Mutual Funds Selection Behavior – Analysis Delhi NCRijaetmas.com/wp-content/uploads/2014/09/IJXCA1410.pdf · Mutual Funds Selection Behavior – Analysis Delhi NCR ... Education

Rakesh Kumar, Prof. Parul Khanna Page 95

Mutual Funds Selection Behavior – Analysis Delhi NCR

Mr. Rakesh Kumar1, Prof. (Dr.) Parul Khanna

2

¹Research Scholar, Singhania University, Jhunjhunu (Rajasthan),India

² Professor & Dean (R&D), IMT Faridabad, Haryana, India

Abstract

In this paper financial service, structure of mutual funds, investor behavior, research

methodology, findings & observations have been considered. In this the investor behavior with

regard to the selection of mutual fund has been studied with the help of various tools like chi

square test, bar diagrams, spearman’s rank correlation method etc.

Financial Services

Financial Services has been commonly used concerning money issues. For better understanding

of the concept we need to understand the finance is and what the services are.

Finance relates to raising of money through issuance and sale of debt or equity. It is a branch of

economics whose main goals relates to allocation of resources, management of resources, how

the resources are acquired and investments. In general, finance implies interacting with matters

that deal with money and the markets. The concept of finance considers time, money and risk

and how they relate or interrelate. A service is an equivalent of an economic good that is

intangible. The person or firm offering the service boosts the ability, resources skills and or

experience to offer a balanced satisfaction of client need while at the same time remaining

relevant and functional in an economy.


Financial Services refers to the services offered by the Finance Industry. The finance industry

encompasses a broad range of organizations that deal with the management of money. Among

these organizations are banks, credit card companies, Insurance companies, consumer finance

companies, stock brokerages, investment funds, and government sponsored enterprises. Financial

Services enables existence of well organized financial system. It promotes the well being and

standard of living of people of the country. It helps in mobilizing the savings and promotes the

investment.

Financial System of any country consists of financial markets, financial intermediation and

financial instruments or financial products.

There are many companies working with financial organizations worldwide to develop a sound

networking strategy for connecting companies with customers, suppliers, partners, and

employees too.


Mutual Funds

Mutual fund is the pool of the money, based on the trust who invests the savings of a number of

investors who shares a common financial goal, like the capital appreciation and dividend

earning. The money thus collected is then invested in capital market instruments such as shares,

debentures, and foreign market. Investors invest money and get the units as per the unit value

which we called as NAV (net assets value). Mutual fund is the most suitable investment for the

common man as it offers an opportunity to invest in diversified portfolio management, good

research team, professionally managed Indian stock as well as the foreign market, the main aim

of the fund manager is to taking the scrip that have under value and future will rising, then fund

manager sell out the stock. Fund manager concentration on risk – return trade off, where

minimize the risk and maximize the return through diversification of the portfolio. The most

common features of the mutual fund unit are low cost.

Mutual funds have organization structure as per the Security Exchange Board of India guideline,

Security Exchange Board of India specified authority and responsibility of Trustee and Asset

Management Companies. The objectives are to control, to promote, to regulate, to protect the

investors right and efficient trading of units. Operation of Mutual fund starts when investors save

their money on mutual fund, than Mutual Fund manager handling the funds and strategic

investment on scrip. As per the objectives of particular scheme manager select scrip. Unit value

will become high when fund manager investment policy generates the return on capital market.

Unit return depends on fund return and efficient capital market. Mutual Fund also affects

international capital market, liquidity and at last economic policy. Mutual fund manager bears

the responsibility of increasing the returns and minimizing risk. When fund provided high return

with high risk, investors attract to invest more funds for same scheme.

The Mutual fund organization as per the SEBI formation and necessary formation is needed for

smooth activities of the companies and achieved the desire objectives.


Transfer agent and custodian play role for dematerialization of the fund and unit holders hold the

account statement, but custody of the unit is on particular Asset Management Company.

Custodian holds all the fund units on dematerialization form. Sponsor had decided the

responsibility of custodian when investor to purchase the fund and to sell the unit. Application

forms, transaction slip and other requests received by transfer agent, middle men between

investors and Assets Management Companies.

Investor Behavior

The investment environment India has changed considerably over the last few years and

opportunities for individual investors to become involved in investment trusts have increased

considerably, particularly as a result of encouragement from institutional changes. Mutual funds

as an investment vehicle have gained immense popularity in the current scenario, which is

clearly reflected in the robust growth levels of assets under management. However, despite this

Parties Involved in Mutual Funds Investment


growth, penetration levels in India are low as compared to other global economies. Assets under

management as a percentage of GDP is less than 5 per cent in India as compared to 70 per cent in

the US, 61 per cent in France and 37 per cent in Brazil. India is undoubtedly emerging as the

next big investment destination, riding on a high savings and investment rate, as compared to

other Asian economies. The trend of rising personal incomes has been witnessed not only

amongst the young population, but also the high net worth (HNI) segment, which have sizeable

sums to invest. One estimate indicates that there are more than 120,000 dollar millionaires in

India and the number is increasing. The house-hold segment therefore proffers immense scope

for attracting investments. India has a strong middle class of 250-300 million, which is expected

to double over the next two decades.

It is in the backdrop of some of these encouraging statistics that the Indian mutual fund industry

has fostered itself. Since the 1990’s when the mutual fund space opened up to the private sector,

the industry has traversed a long path, adapting itself continuously, to the changes that have

come along. Growth in Assets Under Management (AUM) experienced has been unprecedented,

growing at a CAGR of 28% over the last four years, slowing down only over the last two years,

as a fallout of the global economic slowdown and financial crisis. Although investor confidence

was significantly eroded and AUMs suffered a dent, the sale of mutual funds has revived over

the last few quarters, which implies regained confidence of investors, striving to look at alternate

investment opportunities and any attendant higher returns, though the markets continue to be

choppy.

Investor behavior according to some authors has been proposed to be heritable as if an Individual

is predisposed to certain investment behavior from birth as e.g. Men select riskier portfolio trade

than women. Secondly individual behavior is influenced by environmental factors such as

individual experiences, the shared family environment or social interactions, to the observed

investor heterogeneity, above and beyond genetic. e.g. personality traits, such as extroversion,


have been shown to have a significant genetic component. The outcome is robust in controlling

confounding factors such as age, education, net-worth, and entrepreneurial activity.

Research Methodology

The aim is to Study the Mutual Fund Selection Behavior of Individual Investors: An Analysis in

Delhi NCR Region. The main purpose is Descriptive with little consideration to exploratory

study as well.

Data Collection Methodology

In our research on Study of Mutual Fund Selection Behavior of Individual Investors-An Analysis

in Delhi NCR Region contributes to the facts of the detecting the reasons behind the behavior of

the investors and how to increase the investors base.

Objectives of Research

The main objectives of the research involve the deeper analysis regarding:

• The selection behavior of investors (depicting the personality traits)

• Their investment patterns according to their annual income.

• Awareness regarding the Mutual Funds

• Behavioral patterns of genders while making the investment.

• Relationship among the age and the risk taking behavior.

• Level of education and investment patterns.

• Major purposes of investment.

• Major types of investment.

• Level of satisfaction from the current trend.

• Primary objectives of investment.

• Preferences of AMC’s to invest in Mutual Funds


• Major Factors which influence the purchase the New Fund Offer.

• Major reasons for disinvestment.

• Suggestions to improve the behavioural patterns of investment.

Software Tools Used for Processing and Analysis

With respect to the analysis of the results it is noted that there were two basic types of closed

questions which undergone statistical processing:

a) A chi square statistic is used to investigate whether distributions of categorical variables

differ from one another.

b) Multiple response questions. The results of this type of questions are depicted with

horizontal bar charts, in order to facilitate the comparison among the different options.

c) Ranking of Preferences adopted. The results of this type of questions are depicted through

Spearman’s Rank Correlation; in order to facilitate the ranking opted.

Findings

The first and foremost research objective is sought to describe basic about the Investors and

prospects age, education & work experience.

In a nutshell the demographic structure can be tabulated as under:

Demographic Explanation

Number 256 respondents completed the demographic section

Hierarchical Level

of respondent

With regards to the respondent’s level of hierarchy, it was found that the

majority of the respondents were Managers and the Prospects too.

Experience Maximum of the surveyed were with the experience of more than 5 years.


The second research objective is focused to analyze the details about the various questions asked

in the questionnaire regarding Mutual Fund Selection Behavior of Individual Investors in Delhi

NCR Region.

Statements Test Result

Characterize the Personality � Objective and Optimistic

� Annual Income of Investors � 5 Lac – 10 lac

� Investment Options � Savings Bank

� Mutual Funds

� Insurance

� Percentage of Savings from Total Income � <=25%

� Awareness about the benefits, terms & Conditions � Yes

Need to create Awareness � Yes

Gender Wise Behavioral Patterns for Investment (Male:

Female)

� 70:30

� Considers Medium Risk

Age Wise Investment Patterns � 25-35

� Considers Medium risk

Education wise attitude towards risk � Graduation & Post Graduation

� Considers medium risk

� Major reasons for Investment � Tax Saving and Investment `

� Characterize the feelings of the investor � Small amount of risk in order

to gain higher expected

returns.

� Types of Funds � Open-end


Level of Satisfaction � Satisfied to Average

Primary objective of investment � Current Income and

Conservative growth

Consumers preferences for category of Funds � Debt & Equity Fund

Preferences for AMC’s to invest in Mutual Funds � UTI & SBI

Factors which influence to purchase a New Fund Offer (NFO) � Brand name of AMC

� Past performance of related

scheme

Important variables while investing in Mutual Fund � Fund Performance

� Load Criteria

� Fund Ratings (CRISIL, ICRA

etc)

Preferred mode of investment � Systematic Investment Plan

Duration of holding investments � 1-3 years

� 4-6 Years

Major reasons for non investment in Mutual Fund � Market Volatility

� Past Performance

� Difficulty in Selection of

Scheme

Managing portfolio of Mutual Funds � Market Timing Strategy

Primary sources of knowledge about mutual funds � Financial Consultant

� Friends/ relatives

Suggestions to improve the behavioral patterns of investment � Tapping semi-urban market


in Mutual Funds

� Investors education

programme

� Circulation of reports

revealing the exact status of

mutual funds

Observations

The research survey revealed the following observations with regard to the objectives kept in

mind:

I. Meaning of the term Mutual Funds

When we interviewed the 256 investors and prospects the response received from them was as an

ideal investment for money one may need in the near future, or to keep emergency cash fund, or

to preserve capital while considering more appropriate long-term investment opportunities.

Though commissions, fees and expenses may be associated with mutual fund investments.

Evaluation of the mutual funds was made with simple evaluation tools to sophisticated tools.

Investors compare the mutual funds with other investment avenues. Company Fixed deposits are

unsecured borrowings however money invested in mutual funds scheme are invested under

various schemes. Investment in bonds and debentures is more or less similar to mutual funds

returns but in case of early exits the market risk is high. Ventures in equity are risky affair.

II. Background

In our case study four major players have been discussed. HDFC Mutual Fund, Reliance Mutual

Fund, UTI Mutual Fund and SBI Mutual Fund. HDFC Mutual Fund is a leading Asset

Management Co. with maximum market share of 12.5%. Reliance Mutual Fund is in close


competition with HDFC with the market share is 11.75%. In questionnaire effort were made to

make the analysis of the behavior of individual investor while making the investment.

III. Awareness

The survey research brought forth that AMC should try to create the awareness about the

benefits, terms and conditions of the investment to the investors and the prospects so as to enable

the transparency among both the parties. This will ensure long lasting relationship. They are

building wealth creation in a way that is economically stable for both manufacturers and

intermediaries. This will be achieved by focusing on product development, design and

distribution which is appropriate and low-cost. That could mean a balance between the old

channel of independent financial advisers (IFAs) and banks, and newer technology-led direct

investing channels. Stronger value propositions, which are more relevant and deeply penetrated

is one of the outcomes AMC desires to achieve.

IV. Purpose of Investment

There is a common myth with regard to the investment “buy and hold approach is the best way to

manage one’s investment. However in this changing economy the intermediate and long terms

trends in the market by acting proactively prevents unnecessary investment losses. The study

also tried to find out the investors behavior while making the investments. Tax saving and

getting better returns is the major reason for making the investment. Major investors prefer to go

for open-end since there are fewer restrictions on them for buying and for selling.

V. Objective

The research report tried to find out the primary reason for making investment. It was depicted

that major reason are current income and conservative growth. Since investment in mutual funds

is like keeping the cash in bank deposits as open ended mutual funds enables easy encashment at

the time of need and returns are more in comparison to bank deposits. Their exists different level


of risk return with different types of mutual funds, depending upon the requirement of investor,

he / she can select the investment.

VI. Factors

It was noticed that are various factors which influence the new fund offer. So AMC’s need to

keep track on these factors to increase the customer base.

The variables also play an important role in the investment evaluation process. It was depicted

that it is no single variable can lead to the purchase rather minimum of two or three variables are

taken into consideration.

VII. Duration

The research report showed the maximum of the investors are making the investment for more

than 1 year and less than 5 years. Even they are showing their preferences for the mode of

payments like systematic investment plan is preferred by most of the investors. Since in the

changing economy going with the old myths buy and hold won’t bring good returns. Rather

keeping a pace with change will bring better returns.

VIII. Reasons for Non Investment

The research report depicted that major reasons for non investment by the investment. There is

no single halt which can stop anyone rather a bunch of reasons which demotivate the investor

from making an investment. The study shows that market volatility, ignorance about the

schemes available, no assurance about the returns and even loss of principal.

IX. Management

While managing the portfolio it is important to remember that market is just not to be right.

Rather we have to keep ourselves abraded with techniques that may help us to achieve our goal.

Firstly we must concentrate on our purchases and secondly proper follow-ups of our investment

are required.


The report also reported that market timing strategy is best to be followed.

X. Miscellaneous

• There exists a requirement to tap the semi-urban market to increase the investor’s base.

Since most of the AMC’s are concentrating only in the Metro cities.

• Various awareness programmes with regard to the education of investors is to be started.

• Transparency among the AMC’s and the investors need to be there.

• Check on the portfolio of investment by the Financial Experts.

• The old saying don’t keep all the eggs in the same basket needs to be followed by the

AMC’s also since this will ensure better return for the investors and finally they will be

motivated to make more investment.

Conclusion

The economical growth architected under the ages of liberalization and globalization has created

positive environment and explored the hidden desire of the investor and motivated them to

participate in creating wealth through investing their surplus reserves in financial market. With

increased income investors are looking for new avenues to earn more and also diversifying their

portfolio for better protected return and mutual fund are available avenue for shedding the risk

through diversification, managed by qualified fund managers. Investor individually or through

fund manager take decision of investing after collecting relevant information provided to them

through prospectus about the fund, its operating limits and costs. Later fund managers operate

within the specified boundaries which is critical to achieve expected results. The mutual funds

are protected option to get conservative growth of the principle and are easy to buy and sell;

individual investor can buy them in open market directly from Fund Company or through third

party. The finding of the study will provide adequate help to the AMC’s to understand and

adjudicate the investor expectations in Delhi/ NCR. The conducted survey for the study was

done to facilitate AMC’s to identify selection behavior of the customers.


Only a small segment of the investors invest in mutual funds and the main sources of information

still are the financial advisors followed by the advertisements in different media. The Indian

investor has a tendency to investor for 3-5 years. Also there is a tendency to invest in fixed

deposits due to the security attached to it.

In order to excel and make mutual funds a success, companies still need to create awareness and

understand the psyche of the Indian consumer.

Since, the Mutual Funds industry invests in the capital market instruments, so proper knowledge

is essential. Investors should always keep an eye on the performance of the scheme and other

good schemes which are available in the market for the closed comparison.

Investor should never invest blindly in the investments before going through the fact sheets,

annual reports etc. of the company. Since according to the guidelines of the SEBI, the AMC’s

are bound to disclose all the relevant data that is necessary for the investment purpose of the

investors.

Not only this AMC’s needed to educate the salesmen or the agents properly so that they can take

up the queries of the investors and prospects effectively.

There is a requirement of separate customer care division where the customer can anytime pose

query, regarding the scheme or the current NAV etc. These customer care units must work in

accordance with the requirements of the customer and facilitates them to choose the scheme that

suits their financial status.

Conduction of Seminars or programs about the mutual fund where each and every minute

information about the product is outlined including the risk factor associated with the different

classes of assets.


BIBLIOGRAPHY

• Khan, M.Y. Indian Financial System: Theory and Practice- Vikas Publishing House Pvt.

Ltd., New Delhi-1980.

• John Ameriks, Tanja Wranik, Peter Salovey (2009), “Emotional Intelligence and Investor

Behavior”.

• Jay R. Ritter “Behavioral Finance” - the Pacific-Basin Finance Journal Vol. 11, No.

(September 2003) pp. 429-437.

• Alleyene and Broome, An exploratory study of factors influencing investment decisions of

potential investors, Central Bank of Barbados Working Paper, 2010.

• Agarwal, Peensh Ranjan Mutual Funds – A Comprehensive Approach to Mutual Funds,

Orient Law House, New Delhi (1996).

• Bhatt R S, Unit Trust of India and Mutual Funds, UTI Institute of Capital Market, Navi

Mumbai, (1996).

• Fredman, Albert J and Wiles, Russ How Mutual Funds Work, Prentice Hall of India Private

Limited, New Delhi, (1997).

• Friend et. al, “A Study of Mutual Funds” U.S. Securities and Exchange Commission, USA,

(1962).

• Friend, Blume, Crockett, Mutual Funds and Other Institutional Investors – A new

perspective, Mc Graw Hill Book Company, New York, (1970).

• Fuller, Russell J and James L Farrell, Modern Investments & Security Analysis, Mc Graw

Hill International, New York, (1987).

• Gupta L C and Utpal K Choudhury, How Good Are Mutual Funds, Society for Capital

Market Research and Development, New Delhi, First Edition, (2001).

• Gupta L C, India’s Financial Markets & Institutions, Society for Capital Market Research

and Development, New Delhi (1999).


• Gupta L C, Mutual Funds and Asset Preference, Society for Capital Market Research and

Development, New Delhi, First Edition (1992).

• Gupta, Amitabh, Mutual Funds in India: A Study of Investment Management, Anmol

Publications Pvt Ltd, New Delhi, First Edition (2002).

JOURNALS

• Aabhas Pandya, “Have Mutual Funds passed the Test?”, ICFAI Reader, Vol. III:6, (June

2001), pp.50-51.

• Agrawal G D, “Mutual Funds and Investors’ Interest”, The Journal For Corporate

Professionals Vol. XXII (1), (January 1992), pp. 23-24.

• Agrawal, Ashok Motilal, “Mutual Funds- Emerging Trends and Prospects”, Finance India,

Vol. XIV (4), (December 2000) pp.1271-1275.

• Anagol Malati, “Role Of Self-Regulatory Organisation In Mutual Fund Industry In India”,

Chartered Financial Analyst, Vol. 7(1), (1992). p11.

• Ang, James S et.al “Mutual Fund Managers’ Efforts and Performance”, Journal Of Investing,

Vol. 7(4), (Winter 1998), pp. 68-74.

• Ansari, “Mutual Funds in India: Emerging Trends”, The Chartered Accountant,Vol. 42(2),

(August 1993), pp.88-93.

• Arditti, “Another Look at Mutual Fund Performance”, Journal of Financial and Quantitative

Analysis, Vol. 3, (1971), pp. 909-912.

• Arunajatesan S & Balaji S, “Mutual Funds: Bid for orderly growth”, THE HINDU Survey of

Indian Industry (2003), pp. 93-94.

• Ashutosh Joshi and Vandana, “MFs corner Rs 1 trn assets in 9 months”, Business Standard:

Money & Markets Section II, June 8, 2007 p.1.


• WEB SITES

• www.amfiindia.com

• www.sebi.org.in

• www.mutualfundsindia.com

• http://en.wikipedia.org/wiki/Consumer

• http://en.wikipedia.org/wiki/Consumer_protection

• http://en.wikipedia.org/wiki/Consumer_Protection_Act,_1986

• http://www.thefreedictionary.com/consumer

• http://www.slideshare.net/ManishKumavat/consumer-awarenes-ppt

• http://www.saylor.org/site/wp-content/uploads/2013/02/BUS203-PoM-Ch3.pdf

• http://www.saylor.org/site/wp-content/uploads/2013/02/BUS203-PoM-Ch3.pdf

• http://shodhganga.inflibnet.ac.in/bitstream/10603/6538/7/07_chapter%202.pdf

Documents

Mutual Funds Selection Behavior – Analysis Delhi NCRijaetmas.com/wp-content/uploads/2014/09/IJXCA1410.pdf · Mutual Funds Selection Behavior – Analysis Delhi NCR ... Education