the assets of US 64 scheme, assured return and

certain other schemes. The specified undertaking of Unit Trust of India, functioning

under an administrator and under the rules framed by government of India and does

not come under the purview of the mutual fund regulations. The second is the UTI

Mutual Fund, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and

functions under the mutual fund regulations. With the bifurcation of the erstwhile UTI

which had in March 2000 more than ` 76,000 crores of assets under management. In

25

2007, mutual funds were permitted to introduce gold exchange funds and also the

guidelines for ‘Capital Protection oriented scheme’ were notified by SEBI. As on

March 31st 2010, the total AUM is ` 614545.98 crores.

1.12 MANAGEMENT OF MUTUAL FUNDS IN INDIA

A mutual Fund is set up in the form of a trust. The three tier structure of mutual fund

is as follows:

1. Sponsor

2. Trustee Company/Board of Trustees

3. Asset Management Company

1. Sponsor

Every mutual fund has a sponsor. The trust is established by a sponsor or more than

one sponsor who is like the promoter of the company. The 54 sponsor establishes the

mutual fund and registers it with SEBI. He also appoints the trustees, the custodian

and the asset management company in accordance with SEBI regulations. The

sponsor has to contribute at least 40 per cent of the net worth of the AMC3. For

example, for SBI Magnum, the sponsor is the State Bank of India.

2. Trustee

The trustees of the mutual fund hold its property for the benefit of the unit holders.

They are the first level regulators of the mutual fund and are governed by the

provisions of Indian Trust Act 1908. It is the responsibility of the trustees to protect

the interest of investors whose fund is managed by the AMC. Trustees must ensure

that the transaction of the mutual fund is in accordance with the trust deed. Trustees

must furnish to SEBI, on half yearly basis, a report on the activities of the AMC.

3. The AMC

The investment manager in a mutual fund is technically known as asset management

company. The trustees appoint the asset management company (AMC) with the prior

approval of the SEBI. The AMC is a company formed and registered under the

Companies Act 1956, to manage the affairs of

26

the mutual fund and operate the schemes of such mutual funds. It charges a fee for the

services it renders to the mutual fund trust. It acts as the investment manager to the

trust under the supervision and direction of the trustees.

1.13 MUTUAL FUNDS COMPANIES - SOME OF THE MUTUAL

FUNDS COMPANIES ARE:

ABN AMRO Mutual Fund

Birla Sun Life Mutual Fund

HDFC Mutual Fund

HSBC Mutual Fund

ING Vysya Mutual Fund

Prudential ICICI Mutual Fund

Sahara Mutual Fund

State Bank of India Mutual Fund

REVIEW OF LITERATURE

The review of previous studies related to investor’s attitude and behaviour towards

mutual fund investment are summarized below:

27

(Tripathy, 1996) pointed that, mutual funds creates awareness among urban and rural

middle class people about the benefits of investment in capital market, through

profitable and safe avenues. Mutual fund could be able to make up a large amount of

the surplus funds available with these people.

(Zaman, 1996) pointed out that the media played a significant part for retail investors

and also at the margins of the mutual funds market. Private investors are highly

dependent on additional comments and share-tipping in financial news columns

because they have little time or specialist knowledge to make considered decisions.

News media was either the only source of information for a particular investor or

there were few alternative source of information on a particular stock. The retail

investors reacted much more to media information than professional investors.

(Rajan, 1997,1998)high lightened segmentation of investors on the basis of their

characteristics, investment size, and the relationship between stage in life cycle of the

investors and their investment.

(sehgal, 1998)in their research paper “Investment Performance of Mutual Funds: The

Indian Experience” tried to find out the investment performance of 80 schemes

managed by 25 mutual funds, 15 in private sector and 10 in public sector for the time

period of June 1992-1996. The study has examined the performance in terms of fund

diversification and consistency of performance. The paper concludes that mutual fund

industry’s portfolio diversification has performed well. But it supported the

consistency of

performance pattern.

(Kapil, 1998) in its discussion paper printed that as the process of economic reform

continues and the share of the corporate sector in the economy increases the role of

securities markets as tax source of raising funds for investment is expected to become

more critical. If Indian markets are to serve the need of firms as well as a nationwide

community of convertors, it is essential that efforts to lover transaction cost and to

increase the integrity and fairness of Indian markets continue. While measures that

have been taken by the government, SEBI exchanges and market intermediaries in

this direction have led to an increase in capital market activity and investor

confidence, it is necessary to focus on further changes that are still required.

28

(Terrance, 1998) examined the behaviour of individual investors and found them

exhibiting disposition effects, that is, they realize their profitable stocks need as

investment at a much higher rate than their unprofitable ones. The disposition effect is

found to influence market price; yet its economic significance is likely to be the

greatest for individual investors.

(Chakrabarti, 2000)stressed the importance of brand effect in determining the

competitive position of the AMCs. Their study reveals that brand image factor,

though cannot be easily captured by computable performance measures, influences

the investor’s perception and hence his fund/scheme selection.

(Gupta, 2000)in their study pointed out that index funds have gained acceptance

among investors because it was found that fund managers often did worse than the

manipulation, speculation and insider trading. There was no effective regulation and

control as in the USA and the UK.

(Sarkar, 2001)made an attempt to make an operational analysis of various mutual

funds over a period of three years (1996-1999). The results revealed that the income

oriented products offered by the public as well as private mutual funds organizations

were less expensive than the others as these incurred comparatively low cost per

rupee of income generated. The results also indicated that the cost effectiveness is

favorable towards private sector mutual funds as against their rival operating in public

sector.

(Chalam, 2003) found the important factors influencing the investment on mutual

funds are return, capital appreciation, tax saving purpose, liquidity, marketability and

safety. Majority of the investors prefer in real estate investments, followed by mutual

fund schemes, gold and precious metals. Majority of the investors in mutual funds are

employees. They preferred only growth options compared to income options.

Majority of the investors are very much interested to take the re-investment benefit

rather than the regular dividend.

29

(Rajeswari, 2002) studied the financial behaviour and factors influencing fund/scheme

selection of retail investors by conducting Factor Analysis using Principal Component

Analysis, to identify the investor’s underlying fund/scheme selection criteria, so as to

group them into specific market segment for designing of the appropriate marketing

strategy.

(Fernandes, 2003) evaluated index fund implementation in India. In this paper,

tracking error of index funds in India is measured .The consistency and level of

tracking errors obtained by some well-run index fund suggests that it is possible to

attain low levels of tracking error under Indian conditions. At the same time, there do

seem to be periods where certain index funds appear to depart from the discipline of

indexation.

(Lynch A.W., 2003) were of opinion that this decade will belong to mutual funds

because the ordinary investor does not have the time, experience and patience to take

independent investment decisions on his own.

(Mazza) argues that investors may subscribe to or redeem from specific mutual funds

in order to change their consumption of or exposure to attributes other than expected

return and risk.

(Rao, 2003) made the performance analysis of 269 open ended Indian mutual funds in

a bear market. This evaluation was carried out through Treynor ratio, Sharpe's ratio,

Jensen measure and Fama measure, the study period being September 1998 to April

2002. The study offered that 58 schemes were able to satisfy investor's expectations

based on both premium for systematic risk and total risk.

(Bhalla, 2004) concluded that investors do not need to be familiar with the

characteristics of the different types of mutual funds. Many investors do not

understand what they are buying. With so many choices,investors risk making the

wrong ones. Besides investing in appropriate and high-cost mutual funds, investors

also buy laggards. There is no shortage ofmediocre performers.

30

(Amitabh, 2004) evaluated investment performance of 80 mutual funds schemes of

the Indian market. They have examined performance in terms of fund diversification

and consistency. It indicated that there has been lack of adequate portfolio

diversification. But, it supported the consistency of performance.

(Jaspal Singh and Subash Chander, 2004) analysed that, the perceptions about mutual

funds in the view of general investor feels that different regulatory bodies like SEBI

and others have not been able to regulate and control the working of mutual funds so

as to safeguard the small investors’ interest.

(Singh, 2004) concluded that most of the growth oriented mutual funds performed

poorly as compared to the benchmark. They have also examined the growth of mutual

funds in India in terms of resource mobilization, promotion of various types of

schemes and NAV based risk and return. The cumulative resources of mutual funds

underwent a four-fold rise and found a threefold increase in the number of schemes

during the period 1990-91 to 1997-98.

(Sodhi, 2004) evaluated 26 equity mutual funds drawn from 22 Asset management

companies belonging to private and public sector. They concluded that the equity

mutual funds have overall inferior performance in comparison of risk free return.

They compared the rate of return generated by equity mutual funds and 364 days T-

bills for the period of 1993-2002.

(Gelade, 2005) examined the relationship between organization climate, employee

attitude, customer satisfaction and sales performance and concluded that teamwork

climate, job enablers and support climate are organizational climate variables,

commitment is an employee attitude and customer satisfaction and sales achievement

are organizational performance measures.

(Byrne) shows that risk and investment experience tend to indicate a positive

correlation and past experience of successful investment increases investor tolerance

of risk. Inversely, unsuccessful past experience leads to reduced tolerance to risk.

Therefore past investment behaviour affects future investment behaviour.

31

(Kulbhushan Chandel and Verma, 2005) studied the performance of mutual funds,the

study results indicate that the schemes have earned better return than the market

return, it also shows that the sample schemes performed better than the risk free

return.

(Dua, 2005) in his study analyses the perception of mutual fund investors, he reveals

that mutual funds are preferred by the small investor who taught that they themselves

did not have the expertise to deal directly with shares.

(Kumar, 2005) found that investors prefer growth schemes to take the reinvestment

benefit of regular income. The study also shows that, desire of higher return and

benefit of tax are the key motivating factors in boosting the business of mutual funds.

He also opined that lesser risk, higher return and easy liquidity are main qualities of

an ideal mutual fund.

(Kumar S. a., 2005) opined that most of the growth oriented mutual funds have been

able to deliver better return than the benchmark indicators. Growth oriented mutual

funds are expected to offer the advantage of diversification, market timing and

selectivity.

(Bello, 2005) matched a sample of socially responsible stock mutual funds matched to

randomly select conventional funds of similar net assets to investigate differences in

characteristics of assets held, degree of portfolio diversification and variable effects of

diversification on investment performance. The study found that socially responsible

funds do not differ significantly from conventional funds in terms of any of these

attributes. Moreover, the effect of diversification on investment performance is not

different between the two groups.

(Nigam, 2006) identified that there has been a tremendous growth in the mutual fund

industry in India, attracting huge investments from investors within the country and

abroad, however, there is still a long way to go. With the growing middle-class,

projected to be around 200 million, there is an immense potential for growth in the

country. India's young generation, accompanied by a high rate of savings and a

32

rapidly-liberalizing economy, is expected to elevate the mutual fund sector to new

heights.

(Ahuja, 2006) evaluated the cause and effect relationship between mutual fund

investment decision and fund family, fund size, type of fund, type of portfolio and

schemes, risk involved of the fund manager, past performance of the fund, liquidity

factors and current market conditions.

(Guptha, 2006) analysed the investor’s perception on various reasons to select the

mutual fund scheme. These are risk capacity and tolerance, liquidity needs, specific

objectives, credibility of the sponsors, investment philosophy of the fund,

performance of the scheme, dividends, entry and exit loads, expenses charged to the

fund and services offered by the fund.

(Mohanty, 2006) analyzed the weakness of mutual funds. These are non availability

of tailor-made schemes, no guarantee of returns, no control over costs, problem of

managing large corpus, volatility of return depends on market conditions, which is

subject to frequent market volatility and mostly investment period is medium term to

long-term where expected return is more. Market mutual funds scheme is for short

period where return is not lucrative and the instruments are lesser in number.

(Muttappan, 2006) in his study explains about the factors influencing mutual fund

investment decision making. The study reveals that tax exemption given to the

investments in mutual funds was the most influencing factor.

(Kim, 2006) have pointed out that there is no difference in risk attitude between

individuals of different gender, but between groups of such, males indicate a stronger

inclination to risk tolerance. That is, no gender difference was found at an individual

level, but in groups, males expressed a stronger pro-risk position than females.

(Singh S. C., 2006) studied the preference of investors, the study revealed that,

investor’s decision to invest in a particular mutual fund is affected by different

sources from where information about working of that fund becomes available to

33

investor, they also opined that the occupation groups differ significantly in their

perception about the returns received from the mutual fund.

(Sorescu, 2006) provide evidence that investors focus on the content of analyst

recommendations, and do not much consider the skill of the person making them,

which suggests that they may also be open to peer influence.

(Mohana, 2006) analysed the relationship between investors and mutual funds.

Investors have started believing in mutual funds to manage their hard- earned money.

Mutual funds are those institutions that can give maximum satisfaction to their

investors by diversifying the portfolio. The mutual funds are becoming popular

among the people who are more risk-average than pure equity nvestors. Carefully

managed mutual funds can ensure optimum returns even during turbulent times in the

market and that makes the mutual fund a good choice among the retail investors. Due

to the reduction in the bank interest rates and high degree of volatility in the Indian

stock market, investors are looking for an alternative for their small time investors

which will provide them a higherreturn and also safety to their investments.

(Verma, 2006) mentioned the advantages of mutual funds investors among the

investors are diversification, professional management, liquidity, affordability, tax

benefits, transparency, cost effectiveness, risk associated with mutual funds, market

risk, inflation risk, credit risk and effect of loss of key professionals. The investors

prefer the mutual funds since it has specified investment objectives such as growth of

capital, safety of principal, current income or tax exempt income. They also generated

decisional matrix for mutual fund investment on the basis of the relationship between

the fund size and NAV returns. By that they exhibited the decisional optimization,

decisional consideration, decisional reconsideration and decisional fallacy.

(Alexander G., 2007) reveal that mutual fund managers are able to value stocks and

motivation plays a vital role in the assessment of trade performance. As far as they are

concerned, valuationmotivated buys produce higher performance than their

benchmarks. In sharp contrast to this, liquidity-motivated buys underperform their

benchmarks, thus indicating that mutual fund managers are not able to beat the market

since they are compelled to pump additional cash from inflows.

34

(Srivastava, 2007) analysed the behaviour of investors in India, the study revealed that

Indian investors have not been absolutely logical and rational in their investment

decisions are always affected by definite behavioural factors.

(Balanaga Gurunathan, 2007) examined, the investors need protection from the

various malpractices and unfair practices made by the corporate and intermediaries.

As the individual investors’ community and the investment avenues are on the rise, it

is interesting to know how the investors shall be protected through various

legislations. The present positive attitude of investors is heartening though investor

sentiments have been shaken by the various scandals.

(Bodla, 2007) evaluate the performance of 24 growth schemes of mutual funds. They

reveal that most of the schemes have outperformed the market during the study period

in terms of return. However, the difference in market return and funds return is found

insignificant. There exists a moderate positive correlation between risk and return of

the sample schemes. A large majority of the schemes have succeeded in earning a risk

premium irrespective of the performance measurement model concerned. Most of the

schemes have performed better than the market on the basis of risk adjusted return

also.

(Hanumantha Rao and Vijay Kr. Mishra, 2007) Opinioned, The Indian Mutual Funds

industry has been growing at a healthy pace of 16.68 per cent for the past eight years

and the trend will move further. According to his study, it has been found out that

almost 54 % of people invests for security and certainty while 38 % of the people

invests for current spending. Some 53 % of

the people prefer long term investment whereas 23% people each prefer medium

term and small term investment.

(Mishra, 2007) revealed that the Indian mutual funds industry has witnessed several

structural and regulatory reforms. The people invest in mutual funds for the purpose

of earning higher rate of return by taking minimal risks. With entry of new fund

houses and the introduction of new funds into the market, investors are now being

35

presented with a broad array of fund choices. The global players are finding Indian

mutual funds industry a potential sector.

(Selvaraj, 2007) examine the performance of mutual funds, they opined that “ the

performance of an actively managed fund largely depends on the investment decisions

of its manager. Statistically, for every investor who outperforms the market, there is

one who underperforms. Among those who outperform their index before

expenses,though, many end up underperforming after expenses. Before expenses, a

well

run index fund should have average performance. By minimizing the impact of

expenses, index funds should be able to perform better than average”

(Vijayalakshmi, 2007) identified that the number of investors in systematic

investment plans (SIP) have been increased by 10 fold times compared to the previous

year. The important investors on SIP are salaried class, small corporates and SMEs.

The concept of diversification is there in fund of funds. The idea of hold Exchange

Traded Funds was first conceptualized by Benchmark Asset Management Company

in India.

(Arugaslan O., 2008) present that if the level of risk imposed by the fund is factored

in the analysis conducted, the mutual funds with greater average returns compared

with the others may not be attractive enough to investors as they are before. Similarly,

mutual funds with lower average returns may enhance their attractiveness if their low

level of risk is factored in their performance analysis. In addition, the authors

demonstrate convincingly that the returns on international mutual funds with low

level of risk can be boosted by means of financial leverage.

(Sasaki R., 2008) pointed out that the different variables which influence to invest on

mutual funds are safety, liquidity, stability, speculative values, diversification and low

cost. Through the study the researcher found that, the most important factors leading

to mutual fund investments are risk freeness and income, the next factors are savings

and cost.

36

(Sofat, 2008)Rakhi Arora and Rajni Sofat (2008) 48 says risk and return are the two

inseparable parts of an investment strategy. They have direct relationship between

them: higher the risks, higher are the returns and vice versa. The very basic

consideration of an investor while investing the money should be how to maximize

the returns and what are the risks involved in investing in a particular instrument.

(Ganapthy, 2008) in his study pointed that, “investors whom have hitherto been

investing in assured return schemes like fixed deposits and small savings, often refuse

to look at other smart options like mutual funds just because they do not offer

guaranteed returns. It will be quite a challenge for the industry to bring investors into

its fold. The industry will also have to ensure that as and when these investors decided

to begin investing in mutual funds, they select the right type of funds and invest with

a long-term view in mind”

(Mohan Nayak, 2008) has examined the service sector of mutual funds, he suggested

that, “Leading asset management companies are only those companies are successful

which offer customized services along with the innovative products. The investment

in mutual fund is not a one-time activity. It is a continuous activity. The same investor

if satisfied will come to the company again and again and become the loyal customer.

The information in the investor’s application if tabulated and analyzed would provide

important insight in to investor needs, preferences and behaviour”.

37

RESEARCH DESIGN

3.1 Title of the Study

“A STUDY ON INVESTOR PREFERENCE TOWARDS MUTUAL FUNDS IN

BANGALORE CITY”

3.2 Statement of the Problem

The main purpose of the study is to understand the preference of investors investing in

Mutual Funds. It tries to draw conclusions regarding how the investors are employing

their resources in a manner to afford, combine benefits to low risks, steady or

consistent returns, high liquidity & capital appreciation through diversification &

Expert Management.

3.3 Scope of the Study

With a vast economy like India’s, investors have a variety of investment avenues to

channelize their savings. In today’s world mutual funds has become so wide that

sometimes people take long time to choose the scheme they want to invest in. The

study aims to obtain a clear picture regarding the investors’ preferences while

investing in mutual funds. The study also aims to understand and analyze the level of

awareness of the investors regarding the same.

Geographical scope: The geographical scope of the study is restricted to the

Bangalore city only.

Functional scope: The study is conducted to understand the broad scope of mutual

funds and the factors that influence the choice of investors investing in mutual funds.

It also aims to study the investment potential and the extent of risk taken by the

investors.

38

3.4 Objective of the Study

To study various investment alternatives, in particular investors preference

towards mutual funds.

To obtain the percentage of savings being invested in mutual funds.

To study market potentiality of mutual fund among investors.

3.5 RESEARCH METHODOLOGY

Business research is a field of practical study through which a company obtains data

and analyzes it in order to manage the company effectively and efficiently. Business

research is of recent origin and is largely supported by business organizations that

hope to achieve competitive advantages. Business research can include financial data,

consumer feedback, product research and competitive analysis. Executives and

managers who use business research methods are able to gather a better understanding

of their company, the position it holds in the market and how to improve that position.

3.6 RESEARCH DESIGN

Research design encompasses the method and procedures employed to carry out the

research. It guides the collection and analysis of data required for the study. The study

intends to draw up conclusions on the investors’ preference towards mutual funds.

3.7 SAMPLING DESIGN

As the investor population of Bangalore is very large, researchers were unable to

gather information from the entire population due to lack of time and resources.

Therefore a part of this population is taken for analysis and generating findings and is

representative for the entire investing population in Bangalore.

39

1. Selection of study area: The area of the study is limited to Bangalore.

2. Selection of sample size: The number of units selected from the population

constitutes the sample size. The respondents of the study may be present or future

investors. The sample size taken is 100.

3.8 SAMPLING METHODS

Convenience method of sampling is used to collect the data from the respondents.

Researchers or field workers have the freedom to choose whomever they find, thus

the name ‘convenience’. About 100 samples were collected from Bangalore city.

40

3.9 METHOD OF DATA COLLECTION

a) Primary Data: It is that type of information or data which is obtained directly

from first-hand sources by means of surveys, observation or experimentation. It is

data that has not been previously published and is derived from a new or original

research study and collected at source.

b) Secondary Data: It is all the information collected for purposes other than the

completion of a research project and it is used to gain initial insight into the research

problem. The sources can be internal or external sources. The sources of secondary

data that have been used for this study are journals, newspapers, and websites.

3.10 TOOLS FOR DATA COLLECTION

A structured questionnaire is used as the instrument for collecting information from

individuals and the reliability test was conducted on the questionnaire with the help of

cronbach’s alpha test.

Statistical Tools Used

The Garrett Ranking Technique have been used to analyze the investors preference

in choosing mutual fund as the mode of investment .The interpretation has been made

based on the mean score and total scores derived through Garrett ranking Technique.

3.11 LIMITATIONS OF THE STUDY

Lack of knowledge among the respondents regarding mutual funds restricts

the scope of the study.

Time was a major limitation.

Reluctance on the respondent’s side for providing information regarding their

investment options was another limitation.

A structured questionnaire was the basis for collecting the data, so it has the

usual deficiencies attached to this technique of data collection.

Validity and Reliability of the data depends on the truthfulness of the

responses from the public.

41

4.1 RELIABILITY ANALYSIS

Case Processing Summary

Table 4.1

N %

Cases

Valid 100 100.0

Excluded 0 .0

Total 100 100.0

List wise deletion based on all variables in the procedure.

Reliability Statistics

Table 4.1.1

Cronbach's Alpha N of Items

.587 16

42

Item-Total Statistics

Table 4.1.2

Scale Mean

if Item

Deleted

Scale

Variance if

Item Deleted

Corrected

Item-Total

Correlation

Cronbach's

Alpha if Item

Deleted

AVERAGE

MONTHLY

SAVINGS

32.92 36.297 -.013 .609

INVESTMENT

PREFFERED33.33 36.062 -.013 .613

FACTOR PREFERED 32.84 35.873 .037 .599

EVER INV IN MF 33.86 33.051 .743 .537

HOW U COME TO

KNW ABT MF33.76 25.578 .643 .461

WHICH MF YOU

LIKE34.59 31.598 .591 .524

ATTRACTED

FEATURE30.88 34.693 .064 .603

PREFFERED MODE 34.30 36.798 .029 .591

SCHEME CHOOSED 32.94 35.006 .038 .609

WHERE U FIND UR

SELF AS INVESTOR33.80 28.040 .516 .502

PREFFERED

SECTOR FOR INV31.08 34.377 .025 .624

WHERE U

PURCHASE MF32.82 33.543 .178 .579

HOW TO GET UR

RETURN33.54 35.726 .077 .591

FACED ANY LOSS 34.62 32.056 .553 .531

LOSS DETER U 34.56 31.380 .599 .522

SATISFACTION 33.71 36.814 .052 .589

43

Scale Statistics

Table 4.1.3

Mean Variance Std. Deviation N of Items

35.57 37.157 6.096 16

4.2 GARRETT’S RANKING TECHNIQUE

Garrett’s ranking technique was used to rank the preference indicated by the

respondents on different factors. As per this method, respondents have been asked to

assign the rank for all factors and the outcomes of such ranking have been converted

into score value with the help of the following formula:

Percent position = 100 (Rij – 0.5)

Nj

Where

Rij = Rank given for the ith variable by jth respondents

Nj = Number of variable ranked by jth respondents

With the help of Garrett’s Table, the percent position estimated is converted into

scores. Then for each factor, the scores of each individual are added and then total

value of scores and mean values of score is calculated. The factors having highest

mean value is considered to be the most important factor

44

1. Average Monthly savings of your family?

PERCENTILE POSITION

Table 4.2

Rank Percentile position Garrett’s table value

1

2

3

4

5

100(1-0.5)/5

100(2-0.5)/5

100(3-0.5)/5

100(4-0.5)/5

100(5-0.5)/5

= 10

= 30

= 50

= 70

= 90

75

60

50

40

25

Table 4.2.1

Factor Total no. of

respondents

Garrett’s

score

Total score Mean score Rank

60000 and above 2 75 150 1.5 V

40000-60000 11 60 660 6.6 III

25000-40000 21 50 1050 10.5 II

10000-25000 56 40 2240 22.4 I

Below 10000 10 25 250 2.5 IV

Total 100 4350

Interpretation:

The table highlight the Garrett score, total score, the mean score and rank. Here, the

factors having highest mean value is considered to be the most important factor. There

fore the average savings of 10000-25000 has the highest mean value (22.4).So, it has

been ranked 1st and considered as the most important factor. The 2nd rank goes to the

savings 25000-40000, 3rd rank goes to the savings 40000-60000,4th rank goes to those

who have savings below 10000 and 5th rank goes to the savings 60000 and above.

45

2. What kind of investment do you prefer most?


1

2

3

4

100(1-0.5)/4

100(2-0.5)/4

100(3-0.5)/4

100(4-0.5)/4

= 12.5

= 37.5

= 62.5

= 87.5

73

56

44

27

PERCENTILE POSITION

Table 4.3

Table 4.3.1

Factor Total no. of

respondent

Garrett’s score Total score Mean score Rank

Mutual funds 37 73 2701 27.01 I

Insurance 19 56 1064 10.64 III

Fixed deposits 27 44 1188 11.88 I1

Savings deposits 17 27 459 4.59 IV

Total 100 5412

Interpretation:

The table highlight the Garrett score, total score, mean score and rank. Here, the

factors having highest mean value is considered to be the most important factor. Here

mutual funds have highest mean score of (27.01) and ranked 1st.So it is considered as

the most important factor. 2nd rank goes to fixed deposits, 3rd rank goes to insurance

and 4th rank goes to savings deposits.

3. While investing which factor do you prefer most?

46

PERCENTILE POSITION

Table 4.4

Rank percentile position Garrett’s table value

1

2

3

4

100(1-0.5)/4

100(2-0.5)/4

100(3-0.5)/4

100(4-0.5)/4

= 12.5

= 37.5

= 62.5

= 87.5

73

56

44

27

Table 4.4.1

Factor Total no. of

respondent


Company

reputation

13 73 949 9.49 III

Low risk 21 56 1176 11.76 II

High return 46 44 2024 20.24 I

Liquidity 20 27 540 5.4 IV

Total 100 4689

Interpretation:

The table highlight the Garrett score, total score, mean score and rank. Here, the

factors having highest mean value is considered to be the most important factor.

Therefore High return has got the highest mean score of (20.24) and it has been

ranked 1st.So it interprets that high return is the most important factor considered by

the investor while investing.2nd rank goes to low risk,3rd rank goes to company

reputation and 4th rank goes to liquidity.

4. Have you ever invested in mutual funds?

PERCENTILE POSITION

Table 4.5

47


1

2

100(1-0.5)/2

100(2-0.5)/2

= 25

= 75

63

37

Table 4.5.1

Factor Total no. of

respondents

Garrett’s score Total

score

Mean

score

Rank

No 29 63 1827 18.27 II

Yes 71 37 2627 26.27 I

Total 100 4454

Interpretation:

The table highlights the Garrett score, total score, mean score and rank. Here, the


Majority of people had invested in mutual funds and its mean score has come to

(26.27).So, the answer “yes” has been ranked 1st and has been considered as the most

important factor.

5. How much percentage of your savings will you invest in mutual funds?

Table: 5

48

PERCENTILE POSITION

Table 4.6


1

2

3

4

5

100(1-0.5)/5

100(2-0.5)/5

100(3-0.5)/5

100(4-0.5)/5

100(5-0.5)/5

= 10

= 30

= 50

= 70

= 90

75

60

50

40

25

Table 4.6.1

Factor Total no. of

respondent


5-10% 24 75 1800 25.35 I

10-15% 17 60 1020 14.36 II

15-20% 8 50 400 5.63 IV

20-25% 13 40 520 7.32 III

25 and Above 9 25 225 2.25 V

Total 71 3625

Interpretation:


factors having highest mean value is considered to be the most important factor. The

highest mean (25.35) goes to 5-10%.Therefore it has been ranked as 1 st and also

considered as the most important factor. The factors 10-15%, 20-25%,15-20%, 25%

and above is ranked respectively.

6. How did you come to know about mutual Funds?

PERCENTILE POSITION

Table 4.7

49


1

2

3

4

100(1-0.5)/4

100(2-0.5)/4

100(3-0.5)/4

100(4-0.5)/4

= 12.5

= 37.5

= 62.5

= 87.5

73

56

44

27

Table 4.7.1

Factor Total no. of

respondents


Financial

advisor

16 73 1168 11.68 II

Banks 14 56 784 7.84 III

Peer groups 29 44 1276 12.76 I

Advertisement 12 27 324 3.24 IV

Total 71 3552

Interpretation:


factors having highest mean value is considered to be the most important factor. Most

of the people came to know about mutual funds through peer groups which has the

highest mean score of (12.76).There for it is considered as the most important factor.

The rest of the factors Financial advisor, Banks and Advertisements are ranked

respectively.

7. In which kind of mutual fund would you like to invest?

PERCENTILE POSITION

Table 4.8

50


1

2

100(1-0.5)/2

100(2-0.5)/2

= 25

= 75

63

37

Table 4.8.1

Factor total no. of respondents Garrett’s score total score mean

score

Rank

Public 44 63 2772 39.04 I

Private 27 37 999 27 II

TOTAL 71 3771

Interpretation:



Majority of investors prefer public sector mutual funds to invest there money. The

mean score of public sector is (39.04) which is higher than private sector and has been

ranked 1st .So, it become the most important factor.

8. Which feature of mutual fund attracts you most?

PERCENTILE POSITION

Table 4.9

51


1

2

3

4

5

6

100(1-0.5)/6

100(2-0.5)/6

100(3-0.5)/6

100(4-0.5)/6

100(5-0.5)/6

100(6-0.5)/6

= 8.3

= 25

= 41.6

= 58.3

= 75

= 91.6

77

63

54

46

37

23

Table 4.9.1

Factor Total no. of

Respondents

Garrett’s

score

Total

score

Mean

score

Rank

Investment

objectives

13 77 1001 10.01 II

Tax benefit 16 63 1008 10.08 I

Regular income 15 54 810 8.1 IV

Reduction in risk

and

transaction cost

12 46 552 5.52 V

Better safety and

return

27 37 999 9.99 III

Diversification 17 23 391 3.91 VI

Total 100 4761

Interpretation


factors having highest mean value is considered to be the most important factor. Here,

52

Tax benefit is the most important factor considered by the investors because it has the

highest mean score of (10.08) and it is considered as the most important factor and

ranked as 1st.The other factors like investment objectives, Better safety and return,

regular income, Reduction in risk and transaction cost and diversification is ranked

respectively.

9. When you invest in mutual fund which mode of investment do you

prefer?

PERCENTILE POSITION

Table 4.10


1

2

100(1-0.5)/2

100(2-0.5)/2

= 25

= 75

63

37

Table 4.10.1

Ranks Total no. of

respondents


score

Mean

score

Rank

Systemati

c

68 63 4284 42.84 I

One time 32 37 1184 11.84 II

Total 100 5468

Interpretation:



systematic investment plan has the highest mean score of (42.84) which is considered

as the most important factor.There fore it is ranked as 1st and one time investment

which has mean score of 11.84 is ranked 2nd.

10. Which mutual fund scheme have you used?

PERCENTILE POSITION

53

Table 4.11


1

2

3

4

5

100(1-0.5)/5

100(2-0.5)/5

100(3-0.5)/5

100(4-0.5)/5

100(5-0.5)/5

= 10

= 30

= 50

= 70

= 90

75

60

50

40

25

Table 4.11.1

Factor Total no. of

respondent


Regular income

funds

13 75 975 13.73 II

Growth funds 22 60 1320 18.59 I

Liquid funds 10 50 500 7.04 III

Close ended

schemes

12 40 480 6.76 IV

Open Ended

schemes

14 25 350 4.92 V

Total 71 3625

Interpretation:



growth funds has the highest mean score of (18.59) which is ranked as 1st.Therefore

this is considered as the most important factor.The other factors such as Regular

iincome funds,liquid funds,close ended funds,and open ended funds are ranked

respectively.

11. Where do you find yourself as a mutual fund investor?

PERCENTILE POSITION

Table 4.12

54


1

2

3

4

100(1-0.5)/4

100(2-0.5)/4

100(3-0.5)/4

100(4-0.5)/4

= 12.5

= 37.5

= 62.5

= 87.5

73

56

44

27

Table 4.12.1

Factor Total no. of

respondents


Fully aware 11 73 803 11.30 II

Aware of only

specific

schemes

invested

19 56 1064 14.98 I

Partial

knowledge of

mutual funds

3 44 132 1.85 IV

Totally

ignorant

5 27 135 1.90 III

Total 71 2134

Interpretation:



awareness of specific schemes invested has the highest mean score of (14.98) and

ranked 1st.This made them to find themselves as a mutual fund investor. And this is

considered as the most important factor.

12. Which sector would you prefer to invest in the mutual fund ?

55

PERCENTILE POSITION

Table 4.13


1

2

3

4

5

6

100(1-0.5)/6

100(2-0.5)/6

100(3-0.5)/6

100(4-0.5)/6

100(5-0.5)/6

100(6-0.5)/6

= 8.3

= 25

= 41.6

= 58.3

= 75

= 91.6

77

63

54

46

37

23

Table 4.13.1

Factor Total no. of

respondents


score

Mean

score

Rank

Other 4 77 308 3.08 II

Automotive 12 63 756 7.56 I

Pharmaceuticals 8 54 432 4.32 IV

Oil & Gas 18 46 828 8.28 V

Information

technology

23 37 851 8.51 III

Banking and

Financial

services

Total

35

100

23 805

3980

8.05 VI

Interpretation:



Automotive sector has the highest mean value of (7.56).So, it is ranked 1st and has

considered as the most important factor.

13. From where do you purchase mutual funds?

56

PERCENTILE POSITION

Table 4.14


1

2

3

4

100(1-0.5)/4

100(2-0.5)/4

100(3-0.5)/4

100(4-0.5)/4

= 12.5

= 37.5

= 62.5

= 87.5

73

56

44

27

Table 4.14.1

Factor Total no. of

respondents


Brokers and

sub brokers

22 73 1606 16.06 I

Other sources 12 56 672 6.77 IV

Brokers only 29 44 1276 12.76 II

Directly from

AMC

37 27 999 9.99 III

Total 100 4553

Interpretation:



highest mean value (16.06) is for other sources. So 1st rank is given to other sources

and it is considered as the most important factor. And the other factors such as

brokers only, directly from AMC and other sources are ranked respectively.

14. What is your expected rate of return from your investment?

PERCENTILE POSITION

Table 4.15

57


1

2

3

4

100(1-0.5)/4

100(2-0.5)/4

100(3-0.5)/4

100(4-0.5)/4

= 12.5

= 37.5

= 62.5

= 87.5

73

56

44

27

Table 4.15.1

Factor Total no. of

respondents


Above

20%

8 73 584 5.84 III

15-20% 24 56 1344 13.44 II

10-15% 52 44 2288 22.88 I

5-!0% 16 27 432 4.32 IV

Total 100 4648

Interpretation:



the expected rate of return of 10-15%,and has the highest mean value of(22.88).So, it

is ranked as 1st and considered as the most important factor. The other rate of returns

such as 15-20%,above 20% and 5-10% are ranked respectively.

15. If not invested in mutual fund, why?

PERCENTILE POSITION

Table 4.16

58


1

2

3

100(1-0.5)/3

100(2-0.5)/3

100(3-0.5)/3

= 16.66

= 50

= 83.33

69

50

31

Factor Total no. of

respondents

Garrett’s

score

Total score Mean score Rank

No

Specific

Reason

15 69 1035 35.6 I

High Risk 2 50 100 3.44 III

Not aware

of mutual

fund

12 31 372 12.8 II

Total 29 1507

Table 4.16.1

Interpretation:



Those people who doesn’t invest in mutual fund have no specific reason for .The

highest mean score (35.6) is obtained for the factor “no specific reason” It has been

ranked as 1st and also considered as the most important factor. The 2nd rank goes to the

factor not aware of mutual funds and 3rd rank goes to the factor high risk.

16. Have you faced any kind of loss from investment in mutual funds?

PERCENTILE POSITION

Table 4.17


59

1

2

100(1-0.5)/2

100(2-0.5)/2

= 25

= 75

63

37

Table 4.17.1

Factor Total no. of

respondents

Garrett’s score Total score Mean

score

Rank

No 48 63 3024 30.24 I

Yes 23 37 851 8.51 II

Total 100 3875

Interpretation:



factor “No” indicates the highest mean of (30.24).Therefore, 1st rank is given to it and

considered as the most important factor.The factor “No” indicates the mean value

8.51 which has been ranked 2nd.

17. Did the loss deter you from any further investments?

PERCENTILE POSITION

Table 4.18


1

2

100(1-0.5)/2

100(2-0.5)/2

= 25

= 75

63

37

Table 4.18.1

60

Factor Total no. of

respondents


score

Rank

No 45 63 2835 28.35 I

Yes 26 37 962 9.62 II

Total 3797

Interpretation:



factor “No” indicates the highest mean score of (28.35).Therefore, 1st rank is given to

it and considered as the most important factor.

18. Are you satisfied with your investment option?

PERCENTILE POSITION

Table 4.19


1

2

100(1-0.5)/2

100(2-0.5)/2

= 25

= 75

63

37

Table 4.19.1

61

Factor Total no. of

respondents


score

Rank

No 13 63 819 8.19 II

Yes 87 37 3219 32.19 I

Total 4038

Interpretation:



factor “Yes” indicates the highest mean of (32.19).Therefore, 1st rank is given to it

and considered as the most important factor.

FINDINGS

Most of the people among the 100 respondents have the average monthly

savings of 10000-25000.

Most of the people among the 100 respondents invest their money in mutual

funds. From the study it is found that the mutual fund is the most preferred

investment avenue.

While investing in mutual funds most of the respondents prefer high return.

The investors consider the rate of return as an important factor while other

62

factors liquidity, low risk and company reputation are considered to be

secondary.

Majority of the respondents from the selected sample has found to be invested

in mutual fund.

Majority of people invest 5-10% of their savings in mutual fund.

Most of the people came to know about the mutual funds by peer groups. The

next important source of information regarding the investments was from

financial advisors.

Majority of investors prefer public sector mutual funds to invest their money.

The most attracted feature of mutual funds for the investors is tax benefit as

well as the safety and return of the investment.

Majority of the respondents prefer the systematic investment plan over one

time investment plan.

The growth funds scheme is the scheme choosen by majority of the people.

Regular income fund is the next preferred mutual fund scheme.

Most of the mutual fund investors find themselves as an investor when they

are aware of specific schemes invested.

It is found that the investors prefer the automotive sector to invest when

comparing to the other sectors like pharmaceuticals, oil and gas etc.

The investors prefer to buy the investments from the brokers and the sub-

brokers

On analyzing the expected return of the investors from the investment, most of

the respondents reported that they expect a rate of 10-15% return.

Some of the respondents did not prefer to invest in mutual fund because they

are not aware of the mutual fund schemes.

Among the selected sample size, majority of the investors reported that they

haven’t faced any kind of loss on investing in mutual funds.

The majority of the investor agreed that the loss from an investment did not

deter the further investment.

63

Most of the investors from the selected sample are found to be satisfied with

their investment option.

SUGGESTIONS

The mutual fund companies should attempt to set up their branch presence in

smaller towns for tapping the potential.

There should be introduction of mandatory rating for mutual fund products

through Rating agencies to increase investor confidence.

Efforts should be put to increase the investor awareness and financial literacy,

resulting in an increase in the contribution of the retail investors to the mutual

fund industry.

The awareness of mutual fund & its various schemes should be increased

among the people by proper advertising, promotion and conducting investors

meets.

New fund offer (NFO) applications and other mutual fund applications should

be in regional languages also. This will help all type of the investors to

understand the details and risk factors more clearly.

All mutual fund companies should give a card named investment card to their

investors. This is just like an ATM card. The investors can use the card for

fresh investment, additional investment, redemption and dividend purpose.

Necessary investment machines like ATM machines should be arranged in all

mutual fund offices. It helps the investors to do the transactions without delay

and enable the asset management companies to reduce the complaints related

to redemption and dividend issues.

SEBI should take strong steps to control the biased investment

recommendation given by financial journals, dailies, websites and visual

medias.It is essential to take steps against misleading advertisements

especially in the launching of new fund offers (NFO).

Poor portfolio management is the major problem of investors in mutual fund.

This is inspite of the professional management of the funds. Hence efficiency

audit should be made mandatory.

64

SEBI should encourage to organize investor associations, so that they can

contribute more to the development of mutual fund industry. This helps in

providing necessary assistance to the needy investors.

To attract the younger generation into the mutual fund industry, mutual fund

should be included in school curriculam.

CONCLUSION

In today’s volatile market environment, mutual funds are looked upon as a transparent

and low cost investment vehicle, which attracts a fair share of investor attention

helping spur the growth of the industry. AMCs therefore need to reorient their

business towards fulfilling customer needs. As customers seek trusted advisors, the

manufacturer distributor-customer relationship is expected to be centered not on the

sale of products, but for collectively promoting the financial success of customers

across all facets of their professional and personal lives. This requires creating a

collaborative network of experts in funds management and financial advice,

innovative product offerings, efficient service delivery and supporting technology.

The mutual fund industry today needs to develop products to fulfill customer needs

and help customers understand how its products cater to their needs. Performance of

the industry has been strong and it is well-placed to achieve sustainable growth levels.

The way forward for the next couple of years for the mutual fund industry would be

influenced hugely by the journey undertaken till this point of time and the changing

demographic profile of investors.

BIBLIOGRAPHY

Peter, D., & Saez, E. (2011). The Case for a Progressive Tax: From Basic Research to

Policy Recommendations. Journal of Economic Perspectives , 165-190.

Ahuja, F. A. (2006). Decision Function and the Decisional Matrix for Mutual fund

Investment. Review of Professional Management, Vol.4(2) .

65

Alexander G., C. a. (2007). ‘Does Motivation Matter When Assessing Trade

perfomance?An analysis of mutual funds. Review of Financial Studies, Vol.20 (1) .

Amitabh, G. (2004). Investment Performance of Indian Mutual Funds. An Empirical

Study Finance India, Vol.14(3), September .

Anderson, E. T., Fong, N. M., Simester, D. I., & Tucker, C. E. (2009). How Sales

Taxes Affect Customer and firm behaviour:the role of search on the internet. Journal

of Marketing Research , 1-45.

Arif, M. M., & Sharma, P. D. (2013). Direct taxation in India: Trends and patterns.

Asian journal of research in business economics and management , 45-60.

Arugaslan O., E. E. (2008). ‘Risk-adjusted Performance of International Mutual

Funds. Managerial Finance, Vol.34(1).

Balanaga Gurunathan, K. (2007). An Investors’ Requirements in Indian Securities

Market’. Delhi Business Review, Vol. 8(10) .

Bandyopadhyay, S. (2012). A primer on goods and services in India. social science

research network( working paper) .

Bello, Z. Y. (2005). Socially Responsible Investing and Portfolio Diversification. The

Journal of Financial Research, Vol. XXVIII (1).

Bhalla. (2004). Investment Management. S.Chand &Company Ltd, New Delhi.

Bodla, B. a. (2007). ‘Performance of Mutual Funds in India – An Empirical Study of

Growth Schemes. GIT AM Journal of Management, Vol.5(4) .

Byrne, K. (n.d.). Risk and investment in mutual funds. The ICFAI Journal of

Behavioural Finance, Vol.IV(2) .

Chakrabarti, A. a. (2000). Mutual Funds Industry in India: An Indepth look into the

problems of credibility, Risk and Brand’,. The ICFAI Journal of Applied

Finance,vo6(2) .

Chalam. (2003). Investors Behavioral Pattern of Investment and their Preferences of

Mutual Funds. Southern Economist, Vol.41(19).

66

Che Azm, A. A., & Kamarulzaman, Y. (2010). Adoption of tax e-filing: A conceptual

paper. African Journal of Business Management , 599-603.

Cintra, M. (2010). A new tax technology: the Brazilian experience with a general

bank transaction tax. journal of accounting and taxation .

Cornia, G. C., Edmiston, K. D., Sheffirn, S. M., & Sexton, T. A. (2000). An Analysis

of the feasibility of implementing a single rates salex tax. National tax journal , 1327-

1350.

Djawadi, B. M. The impact of tax knowledge and budget spending influence on tax

compliance. Discussion Paper Series (2013).

Doman, S., & Nienaber, G. (2012). Tax education: current view and preferences of

south african employers. international business amd economics research journal ,

951-962.

Doran, M. (2009). Tax Penalties and Tax Compliance. Harvard Journal On

Legislation , 111-116.

Dua, M. (2005). Financial Services New Innovations. Delhi: Deep & Deep

Publications Pvt. Ltd.,.

Fallan, L. (n.d.). Gender, Exposure to tax knowledge and attitudes towards taxation;

An experiment approach.

Fatt, C. K., & Sek Khin, E. W. (2011). A study on self- assessment tax system

awareness in Malaysia. Journal of Applied sciences research , 881.

Fernandes, K. (2003). ‘Evaluating Index Fund Implementation in India’. The iup

journal .

Fossen, F. M., & Glocker, D. (2011). Expected future earnings,taxation and university

enrollment. interest tax public finance( Springer science+business media) , 688-723.

Furnham, & Adrian. (2005). understanding the meaninng of tax: young people's

knowlwdge of the principles of taxation. journal of socio-economics , 703-713.

Ganapthy, R. (2008). Mutual Fund: The Tiger Unleashed. Facts For You, Vol.28 (5) .

67

Gelade, G. a. (2005). Test of a Service Profit Chain Model in the Retail Banking

sector. Journal of Occupational and Organizational Psychology.

Griggs, j., & Walker, R. (2005). The new tax credit system: knowledge and awareness

among recipients.

Gupta, D. (2013). personal income tax structure in India: an evaluation. pacific

business review international , 1-6.

Gupta, L. a. (2000). Return on Indian Equities 1980-99: The Sensex portfolio.

Economic & Political Weekly, Vol.XXXV(5).

Guptha, K. a. (2006). Investors Perception on Mutual funds. Review of Professional

Management, Vol.4(2) .

Hanumantha Rao and Vijay Kr. Mishra. (2007). “Mutual Funds Industry in India:

Attaining Maturity. Portfolio Organiser, Vol.8(3) .

Hore, N. (2013). An investigation on effective strategies to crub tax evasion: a survey

of Beitbridge ZIMRA staff and clients, Zimbabwe. Elite research journal of

accounting and business management , 1-9.

Jaspal Singh and Subash Chander. (2004). An Empirical Analysis of Perceptions of

Investors towards mutual funds. Finance India, Vol.XVIII(4) .

Kamaluddin, A., & Madi, N. (2005). Tax literacy and tax awareness of salaried

individuals in Sabah and Sarawak. journal of financial reporting and accounting , 71-

89.

Kapil, R. K. (1998). economic reforms. portfolio organiser vol7(7) .

Khan, M. A., & Shadad, N. (2013). Impact of value Added tax(VAT) revenue in

major states in India. Romanian journal of fiscal policy , 27-46.

Kim, R. a. (2006). ‘Gender Differences in Explicit and Implicit Risk Attitudes: A

Socially Facilitated Phenomenon. British Journal of Social Psychology, Vol 45 .

Kulbhushan Chandel and Verma, O. (2005). Managing Mutual Fund Investments in

the Era of Change. The Journal of Banking, Information Technology and

Management,vol 2 .

68

Kumar, R. (2005). Investors preference in mutual funds. Journal of Financial

Economics, Vol 67 .

Kumar, S. a. (2005). ‘Performance Evaluation of Mutual Funds: A Case study.

Southern Economist Vol 44 .

Lai, M. L., Zalilawati, Y., Amran, M. M., & Choong, K. F. (2013). QUEST FOR

TAX EDUCATION IN NON-ACCOUNTNG CURRICULM: A MALAYASIAN

STUDY. Asian Social Science , 154-162.

Lala, D. B. (2013). comparative analysis of income tax reforms in India pre and post

1991. proceeding of the global conference on business, economics and social

science , 111-128.

Ling, L. M., & Bahari, A. B. (2009). Introducing tax education in non-accounting

curriculum in higher education. journal of financial reporting and accounting , 37-51.

Lynch A.W., a. M. (2003). How Investors Interpret Past Fund Returns. Journal of

Finance Vol 58 .

Machogu, D. G., & Amayi, D. B. (2013). Effect of tax payer education on voluntary

tax compliance among SME's in Mwanza city-Tanzania. Internal journal of

marketing and financial services and management research .

Mansuri, S. (2012). TAX AWARENESS AND TAX PLANNING AMONG

INDIVIDUAL ASSESSEE: A STUDY. (D. Y. Dalvadi, Ed.) 1.

Mazza. (n.d.). ‘How Do Family Strategies Affect Fund Performance? Journal of

Financial Economics,Vo642003 .

McGee, R. W., Ho, S. S., & Li, A. Y. (2008). A comparative study on perceived

ethics of tax evasion: Hong Kong Vs The United States. Journal of Business Ethics ,

147-158.

Miller, A. M. (2008). Undergraduate tax education: a comparison of educators' and

employers' perceptions in the UK. (C. M.Woods, Ed.) (10).

Mishra, R. a. (2007). Indian Mutual fund Industry an indept analysis. Journal of

Financial and Quantitative Analysis, Vol.41 .

69

Mohan Nayak, V. (2008). Service Standards of LIC Mutual Funds: A Study’.

Southern Economist, Vol.47(5) .

Mohana, S. (2006). Mutual Funds and Indian Capital Market. Portfolio Organiser .

Mohanty. (2006). Financial Services New Innovations. New Delhi: Deep & Deep

Publications Pvt. Ltd.

Moorthy, M. K., Samsuri, A. S., Hussin, S. B., Othman, M. S., & Chelliah, M. K.

(2014). E-Filing Behaviour among Academics in Perak State in Malaysia. Technology

and Investment , 79-94.

Muttappan, P. (2006). ‘Factors Influencing Mutual Fund Decision Making’. Southern

Economist vol 45 .

N.S, B., & p, P. M. (2009). the impact of income tax rates (ITR) on the economic

development of Botswana. journal of accounting and taxation , 08-22.

Nigam, D. (2006). Mutual Funds: A Prospering Reality. Portfolio Organizer, Vol.7(2)

.

Olabisi, J. (2010). An assessment of tax evasion and tax avoidance in Lagos state.

journal of research in national development .

Omer, T. C., weaver, C. D., & Jaron. (2012). Investments in tax planning, tax

avoidance and the new economy business model. social science research

network( working papers) .

Palande, P. S. (2011). Income tax problems and Recommendations. Indian Streams

Research Journal , 168-171.

Parkhi, S. (2011). Taxation awareness of MBA students-role of professionals.

Poirson, H. (2006). The tax system in India: could reform spur growth? . IMF working

paper , 1-24.

Propheter, G. (2012). Use tax awareness and compliance:A survey analysis.

R, G., & M, S. (2012). E-filing of income tax awareness and satisfaction level of

individual tax payers in combatore city, India. research journal of management

70

science , 6-11.

Rajan, R. (1997,1998). ‘Investment Size Based Segmentation of Individual

Investors’,. The Indian Journal of Commerce , 21-28.

Rajeswari, T. a. (2002). Performance Evaluation of Selected Mutual Funds and

investors behaviour. Sri Sathya Sai Institute of higher learning.

Rao, M. G. (2005). Tax system reform in India: achievements and challenges ahead.

Journal of asian economics , 993-1011.

Rao, R. (2003). MUtual Funds . Indian Journal of Commerce .

Razak, A. A., & Adafula, C. J. (2013). Evaluating tax payers attitude and its influence

on tax compliance decisions in Tamale,Ghana. journal of accounting and taxation ,

48-57.

Ring, R. J. (1992). Consumers Share and Producers Share of the General Sales tax.

National Tax Journal , 79-90.

Rizea, M., & Croitoru, E. L. (2010). Acts of tax evasion and fruad and financial

impact of these phenomena in the european union. Romanian Economic and business

Review , 116-125.

Sarkar, J. a. (2001). ‘Performance Evaluation of Mutual Funds in India’. NMIS

management review vol6 .

Sasaki R., a. R. (2008). ‘Mutual Funds and Investors Interest’. New Delhi: The Hindu

Business Line.

sehgal, g. &. (1998). Investment perfomance of mutual funds. iup journal .

Selvaraj, V. a. (2007). ‘Performance of Mutual Funds’. Facts For You,Vol.27(8), .

Shahroodi, S. M. (2010). investigation of the effective factors in the efficiency of tax

system. journal of accounting and taxation , 42-45.

Shahroudy, S. M. (2011). investigation of the effective factors in collection of

occupation tax in Iran. journal of accounting and taxation , 125-129.

71

Singh, j. l. (2004). An Empirical Analysis of Perceptions of Investors towards mutual

funds. Finance India, Vol.XVIII .

Singh, S. C. (2006). ‘Investors’ Preference for Investment in Mutual funds : An

emperical evidence. The Journal of Behavioral Finance .

Slemrod, J. (2007). Cheating Ourselves: The Economics of tax evasion. Journal of

economic perspectives , 25-48.

Sodhi, H. a. (2004). Performance Evaluation of Equity Mutual Funds: Empirical

Evidence From India. Dias Technology Review, Vol.1 (2) .

Sofat, R. A. (2008). ‘Promising Avenues of Investment Mutual Funds’,. Portfolio

Organiser .

Sorescu, S. a. (2006). The Cross Section of Analyst Recommendations’. Journal of

Financial and Quantitative Analysis, Vol.41.

Srivastava, A. (2007). An Analysis of Behavior of Investors in India. The ICFAI

Journal of Behavioural Finance, Vol.IV(2) .

Terrance. (1998). Are Invertors Reluctant to Realize their losses. The Journal of

Finance, Vol.53(5) .

Tripathy, N. P. (1996). Mutual funds creates awareness among urban and rural middle

class people. Investopedia , 40-50.

Uma, K., & Lingaperumal, G. (2013). Awareness of tax planning- a study with

special reference to government employees. intrenational journal of research in

computer application and management , 113.

Verma. (2006). Role of Mutual Funds in Developing Indian Capital Market. Indian

Journal of Commerce, Vol. 43(165).

Vijayalakshmi, S. (2007). Mutual Funds: Present and Future Scenario’. Portfolio

Organiser,Vol.8(3) .

Weisbach, D. A. (2012). Is knowledge of the tax law socially desirable. 1 (January

31 , 2013).

72

Wolmarans, H. (2001). postgraduate education in taxation by means of a flexible

learning model: a new educational paradigm. Meditari acountancy research , 333-

349.

Zaman, S. a. (1996). Role of media in mutual funds. investopedia .

ANNEXURE

(First of all thanking you for participating in the survey. I request you to

spend few minutes for filling this questionnaire. The information you

provide will be kept confidential and anonymous. Results will be shown

in aggregate data only. Your answers will never be communicated to

anyone and will be used for academic purpose only)

73

1. Locality: Rural Urban Semi-urban

2. Gender: Male Female

3. Age in Completed years: 21-30 31-40 41-50

4. Marital Status: Married Single

5. Educational background: Undergraduate Graduate (Professional course)

Graduate (Non-Professional course) Post Graduation & above

6. Occupation/Employment: Employed Self Employed Student

7. Average Monthly savings of your family : Below 10000 10000 to25000

25000 to 40000 40000 to 60000 60000 & Above

8. What kind of investment do you prefer most?

Savings account Fixed deposits Insurance Mutual

funds

9. While investing which factor do you prefer most?

Liquidity High return Low risk Company

Reputation

10. Have you ever invested in mutual funds?

Yes No

If yes:

11. How much percentage of your savings will you invest in mutual funds?

5-10% 10-15% 15-20% 20-25% 25 and Above

12. How did you come to know about mutual Funds?

Advertisements Peer groups Banks Financial

Advisor

13. In which kind of mutual fund would you like to invest?

Private Public

14. Which feature of mutual fund attracts you most?

Diversification Better safety and Return Reduction in

risk and transaction cost Regular income

Tax benefit Investment objectives

15. When you invest in mutual fund which mode of investment do you prefer?

One time investment Systematic investment plan

16. Which mutual fund scheme have you used?

Open Ended schemes Close Ended Schemes Liquid Funds

Growth Funds Regular Income Funds

74

17. Where do you find yourself as a mutual fund investor?

Totally ignorant Partial knowledge of mutual funds Aware of

only specific schemes invested in fully aware

18. Which sector would you prefer to invest in the mutual fund sector?

Banking and Financial services Information technology

Oil & Gas Pharmaceuticals Automotive Other

19. From where do you purchase mutual funds?

Directly from AMC’s Brokers only Brokers and Sub Brokers

Other sources

20. What is your expected rate of return from your investment?

5-10% 10-15% 15-20%

21. If not invested in mutual fund, why?

No specific reason High Risk Not Aware of Mutual

funds

22. Have you faced any kind of loss from investment in mutual funds?

Yes No

23. Did the loss deter you from any further investments?

Yes No

24. Are you satisfied with your investment option?

Yes No

75

“a study on investor preference towards mutual funds in bangalore city”

Documents

mutual fund41 table

mutual funds42 table

mutual funds43 table

investor44 table

investor47 table

investment40 table

investor48 table

preferred investment39