investors perception towards mutual funds - main body

7/30/2019 Investors Perception Towards Mutual Funds - Main Body

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CHAPTER 1INTRODUCTION


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1. INTRODUCTIONMutual funds have become extremely popular over the last 20 years. What was once just another

obscure financial instrument is now a part of our daily lives. Trillions of dollars are invested in

mutual funds all across the world. Mutual funds are so popular because they offer diversification

as they hold many investment positions, they are managed by professional money managers and

are less expensive than stocks as they do not carry hefty commissions.

Mutual funds is an investment vehicle that is made up of a pool of funds collected from many

investors for the purpose of investing in securities such as stocks, bonds, money market

instruments and similar assets. Mutual funds are operated by money managers, who invest the

fund's capital and attempt to produce capital gains and income for the fund's investors. A mutual

fund's portfolio is structured and maintained to match the investment objectives stated in its

prospectus.

One of the main advantages of mutual funds is that they give small investors access to

professionally managed, diversified portfolios of equities, bonds and other securities, which

would be quite difficult (if not impossible) to create with a small amount of capital. Each

shareholder participates proportionally in the gain or loss of the fund. Mutual fund units, or

shares, are issued and can typically be purchased or redeemed as needed at the fund's current net

asset value (NAV) per share, which is sometimes expressed as NAVPS.

1.1A History of Mutual Funds

Mutual funds really captured the public's attention in the 1980s and '90s when mutual fund

investment hit record highs and investors saw incredible returns. However, the idea of pooling

assets for investment purposes has been around for a long time. Here we look at the evolution of

this investment vehicle, from its beginnings in the Netherlands in the 18th century to its present

status as a growing, international industry with fund holdings accounting for trillions of dollars

in the United States alone.


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In the Beginning

Historians are uncertain of the origins of investment funds; some cite the closed-end investment

companies launched in the Netherlands in 1822 by King William I as the first mutual funds,while others point to a Dutch merchant named Adriaan van Ketwich whose investment trust

created in 1774 may have given the king the idea. Ketwich probably theorized that

diversification would increase the appeal of investments to smaller investors with minimal

capital. The name of Ketwich's fund,Eendragt Maakt Magt, translates to "unity creates strength".

The next wave of near-mutual funds included an investment trust launched in Switzerland in

1849, followed by similar vehicles created inScotland in the 1880s.

The idea of pooling resources and spreading risk using closed-end investments soon took root

in Great Britain and France, making its way to the United States in the 1890s. The Boston

Personal Property Trust, formed in 1893, was the first closed-end fund in the U.S. The creation

of the Alexander Fund in Philadelphia in 1907 was an important step in the evolution toward

what we know as the modern mutual fund. The Alexander Fund featured semi-annual issues and

allowed investors to make withdrawals on demand.

The Arrival of the Modern Fund

The creation of the Massachusetts Investors' Trust in Boston, Massachusetts, heralded the arrival

of the modern mutual fund in 1924. The fund went public in 1928, eventually spawning the

mutual fund firm known today as MFS Investment Management. State Street Investors' Trust

was the custodian of the Massachusetts Investors' Trust. Later, State Street Investors started its

own fund in 1924 with Richard Paine, Richard Saltonstall and Paul Cabot at the helm. Saltonstall

was also affiliated with Scudder, Stevens and Clark, an outfit that would launch the first no-load

fund in 1928. A momentous year in the history of the mutual fund, 1928 also saw the launch of

the Wellington Fund, which was the first mutual fund to include stocks and bonds, as opposed to

direct merchant bank style of investments in business and trade.

Regulation and Expansion

By 1929, there were 19 open-ended mutual funds competing with nearly 700 closed-end funds.

With the stock market crash of 1929, the dynamic began to change as highly-leveraged closed-

end funds were wiped out and small open-end funds managed to survive.

Government regulators also began to take notice of the fledgling mutual fund industry. The

creation of the Securities and Exchange Commission (SEC), the passage of the Securities Act of
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1933 and the enactment of the Securities Exchange Act of 1934put in place safeguards to protect

investors: mutual funds were required to register with the SEC and to provide disclosure in the

form of a prospectus. The Investment Company Act of 1940put in place additional regulations

that required more disclosures and sought to minimize conflicts of interest.

The mutual fund industry continued to expand. At the beginning of the 1950s, the number of

open-end funds topped 100. In 1954, the financial markets overcame their 1929 peak, and the

mutual fund industry began to grow in earnest, adding some 50 new funds over the course of the

decade. The 1960s saw the rise ofaggressive growth funds, with more than 100 new funds

established and billions of dollars in new asset inflows.

Hundreds of new funds were launched throughout the 1960s until the bear market of 1969 cooled

the public appetite for mutual funds. Money flowed out of mutual funds as quickly as investors

could redeem their shares, but the industry's growth later resumed.

Recent Developments

In 1971, William Fouse and John McQuown of Wells Fargo Bank established the first index

fund, a concept that John Bogle would use as a foundation on which to build The Vanguard

Group, a mutual fund powerhouse renowned for low-cost index funds. The 1970s also saw the

rise of the no-loadfund. This new way of doing business had an enormous impact on the way

mutual funds were sold and would make a major contribution to the industry's success.

With the 1980s and '90s came bull market mania and previously obscure fund managers becamesuperstars; Max Heine, Michael Price and Peter Lynch, the mutual fund industry's top

gunslingers, became household names and money poured into the retail investment industry at a

stunning pace. More recently, the burst of the tech bubble and a spate of scandals involving big

names in the industry took much of the shine off of the industry's reputation. Shady dealings at

major fund companies demonstrated that mutual funds aren't always benign investments

managed by folks who have their shareholders' best interests in mind.

Despite the 2003 mutual fund scandals and the global financial crisis of 2008-2009, the story of

the mutual fund is far from over. In fact, the industry is still growing. In the U.S. alone there are

more than 10,000 mutual funds, and if one accounts for all share classes of similar funds, fund

holdings are measured in the trillions of dollars. Despite the launch ofseparate

accounts, exchange-traded funds and other competing products, the mutual fund industry

remains healthy and fund ownership continues to grow.
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1.1b TYPES OF MUTUAL FUND SCHEMES

Mutual fund schemes may be classified on the basis of its structure and its investment objective.

By Structure:

Open-ended Funds:

An open-end fund is one that is available for subscription all through the year. These do not have

a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV")

related prices. The key feature of open-end schemes is liquidity.

Closed ended Funds:

A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years.The fund is open for subscription only during a specified period. Investors can invest in the

scheme at the time of the initial public issue and thereafter they can buy or sell the units of the

scheme on the stock exchanges where they are listed. In order to provide an exit route to the

investors, some close-ended funds give an option of selling back the units to the Mutual Fund

through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one

of the two exit routes is provided to the investor.

Interval Funds:Interval funds combine the features of open-ended and close-ended schemes. They are open for

sale or redemption during pre-determined intervals at NAV related prices

By Investment Objective

Growth Funds:

The aim of growth funds is to provide capital appreciation over the medium to long term. Such

schemes normally invest a majority of their corpus in equities. It has been proved that returns

from stocks, have outperformed most other kind of investments held over the long term. Growth

schemes are ideal for investors having a long term outlook seeking growth over a period of time.

Income Funds:

The aim of income funds is to provide regular and steady income to investors. Such schemes

generally invest in fixed income securities such as bonds, corporate debentures and Government

securities. Income Funds are ideal for capital stability and regular income.


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Balanced Fund:

The aim of balanced funds is to provide both growth and regular income. Such schemes

periodically distribute a part of their earning and invest both in equities and fixed income

securities in the proportion indicated in their offer documents.

Money Market Funds:

The aim of money market funds is 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 inter-bank call money.

Other Schemes

Tax Saving Schemes:

These schemes offer tax rebates to the investors under specific provisions of the Indian Income

Tax laws as the Government offers tax incentives for investment in specified avenues.

Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemesare allowed

as deduction u/s 80C of the Income Tax Act, 1961.

Special Schemes

Industry Specific Schemes: Industry Specific Schemes invest only in the industriesspecified in the offer document. The investment of these funds is limited to specific

industries like InfoTech, FMCG, and Pharmaceuticals etc.

Index Schemes: Index Funds attempt to replicate the performance of a particular indexsuch as the BSE Sensex or the NSE 50

Sectoral Schemes: Sectoral Funds are those which invest exclusively in a specifiedsector. This could be an industry or a group of industries or various segments such as 'A'

Group shares or initial public offerings.


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1.1c BENEFITS OF MUTUAL FUND

Professional Management

Mutual Funds provide the services of experienced and skilled professionals, backed by a

dedicated investment research team that analyses the performance and prospects ofcompanies and selects suitable investments to achieve the objectives of the scheme.

Diversification

Mutual Funds invest in a number of companies across a broad cross section of

industries and sectors. This diversification reduces the risk because seldom do all stocks

decline at the same time and in the same proportion.

Affordability

A mutual fund invests in a portfolio of assets, i.e. bonds, shares etc. depending upon theinvestment objective of the scheme. An investor can buy into a portfolio of equities,

which would otherwise be extremely expensive.

Tax Benefits

There is no capital gains tax on mutual funds if invested for more than one year.

Dividends distributed by them are tax-free in the hands of the investor. Also

investments under ELSS are exempted under Section 80C of the Income Tax Act.

Return Potential

Over a medium to longterm, mutual funds have the potential to provide a higher returnas they invest in a diversified basket of selected securities

Low Costs

Investing in the capital markets because the benefits of scale in brokerage, mutual funds

are a relatively less expensive way to invest compared to directly custodial and other fees

translate into lower costs for investors.

Liquidity

In open ended schemes, the investor gets the money back promptly at MAV related

prices from the mutual fund. In closed ended schemes, the units can be sold on a stock

exchange at the prevailing market price or the investor can avail of the facility of direct

repurchase at NAV related prices by the mutual fund.


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Transparency

You get regular information on the value of your investment in addition to disclosure onthe specific investments made by your scheme, the proportion invested in each class of

assets and the fund managers investment strategy and outlook.

Flexibility

Through features such as regular investment plans, regular withdrawal plans and dividendreinvestment plans, you can systematically invest or withdraw funds according to yourneeds and convenience.

Well Regulated

All mutual funds are registered with SEBI and they function within the provisions of strictregulations designed to protect the interests of investors.

1.1d DISADVANTAGES OF MUTUAL FUNDS

There are certainly some benefits to mutual fund investing, but you should also be aware of the

drawbacks associated with mutual funds.

No Insurance

Mutual funds, although, regulated by the government are not insured against losses. That means

that despite the risk-reducing diversification benefits provided by mutual funds, losses can occur,

and it is possible (although extremely unlikely) that you could even lose your entire investment.

Dilution

Although diversification reduces the amount of risk involved in investing in mutual funds, it can

also be a disadvantage due to dilution. By holding a large number of different investments,

mutual funds tend to do neither exceptionally well nor exceptionally poorly.

Fees and Expenses

Most mutual funds charge management and operating fees that pay for the fund's management

expenses (usually around 1.0% to 1.5% per year). In addition, some mutual funds charge high

sales commissions, 12b-1 fees, and redemption fees.


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Poor Performance

Returns on a mutual fund are by no means guaranteed. In fact, on average, around 75% of all

mutual funds fail to beat the major market indexes, like the S&P 500.

Loss of Control

The managers of mutual funds make all of the decisions about which securities to buy and sell

and when to do so. This can make it difficult for you when trying to manage your portfolio.

Trading Limitations

Although mutual funds are highly liquid in general, most mutual funds (called open-

ended funds) cannot be bought or sold in the middle of the trading day.

Size

Some mutual funds are too big to find enough good investments. This is especially

true of funds that focus on small companies, given that there are strict rules about howmuch of a single company a fund may own.

1.1e MUTUAL FUNDS IN INDIA

The company that puts together a mutual fund is called an AssetManagement Company (AMC).

The Securities and Exchange Board of India (SEBI) mutual fund regulations require that thefunds objectives are clearly spelt out in the prospectus. In addition, every mutual fund has a

board of directors that is supposed to represent the shareholders' interests, rather than the

AMCs. (moneycontrol.com)

These products are now tailor made to suit specific needs of investors. Intensified competition

and involvement of private players in the race of MFs have forced professional managers to

bring innovation in mutual funds. Thus, mutual funds industry has moved from offering a

handful of schemes like equity, debt or balanced funds to liquid, money market, sector specific

funds, I index funds and gilt edged funds .With the entry of private sector funds in 1993, a new

era starting the Indian MFs industry giving the Indian investors a wider choice of fund families.In the course of time the number of MF houses went on increasing, with many foreign MFs

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

But in India mutual fund could not get its expected heights. In a country of 120 crore people

there are only 4 crore (3.5 per cent) mutual fund unit investors. On the contrary in developed

countries like US, every second citizen is a mutual fund unit holder (Kelkar 2012).


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Our paper studies investors perception towards mutual funds .We try to find out va rious factors

which have affected the growth in mutual funds.


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1.2 REVIEW OF LITERATURE:

(Dr. Anjum, 2011) conducted a study on investors awareness and perception about mutual

funds. The present investigation outlined that mostly the investors have positive approach

towards investing in mutual funds. In order to maintain their confidence in mutual funds they

should be provided with timely information relating to different trends in the mutual fund

industry. For achieving heights in the financial sector, the mutual fund companies should

formulate the strategies in such a way that helps in fulfilling the investors expectations. Today

the main task before mutual fund industry is to convert the potential investors into the reality

investors. New and more innovative schemes should be launched from time to time so that

investors confidence should be maintained. All this will lead to the overall growth and

development of the mutual fund industry.

(Dr. Sharma, 2012) analyzed Indian Investors Perception towards Mutual Funds. The results

reveal that in order to secure the patronage of Indian investor mutual fund companies are

expected to ensure full disclosure and regular updates of the relevant information along with the

assurance of safety and monetary benefits.

(Singh & Jha, 2009) conducted a study on awareness & acceptability of mutual funds and foundthat consumers basically prefer mutual fund due to return potential, liquidity and safety and they

were not totally aware about the systematic investment plan. The invertors will also consider

various factors before investing in mutual fund.

(Dr. Singh, 2012) conducted a study on investors attitude towards mutual funds as an

investment option. The study shows that most of respondents are still confused about the mutual

funds and have not formed any attitude towards the mutual fund for investment purpose. It has

been observed that most of the respondents having lack of awareness about the various function

of mutual funds. Moreover, as far as the demographic factors are concerned, gender, income and

level of education have significantly influence the investors attitude towards mutual funds. On

the other hand the other two demographic factors like age and occupation have not been found

influencing the attitude of investors towards mutual funds. As far as the benefits provided by


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mutual funds are concerned, return potential and liquidity have been perceived to be most

attractive by the invertors followed by flexibility, transparency and affordability.

(Desigan, 2006) conducted a study on women investors perception towards investment and

found that women investors basically are indecisive in investing in mutual funds due to

various reasons like lack of knowledge about the investment protection and their various

investment procedures, market fluctuations, various risks associated with investment, assessment

of investment and redressal of grievances regarding their various investment related problems.

Savings is a habit specially embodied into women. Even in the past, when women mainly

depended on their spouses income, they used to save to meet emergencies as well as for future

activities. In those days, women did not have any awareness about various investment outlets.

But as time passed, the scenario has totally changed.

(Dr. Rao, 2011)analyzed investors perceptions towards mutual fund schemes. He analyzed that

the behavioural finance has been recognized as an important area in the study of recent finance

literature. It implicit objective is to discover and remedy the deviation from the rational decision

making in the investment process. The purpose of this study is to examine the role of various

social-economic factors affectively the investment decision of the investors. The results an

obtained from a survey and has been analyzed by the chi-squire test. The result shows that,

socioeconomic factors are significantly influence the investment behaviour of the investors.


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1.3 NEED OF STUDY

The purpose of this paper is to study the investors perception and satisfaction towards the

mutual funds industries. It also aimed at identifying the section criteria investors seem to use in

selecting a mutual fund institution that suits the investors investment objective and also to

identify the factors that are responsible for selection of schemes floated by various organizations.

The study utilized the survey approach. The sample consisted of 100 respondents. The study tries

to find out that the expectations of customers towards the mutual fund companies and also

whether the companies satisfy the customers expectations. For this purpose we did analysis to

identify the gaps between the expectation and satisfaction level of the customers. This paper also

tries to identify the factors which influence the satisfaction level of customers with respect to

mutual fund companies.

1.4 FOCUS GROUP INTERVIEWParticipants in the summary mutual fund focus groups consider a number of criteria in making a

decision about an investment, including the following:

Control Risk Sale by prospectus Liquidity Minimum investment Tax benefits

In a discussion on stocks vs. mutual funds some respondents agreed that they would prefer

leaving details to others. They wont like to bother about ups and downs in investments and

would like to leave it to an expert.

While on the same time some participants didnt want to lose control of their investments. They

wanted to make the decisions themselves.

There was agreement on risk factor in investments. In case of Mutual funds risk factor is less,

because investment is diversified. This was unanimous opinion of participants.

Mutual funds are sold by prospectus. One respondent said that mutual funds prospectus is

usually very complex and confusing. Sometimes this acts as discouraging factor for investors.

Investors in open-ended mutual funds can buy and sell units at Net Asset Value (NAV) related

prices which are declared on a daily basis on all working days. For some respondents this is very

important factors, as the money can be liquidated easily.


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Few respondents were inclined to invest in mutual fund as minimum amount to be invested in

mutual fund is very low as compared to stocks.

Equity Linked Savings Schemes (ELSS) offer tax rebates to investors. Also, Dividend income

from Mutual Funds is tax-free in the hands of the investor.

1.5 OBJECTIVESMain objective of study is to test investors perception towards mutual funds. Sub-objectives

are:

To study the factors which influence the investors perception towards mutualfunds.

To study means of normative influence which determine the perception towardsmutual funds

To study how risk affects the investments in mutual funds To study effect of demographics on risk perception

1.6 HYPOTHESISH0a There is no Relation between gender and risk perception

H0bThere is no Relation between age and risk perception

H0cThere is no Relation between occupation and risk perception


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CHAPTER 2Research Methodology


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2. Research Methodology

This study examined risk perception of investors towards mutual funds. The survey approach

was used for this study. First, the research method is discussed after which the data collection

and analysis procedures are explained. Justifications for the suitability of the chosen methods arealso presented throughout the chapter.

Objective Hypothesis Dependent

And

Independent

Variables

Data

Collection

Instrument

To study the factors

which influence theinvestors

perception towards

mutual funds

There is noRelation between

gender and risk

perception

There is no

Relation between

age and risk

perception

There is no

Relation between

occupation and risk

perception

Risk Perception

AgeGender

Occupation

Likert scale

Nominal Scale

To study means of

normative

influence which

determine the

perception towards

mutual funds

To study how risk

affects the

investments in

mutual funds

To study effect ofdemographics on

risk perception

Table 2.1:Research Methodology


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2.1 Research Design

Research can be classified in one of three categories.

Exploratory research:Exploratory research has the goal of formulating problems more precisely, clarifying

concepts, gathering explanations, gaining insight, eliminating impractical ideas, and

forming hypotheses. Exploratory research can be performed using a literature search,

surveying certain people about their experiences, focus groups, and case studies.

Causal research

Causal research seeks to find cause and effect relationships between variables. Itaccomplishes this goal through laboratory and field experiments. If the objective is to

determine which variable might be causing certain behavior, i.e. whether there is a cause

and effect relationship between variables, causal research must be undertaken.

Descriptive researchDescriptive research is more rigid than exploratory research and seeks to describe users

of a product, determine the proportion of the population that uses a product, or predict

future demand for a product. As opposed to exploratory research, descriptive research

should define questions, people surveyed, and the method of analysis prior to beginningdata collection. In other words, the who, what, where, when, why, and how aspects of the

research should be defined. Such preparation allows one the opportunity to make any

required changes before the costly process of data collection has begun.

There are two basic types of descriptive research:

Longitudinal studies or Panel Research studies Cross-sectional studies

The study ofInvestors Perception Towards Mutual Funds Requires determining theproportion of the population that uses a product and define questions, people surveyed,

and the method of analysis prior to beginning data collection moreover the data gathered

in this type of design consists of responses from a sample which contains a large number

of sources.

Thus, this research qualifies as DESCRIPTIVE RESEARCH.


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Fig.2.1:Primary Data

2.1.1 Type of Research

The study undertaken is ofDescriptive Research in nature

2.1.2 Nature of Research

The study is quantitative in nature.

2.2 Data Collection

Secondary Data

Before going through the time and expense of collecting primary data, one should check for

secondary data that previously may have been collected for other purposes but that can be used

in the immediate study.


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Secondary data has the advantage of saving time and reducing data gathering costs. The

disadvantages are that the data may not fit the problem perfectly and that the accuracy may be

more difficult to verify for secondary data than for primary data.

Some secondary data is republished by organizations other than the original source. Because

errors can occur and important explanations may be missing in republished data, one should

obtain secondary data directly from its source. One also should consider who the source is and

whether the results may be biased. .

NOTE:

The nature of the study does not quite require any extensive usage of secondary sources of data.

But few journals were referred which introduce and elaborate the Investor perception

dimensions, for analyzing the primary data collected.

Primary Data

Often, secondary data must be supplemented by primary data originated specifically for the study

at hand. Some common types of primary data are:

Demographic and socioeconomic characteristics Psychological and lifestyle characteristics Attitudes and opinions Awareness and knowledge - for example, brand awareness Intentions - for example, purchase intentions Motivation BehaviourPrimary data can be obtained by communication or by observation. Communication involves

questioning respondents either verbally or in writing. This method is versatile, since one need

only to ask for the information, however, the response may not be accurate. Communication

usually is quicker and cheaper than observation. Observation involves the recording of actions

and is performed by either a person or some mechanical or electronic device. Observation is less

versatile than communication since some attributes of a person may not be readily observable,

such as attitudes, perception, knowledge, intentions, and motivation. Observation also might takelonger since observers may have to wait for appropriate events to occur, though observation

using scanner data might be quicker and more cost effective. Observation typically is more

accurate than communication.


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NOTE:

For the analysis of the Investors perception primary data was collected using questionnaire

containing 18 questions.

The data collection method chosen for this study was random sampling in which is which eachunit (e.g., persons, cases) in the accessible population has an equal chance of being included in

the sample, and the probability of a unit being selected is not affected by the selection of other

units from the accessible population.(Charles Teddlie and Fen Yu,(2007,p.79)

In terms of this study, random sampling was chosen because overall market analysis had to be

done to understand attitude of consumers towards beauty products. Thus, the population chosen

for this study was the 91 consumers who submitted their responses to online posted forms for

questionnaire.

2.2.1 Questionnaire

A questionnaire served as a data-gathering instrument. Questionnaire was posted online to

collect responses. It was based on scales (5-point Likert scales) to measure the variables

considered in this study.

The survey was done by using Google Docs to create a questionnaire. The survey was written

and implemented in English. The questions in the survey were designed based on the determined

research problem and questions as well as the theory presented in literature review. By

combining the theory with the research objectives, altogether 20 questions were formulated. All

the questions were close ended.

Questions were such that they covered all the dimensions of attitude under study. For example:

Risk: How do you rate the risks associated with Mutual Funds.

General Awareness: Do you have any knowledge about Mutual Funds?

Technical Knowledge: Do you know what is systematic risk

Apart from such questions, a Likert scale is used to measure upon factors such as liquidity, High

Return, Price etc. Factor analysis will be used to identify the factors which contribute maximum

towards the perception.

The order of the questions was designed so that it would be easy and convenient for the

respondents to answer and thus the questions do not follow the order of the literature review. The


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survey starts with questions related to age, occupation, gender and income in order to learn about

the demographics of the respondents. The questionnaire can be found in appendix I.

After making sure the survey was understandable and the link for online form worked as

intended, a link was posted online on various investment forums, mutual fund companies pages

on social networks.

TABLE 2.2:Questionnaire sections

Section A Demographics

Section B General Awareness

Section C Technical Knowledge

Section D Normative Influence

Section E Risk

Section F Factors

2.3 Data analysis

To arrive at pertinent analysis, the collected data was put to a planned statistical analysis using

SPSS package. After scoring the questionnaires the data of all the people was pooled and

tabulated. To arrive at certain conclusion regarding the hypothesis advanced in the process

investigation, the description of the statistical tools which were applied for the analysis of data.

STATISTICAL TOOLS FOR DATA ANALYSIS

Survey was conducted using Likert based questionnaire ranging from 1 = Strongly Disagree to 5

= Strongly Agree, and Nominal Scale.

Further SPSS 17.0 was used for analyzing the data.

2.3.1 FACTOR ANALYSISFactor analysis is a statistical method used to describe variability among observed

correlated variables in terms of a potentially lower number of unobserved variables

called factors. In other words, it is possible, for example, that variations in three or four observed

variables mainly reflect the variations in fewer unobserved variables. Factor analysis searches for

such joint variations in response to unobserved latent variables. The observed variables are

modelled as linear combinations of the potential factors, plus "error" terms. The information

gained about the interdependencies between observed variables can be used later to reduce the
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set of variables in a dataset. Computationally this technique is equivalent to low rank

approximation of the matrix of observed variables. Factor analysis originated in psychometrics,

and is used in behavioural sciences, social sciences, marketing, product management, operations

research, and other applied sciences that deal with large quantities ofdata.

Factor analysis is related to principal component analysis (PCA), but the two are notidentical. Latent variable models, including factor analysis, use regression modelling techniques

to test hypotheses producing error terms, while PCA is a descriptive statistical technique. There

has been significant controversy in the field over the equivalence or otherwise of the two

techniques.

2.3.2 Chi-Square Analysis:

In order to compare observed data with data we would expect to obtain according to a specific

hypothesis Chi-Square Analysis is used. In order word Chi-Square Analysis is used to examine

differences with categorical variables. The Chi-Square Test is generally used to evaluate

differences between experimental or observed data and expected or hypothetical data. As a

goodness of fit test, it tells us how well a set of observations fits the outcome predicted by the

hypothesis being tested. It tells us whether there is a statistically significant difference between

what we observed and what we expected.
http://en.wikipedia.org/wiki/Low_rank_approximationhttp://en.wikipedia.org/wiki/Low_rank_approximationhttp://en.wikipedia.org/wiki/Psychometricshttp://en.wikipedia.org/wiki/Social_scienceshttp://en.wikipedia.org/wiki/Marketinghttp://en.wikipedia.org/wiki/Product_managementhttp://en.wikipedia.org/wiki/Operations_researchhttp://en.wikipedia.org/wiki/Operations_researchhttp://en.wikipedia.org/wiki/Datahttp://en.wikipedia.org/wiki/Principal_component_analysishttp://en.wikipedia.org/wiki/Latent_variable_modelhttp://en.wikipedia.org/wiki/Latent_variable_modelhttp://en.wikipedia.org/wiki/Principal_component_analysishttp://en.wikipedia.org/wiki/Datahttp://en.wikipedia.org/wiki/Operations_researchhttp://en.wikipedia.org/wiki/Operations_researchhttp://en.wikipedia.org/wiki/Product_managementhttp://en.wikipedia.org/wiki/Marketinghttp://en.wikipedia.org/wiki/Social_scienceshttp://en.wikipedia.org/wiki/Psychometricshttp://en.wikipedia.org/wiki/Low_rank_approximationhttp://en.wikipedia.org/wiki/Low_rank_approximation


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CHAPTER 3Results & Findings


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3. Results and FindingsFor the research, SPSS is used as the statistical data analysis tool as it offers greater flexibility in

data analysis and graphical representation. After scoring the questionnaires the data of all the

people was pooled and tabulated. Following steps were followed:

Data analysis Chart

Figure 3.1

To arrive at certain conclusion regarding the hypothesis advanced in the process investigation,

the description of the statistical tools which were applied for the analysis of data, is as follows:

Data Analysis Tests Used

Figure 3.2

A database in SPSSwas created for

logging incomingdata

Checked readability,

completeness andresponses byrespondent

Checked missingvalues prior running

analysis

Chi Square for relationship establishement

Cronbach alpha for reliability test

Factor analysis for finding factors responsible


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Chi Square Analysis:

Test is generally used to evaluate differences between experimental or observed data and

expected or hypothetical data. As a goodness of fit test, it tells us how well a set of

observations fits the outcome predicted by the hypothesis being tested. It tells us whether there is

a statistically significant difference between what we observed and what we expected.

Generally, Null hypothesis is that there is no significant difference between the observed results

and the ones expected. To test this hypothesis, the Chi-Square test is used.

First, calculate a number called the Chi-Square value then use a probability table to tell how

likely it is that we would get these results by chance alone. If the probability of getting our

observed results by chance is greater than or equal to 5% (p=0.05), then we conclude there is no

significant difference between the observed and expected results. We accept our hypothesis. If,

however, the probability of getting these results is less than 5% (p


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one method of checking dimensionality. Technically speaking, Cronbach's alpha is not a

statistical test - it is a coefficient of reliability (or consistency).

Cronbach's alpha can be written as a function of the number of test items and the average inter-

correlation among the items. i.e

Here N is equal to the number of items, c-bar is the average inter-item covariance among the

items and v-bar equals the average variance.

One can see from this formula that if you increase the number of items, you increase Cronbach's

alpha. Additionally, if the average inter-item correlation is low, alpha will be low. As the

average inter-item correlation increases, Cronbach's alpha increases as well (holding the number

of items constant).

Factor Analysis:

It is a statistical method used to describe variability among observed, correlated variables in

terms of a potentially lower number of unobserved variables called factors. In other words, it is

possible, for example, that variations in three or four observed variables mainly reflect the

variations in fewer unobserved variables. Factor analysis searches for such joint variations in

response to unobserved latent variables. The observed variables are modelled as linear

combinations of the potential factors, plus "error" terms. The information gained about the

interdependencies between observed variables can be used later to reduce the set of variables in a

dataset. Computationally this technique is equivalent to low rank approximation of the matrix ofobserved variables. Factor analysis originated in psychometrics, and is used in behavioural

sciences, social sciences, marketing, product management, operations research, and other applied

sciences that deal with large quantities of data.


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3.1 DEMOGRAPHIC VARIABLES

Age:

This Research Study contains age group categorized as follows:

Upto 22 years

23-35

35-45

45-55

Above 55 years

Figure 3.3: Age


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Table 3.1 : Age Frequency Table

Age Values Percentage

Upto 22 yrs 12 13.2%

23-35 61 67%

35-45 7 7.7%

45-55 11 12.1%

Total 91

Gender:

The survey includes 91 correspondents out of which 75 are Male and 16 are Female.

Figure 3.4: Gender


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Table 3.2: Gender Frequency Table:

Gender Values Percentage

Male 75 82.4%

Female 16 17.6%

Total 91

Education Level:

We have chosen people with different education leve to see the variation in the perception as

people having different education background have different thinking of investing in the mutual

funds. The

Figure 3.5 : Education


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Education level is divided as follows:

Under-Graduate

Graduate

Post-Graduate

Others

Table 3.3 : Education Frequency Table

Education Level Values Percentage

Under-graduate 0 0%

graduate 57 62.6%

Post graduate 34 37.4%

Others 0 0%

91

Income level

The income level of a family does have an impact on the consumption and saving capacity. The

monthly income level is categorized ,to check its impact on investors perception, as follows:

Less than Rs. 10,000

Rs. 10,001 to Rs. 15,000

Rs. 15,001 to Rs. 20,000

Rs 20,000 to Rs. 30,000.

Above Rs 30,001


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Fig. 3.6:Income Level

4. What is your monthly family income approximately?Table 3.4:Monthly Family Income

Frequency Percent

Rs. 10,001 to 15000 1 1.1Rs. 15,001 to 20,000 7 7.7

Rs. 20,001 to 30,000 2 2.2

Rs. 30,001 and above 81 89.0

Total 91 100.0

3.2Chi-Square Test:

All together 91 responses were received. Now to validate the data , listwise deletion has been

followed for the responses so received.


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3.2.1 Relation between Gender and Risk perception towards mutual funds:

Table 3.5:Chi Square Test-GenderChi-Square Tests

Value Df Asymp. Sig. (2-

sided)

Pearson Chi-Square 29.200a 5 .000

Likelihood Ratio 25.803 5 .000

Linear-by-Linear Association 11.081 1 .001

N of Valid Cases 91

a. 7 cells (58.3%) have expected count less than 5. The minimum expected

count is .18.

Since the significant value is .000 which is less than .05. our null hypothesis is rejected. The

Analysis shows that there is some relationship between gender of the investor and the risk

perception towards mutual funds. Thus, our null hypothesis was wrong and the alternativehypothesis turned out to be true.

This implies that male and female perceives risk involved in mutual funds differently.

3.2.2Relation between Age and Risk perception towards mutual funds:

Table 3.6 :Chi Square Test-AgeChi-Square Tests

Value df Asymp. Sig.

(2-sided)



Linear-by-Linear

Association.905 1 .342

N of Valid Cases 91

a. 20 cells (83.3%) have expected count less than 5. The minimum

expected count is .08.

Since the significant value is .620 which is more than .05. our null hypothesis is accepted. The

Analysis shows that there is some relationship between age of the investor and the risk

perception towards mutual funds. Thus, our null hypothesis is right and the alternative

hypothesis turned out to be wrong.

This implies that age factors does play role in perceiving risk involved in mutual funds

differently.


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3.2.3 Relation between Occupation and risk perception towards mutual funds:

Table 3.7: Chi Square Test-OccupationChi-Square Tests

Value Df Asymp. Sig. (2-

sided)



Linear-by-Linear Association 8.085 1 .004

N of Valid Cases 91

a. 11 cells (61.1%) have expected count less than 5. The minimum expected

count is .19.

Since the significant value is .000 which is less than .05. Our null hypothesis is rejected. The

Analysis shows that there is some relationship between Occupation of the investor and the risk

perception towards mutual funds. Thus, our null hypothesis was wrong and the alternative

hypothesis turned out to be true.

This implies that different streams of education does change the perception towards risk involved

in mutual funds .

3.3 Reliability Test:

Now to check the reliability of the factor analysis test various tests are followed. As a parametric

datas reliability is checked by Cronbachs alpha we used it for our analysis. The findings are as

follows:

A. Normative Influence factors:To find the factors that influence the investors to invest in a particular mutual fund, the seven

items were tested for reliability listed as television , internet , journals , family and friends,

Advertisements, Financial advisors and sales representatives.

Table 3.8:Reliability Statistics_1

Reliability Statistics

Cronbach's Alpha N of Items

.771 7


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Table 3.9:Intraclass Correlation Coefficient_1

Intraclass Correlation Coefficient

Intraclass

Correlationb

95% Confidence Interval

Lower Bound Upper Bound

Single Measures .325a .238 .428

Average Measures .771c .686 .840

Two-way mixed effects model where people effects are random and measures effects are fixed.

a. The estimator is the same, whether the interaction effect is present or not.

b. Type C intraclass correlation coefficients using a consistency definition-the between-measure variance is excluded from the

denominator variance.

c. This estimate is computed assuming the interaction effect is absent, because it is not estimable otherwise.

Now as the value of Cronbachs alpha is .77 which is more than .70 it is significant and hence

passes the test of reliability.

A. Factors changing the perception of investors towards mutual funds:To find the factors that helps the investors in decision making to invest in a particular mutual

fund, the fourteen items were tested for reliability listed as Liquidity, High Return, Professional

Management, Diversification, Brand Image, Price, Risk, Transparency, Re-dressal of grievances,

Private investment schemes Public investment, Frequency of returns,past experience, fixed rate

of return,knowledge about mutual funds.

.

Table 3.10:Reliability Statistics_2

Reliability Statistics

Cronbach's Alpha N of Items

.836 14

Table 3.11:Intraclass Correlation Coefficient_2

Intraclass Correlation Coefficient

c. This estimate is computed assuming the interaction effect is absent, because it is not estimable otherwise.

Intraclass

Correlationb

95% Confidence Interval

Lower Bound Upper Bound

Single Measures .267a .198 .357

Average Measures .836c .776 .886

Two-way mixed effects model where people effects are random and measures effects are fixed.

a. The estimator is the same, whether the interaction effect is present or not.


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b. Type C intraclass correlation coefficients using a consistency definition-the between-measure variance is excluded from the denomin

variance.

Now as the value of Cronbachs alpha is .836 which is more than .70 it is significant and hence

passes the test of reliability.

3.4 Factor Analysis:

A. Factors changing the perception of investors towards mutual funds:Table 3.12:KMO and Bartletts Test_1

KMO and Bartlett's Test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .639

Bartlett's Test of Sphericity

Approx. Chi-Square 864.363

Df 91

Sig. .000

As it can be seen from the above table that the significance value is .639 which is greater than

.60. This is means factor analysis holds good for this sample data.

Table 3.13:Total Variance_1

Total Variance Explained

Component Initial Eigenvalues

Total % of Variance Cumulative %

1 5.085 36.323 36.323

2 3.216 22.975 59.298

3 1.540 10.998 70.295

4 1.337 9.553 79.849

5 .694 4.959 84.807

6 .623 4.447 89.255

7 .425 3.033 92.288

8 .303 2.161 94.449

9 .269 1.924 96.373

10 .171 1.225 97.59811 .132 .940 98.538

12 .104 .740 99.278

13 .066 .468 99.746

14 .036 .254 100.000

Extraction Method: Principal Component Analysis.


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From the above table it can be inferred that there are four significant factors having eigen value

greater than 1 and these 4 factors collectivelyaccounts for almost 80 % of the perception

phenomena.

Fig. 3.7

From the above graph, it can be seen there are total five points that are collectively showing

steepness of the graph and hence there are total four (5-1=4) factors contributing significantly

while others are showing gradual change in the graph.

Table 3.14:Rotated Component Matrix_1

Rotated Component Matrixa

Component

1 2 3 4

Liquidity .269 -.054 .826 .215

High Return .844 .042 .253 .172

Professional management .545 .624 .136 -.105

Diversification .627 .142 .141 .399

Price -.160 -.162 .568 .739

Risk .037 -.073 -.121 .874

Transparency .820 .248 .029 .022

Redressal of grievances .272 .830 -.058 -.040

Private investment scheme .099 .895 .073 -.053

public investment .022 .917 .030 -.080

Frequency of return .132 .200 .894 .048

past experience .687 .003 .535 -.179

Fixed rate of return .365 -.108 .377 .780

knowledge about mutual fund .891 .209 .034 .019


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Rotation Method: Varimax with Kaiser Normalization.

a. Rotation converged in 6 iterations.

Now these 4 factors can be found with the help of above table as follows:

1. Checking the first column significant value are .844(high return),.820(transparency),.891(knowledge about mutual fund)- these can clubbed into

transparency as a first factor.

2. Checking the second column significant value are .830(Redressal of grievances),.917(Public investment scheme),.895 (Private investment scheme)- these can clubbed into

security as a second factor.

3. Checking the third column significant value are .826(liquidity), .894(frequency ofreturn),- these can clubbed into Time frame of investment as a third factor.

4. Checking the fourth column significant value are .874(risk), .78(Fixed rate of return)-these can clubbed into Conservatism as a fourth factor.

B. Normative Influence factors

Table 3.15 KMO and Bartletts Test_2

KMO and Bartlett's Test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .673

Bartlett's Test of SphericityApprox. Chi-Square 261.754Df 21

Sig. .000

As it can be seen from the above table that the significance value is .673 which is greater than

.60. This is means factor analysis on these items holds good for this sample data.

Table 3.16:Total Variance_2

Total Variance Explained

Component Initial EigenvaluesTotal % of Variance Cumulative %

1 3.238 46.254 46.254

2 1.657 23.678 69.932

3 .812 11.607 81.539

4 .528 7.547 89.086

5 .350 4.997 94.083

6 .249 3.555 97.638

7 .165 2.362 100.000


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From the above table it can be inferred that there are two significant factors having eigen value

greater than 1 and these 2 factors collectivelyaccounts for almost 70 % of the normative

influence phenomena.

Fig. 3.8

From the above graph, it can be seen there are total three points that are collectively showing

steepness of the graph and hence there are total two (3-1= 2) factors contributing significantly

while others are showing gradual change in the graph.

Table 3.17: Rotated ComponentMatrix

Rotated Component Matrixa

Component

1 2Television .593 .520

Internet .858 .223

Journals .843 -.144

Friends /Relatives .737 .303

Sales Representatives .080 .915

Advertisement -.037 .768

Financial Advisors .819 -.125


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Rotation Method: Varimax with Kaiser Normalization.

a. Rotation converged in 3 iterations.

Now these 2 factors can be found with the help of above table as follows:

1. Checking the first column significant value are .858(internet),.843(journals),.819(financial advisors)- these can clubbed into Professional Sources as

a first factor.

2. Checking the second column significant value are .915(Sales Representatives),.768(advertisements)- these can clubbed into Mass media as a second factor.


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CHAPTER 4

Conclusions

&

Recommendations


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4.1 Conclusions

We can conclude from our study that perception of investors depends on various factors. As

evident from analysis risk perception varies with occupation and gender. This means investorsrisk perception varies with level of occupation. This maybe because of varying levels of

knowledge and experience across various occupations. It may be possible that people in Business

occupation have better understanding of mutual funds than people in agricultural occupation.

Risk perception also varies with gender. It simply means males and females perceive risk

differently. Reason may be varying literacy rates among males and females. It also depends on

culture.

4.2 Recommendations

Based upon conclusions we recommend that Mutual fund companies should target investors

carefully. Risk perception of investors varies with gender & occupations, so companies should

do thorough research beforehand. As it might not be a good idea to target student occupation or

people with agricultural occupation. Companies can target a particular segment of population.

This would reduce cost and increase profitability.


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Appendix

Perception of Investors towards Mutual Funds

Dear Respondent,We, Ankita Mahajan, Gursimran Singh, Harsimran Singh and Karminder Kaur, students of UBS,

are conducting a research on Perception of Investors towards Mutual Funds as a part of our

MBA Course curriculum at UBS, Chandigarh. Please respond to the following questions.We assure you that your responses will be kept confidential. The purpose of this research is

purely academic.

1. Age

Up to 22 Years 23-35 Years 35-45 Years 45-55 Years More than 55 Years

2. Gender

Male Female

3. Qualification

Under-Graduate Graduation Post-Graduation Others

4. Occupation

Doctor Engineer Business Agriculture Others

5. What is your monthly family income approximately?

Up to Rs.10,000 Rs. 10,001 to 15000


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Rs. 15,001 to 20,000 Rs. 20,001 to 30,000 Rs. 30,001 and above

6. Do you save?

Yes No

7. Do you have any knowledge about Mutual Funds?

Yes No

8. Do you have knowledge of various types of mutual funds

Yes No

9. Do you know what is systematic risk

Yes No

10. Do u know what is unsystematic risk

Yes No

11. Do you know what is open end type mutual fund

Yes No

12. Do you know what is close end type mutual fund

Yes No

13. Which are the primary sources of your knowledge about Mutual Funds as an investment

option? *Corresponding to your choices how would you rate their influence on your final Mutual

Fund purchase decision. Please rank them on a scale of 1-5 with 1 representing minimalinfluence and 5 representing Strong influence


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1 2 3 4 5

Television

Internet

Newspaper /

JournalsFriends /Relatives

Sales

Representatives

Advertisement

Financial advisors

14. What kind of investments you wish to make?

Public Private

15. How do you rate the risks associated with Mutual Funds? *rating 1 for low and 5 for highrisk

1 2 3 4 5

16. According to you how much does systematic risk(Systematic risk is the risks inherent to the

entire market segment as interest rates) affects the Mutual funds investment. *rating 1 for low

and 5 for high risk

1 2 3 4 5

17. According to you how much does unsystematic risk(unsystematic risks are specific risks asNEWS that affects specific stock.) affects the Mutual funds investment. *rating 1 for low and 5

for high risk

1 2


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3 4 5

18. While investing your money, how these factors affect your decision ? *Corresponding to

your choices how would you rate their influence on your final Mutual Fund purchase decision.Please rank them on a scale of 1-5 with 1 representing minimal influence and 5 representing

Strong influence

1 2 3 4 5

Liquidity

High Return

ProfessionalManagement

Diversification

Price

Risk

Transparency

Re-dressal of

grievances

Privateinvestment

schemes

Public investment

schemes

Frequency ofreturns

Past Experience

Fixed rate of

returns

Knowledge about

Mutual Funds


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Select Bibliography/References

DR BIMAL ANJUM ; RAMANDEEP SAINI (2011) INVESTORS AWARENESS ANDPERCEPTION ABOUT MUTUAL FUNDS

Dr. Nishi Sharma (2012) Indian Investors Perception towards Mutual Funds

Singh, B. K. and Jha, A.K. (2009), An empirical study on awareness & acceptability of mutualfund, 49-55, Regional Students Conference, ICWAI.

Dr. Binod Kumar Singh (2012) : A study on investors attitude towards mutual funds asan investment option

Desigan et al (2006), Women Investors Perception Towards Investment: Anempirical Study, Indian Journal of Marketing.

DR.K.LAKSHMANA RAO (2011) analysis of investors perceptions towards mutual fundschemes

Business World Magazine Outlook Money Magazine www.mutualfundsindia.com www.amfiindia.com www.valueresearchonline.com. www.bseindia.com www.nseindia.com www.google.com www.moneycontrol.com www.moneycontrol.com
http://www.mutualfundsindia.com/http://www.mutualfundsindia.com/http://www.amfiindia.com/http://www.amfiindia.com/http://www.valueresearchonline.com/http://www.valueresearchonline.com/http://www.bseindia.com/http://www.bseindia.com/http://www.nseindia.com/http://www.nseindia.com/http://www.google.com/http://www.google.com/http://www.moneycontrol.com/http://www.moneycontrol.com/http://www.moneycontrol.com/http://www.moneycontrol.com/http://www.moneycontrol.com/http://www.moneycontrol.com/http://www.google.com/http://www.nseindia.com/http://www.bseindia.com/http://www.valueresearchonline.com/http://www.amfiindia.com/http://www.mutualfundsindia.com/


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