International Journal of Research and Development - A Management Review (IJRDMR)
_______________________________________________________________________________________________
Factors Affecting Perception of Investors Towards Mutual Funds
1Rajesh Kumar, 2Nitin Goel
1Associate Professor-cum-Head, P.G. Department of Commerce, 2Assistant Professor, P.G. Department of Commerce, K.L.S.D College, Subhash Nagar, Daresi Road, Ludhiana, Panjab University, Chandigarh
Email: 1[email protected], 2[email protected]
Abstract— As the concept of mutual fund is gaining more and more importance with a wide array of institutions vying to lure the investing public, a proper evaluation of performance of mutual funds, ability of the funds to diversify and time their investment is of practical importance for a valued judgment.
Mutual Fund is one of the most preferred investment alternatives for the small investors as it offers an opportunity to invest in a diversified, professionally managed portfolio at a relatively low cost. The paradigm shift toward mutual funds assumed greater importance ever since the financial sector gained momentum under the globalized and liberalized environment. Each mutual fund has its own investment objective such as capital appreciation, high current income or money market income.
A mutual fund generally states its own investment objectives and investors as a part of their own investment strategies choose the appropriate mutual fund for investment. The performance of the mutual funds products become more complex in context of accommodating both risk and return measurement while giving due importance to investment objectives.
Index Terms— Investors’ Behaviour, Investors’ Perception, Mutual Fund, Performance and Satisfaction
I. INTRODUCTION
An investment is a commitment of funds made with the expectation of some positive rate of return. If the investment is properly undertaken, the return will commensurate with the risk the investor assumes.
Different investment avenues are available to investors such as stocks, bonds, real estates, insurance policies, precious objects, and so on. Mutual fund is also one of the essential investment vehicle that offer good investment opportunities to the investors. Mutual fund is a trust that pools the savings of various individuals, which are then invested in capital market instruments such as shares, debentures, and other securities. It is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with stated objectives as disclosed in offer documents. A mutual fund is set up in the form of a trust, which has four constituents such as sponsor, trustee, asset management company, and
custodian. The sponsor established a trust and also appoints Board of Trustees. In other words, promoter of the mutual fund is also called the sponsor. The trustees of the mutual fund hold its property for the benefit of the unit holders. Custodian, an agency registered with the SEBI, holds the securities of various schemes of the mutual fund in its custody. AMC is a body corporate approved by making investments in various types of securities. These four constituents collectively are responsible for the management of mutual funds. There are a wide variety of mutual fund schemes such as open-ended, close-ended, growth, income, balanced, tax savings, MIPs and so on that cater to the investors’ needs, financial position, risk tolerance and return expectations and also offer several benefits to investors, viz., diversification of risk, professional fund management, easy liquidity, choice of schemes, transparency of information, etc.
II. REVIEW OF LITERATURE
Rajeswari and Ramamoorthy (2001) in their paper have attempted to measure the mutual fund awareness level of a sample of 350 potential retail investors and their perception level of future performance of mutual fund industry. The survey concluded that income and occupation influenced the awareness level of respondents and the other variables played a less influencing role and perception of respondents was influenced by income level and saving levels. The survey suggested awareness can be increased through proper investor education programmes conducted by AMFI/AMC/Sponsors etc.
Singh (2003) in his paper evaluated the performance of 10 equity mutual funds schemes from 2001 to 2002. The study has suggested that though the benefits of convenience, diversification and professional management offered by mutual funds made them a logical choice for most investors yet the investors must take time to truly understand when to enter and when to exit the market. The paper has suggested that investors should not panic on every dip in fund’s value but they should remain invested in funds for at least three years after they have chosen a fund with reasonable long-term track record.
_______________________________________________________________________________________________
Raju (2006) in his paper analysed the mutual fund investments on the basis of investment priorities, factors considered before investing, investment objectives, expected returns, awareness level of mutual funds, sources of awareness and willingness of investors to invest in mutual funds. The study was based on a sample size of 200 respondents and covered the period from April 2005 to August 2005.
Selvam and Palanisamy (2011) studied the risk and return relationship of Indian mutual fund schemes. The study found out that out of 35 sample schemes, 11 showed significant t-values and the other 24 sample schemes did not prove to have significant relationship between the risk and returns. According to t-alpha values, the majority of (32) of the sample schemes returns were not significantly different from market returns, and very few number of sample schemes’ returns were significantly different from their market returns during the study period.
Vijayakumar, Muruganandan and Rao (2012) in their study examined the relationship between fund performance and fund characteristics using 14 open-ended funds of fund from 2004 to 2008. The fund performance was measured by fund returns computed on the basis of daily NAV. The fund characteristics variables employed as explanatory variable in the estimation included standard deviation as a measure of risk, turnover ratio and income ratio, fund size measured by average net assets and expenses ratio.
Rao and Daita (2013) in their study attempted to analyze the influence of fundamental factors such as economy, industry, and company on the performance of mutual funds. Efforts was made to carry out an in-depth analysis of the economy through a collection of monthly data pertaining to key macro-economic variables covering a period of 228 months spread over 19 years. The casual relationship between real economic variables and their impact on statistics, correlation matrix, and Granger’s causality test. To appraise the mutual fund industry various aspects such as assets under management, investor type, and product classification were studied with the help of percentage analysis.
Sundar and Prakash (2014) in their study examined the awareness among the investor community in choosing the best mutual fund scheme as it conducted a comparative analysis of the mutual funds of three AMCs. This study also showed that much information about mutual funds is not available publicly. There is no information on fund styles or comprehensive league tables to allow the comparison of mutual funds in the market. This study introduced a method which examines the relation between fund returns and fund asset size, cash holding, loads, expense ratio, and turnover.
III. OBJECTIVES OF THE STUDY
Type of schemes of mutual funds preferred by investors
Purpose behind making investment in mutual funds
Investors’ perception regarding benefits offered
Sources of information relied upon by investors
Method used for evaluating the performance of mutual funds
Satisfaction level regarding mutual fund schemes
Idea about future investment of investors
IV. RESEARCH METHODOLOGY
For studying investors’ viewpoint regarding mutual funds, primary data has been collected from a sample of 200 investors within the Punjab state. For this purpose, sampling has been carried in two steps. At first stage, four districts have been selected based upon the traditional geographical division of the state, that is, Majha, Malwa, and Doaba. On this basis, four district namely Patiala and Ludhiana from Malwa region, Amritsar from Majha region and Jalandhar from Doaba region have been selected. At the second stage, 50 respondents have been taken from each of these districts. As the population of respondents has been very large it was not feasible to draw sample of respondents on more suitable basis.
Hence the convenience and judgement sampling method has been followed for getting information from mutual fund investors. The analysis of primary data collected through opinionistic survey of investors has been made by making use of statistical tools like tabulation, percentage, ranking and scoring, weighted average score, Kendall’s coefficient of concordance etc.
V. ANALYSIS & DISCUSSION
5.1. INVESTORS’ PREFERENCES TOWARDS
MUTUALFUNDS
In this section an attempt has been made to know nature-wise, sector-wise and category-wise preferences of investors towards mutual funds.
Nature-wise Preferences of Investors
On the basis of nature, mutual fund schemes may classified as open-ended and close-ended schemes. An attempt has been made to know the differences in attitude of persons investing in mutual funds on the basis of nature of mutual funds.
Table 1
Nature-wise Preferences of Investors Nature Number of
Investors
Percentage of Investors
Open-ended 169 84.50
Close-ended 17 8.50
Both 14 7.00
Total 200 100.00
The above table depicts the popularity of open-ended schemes among mutual fund investors as it shows that 84.5% of investors have invested in open-ended mutual funds whereas only 8.5% and 7% of investors have invested in close-ended and both open-ended and closed-ended schemes respectively.
Sector-wise Preferences of Investors
Sample investors have invested either in public sector or private sector mutual funds but some to them have invested in both types of mutual funds
Table 2
Sector-wise Preference of Investors Sector Number of
Investors
Percentage of Investors
Public 45 22.50
Private 129 64.50
Both 26 13.00
Total 200 100.00
Table 2 show that the maximum numbers of investors has invested in private sector 64.5% mutual funds followed by 22.5% investing in public sector mutual funds. On the other hand, 13% of the investors have invested in both public and private sector mutual funds.
Category-wise Preferences of Investors Table 3
Category-wise Preferences of Investors
Category Number
of Investors
Percentage of Investors
Growth Schemes 77 38.50
Sector-specific Schemes 9 4.50
Balanced Schemes 17 8.50
Tax Saving Schemes 36 18.00
More than one 61 30.50
Total 200 100.00
Table 3 exhibits that maximum percentage of investors 38.5% has invested in growth schemes followed by those who have invested in more than one scheme. After these two types comes the tax saving schemes category in which 18% investors have invested. Only 8.5% of investors have invested in balanced schemes where as least preference has been shown toward sector-specific schemes.
5.2. PURPOSE BEHIND MAKING INVESTMENT IN MUTUAL FUND
It is admitted fact that no investors invests without a purpose. The different purposes which may motivate people to invest money in mutual funds are Regular income, Growth, Liquidity, Tax saving and Speculation.
Different persons have different purposes in mind in varying orders of priority while making investment
decisions. The information collected from the respondents in this regard has been presented in the following table:
Table 4
Investors’ Preferences for the Purpose of Investment
Investors References Purpose of Investment
Rank Weight
ed Average
Score*
(WAS) Rank
**
1 2 3 4 5
Regular Income 30 102 40 18 10 48.27 II
Growth 112 46 29 13 - 57.13 I
Liquidity 14 32 86 55 13 38.60 III
Speculation 7 6 10 48 129 20.93 V
Tax Saving 37 14 35 66 48 35.07 IV
Note: (1) *Weights equal to 5,4,3,2,1 have been assigned to Rank 1,2,3,4,5 respectively to calculate weighted average score.
(2) **WAS has been assigned ranks in the descending order.
Table 4 exhibits the ranks assigned by different investors to different objectives. After analyzing the table, it is found that Growth factor has emerged as the most important objective for investment as it possesses the highest weighted average score.
Regular income and liquidity factors occupied second and third place and tax saving and speculation got fourth and fifth preference of the investors as regards their purpose of investment in mutual funds.
5.3. INVESTORS’ PERCEPTION ABOUT BENEFITS OFFERED
The main benefits considered by investors in mutual funds are Return, Safety, Liquidity and Diversification. The views of he Investors have been taken regarding such benefits offered by mutual funds and these have been ranked on a five-point scale.
Table 5
Opinion of Investors Regarding Benefits Offered
Benefits Very High
High Moderat e
Low Ver y
WAS
* Low Ranks
**
Return 28 116 37 13 6 49.80 II
Safety 23 101 34 35 7 46.53 IV
Liquidit y
62 92 33 10 3 53.33 I
Diversif ication
55 63 53 22 7 49.13 III
The highest weighted average score 53.33 in the above table proves that liquidity has been the first preference of investors. Return and diversification have been given second and third preference respectively by investors while safety has got least preference.
5.4. SOURCES RELIED UPON BY INVESTORS FOR GETTING INFORMATION WHILE INVESTING Ignorance may be bliss in the realm of literature but it may
_______________________________________________________________________________________________
lead to disastrous consequences in matters of financial nature. Needless to say, the timely and right type of information leads to right investment decisions and gainful results. Investors require information not only for subscribing to new schemes of mutual funds but also for evaluating the performance of existing schemes. The investment decisions of uninformed or ill-informed investors are based more on instinct than on sound and prudent judgment and hence can’t be considered rational and reliable. Thus, the importance of adequate and dependable information for investment decisions can hardly be over emphasized.
Generally, most of the investors do not invest on their own in a particular mutual fund. They may either be influenced by prospectus/newsletters/advertisements or persuaded by their financial experts/brokers/sub brokers and friend/relatives. These sources fulfil the varying requirements of the investors and different investors have different preferences so far as these sources of information are concerned. In the following table an attempt has been made to analyse the impact of different sources of information on decision-making by the investors.
Table 6 exhibits the ranks and weighted average scores obtained by different sources relied upon by investors. It is clear from the table that prospectus/newsletters having WAS at 49 have been considered as the most important source of information by investors followed by brokers/sub brokers, professional magazines/ newspapers, and friends/relatives. On the other hand, advertisement had the least influence on the decisions of investors for making investment in mutual funds as WAS for the same has been very low, that is , 22.87.
Table 6
Preferences towards Different Sources of Information
Sources Relied Upon
1 2 3 4 5 WAS* Ranks**
Broker/
Sub-broker
53 57 46 28 16 46.87 II
Prospectus/
Newsletter
62 51 56 22 9 49.00 I
Friends/
Relatives
23 28 56 57 36 36.33 IV
Professional Magazines/
Newspapers
55 45 29 61 10 44.93 III
Advertisements 7 19 13 32 129 22.87 V
Note: (1) *Weights equal to 5,4,3,2,1 have been assigned to Rank 1,2,3,4,5 respectively to calculate weighted average score.
(2) **WAS has been assigned ranks in the descending order.
5.5. BASIS FOR PERFORMANCE EVALUATION Basis used for performance evaluation by different investors depends upon their knowledge of market, their ability to evaluate market and the time they can devote to
analyse the performance of schemes. Every investor evaluates performance of mutual fund schemes before and after making investment in mutual funds. Various performance evaluation measures have been used for this purpose. The investors either evaluate the trend by taking absolute return of the scheme or they can compare the performance of particular scheme with that of other schemes of same mutual funds or schemes of similar nature. Even evaluation of a particular scheme can be made on the basis of risk-adjusted return of that scheme.
Table 7
Basis used for Performance Evaluation
Basis Number of
investors
Percentage of investors
Absolute Return 96 48.00
Fund Return Vs Market Return
46 23.00
Fund Return Vs Return on Similar Schemes
35 17.50
Risk Adjusted Return 23 11.50
TOTAL 200 100.00
A look at the table 7 reveals that maximum number of investors 48% have used only absolute returns for evaluating performance of mutual funds followed by 23%
investors who compared returns of schemes with market return and least number of investor 11.5% have used risk adjusted returns for evaluating the performance of mutual fund schemes.
5.6. INVESTORS’ OPINION REGARDING
SATISFACTION LEVEL
An effort has been made to know the satisfaction level of investors regarding public and private sector mutual funds as well as various types of mutual fund schemes offered by these sectors. Their opinion has been taken on a five-point scale.
Sector-wise Satisfaction Level of Investors
Table 8 exhibits the satisfaction level of investors according to the sectors in which they have made investment. Most of the investors are satisfied with the performance of their mutual funds.
Table 8
Response Pattern regarding Sector-wise Satisfaction
Sector
Satisfaction Level
Tot Very al
Satisfied
Reasonabl y Satisfied
Neutr al
Somewhat Unsatisfied
Very Unsatisf
ied Public
Sector 6(13.33) 30(66.67) - 6(13.33) 3(06.67) 45 Private
Sector
60(46.5
1) 65(50.39) 3(02.
33) 1(00.77) - 129
Both 6(23.08) 20(76.92) - - - 26
Total 72 115 3 7 3 200
Note: Figures in parentheses denote percentage with total In public sector 80% of investors are in the satisfied
groups whereas in private sector 96.9% of investors belong to this group. The investors investing in both the sectors are also satisfied with the performance of their mutual funds. In public sector 20% of investors belongs to unsatisfied group whereas only .77% of investors belong to this category in the private sector indicating the fact that performance of private sector has been much better than public sector.
Satisfaction level of Investors on the basis of Categories of the Schemes
Most of the investors have been satisfied with their investments in various types of schemes. All investors investing in balanced and more than one scheme have been either very much satisfied or reasonably satisfied.
Among Sector-specific schemes 88.89% of investors have been satisfied with their performance except the remaining 11.11% who did not express anything about their performance.
Table 9
Response Pattern regarding Category-wise Satisfaction
Objecti ves
Satisfaction Level
Total Very
Satisfied
Reasonabl
y Satisfied Neutral
Somewh at Unsatisf
ied
Very Unsatisf
ied
Growth 44
(57.14)
31 (40.26) - 1
(01.30) 1 (01.30)
77 Sector
Specific
3 (33.33) 5 (55.56) 1(11.11) - - 9
Balance d
9 (52.94) 8 (47.06) - - - 17
Tax Saving
14 (38.89)
21 (58.33) - 1
(02.78)
- 36
More than
one 23 (37.70)
38 (62.30) - - - 61
TOTAL 93 103 1 2 1 200
Note: Figures in parentheses denote percentage with total Among tax saving schemes only 2.78% of investors are somewhat unsatisfied whereas 38.89% are very satisfied and 58.33% are reasonably satisfied. Further, 57.14% of investors belonging to growth schemes are very much satisfied as against 40.26% of investors having reasonable satisfaction. On the other hand 2.6% of investors are either somewhat unsatisfied or very much unsatisfied. On the whole, while going through the satisfaction level we can say that most of mutual fund schemes have come up to the expectations of mutual fund investors.
5.7. INVESTORS’ PERCEPTION ABOUT FUTURE PROSPECTOF MUTUAL FUND INDUSTRY
In the face of fast changing financial environment both at domestic and global level, it is not easier to make predictions about the future of mutual fund industry, yet the investors’ belief in this respect can be expected to offer a reasonable direction. Accordingly, an endeavour has been made to obtain appropriate responses about the prospects of mutual funds in India. The responses in this connection have been generated at a five point scale used
for the purpose. The investors were asked to put a tick mark against any of the 5 alternatives responses: very bright, bright, can’t say, bleak and very bleak. The responses, obtained separately for private and public sector mutual funds, are organized at the overall level.
Table 10
Investors Opinion regarding Future of Mutual Funds
Category Very Bright
Bright Can’t Say Bleak Very Bleak
Total Public
Sector
14(7.00) 110(55.00) 55(27.50) 18(9.00) 3(1.50) 200 Private
Sector
106(53.00) 69(34.50) 18(9.00) 7(3.50) - 200 Total 120(30.00) 179(44.75) 73(18.25) 25(6.25) 3(0.75) 400
Note: Figures in parentheses denote percentage with total A look at Table 10 makes it clear that at the overall level 30% and 44.75% of investors viewed very bright and bright future respectively. On the other hand, bleak and very bleak future has been expected by 6.25% and .75%
of investors respectively.
The table further shows that the percentage of investors who expressed their inability in giving a comment about the prospects of mutual funds stood at 18.25% at the overall level. As regards public sector only 7% of investors expected very bright future as compared to 53%
in case of private sector. Bright future has been expected by 55% of investors in case of public sector as compared to 34.5% in case of private sector. 1.5% and 9% of investors viewed very bleak and bleak future of public sector mutual funds as compared to none and 3.5% in case of private sector respectively.
VI. CONCLUSION
An opinionistic survey of investors revealed majority of investors have invested in private sector and open-ended schemes and growth schemes. Growth has been considered as the most important objectives while making investment in mutual funds followed by regular income and liquidity at second and third place. Speculation has been considered least by them. As regards the benefits offered by mutual funds, investors have placed liquidity at number one followed by return, diversification and safety in order. Most of the investors relied on past performance of the mutual funds while making investment in that mutual fund. Prospectus/Newsletters have been the most important source used by the investors while making investment followed by brokers and sub-brokers.
Majority of investors have used absolute return on the mutual fund scheme as the basis for evaluating their performance. Private Sector mutual funds got preference over public sector mutual funds. Majority of the investors were satisfied with the performance of their mutual funds and majority of them want to invest private sector mutual funds and growth and diversified schemes in future. A very bright future has been expected of private sector mutual fund industry as against bright future expected of
_______________________________________________________________________________________________
public sector.
REFERENCES
[1] N., Vijayakumar, S., Muruganandan and K., Chandra Sekhara Rao (2012), “The Relationship between Fund Performance and Fund Characteristics: Evidence from India”, The IUP Journal of Applied Finance, Vol. 18, No. 2, pp.
5-18.
[2] Rajeshwari, T.S. and Ramamwarthy, V.E. (2001),
“Conceptual Awareness and Performance Perception of Mutual Funds among Potential Retail Investors- A Prognostic Approach”, The Indian Journal of Commerce, Vol.54, No.4, pp.
34-47.
[3] Raju, ISSN (2006), “Mutual Fund Investments Preferred or Induced?”, Portfolio Organizer, pp.
33-40.
[4] Rao, V.K. and Daita, N. (2013), “Fundamental Factors Influencing Investments in Mutual Funds, The EIC Approach: A Case Study of RCAML”, Indian Journal of Finance, Vol.6, No.6, pp. 4-13.
[5] Selvam, M. and Palanisamy, B. (2011), “Analysis of Risk and Return Relationship of Indian Equity (Dividend) Mutual Fund Schemes”, DOI:http://dx.doi.org/10.2139/ssrn.1862214.
[6] Singh, Gurcharan (2003), “Mutual Funds-Performance Evaluation of Equity Funds”, The Indian Journal of Commerce, Vol.56, No.4, pp.47-55.
[7] Sundar, C. and Prakash, S.(2014), “Quantitative Analysis of Indian Mutual Funds: Equity Schemes”, Indian Journal of Finance, Vol. 8, No.10, pp. 20-32.
WEBSITES
[1] www.amfiindia.com [2] www.indiainfoline.com [3] www.moneycontrol.com [4] www.mutualfundsindia.com [5] www.sebi.gov.in
