A STUDY ON INVESTOR PREFERENCE TOWARDS

MUTUAL FUNDS IN BANGALORE CITY

CONTENT PAGE
CHAPTER
S

PARTICULARS

PAGE
NUMBERS

INTRODUCTION

1-20

REVIEW OF LITERATURE

21-30

RESEARCH DESIGN

31-34

ANALYSIS & INTERPRETATION

35-55

FINDINGS, SUGGESTIONS &

CONCLUSION

56-58

BIBLIOGRAPHY

59-66

ANNEXURE

67-68

TABLE CONTENT
TABLE
PARTICULARS
NUMBER

PAGE
NUMBER

Table 4.1 - 4.1.3

Reliability Analysis

35-37

Table 4.2 4.2.1

Average monthly Savings

38

Table 4.3 4.3.1

Preferred Investment

39

Table 4.4 4.4.1

Factor influencing investment

40

Table 4.5 4.5.1

Have you invested in mutual fund

41

Table 4.6 4.6.1

Percentage of savings invested in

mutual funds

42

Table 4.7 4.7.1

How you come to know about

mutual funds

43

Table 4.8 4.8.1

The kind of investment preferred by

the investor

44

Table 4.9 4.9.1

Most attracted feature of mutual

funds

45

Table 4.10 4.10.1

Preferred mode of investment

46

Table 4.11 4.11.1

Mutual Fund Scheme used by the

investor

47

Table 4.12 4.12.1

Where do you find yourself as an

investor

48

Table 4.13 4.13.1

Preferred sector to invest in mutual

fund

49

Table 4.14 4.14.1

From where do you purchase mutual

funds

50

Table 4.15 - 4.15.1

Expected rate of return from your

investment

51

Table 4.16 4.16.1

If not invested in mutual fund, why?

52

Table 4.17 4.17.1

Have you faced any loss

53

Table 4.18 4.18.1

Did the loss deter you from any

investment

54

Table 4.19-4.19.1

Are you satisfied in investing in mutual

fund

55

INTRODUCTION
Savings form an important part of the economy of any nation. Savings
represents that part of disposable income that is not spent on final
consumption of goods and services1. It is defined as the difference between
income and consumption. During pre-independence period in India, people
spent most of their income on consumption and only a small amount of
income was left
in the form of savings. As a result, the saving rate was very low. Since the
attainment of Independence in 1947, the major objective of the government
has been the promotion of savings and capital formations. Increase in the
savings, use of increased saving for financing the increasing required
investment, use of the increased investment for increasing savings and use
of the increased savings for a further financing the required investment
constitute the strategy of economic growth. The process may continue till
the saving, investment ratio to income would get stabilized and there would
be steady and self-sustained increases in national income and economic
welfare. Investment is the sacrifice of certain present value for the uncertain
future reward. Investment is an activity that is engaged in by people who
have savings. Savings directed into investment. With the savings invested in
various options available to the people, the money act as the driver for the
growth of the country. Indian financial scene too presents a plethora of
avenues to the investors. The main objective of the investor is to minimize
the risk and maximize the return. Mutual funds represent the most
appropriate investment opportunity for most investors. As financial markets
become more sophisticated and complex, investors need a financial
intermediary who provides the required knowledge and professional
expertise on successful investing. Here mutual funds act as an intermediary.
4

In a modern economy financial institutions act as an intermediaries between

lenders and borrowers 4 . Financial markets are the backbone of an
economic system and aid collection of scarce capital across the productive
sectors of the economy. The Indian financial system has always had a welldefined institutional structure.

1.1 MUTUAL FUNDS: AN OVERVIEW

Mutual funds are financial intermediaries that pool the financial resources
of investors and invest those resources in portfolios of assets5. Mutual funds
are basically institutional arrangement for pooling of funds from small
investors and invest them in the best financial instruments. Mutual fund is a
trust that pools the saving of a number of investors who share common
financial goal.
The money thus collected is then invested in capital market instruments
such as shares, debentures and other securities. The income earned through
these instruments and the capital appreciations realized are shared by its unit
holders in proportion to the number of units owned by them. Thus a mutual
fund is the most suitable investment for the common man as it offers an
opportunity to invest in a diversified, professionally managed basket of
securities at a relatively low cost. Mutual funds help small and medium size
investors to participate todays complex and modern financial scenario. The
advantages for the investors are reduction in risk, expert professional
management, diversified portfolios, liquidity of investment, variety of
schemes and tax benefits. These varieties of schemes fulfill the need of
different type of investors - gold investment schemes,retirement plan, taxsaving schemes, insurance linked schemes, systematic
investment plans. Mutual funds play a vital role in the mobilization of
resources and their efficient allocation. These funds play a significant role in
financial intermediation, development of capital markets and growth of the
financial sector as a whole. Changes in economic scenario, falling interest
rates of bank deposits, volatile nature of the capital market emphasis the
5

increasing importance ofmutual funds. Today mutual funds collectively

manage money almost as much as or more than banks.

1.2 ORIGIN OF MUTUAL FUND

The history of mutual funds institutions is very old in other countries
particularly in Europe and America and they are operating very successfully
for the last five decades in these countries. In the very beginning Egyptians
and Phoenicians started selling shares in vessels and caravans to share the
risk involved in these transactions8. Mutual funds originated in Belgium,
where, in 1882, a company was started to finance investments in national
industries associated with high risks under the name of Societe Generale de
Belgiue. In the 1860s, this movement spread to England. In 1868, the
Foreign and Colonial Governemnet Trust was formed to spread risks for
investors over a large number of securities. The history of mutual funds
started in the USA from
the beginning of the 20th century. In the beginning, investments companies
were formed in America. The first open-end investment company was
formed in America in 1924. After World War II, due to great depression the
growth of these investment companies curtail towards the end of 1920s.
Massachusetts Investors Trust(MIT) organized the first modern mutual
fund, State Street Investment Corporation is the second followed just four
months later in 1928, first
Investment counsel Trust , now Scudder Income Fund was organized as a
first no-load fund9. Mutual funds emerged during the 1920s in Canada,
when many close ended investment companies were organized. The
Canadian Investment Fund was the first mutual fund set up in Canada in
1932. Subsequently, hundreds of mutual funds emerged and expanded their
wings in
many countries in Europe, the Far East and Latin America10. In 1929,
market crash and subsequent depression had tremendous adverse effects on
the mutual fund industry. The Securities Act of 1933 and the Investment
6

Company Act 1940 established ground rules and oversight of the fund
industry by the Securities and Exchange Commission (SEC) to protect the
investors11. Countries in Pacific area like Hongkong, Thailand, Singapore
and Korea have also entered this field in a long way. Mauritius and
Netherlands are emerging as tax havens for off-shore mutual funds. Thus
mutual fund culture is now global in scope.

1.3 CONCEPT OF MUTUAL FUND

A mutual fund is a fund managed by an asset management company with
the financial objectives of generating growth. These asset management
companies collect money from investors and invest in different stocks,
bonds and other financial instruments in a diversified manner. Before
investing they perform a thorough research and detailed analysis of market
trends of stock and bond prices. That helps fund managers to invest properly
and in the right direction. The income earned through these investments and
the capital appreciation realized is shared by its unit holders in proportion to
the number of units owned by them. Thus a mutual fund is the most suitable
investment for the common man as it offers an opportunity to invest in a
diversified, professionally managed basket of securities at a relatively low
cost14. The investors, who invest
their money in the mutual fund or any asset management company (AMC),
receive an equity position in that particular mutual fund. When the investors
sell the units of the mutual fund after a certain period of time, they receive
the returns according to the prevalent market conditions. The investment
companies profit by allocating peoples money in different stocks and bonds
according to their analysis of the market trend.

1.4 TYPES OF MUTUAL FUNDS

There is a wide variety of mutual fund schemes that cater to the needs of
investors based on age, financial position, risk tolerance and return
expectations.
7

(A) By Structure
1. Open-Ended Schemes
An open ended scheme accepts funds from investors by offering its
units/shares on a continuous basis likewise it permits investors to withdraw
funds on a continuous basis under a repurchase agreement15.
2. Close-Ended Schemes
A close-ended scheme accepts subscription for a specific period.They invite
the investor to invest through a new fund offer and further investments are
allowed in a specific period16.
3. Interval Schemes
These combine the features of open-ended and close-ended schemes. They
may be traded on the stock exchange or may be open for sale or redemption
during predetermined intervals at NAV related prices.
(B) By Investment Objective
1) Growth Schemes
Growth schemes main aim is to provide capital appreciation over the
medium to long term. These schemes normally invest a majority of their
funds in equities and are willing to bear short term decline in value for
possible future appreciation. These schemes are not for investors seeking
regular income or needing their money back in the short term. This is ideal
for,
Investors in their prime earning years.
Investors seeking growth over the long term.

2) Income Schemes
Main aim of income scheme is to provide regular and steady income to
investors. These schemes generally invest in fixed income securities such as
bonds and corporate debentures. Capital appreciation in such schemes may
be limited. Ideal for:
Retired people and others with a need for capital stability and regular
8

income.
Investors who need some income to supplement their earnings
3) Balanced Schemes
Aims to provide both growth and income by periodically distributing a part
of the income and capital gains they earn. They invest in both shares and
fixed income securities in the proportion indicated in their offer documents.
In a rising stock market, the NAV of these schemes may not normally keep
pace or fall equally when the market falls. Ideal for:
Investors looking for a combination of income and moderate growth.
4) Money Market / Liquid Schemes
Aims to provide easy liquidity, preservation of capital and moderate income.
These schemes generally invest in safer, short term instruments such as
treasury bills, certificates of deposit, commercial paper and interbank call
money. Returns on these schemes may fluctuate, depending upon the
interest rates prevailing in the market. Ideal for:
Corporate and individual investors as a means to park their surplus funds
for short periods or awaiting a more favourable investment alternative18.
5) Dividend Scheme
Under this scheme, dividend declared by the AMC for the investors
holdings. The investor can opt dividend payout scheme or dividend
reinvestment

scheme. Dividends

are distributed to

the investors

immediately,those who opt dividend payout option. The dividend declared,

again invested by issuing more units are called dividend reinvestment
scheme.
6) Bond Schemes
These are focused debt schemes, investing primarily in company debentures
and bonds or government bonds. This type of funds carries the advantage of
secured and steady income. However, such funds have little chance of
capital appreciation and carry no risk. A variant of this type of fund is
calledLiquid funds which specializes in investing in short term money
market
9

instruments. This focus on liquidity delivers the twin feature of lower risk
and low returns.
7) Gilt Schemes
These schemes invest exclusively in government securities20 and not in
equity or corporate debt securities. A portion of the corpus may be invested
in the call money market or RBI to meet liquidity requirement. Government
securities carry zero credit risk.
C) Other Schemes
1) Tax saving schemes
Tax saving schemes is basically equity schemes. It offers tax benefits to the
investors. Under sec 80CC allows a tax incentive up to the limit of `.100,
000.
2) Diversified Equity Scheme
These schemes invest most of the money that they collect, in stock markets.
A small portion of the money is invested in debt instruments. These
schemes do not invest on any particular sector, its portfolio contains the
shares of all type of companies. So it is called diversified schemes.
3) Sector Schemes
Sector schemes invest in any particular sector of the market such as
Information Technology, Banking, FMCG etc. This is beneficial to the
investors who have tremendous faith in a particular sector.
4) Index Schemes
An index is nothing but an average of the market prices of certain actively
traded equity shares. Index scheme of mutual funds invest in the companies,
which form part of the stock market index in the same proportion as these
companies constitutes index. The portfolio of the scheme and the weightage
of the shares are as same in index. It may be sensex or nifty or midcap etc.
For
example, an index scheme investing in companies forming the BSE sensex
will invest in those companies in the same proportion as they make up the
sensex. An actively managed fund attempts to outperform a relevant index.
10

5) Fund-of- Fund mutual scheme

In this scheme funds of one mutual fund are invested in the units of other
mutual funds. There are a number of funds that direct investment into a
specified sector of the economy. The investors will benefit from the
expertise and the skill of different leading fund managers, as the fund
managers have different types of skill sets in their strategies. Convenience is
another advantage of fund of funds. Whenever the market is performing
well in one component and dull in another, the fund manager of fund of
funds will take care of the portfolio.
6) Gold Exchange Traded Funds
Investors can buy gold linked units that would be traded on the stock
exchange. One unit of the gold exchange traded fund is equal to the value of
one gram of gold. The daily price of each unit is linked to the prices of gold
in physical market. Like any other mutual funds, the investor is able to buy
and sellthe units of this ETF from the stock market. The underlying asset is
gold, which is held by mutual fund house in a physical form through a gold
receipt giving the right of ownership.
7) Real Estate Mutual Funds
Real estate mutual fund is a scheme which has an objective to invest
directly or indirectly in real estate and is governed by the provisions and
guidelines under SEBI regulations. The NAV of the scheme is declared
daily and units are listed on the stock exchange. These funds have their own
share of drawbacks. Time span for one transaction can be minimum six
months or more than that. So evaluation of true value of these assets is
really a difficult task. In India these funds have started but not in full flow
Prudential ICICI AMC started a branch called ICICI venture capital which
would be investing in real estates. Its main focus is on the high net worth
individual clients.
8) Capital Protection Schemes
11

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

strategy prevents the erosion of capital over the investment tenure and
achieves capital appreciation to certain extent. CPS has to be close-ended
and the investors have no option to exit before maturity. The basic aim is to
assess the degree of achieving capital protection.
9) International Fund/Offshore funds
When funds are launched to mobilize the finance from other countries they
are known as global funds. It gives an opportunity to the retail investors to
be a part of global investment. This fund involves currency risk and country
risk.

10) Exchange Traded Funds

Exchange traded funds are open-end funds that trade on exchange.Like
index funds ETFs are benchmarked to a stock exchange index.

1.5

MUTUAL

FUND

INVESTORS

AND

THEIR

BEHAVIOUR
Due to the growth of mutual fund industry, the investors prefer mutual funds
as an investment. Mutual fund companies offer variety of schemes for all
type of investors. Now an investor can start his investments from `50.
Investment in mutual funds has grown very fast and has spread to even the
remotest part of the country where a stock exchange does not function. But
the big question is the mutual fund investor has a full knowledge about the
capital market or not. The main reason for investing in mutual funds are
diversification, flexibility, professional management ,low cost etc., The
investment behaviour of the people is mainly based on the availability of
fund, availability of investment avenues, investment objective, duration of
investment, risk, nature of investment, selection of fund, attitude towards
investment and also the problems encountered in investing on mutual funds.
12

Indian investors have not been absolutely logical and rational in their
investment behaviour and their investment decisions are always affected by
the definite behavioural factors. The classical financial theories always
suggest that external environmental factors like economic factors, political
factors, socio-cultural factors, etc., always affect the performance of capital
markets and decision making of the investor is always guided by a change
in these factors . The optimum portfolio composition will in general differ
among investors. It will depend both on their tastes and preferences that
determine their expected utility from return and risks, and on the shape and
position of the efficient opportunity available to them. Since the investor
behaviours includes selection of fund families, variables leading to select
the mutual fund, attitude towards the investment on mutual funds, reason for
switching from are found to another and also the problems encountered in
investing on mutual fund industry covers all these areas.

1.6 CONCEPT AND DEFINITIONS

Mutual Fund
A fund established in the form of trust by a sponsor, to raise money by the
trustees through the sale of units to the public, under one or more schemes,
for investing in securities in accordance with these regulations.The
company that offers the schemes to collect money from the investor and
invest the money into various financial instruments like shares, debentures
etc.
Asset Manangement Company (AMC)
A company, which manages the money collected from the investors. The
AMC manages the affairs of the mutual funds and its schemes26. Example,

13

Tata Asset Management Company, SBI Mutual Fund, Sundaram BNP

Paribas Mutual Fund etc.
Fund Manager
The person who handles the money of the investors. He is concerned about
the following:
Decision regarding the investments.
Protection of value of the original investments.
Generation of a steady return on the original investment.
Net Asset Value (NAV)
Net Asset Value indicates the intrinsic worth of a scheme. The investor
invests in a mutual fund at its NAV which is the Net Asset Value of each
unit of a scheme. When the fund invites an investor to invest for the first
time through New Fund Offer (NFO), it issues a unit for every `10
invested by the investor in a scheme, which changes on the basis of the
performance of the investments made by the mutual fund. The NAV
represents the market value of each unit of the mutual fund.
Market Value of all investments made by Mutual Fund
NAV= --------------------------------------------------------------------Number of units issued to investors
Systematic Investment Plan (SIP)
SIP refers to the practice of investing a constant amount regularly, generally
every month for a pre-decided period of time. When the market goes up,
then the money invested in that period gets translated into a fewer number
of units for the investor. If market goes down, then the same money invested
gets translated into more units. SIP helps the investor to average out the cost
of
investment over the period and, thus overcome the short term fluctuations in
the market.
Dividends
Asset management companies distribute the return of the schemes to the
investors as dividend when they make profits from the investment. Some
14

schemes declared dividend in regular intervals like yearly etc. Mostly tax
saving schemes offer higher dividends every year.
New Fund Offer (NFO)
If a mutual fund company introduces a new scheme in market it is called
New Fund Offer (NFO).

1.7 ATTITUDE OF MUTUAL FUND INVESTORS

Attitude is a favourable or unfavourable evaluative reaction toward
something or someone exhibited in ones beliefs, feelings, or intended
behaviour. A mental or neutral state of readiness organized through
experience, exerting a direct dynamic influence upon the individuals
response to all objects and situations with which it is related. It is the
reflection of how an individual feels about something and reach in a certain
manner towards an idea. Attitude is made up of three components namely
cognitive, affective and conative or behavioural. The cognitive component
concerns one's beliefs; the affective component involves feelings and
evaluations and the behavioural component consists of ways of acting
toward the attitude object. The cognitive aspects of attitude are generally
measured by surveys, interviews, and other reporting methods, while the
affective components are more easily assessed by monitoring physiological
signs such as heart rate. Behaviour, on the other hand, may be assessed by
direct observation. This is the common idea of attitude. An investor is a
person who commits money to investment products with the expectation of
financial return. Generally, the primary concern of an investor is to
minimize risk while maximizing return, as opposed to a speculator, who is
willing to accept a higher level of risk in the hopes of collecting higher-than
average profits. So his attitudes are related to these financial activities. The
investors attitude towards investment is related with respect to their
financial needs, investment objective, and time horizon of investment,
willingness to take risk, fluctuations in the value of investment, investment
15

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

financial industry, Mutual Funds have become a hot favourite of millions of
people all over the world. A mutual fund is a special type of institution, a
trust or an investment company which acts as an investment intermediary
and invests the savings of large number of people to the corporate securities
in such a way that investors get steady returns, capital appreciation and a
low risk. It is essentially a mechanism of pooling together the savings of a
large number of investor for collecting investment with an avowed objective
of attractive yields and appreciation in their values. The concept of 'Mutual
Fund' is a new feature in Indian capital market but not to international
capital markets. A mutual fund in the most suitable investment for the retail
investors as it offers an opportunity to invest in a diversified, professionally
managed portfolio at a 139 relatively low cost. At the retail level, investors
are unique and are a highly heterogeneous groups. A large number of
investment options are available to investors. Currently there are large
numbers of schemes available and asset management companies (AMCs)
compete against one another by launching new products or repositioning old
ones. Unless mutual fund schemes are tailored to the changing needs, and
the AMCs understand the fund selection behaviour of the investors, survival
of funds will be difficult in future. With this significance this chapter made
an attempt to study the attitude of mutual fund investors. This
chapter mainly focuses the investors attitude in selection of mutual fund i.e.
factors influencing to invest in mutual fund, expectations etc.

1.8 FACTORS INFLUENCING TO INVEST IN MUTUAL

FUND
The investors prefer the investment on mutual funds for several reasons.
The important factors which drive the investors to invest in mutual funds
considered were,
i) Brand Equity,
ii) Type of Fund,
iii) Fund Size,
16

iv) Schemes Portfolio,

v) Reputation of Fund Manager,
vi) Past Performance of the Fund,
vii) Liquidity Factors
viii) Risk Involved
Brand Equity
Brand equity means the brand value of the particular product. In 140 mutual
funds this brand equity represents mutual fund companies like Reliance,
SBI, UTI, Franklin Templeton, Birla Sunlife etc. They have high brand
image and such fund houses are most likely to have greater investors
confidence in their funds. Chakarabarti and Rungta (2000) stressed the
importance of brand effect in determining the competitive position of the
AMCs. Their study reveals that brand image factor, though cannot be easily
captured by computable performance measures, influences the investors
perception2. The investors are asked to rate the brand equity of mutual fund
at five point scale according to their importance given on the investment of
mutual funds.
Fund Size
Fund size means the total corpus of the particular fund. Fund size may be
small, medium or large. It must be ascertained that a larger fund size would
mean a higher amount of fund being invested and therefore a higher degree
of involvement by the fund family. It would therefore mean one of the most
profitable investment decisions that could be undertaken. In the present
study, the investors asked to rate the fund size as the discriminant of their
investment on mutual funds at five point scale.
Type of Fund
A mutual fund may be a growth of fund, dividend fund, tax saving fund etc
and therefore, their impact on the mutual funds investment decision is
largely related to their respective functional intents. In the present study, the
investors are asked to rate the type of fund as the discriminant of their
investment on mutual funds at five point scale.
17

Type of portfolio and schemes

The type of portfolio could be mixed, equity, debt etc., which makes a
sizeable impact on investment decision on mutual fund. It helps the
investors to assess their utmost need to invest in either the mixed fund or
equity fund or likewise. In the present study, the importance of type of
portfolio and schemes in the investment on mutual fund has been measured
at five point scale.
Risk involved in Mutual Funds
Mutual fund investment is having its own risk. There are different types of
risks associated with mutual funds. A fund with stable, positive earnings is
less risky than a fund with fluctuating total return. A higher risk is normally
considered a demodulator for mutual fund investment decision. In the
present study, the investors are asked to rate the importance of risk involved
in mutual funds in the investment on mutual funds at five point scale.
Reputation of Fund manager
Fund manager is a person who manages the particular fund. A fund manager
is a high authority in ascertaining an investors financial roadmap. The
reputation of the fund manager also plays a key role in determining the level
and extent of profitable investment one could make in mutual funds. Yadav
R A and Mishra, Biswadeep (1996)3 , Irissappane Aravazhi (2000)4, and
Saha, Tapas Rajan (2003) 5 studied the importance of the fund managers.
Fund managers importance in the investment on mutual funds among the
investors is also rated at five point scale.
Past Performance of the Funds
A good track record of the fund is a reflection of its ingenuity and a high
investors confidence in it. Singh, Jaspal and Subhash Chander (2003)6
Irwin, Brown, FE (1965)7 and many others studied the role of past
performance while selecting the scheme for investment. A past performance
is generally undertaken through ascertaining the annualized returns for the
last five years and comparing it to benchmarks like BSE, NSE, etc. In the
18

present study, the importance of past performance of funds in the investment

on mutual funds among the investors is rated at five point scale.
Liquidity Factors
Liquidity factors have their own relevance especially when the investor
wishes to rotate the profits for various investments for maintaining ones
financial obligations. A liquidity factor simply denotes their pace of
convertibility into cash which therefore serves as a major discriminant of
the mutual fund investment. Gangadhar V (1992) studied about mutual
funds liquidity, In his study he found majority of the investors opted for
mutual funds with the expectation of liquidity8. In the present study, the
importance of liquidity factor in investment mutual funds is measured at
five point scale.

1.9 OTHER DIFFERENT INVESTMENT AVENUES

Different avenues and alternatives of investment include share market,
debentures or bonds, money market instruments, life insurance, real estate,
precious

objects,

derivatives,

non

marketable

securities. All

are

differentiated based on their different features in terms of risk, return, term

etc
Equity Shares: Equity investments represent ownership in a running
company. By ownership, we mean share in the profits and assets of the
company but generally, there are no fixed returns. It is considered as a risky
investment but at the same time, they are most liquid investments due to
presence of stock markets. Equity shares of companies can be classified as
follows:

Blue chip scrip

Growth scrip
19

Income scrip

Cyclical scrip

Speculative scrip

Debentures or Bonds: Debentures or bonds are long term investment

options with a fixed stream of cash flows depending on the quoted rate of
interest. They are considered relatively less risky. Amount of risk involved
in debentures or bonds is dependent upon who the issuer is. For example, if
the issuer is government, the risk is assumed to be zero. Following
alternatives are available under debentures or bonds:

Government securities

Savings bonds

Public Sector Units bonds

Debentures of private sector companies

Preference shares

Money Market Instruments: Money market instruments are just like the
debentures but the time period is very less. It is generally less than 1 year.
Corporate entities can utilize their idle working capital by investing in
money market instruments. Some of the money market instruments are

Tressury Bills
Commercial Paper
Certificate of Deposits

They are one of the important parts of good investment portfolios. Life
insurance is an investment for security of life. The main objective of other
investment avenues is to earn return but the primary objective of life
20

insurance is to secure our families against unfortunate event of our death. It

is popular in individuals. Other kinds of general insurances are useful for
corporates. There are different types of insurances which are as follows:

Endowment Insurance Policy

Money Back Policy

Whole Life Policy

Term Insurance Policy

General Insurance for any kind of assets

Real Estate: Every investor has some part of their portfolio invested in real
assets. Almost every individual and corporate investor invests in residential
and office buildings respectively. Apart from these, others include:

Agricultural Land

Semi-Urban Land

Commercial Property

Raw House

Farm House etc

Precious Objects: Precious objects include gold, silver and other precious
stones like diamond. Some artistic people invest in art objects like paintings,
ancient coins etc.
Derivatives: Derivatives means indirect investments in the assets.
Derivatives market is growing at a tremendous speed. The important benefit

21

of investing through derivatives is that it leverages the investment, manages

the risk and helps in doing speculation. Derivatives include:

Forwards

Futures

Options

Swaps etc

Non Marketable Securities: Non marketable securities are those securities

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

Bank Deposits

Post Office Deposits

Company Deposits

Provident Fund Deposits

1.10 MUTUAL FUND INDUSTRY IN INDIA

Introduction
India is the fifth largest economy in the world and it ranks above France,
Italy, the United Kingdom, and Russia. It has the third largest GDP in Asia.
It is the second largest of the emerging nations. India is also one of the few
markets in the world which offer high prospects of growth and earning
potential in all sectors of business. The Indian capital market has been
increasing tremendously during last few years. With the reforms of
economy, reforms of industrial policy, public sector, and the financial sector,
the economy has been opened up and many developments have been taking
place in the Indian capital market. In order to help the small investors,
mutual fund industry has come and occupies an important place1. A mutual
22

fund is a trust or an investment company that pools resources from

thousands of investors who share investment goals and then diversifies its
investment into different types of securities in order to provide potential
returns and reasonable safety. The emergence and rapid growth of mutual
fund can be described to the diversified dimension of the Indian capital
market. It has become a major vehicle for the mobilization of savings,
especially from small and house hold savers for investments in capital
market. Indian households started allocating more of their savings into the
capital markets in 1980s, with investments flowing into equity and debt
instruments, besides the conventional mode of bank deposits. Until 1992,
primary market investors were effectively assured good returns as the issue
price of new equity shares was controlled and low. After introduction of free
pricing of shares, new issue prices were higher and with greater volatility in
the stock markets, many investors who bought highly priced shares lost
money. Even those investors who continued as direct investors in the stock
markets realized that the key to successful investing in the capital markets
lay in building diversified portfolio, which in turn required substantial
capital. Besides, selecting securities with growth and income potential from
the capital market involved careful research and monitoring of the market,
which was not possible for all investors. Various scams in stock market like
Harsheth Metha , Ketan Parek, Satyam Computers etc reduced the
confidence of investors those who are directly invest in shares. Under these
circumstances mutual funds are the best alternative investment to direct
investment in capital market.
1.11 HISTORY OF MUTUAL FUND IN INDIA
The mutual fund industry in India started in 1963 with the formation of Unit
Trust of India, at the initiative of the government of India and Reserve Bank
of India. The history of mutual funds in India can be broadly divided into
four distinct phases.

23

First Phase The Monolithic Phase (1964-87)

Unit Trust of India (UTI) was established on 1963 by an Act of parliament.
It was set up by the Reserve Bank of India and functioned under the
regulatory and administrative control of the Reserve Bank of India. In 1978
UTI was de-linked from the RBI and the Industrial Development Bank of
India (IDBI) took over the regulatory and administrative control in place of
RBI. The first scheme launched by UTI was Unit Scheme 1964 (US-64),
which attracted the largest number of investors in any single investment
scheme over the years. UTI launched more innovative schemes in 1970s
and 80s to suit the needs of different investors. It launched ULIP in 1971,
six more schemes between 1981-84,Children's gift growth fund and India
fund (India's first offshore fund) in 1986, Master share (Indias first equity
diversified scheme) in 1987 and monthly income schemes (offering assured
returns) during 1990s. By the end of 1987, UTI's assets under management
grew ten times to ` 6700 crores2.

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

The Indian capital market had undergone an unprecedented transformation
in its over 100 years history by the end of 1987. This year marked the entry
of non- UTI, public sector mutual funds set up by public sector banks and
Life Insurance Corporation of India (LIC) and General Insurance
Corporation of India (GIC). SBI mutual fund was the first non- UTI mutual
fund established in June 1987 followed by Canbank mutual fund (Dec 87),
Punjab National Bank mutual fund (Aug 89), Indian Bank mutual fund
(Nov 89), Bank of India (Jun90), Bank of Baroda mutual fund (Oct 92). LIC
established its mutual fund in June 1989 while GIC had set up its mutual
fund in December 1990. At the end of 1993, the mutual fund industry had
assets under management of ` 47,004 crores.

24

From 1987 to 1992-93, the fund industry expanded nearly seven times in
terms of asset under management. However, UTI remained to be the leader
with about 80 per cent market share.
Third Phase 1993-2003 (Entry of Private Sector Funds)
A new era in the mutual fund industry began with the permission granted for
the entry of private sector funds in 1993, giving the Indian investors a wider
choice of fund families and increasing competition for the existing public
sector funds. Also, 1993 was the year in which the first mutual fund
regulations came into being, under which all mutual funds, except UTI were
to be registered and governed. The erstwhile Kothari Pioneer (now merged
with Franklin Templeton) was the first private sector mutual fund registered
in July 1993. The 1993 SEBI (Mutual Fund) regulations were substituted by
a more comprehensive and revised mutual fund regulations in 1996. The
industry now functions under the SEBI (Mutual Fund) regulations 1996.
The number of mutual fund houses went on increasing, with many foreign
mutual funds setting up funds in India and also the industry has witnessed
several mergers and acquisitions. As at the end of January 2003, there were
33 mutual funds with total assets of ` 1,21,805 crores. The Unit Trust of
India with ` 44,541 crores of assets under management was way ahead of
other mutual funds.
Fourth Phase since February 2003
In February 2003, following the repeal of the Unit Trust of India Act 1963
UTI was bifurcated into two separate entities. One is the specified
undertaking of the Unit Trust of India with assets under management of `
29,835 crores as at the end of January 2003, representing broadly, the assets
of US 64 scheme, assured return and certain other schemes. The specified
undertaking of Unit Trust of India, functioning under an administrator and
under the rules framed by government of India and does not come under the
purview of the mutual fund regulations. The second is the UTI Mutual
Fund, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and
25

functions under the mutual fund regulations. With the bifurcation of the
erstwhile UTI which had in March 2000 more than ` 76,000 crores of assets
under management. In 2007, mutual funds were permitted to introduce gold
exchange funds and also the guidelines for Capital Protection oriented
scheme were notified by SEBI. As on March 31st 2010, the total AUM is `
614545.98 crores.

1.12 MANAGEMENT OF MUTUAL FUNDS IN INDIA

A mutual Fund is set up in the form of a trust. The three tier structure of
mutual fund is as follows:
1. Sponsor
2. Trustee Company/Board of Trustees
3. Asset Management Company
1. Sponsor
Every mutual fund has a sponsor. The trust is established by a sponsor or
more than one sponsor who is like the promoter of the company. The 54
sponsor establishes the mutual fund and registers it with SEBI. He also
appoints the trustees, the custodian and the asset management company in
accordance with SEBI regulations. The sponsor has to contribute at least 40
per cent of the net worth of the AMC3. For example, for SBI Magnum, the
sponsor is the State Bank of India.
2. Trustee
The trustees of the mutual fund hold its property for the benefit of the unit
holders. They are the first level regulators of the mutual fund and are
governed by the provisions of Indian Trust Act 1908. It is the responsibility
of the trustees to protect the interest of investors whose fund is managed by
the AMC. Trustees must ensure that the transaction of the mutual fund is in
accordance with the trust deed. Trustees must furnish to SEBI, on half
yearly basis, a report on the activities of the AMC.
3. The AMC
26

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

management company. The trustees appoint the asset management company
(AMC) with the prior approval of the SEBI. The AMC is a company formed
and registered under the Companies Act 1956, to manage the affairs of
the mutual fund and operate the schemes of such mutual funds. It charges a
fee for the services it renders to the mutual fund trust. It acts as the
investment manager to the trust under the supervision and direction of the
trustees.

1.13 MUTUAL FUNDS COMPANIES - SOME OF THE

MUTUAL FUNDS COMPANIES ARE:

ABN AMRO Mutual Fund

Birla Sun Life Mutual Fund

HDFC Mutual Fund

HSBC Mutual Fund

ING Vysya Mutual Fund

Prudential ICICI Mutual Fund

Sahara Mutual Fund

State Bank of India Mutual Fund

27

REVIEW OF LITERATURE
The review of previous studies related to investors attitude and behaviour
towards mutual fund investment are summarized below:
(Tripathy, 1996) pointed that, mutual funds creates awareness among urban
and rural middle class people about the benefits of investment in capital
market, through profitable and safe avenues. Mutual fund could be able to
make up a large amount of the surplus funds available with these people.
(Zaman, 1996) pointed out that the media played a significant part for retail
investors and also at the margins of the mutual funds market. Private
investors are highly dependent on additional comments and share-tipping in
financial news columns because they have little time or specialist
knowledge to make considered decisions. News media was either the only
source of information for a particular investor or there were few alternative
source of information on a particular stock. The retail investors reacted
much more to media information than professional investors.
(Rajan, 1997,1998)high lightened segmentation of investors on the basis of
their characteristics, investment size, and the relationship between stage in
life cycle of the investors and their investment.
(sehgal, 1998)in their research paper Investment Performance of Mutual
Funds: The Indian Experience tried to find out the investment performance
28

of 80 schemes managed by 25 mutual funds, 15 in private sector and 10 in

public sector for the time period of June 1992-1996. The study has
examined the performance in terms of fund diversification and consistency
of performance. The paper concludes that mutual fund industrys portfolio
diversification has performed well. But it supported the consistency of
performance pattern.
(Kapil, 1998) in its discussion paper printed that as the process of economic
reform continues and the share of the corporate sector in the economy
increases the role of securities markets as tax source of raising funds for
investment is expected to become more critical. If Indian markets are to
serve the need of firms as well as a nationwide community of convertors, it
is essential that efforts to lover transaction cost and to increase the integrity
and fairness of Indian markets continue. While measures that have been
taken by the government, SEBI exchanges and market intermediaries in this
direction have led to an increase in capital market activity and investor
confidence, it is necessary to focus on further changes that are still required.
(Terrance, 1998) examined the behaviour of individual investors and found
them exhibiting disposition effects, that is, they realize their profitable
stocks need as investment at a much higher rate than their unprofitable ones.
The disposition effect is found to influence market price; yet its economic
significance is likely to be the greatest for individual investors.
(Chakrabarti, 2000)stressed the importance of brand effect in determining
the competitive position of the AMCs. Their study reveals that brand image
factor, though cannot be easily captured by computable performance
measures, influences the investors perception and hence his fund/scheme
selection.
(Gupta, 2000)in their study pointed out that index funds have gained
acceptance among investors because it was found that fund managers often
29

did worse than the manipulation, speculation and insider trading. There was
no effective regulation and control as in the USA and the UK.
(Sarkar, 2001)made an attempt to make an operational analysis of various
mutual funds over a period of three years (1996-1999). The results revealed
that the income oriented products offered by the public as well as private
mutual funds organizations were less expensive than the others as these
incurred comparatively low cost per rupee of income generated. The results
also indicated that the cost effectiveness is favorable towards private sector
mutual funds as against their rival operating in public sector.
(Chalam, 2003) found the important factors influencing the investment on
mutual funds are return, capital appreciation, tax saving purpose, liquidity,
marketability and safety. Majority of the investors prefer in real estate
investments, followed by mutual fund schemes, gold and precious metals.
Majority of the investors in mutual funds are employees. They preferred
only growth options compared to income options. Majority of the investors
are very much interested to take the re-investment benefit rather than the
regular dividend.
(Rajeswari, 2002) studied the financial behaviour and factors influencing
fund/scheme selection of retail investors by conducting Factor Analysis
using Principal Component Analysis, to identify the investors underlying
fund/scheme selection criteria, so as to group them into specific market
segment for designing of the appropriate marketing strategy.
(Fernandes, 2003) evaluated index fund implementation in India. In this
paper, tracking error of index funds in India is measured .The consistency
and level of tracking errors obtained by some well-run index fund suggests
that it is possible to attain low levels of tracking error under Indian

30

conditions. At the same time, there do seem to be periods where certain

index funds appear to depart from the discipline of indexation.
(Lynch A.W., 2003) were of opinion that this decade will belong to mutual
funds because the ordinary investor does not have the time, experience and
patience to take independent investment decisions on his own.
(Mazza) argues that investors may subscribe to or redeem from specific
mutual funds in order to change their consumption of or exposure to
attributes other than expected return and risk.
(Rao, 2003) made the performance analysis of 269 open ended Indian
mutual funds in a bear market. This evaluation was carried out through
Treynor ratio, Sharpe's ratio, Jensen measure and Fama measure, the study
period being September 1998 to April 2002. The study offered that 58
schemes were able to satisfy investor's expectations based on both premium
for systematic risk and total risk.
(Bhalla, 2004) concluded that investors do not need to be familiar with the
characteristics of the different types of mutual funds. Many investors do not
understand what they are buying. With so many choices,investors risk
making the wrong ones. Besides investing in appropriate and high-cost
mutual funds, investors also buy laggards. There is no shortage ofmediocre
performers.
(Amitabh, 2004) evaluated investment performance of 80 mutual funds
schemes of the Indian market. They have examined performance in terms of
fund diversification and consistency. It indicated that there has been lack of
adequate portfolio diversification. But, it supported the consistency of
performance.

31

(Jaspal Singh and Subash Chander, 2004) analysed that, the perceptions
about mutual funds in the view of general investor feels that different
regulatory bodies like SEBI and others have not been able to regulate and
control the working of mutual funds so as to safeguard the small investors
interest.
(Singh, 2004) concluded that most of the growth oriented mutual funds
performed poorly as compared to the benchmark. They have also examined
the growth of mutual funds in India in terms of resource mobilization,
promotion of various types of schemes and NAV based risk and return. The
cumulative resources of mutual funds underwent a four-fold rise and found
a threefold increase in the number of schemes during the period 1990-91 to
1997-98.
(Sodhi, 2004) evaluated 26 equity mutual funds drawn from 22 Asset
management companies belonging to private and public sector. They
concluded that the equity mutual funds have overall inferior performance in
comparison of risk free return. They compared the rate of return generated
by equity mutual funds and 364 days T-bills for the period of 1993-2002.
(Gelade, 2005) examined the relationship between organization climate,
employee attitude, customer satisfaction and sales performance and
concluded that teamwork climate, job enablers and support climate are
organizational climate variables, commitment is an employee attitude and
customer satisfaction and sales achievement are organizational performance
measures.
(Byrne) shows that risk and investment experience tend to indicate a
positive correlation and past experience of successful investment increases
investor tolerance of risk. Inversely, unsuccessful past experience leads to

32

reduced tolerance to risk. Therefore past investment behaviour affects future

investment behaviour.
(Kulbhushan Chandel and Verma, 2005) studied the performance of mutual
funds,the study results indicate that the schemes have earned better return
than the market return, it also shows that the sample schemes performed
better than the risk free return.
(Dua, 2005) in his study analyses the perception of mutual fund investors,
he reveals that mutual funds are preferred by the small investor who taught
that they themselves did not have the expertise to deal directly with shares.
(Kumar, 2005) found that investors prefer growth schemes to take the
reinvestment benefit of regular income. The study also shows that, desire of
higher return and benefit of tax are the key motivating factors in boosting
the business of mutual funds. He also opined that lesser risk, higher return
and easy liquidity are main qualities of an ideal mutual fund.
(Kumar S. a., 2005) opined that most of the growth oriented mutual funds
have been able to deliver better return than the benchmark indicators.
Growth oriented mutual funds are expected to offer the advantage of
diversification, market timing and selectivity.
(Bello, 2005) matched a sample of socially responsible stock mutual funds
matched to randomly select conventional funds of similar net assets to
investigate differences in characteristics of assets held, degree of portfolio
diversification and variable effects of diversification on investment
performance. The study found that socially responsible funds do not differ
significantly from conventional funds in terms of any of these attributes.
Moreover, the effect of diversification on investment performance is not
different between the two groups.
33

(Nigam, 2006) identified that there has been a tremendous growth in the
mutual fund industry in India, attracting huge investments from investors
within the country and abroad, however, there is still a long way to go. With
the growing middle-class, projected to be around 200 million, there is an
immense potential for growth in the country. India's young generation,
accompanied by a high rate of savings and a rapidly-liberalizing economy,
is expected to elevate the mutual fund sector to new heights.
(Ahuja, 2006) evaluated the cause and effect relationship between mutual
fund investment decision and fund family, fund size, type of fund, type of
portfolio and schemes, risk involved of the fund manager, past performance
of the fund, liquidity factors and current market conditions.
(Guptha, 2006) analysed the investors perception on various reasons to
select the mutual fund scheme. These are risk capacity and tolerance,
liquidity needs, specific objectives, credibility of the sponsors, investment
philosophy of the fund, performance of the scheme, dividends, entry and
exit loads, expenses charged to the fund and services offered by the fund.
(Mohanty, 2006) analyzed the weakness of mutual funds. These are non
availability of tailor-made schemes, no guarantee of returns, no control over
costs, problem of managing large corpus, volatility of return depends on
market conditions, which is subject to frequent market volatility and mostly
investment period is medium term to long-term where expected return is
more. Market mutual funds scheme is for short period where return is not
lucrative and the instruments are lesser in number.
(Muttappan, 2006) in his study explains about the factors influencing
mutual fund investment decision making. The study reveals that tax

34

exemption given to the investments in mutual funds was the most

influencing factor.
(Kim, 2006) have pointed out that there is no difference in risk attitude
between individuals of different gender, but between groups of such, males
indicate a stronger inclination to risk tolerance. That is, no gender difference
was found at an individual level, but in groups, males expressed a stronger
pro-risk position than females.
(Singh S. C., 2006) studied the preference of investors, the study revealed
that, investors decision to invest in a particular mutual fund is affected by
different sources from where information about working of that fund
becomes available to investor, they also opined that the occupation groups
differ significantly in their perception about the returns received from the
mutual fund.
(Sorescu, 2006) provide evidence that investors focus on the content of
analyst recommendations, and do not much consider the skill of the person
making them, which suggests that they may also be open to peer influence.
(Mohana, 2006) analysed the relationship between investors and mutual
funds. Investors have started believing in mutual funds to manage their
hard- earned money. Mutual funds are those institutions that can give
maximum satisfaction to their investors by diversifying the portfolio. The
mutual funds are becoming popular among the people who are more riskaverage than pure equity nvestors. Carefully managed mutual funds can
ensure optimum returns even during turbulent times in the market and that
makes the mutual fund a good choice among the retail investors. Due to the
reduction in the bank interest rates and high degree of volatility in the
Indian stock market, investors are looking for an alternative for their small

35

time investors which will provide them a higherreturn and also safety to
their investments.
(Verma, 2006) mentioned the advantages of mutual funds investors among
the investors are diversification, professional management, liquidity,
affordability, tax benefits, transparency, cost effectiveness, risk associated
with mutual funds, market risk, inflation risk, credit risk and effect of loss of
key professionals. The investors prefer the mutual funds since it has
specified investment objectives such as growth of capital, safety of
principal, current income or tax exempt income. They also generated
decisional matrix for mutual fund investment on the basis of the relationship
between the fund size and NAV returns. By that they exhibited the
decisional optimization, decisional consideration, decisional reconsideration
and decisional fallacy.
(Alexander G., 2007) reveal that mutual fund managers are able to value
stocks and motivation plays a vital role in the assessment of trade
performance. As far as they are concerned, valuationmotivated buys
produce higher performance than their benchmarks. In sharp contrast to this,
liquidity-motivated buys underperform their benchmarks, thus indicating
that mutual fund managers are not able to beat the market since they are
compelled to pump additional cash from inflows.
(Srivastava, 2007) analysed the behaviour of investors in India, the study
revealed that Indian investors have not been absolutely logical and rational
in their investment decisions are always affected by definite behavioural
factors.
(Balanaga Gurunathan, 2007) examined, the investors need protection from
the various malpractices and unfair practices made by the corporate and
intermediaries. As the individual investors community and the investment
36

avenues are on the rise, it is interesting to know how the investors shall be
protected through various legislations. The present positive attitude of
investors is heartening though investor sentiments have been shaken by the
various scandals.
(Bodla, 2007) evaluate the performance of 24 growth schemes of mutual
funds. They reveal that most of the schemes have outperformed the market
during the study period in terms of return. However, the difference in
market return and funds return is found insignificant. There exists a
moderate positive correlation between risk and return of the sample
schemes. A large majority of the schemes have succeeded in earning a risk
premium irrespective of the performance measurement model concerned.
Most of the schemes have performed better than the market on the basis of
risk adjusted return also.
(Hanumantha Rao and Vijay Kr. Mishra, 2007) Opinioned, The Indian
Mutual Funds industry has been growing at a healthy pace of 16.68 per cent
for the past eight years and the trend will move further. According to his
study, it has been found out that almost 54 % of people invests for security
and certainty while 38 % of the people invests for current spending. Some
53 % of
the people prefer long term investment whereas 23% people each prefer
medium
term and small term investment.
(Mishra, 2007) revealed that the Indian mutual funds industry has witnessed
several structural and regulatory reforms. The people invest in mutual funds
for the purpose of earning higher rate of return by taking minimal risks.
With entry of new fund houses and the introduction of new funds into the
market, investors are now being presented with a broad array of fund

37

choices. The global players are finding Indian mutual funds industry a
potential sector.
(Selvaraj, 2007) examine the performance of mutual funds, they opined that
the performance of an actively managed fund largely depends on the
investment decisions of its manager. Statistically, for every investor who
outperforms the market, there is one who underperforms. Among those who
outperform

their

index

before

expenses,though,

many

end

up

underperforming after expenses. Before expenses, a well

run index fund should have average performance. By minimizing the impact
of expenses, index funds should be able to perform better than average
(Vijayalakshmi, 2007) identified that the number of investors in systematic
investment plans (SIP) have been increased by 10 fold times compared to
the previous year. The important investors on SIP are salaried class, small
corporates and SMEs. The concept of diversification is there in fund of
funds. The idea of hold Exchange Traded Funds was first conceptualized by
Benchmark Asset Management Company in India.
(Arugaslan O., 2008) present that if the level of risk imposed by the fund is
factored in the analysis conducted, the mutual funds with greater average
returns compared with the others may not be attractive enough to investors
as they are before. Similarly, mutual funds with lower average returns may
enhance their attractiveness if their low level of risk is factored in their
performance analysis. In addition, the authors demonstrate convincingly
that the returns on international mutual funds with low level of risk can be
boosted by means of financial leverage.
(Sasaki R., 2008) pointed out that the different variables which influence to
invest on mutual funds are safety, liquidity, stability, speculative values,
diversification and low cost. Through the study the researcher found that,
38

the most important factors leading to mutual fund investments are risk
freeness and income, the next factors are savings and cost.
(Sofat, 2008)Rakhi Arora and Rajni Sofat (2008) 48 says risk and return are
the two inseparable parts of an investment strategy. They have direct
relationship between them: higher the risks, higher are the returns and vice
versa. The very basic consideration of an investor while investing the
money should be how to maximize the returns and what are the risks
involved in investing in a particular instrument.
(Ganapthy, 2008) in his study pointed that, investors whom have hitherto
been investing in assured return schemes like fixed deposits and small
savings, often refuse to look at other smart options like mutual funds just
because they do not offer guaranteed returns. It will be quite a challenge for
the industry to bring investors into its fold. The industry will also have to
ensure that as and when these investors decided to begin investing in mutual
funds, they select the right type of funds and invest with a long-term view in
mind
(Mohan Nayak, 2008) has examined the service sector of mutual funds, he
suggested that, Leading asset management companies are only those
companies are successful which offer customized services along with the
innovative products. The investment in mutual fund is not a one-time
activity. It is a continuous activity. The same investor if satisfied will come
to the company again and again and become the loyal customer. The
information in the investors application if tabulated and analyzed would
provide important insight in to investor needs, preferences and behaviour.

39

RESEARCH DESIGN
3.1 Title of the Study
A STUDY ON INVESTOR PREFERENCE TOWARDS MUTUAL
FUNDS IN BANGALORE CITY

3.2 Statement of the Problem

The main purpose of the study is to understand the preference of investors
investing in Mutual Funds. It tries to draw conclusions regarding how the
investors are employing their resources in a manner to afford, combine
benefits to low risks, steady or consistent returns, high liquidity & capital
appreciation through diversification & Expert Management.

3.3 Scope of the Study

With a vast economy like Indias, investors have a variety of investment
avenues to channelize their savings. In todays world mutual funds has
become so wide that sometimes people take long time to choose the scheme
they want to invest in. The study aims to obtain a clear picture regarding the
investors preferences while investing in mutual funds. The study also aims
to understand and analyze the level of awareness of the investors regarding
the same.

40

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

the Bangalore city only.
Functional scope: The study is conducted to understand the broad scope of
mutual funds and the factors that influence the choice of investors investing
in mutual funds. It also aims to study the investment potential and the extent
of risk taken by the investors.

3.4 Objective of the Study

To study various investment alternatives, in particular investors

preference towards mutual funds.

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

To study market potentiality of mutual fund among investors.

3.5 RESEARCH METHODOLOGY

Business research is a field of practical study through which a company
obtains data and analyzes it in order to manage the company effectively and
efficiently. Business research is of recent origin and is largely supported by
business organizations that hope to achieve competitive advantages.
Business research can include financial data, consumer feedback, product
research and competitive analysis. Executives and managers who use
business research methods are able to gather a better understanding of their
company, the position it holds in the market and how to improve that
position.

41

3.6 RESEARCH DESIGN

Research design encompasses the method and procedures employed to carry
out the research. It guides the collection and analysis of data required for the
study. The study intends to draw up conclusions on the investors preference
towards mutual funds.

3.7 SAMPLING DESIGN

As the investor population of Bangalore is very large, researchers were
unable to gather information from the entire population due to lack of time
and resources. Therefore a part of this population is taken for analysis and
generating findings and is representative for the entire investing population
in Bangalore.

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

2. Selection of sample size: The number of units selected from the
population constitutes the sample size. The respondents of the study may be
present or future investors. The sample size taken is 100.

3.8 SAMPLING METHODS

Convenience method of sampling is used to collect the data from the
respondents. Researchers or field workers have the freedom to choose
whomever they find, thus the name convenience. About 100 samples were
collected from Bangalore city.

42

3.9 METHOD OF DATA COLLECTION

a) Primary Data: It is that type of information or data which is obtained
directly from first-hand sources by means of surveys, observation or
experimentation. It is data that has not been previously published and is
derived from a new or original research study and collected at source.
b) Secondary Data: It is all the information collected for purposes other
than the completion of a research project and it is used to gain initial insight
into the research problem. The sources can be internal or external sources.
The sources of secondary data that have been used for this study are
journals, newspapers, and websites.

3.10 TOOLS FOR DATA COLLECTION

A structured questionnaire is used as the instrument for collecting
information from individuals and the reliability test was conducted on the
questionnaire with the help of cronbachs alpha test.
Statistical Tools Used
The Garrett Ranking Technique have been used to analyze the investors
preference

in choosing mutual fund as the mode of investment .The

interpretation has been made based on the mean score and total scores
derived through Garrett ranking Technique.

3.11 LIMITATIONS OF THE STUDY

Lack of knowledge among the respondents regarding mutual funds

restricts the scope of the study.

Time was a major limitation.

Reluctance on the respondents side for providing information
regarding their investment options was another limitation.
43

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

has the usual deficiencies attached to this technique of data
collection.

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

responses from the public.

4.1 RELIABILITY ANALYSIS

Case Processing Summary

Table 4.1

Valid

100

100.0

Cases

Excluded
0
.0
Total
100
100.0
List wise deletion based on all variables in the procedure.

Reliability Statistics
Table 4.1.1
Cronbach's Alpha

N of Items

.587

16

44

Item-Total Statistics
Table 4.1.2
Scale
if

Mean Scale
Item Variance

Corrected
if Item-Total

Cronbach's
Alpha if Item

Deleted

Item Deleted Correlation

Deleted

32.92

36.297

-.013

.609

33.33
PREFFERED
FACTOR PREFERED 32.84
EVER INV IN MF
33.86
HOW U COME TO
33.76
KNW ABT MF
WHICH MF YOU
34.59
LIKE
ATTRACTED
30.88
FEATURE
PREFFERED MODE 34.30
SCHEME CHOOSED 32.94
WHERE U FIND UR
33.80
SELF AS INVESTOR
PREFFERED
31.08
SECTOR FOR INV
WHERE
U
32.82
PURCHASE MF
HOW TO GET UR
33.54
RETURN
FACED ANY LOSS
34.62
LOSS DETER U
34.56

36.062

-.013

.613

35.873
33.051

.037
.743

.599
.537

25.578

.643

.461

31.598

.591

.524

34.693

.064

.603

36.798
35.006

.029
.038

.591
.609

28.040

.516

.502

34.377

.025

.624

33.543

.178

.579

35.726

.077

.591

32.056
31.380

.553
.599

.531
.522

AVERAGE
MONTHLY SAVINGS
INVESTMENT

45

SATISFACTION

33.71

36.814

.052

.589

Scale Statistics
Table 4.1.3
Mean

Variance

Std. Deviation

N of Items

35.57

37.157

6.096

16

4.2 GARRETTS RANKING TECHNIQUE

Garretts ranking technique was used to rank the preference indicated by the
respondents on different factors. As per this method, respondents have been
asked to assign the rank for all factors and the outcomes of such ranking
have been converted into score value with the help of the following
formula:
Percent position = 100 (Rij 0.5)
Nj
Where
Rij = Rank given for the ith variable by jth respondents
Nj = Number of variable ranked by jth respondents
With the help of Garretts Table, the percent position estimated is converted
into scores. Then for each factor, the scores of each individual are added and
then total value of scores and mean values of score is calculated. The factors
having highest mean value is considered to be the most important factor

46

1. Average Monthly savings of your family?

PERCENTILE POSITION
Table 4.2
Rank

Percentile position
100(1-0.5)/5

10

Garretts table value

75

100(2-0.5)/5

30

60

100(3-0.5)/5

50

50

100(4-0.5)/5

70

40

100(5-0.5)/5

90

25

Table 4.2.1
Factor

60000

Total no. of Garretts

Total

Mean

respondents

score

score

score

75

150

1.5

and 2

Rank

above
40000-60000

11

60

660

6.6

III

25000-40000

21

50

1050

10.5

II

10000-25000

56

40

2240

22.4

Below 10000

10

25

250

2.5

IV

Total

100

4350

Interpretation:
The table highlight the Garrett score, total score, the mean score and rank.
Here, the factors having highest mean value is considered to be the most
47

important factor. There fore the average savings of 10000-25000 has the
highest mean value (22.4).So, it has been ranked 1st and considered as the
most important factor. The 2nd rank goes to the savings 25000-40000, 3rd
rank goes to the savings 40000-60000,4th rank goes to those who have
savings below 10000 and 5th rank goes to the savings 60000 and above.

2. What kind of investment do you prefer most?

Rank

Percentile position

Garretts table value

100(1-0.5)/4

12.5

73

100(2-0.5)/4

37.5

56

100(3-0.5)/4

62.5

44

100(4-0.5)/4

87.5

27

PERCENTILE POSITION
Table 4.3
Table 4.3.1
Factor

Total no. of Garretts

Total

Mean

Rank

respondent

score

score

score

Mutual funds

37

73

2701

27.01

Insurance

19

56

1064

10.64

III

Fixed deposits

27

44

1188

11.88

I1

Savings

17

27

459

4.59

IV

deposits

Total

100

5412
48

Interpretation:
The table highlight the Garrett score, total score, mean score and rank. Here,
the factors having highest mean value is considered to be the most
important factor. Here mutual funds have highest mean score of (27.01) and
ranked 1st.So it is considered as the most important factor. 2 nd rank goes to
fixed deposits, 3rd rank goes to insurance and 4th rank goes to savings
deposits.
3. While investing which factor do you prefer most?
PERCENTILE POSITION
Table 4.4
Rank

percentile position

Garretts table value

100(1-0.5)/4

12.5

73

100(2-0.5)/4

37.5

56

100(3-0.5)/4

62.5

44

100(4-0.5)/4

87.5

27

Table 4.4.1
Factor

Total no. of Garretts

Total

Mean

respondent

score

score

score

13

73

949

9.49

III

Low risk

21

56

1176

11.76

II

High return

46

44

2024

20.24

Liquidity

20

27

540

5.4

IV

Company

Rank

reputation

49

Total

100

4689

Interpretation:
The table highlight the Garrett score, total score, mean score and rank. Here,
the factors having highest mean value is considered to be the most
important factor. Therefore High return has got the highest mean score of
(20.24) and it has been ranked 1st.So it interprets that high return is the most
important factor considered by the investor while investing.2nd rank goes to
low risk,3rd rank goes to company reputation and 4th rank goes to liquidity.
4. Have you ever invested in mutual funds?
PERCENTILE POSITION
Table 4.5
Rank

Percentile position

Garretts table value

100(1-0.5)/2

= 25

63

100(2-0.5)/2

= 75

37

Table 4.5.1
Factor

Total

no.

of Garretts

Total

Mean

Rank

respondents

score

score

score

No

29

63

1827

18.27

II

Yes

71

37

2627

26.27

50

Total

100

4454

Interpretation:
The table highlights the Garrett score, total score, mean score and rank.
Here, the factors having highest mean value is considered to be the most
important factor. Majority of people had invested in mutual funds and its
mean score has come to (26.27).So, the answer yes has been ranked 1 st
and has been considered as the most important factor.

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

funds?
Table: 5
PERCENTILE POSITION
Table 4.6
Rank

Percentile position
100(1-0.5)/5

10

Garretts table value

75

100(2-0.5)/5

30

60

100(3-0.5)/5

50

50

100(4-0.5)/5

70

40

100(5-0.5)/5

90

25

Table 4.6.1
Factor

Total no. of Garretts

Total

Mean

respondent

score

score

score

Rank

51

5-10%

24

75

1800

25.35

10-15%

17

60

1020

14.36

II

15-20%

50

400

5.63

IV

20-25%

13

40

520

7.32

III

25 and Above

25

225

2.25

Total

71

3625

Interpretation:
The table highlights the Garrett score, total score, mean score and rank.
Here, the factors having highest mean value is considered to be the most
important factor. The highest mean (25.35) goes to 5-10%.Therefore it has
been ranked as 1st and also considered as the most important factor. The
factors 10-15%, 20-25%,15-20%, 25% and above is ranked respectively.

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

PERCENTILE POSITION
Table 4.7
Rank

Percentile position

Garretts table value

100(1-0.5)/4

12.5

73

100(2-0.5)/4

37.5

56

100(3-0.5)/4

62.5

44

100(4-0.5)/4

87.5

27

Table 4.7.1

52

Factor

Total no. of Garretts score

Total

Mean

respondents

score

score

Rank

Financial

16

73

1168

11.68

II

advisor
Banks
Peer groups

14
29

56
44

784
1276

7.84
12.76

III
I

Advertisem

12

27

324

3.24

IV

ent
Total

71

3552

Interpretation:
The table highlights the Garrett score, total score, mean score and rank.
Here, the factors having highest mean value is considered to be the most
important factor. Most of the people came to know about mutual funds
through peer groups which has the highest mean score of (12.76).There for
it is considered as the most important factor. The rest of the factors
Financial advisor, Banks and Advertisements are ranked respectively.

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

PERCENTILE POSITION
Table 4.8
Rank

Percentile position

Garretts table value

100(1-0.5)/2

= 25

63

100(2-0.5)/2

= 75

37

Table 4.8.1
53

Factor

total

no.

of Garretts score total

mean

respondents

score

score

Rank

Public

44

63

2772

39.04

Private

27

37

999

27

II

TOTAL

71

3771

Interpretation:
The table highlights the Garrett score, total score, mean score and rank.
Here, the factors having highest mean value is considered to be the most
important factor. Majority of investors prefer public sector mutual funds to
invest there money. The mean score of public sector is (39.04) which is
higher than private sector and has been ranked 1st .So, it become the most
important factor.

8. Which feature of mutual fund attracts you most?

PERCENTILE POSITION
Table 4.9
Rank

Percentile position

Garretts table value

100(1-0.5)/6

8.3

77

100(2-0.5)/6

25

63

100(3-0.5)/6

41.6

54

100(4-0.5)/6

58.3

46
54

100(5-0.5)/6

75

37

100(6-0.5)/6

91.6

23

Table 4.9.1
Factor

Total

of Garretts

Total

Mean

Respondents

score

score

score

13

77

1001

10.01

II

Tax benefit

16

63

1008

10.08

Regular income

15

54

810

8.1

IV

risk 12

46

552

5.52

safety

and 27

37

999

9.99

III

Diversification

17

23

391

3.91

VI

Total

100

Investment

no.

Rank

objectives

Reduction

in

and
transaction cost
Better
return

4761

Interpretation
The table highlights the Garrett score, total score, mean score and rank.
Here, the factors having highest mean value is considered to be the most
important factor. Here, Tax benefit is the most important factor considered
by the investors because it has the highest mean score of (10.08) and it is
55

considered as the most important factor and ranked as 1 st.The other factors
like investment objectives, Better safety and return, regular income,
Reduction in risk and transaction cost and diversification is ranked
respectively.
9. When you invest in mutual fund which mode of investment do
you prefer?
PERCENTILE POSITION
Table 4.10
Rank

Percentile position

Garretts table value

100(1-0.5)/2

= 25

63

100(2-0.5)/2

= 75

37

Table 4.10.1
Ranks

of Garretts

Total

Mean

respondents

score

score

score

68

63

4284

42.84

One time

32

37

1184

11.84

II

Total

100

Systemati

Total

no.

Rank

5468

Interpretation:
The table highlights the Garrett score, total score, mean score and rank.
Here, the factors having highest mean value is considered to be the most
important factor. The systematic investment plan has the highest mean score
of (42.84) which is considered as the most important factor.There fore it is
ranked as 1st and one time investment which has mean score of 11.84 is
ranked 2nd.
10. Which mutual fund scheme have you used?
56

PERCENTILE POSITION
Table 4.11
Rank

Percentile position
100(1-0.5)/5

10

Garretts table value

75

100(2-0.5)/5

30

60

100(3-0.5)/5

50

50

100(4-0.5)/5

70

40

100(5-0.5)/5

90

25

Table 4.11.1
Factor

Total no. of Garretts

Total

Mean

respondent

score

score

score

75

975

13.73

II

Regular income 13

Rank

funds
Growth funds

22

60

1320

18.59

Liquid funds

10

50

500

7.04

III

ended 12

40

480

6.76

IV

schemes
Open
Ended 14

25

350

4.92

Close

schemes
Total

71

3625

Interpretation:
The table highlights the Garrett score, total score, mean score and rank.
Here, the factors having highest mean value is considered to be the most
important factor. The growth funds has the highest mean score of (18.59)
which is ranked as 1st.Therefore this is considered as the most important
factor.The other factors such as Regular iincome funds,liquid funds,close
ended funds,and open ended funds are ranked respectively.

57

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

PERCENTILE POSITION
Table 4.12
Rank

Percentile position

Garretts table value

100(1-0.5)/4

12.5

73

100(2-0.5)/4

37.5

56

100(3-0.5)/4

62.5

44

100(4-0.5)/4

87.5

27

Table 4.12.1
Factor

Fully aware
Aware

Total no. of Garretts score

Total

Mean

respondents

score

score

Rank

11

73

803

11.30

II

of 19

56

1064

14.98

44

132

1.85

IV

27

135

1.90

III

only specific
schemes
invested
Partial
knowledge
of

mutual

funds
Totally
ignorant
Total

71

2134

58

Interpretation:
The table highlights the Garrett score, total score, mean score and rank.
Here, the factors having highest mean value is considered to be the most
important factor. The awareness of specific schemes invested has the
highest mean score of (14.98) and ranked 1st.This made them to find
themselves as a mutual fund investor. And this is considered as the most
important factor.
12. Which sector would you prefer to invest in the mutual fund ?
PERCENTILE POSITION
Table 4.13
Rank
1

Percentile position
100(1-0.5)/6
=

8.3

Garretts table value

77

100(2-0.5)/6

25

63

100(3-0.5)/6

41.6

54

100(4-0.5)/6

58.3

46

100(5-0.5)/6

75

37

100(6-0.5)/6

91.6

23

Table 4.13.1
Factor

Total

no.

of Garretts

Total

Mean

Rank

Other

respondents
4

score
77

score
308

score
3.08

II

Automotive

12

63

756

7.56

Pharmaceuticals 8

54

432

4.32

IV

Oil & Gas

18

46

828

8.28

Information

23

37

851

8.51

III

35

23

805

8.05

VI

technology
Banking

and

Financial
services

100

3980
59

Total
Interpretation:
The table highlights the Garrett score, total score, mean score and rank.
Here, the factors having highest mean value is considered to be the most
important factor. Here, Automotive sector has the highest mean value of
(7.56).So, it is ranked 1st and has considered as the most important factor.
13. From where do you purchase mutual funds?
PERCENTILE POSITION
Table 4.14
Rank

Percentile position

Garretts table value

100(1-0.5)/4

12.5

73

100(2-0.5)/4

37.5

56

100(3-0.5)/4

62.5

44

100(4-0.5)/4

87.5

27

Table 4.14.1
Factor

Total no. of Garretts score

Total

Mean

respondents

score

score

73

1606

16.06

Brokers and 22

Rank

sub brokers
Other

12

56

672

6.77

IV

sources
Brokers

29

44

1276

12.76

II

only
Directly

37

27

999

9.99

III

from AMC
Total

100

4553

60

Interpretation:
The table highlights the Garrett score, total score, mean score and rank.
Here, the factors having highest mean value is considered to be the most
important factor. The highest mean value (16.06) is for other sources. So 1 st
rank is given to other sources and it is considered as the most important
factor. And the other factors such as brokers only, directly from AMC and
other sources are ranked respectively.
14. What is your expected rate of return from your investment?
PERCENTILE POSITION
Table 4.15
Rank

Percentile position
100(1-0.5)/4
100(2-0.5)/4
100(3-0.5)/4
100(4-0.5)/4

1
2
3
4

=
=
=
=

12.5
37.5
62.5
87.5

Garretts table value

73
56
44
27

Table 4.15.1
Factor

Total

no.

of Garretts

Total score

Mean score Rank

respondents

score

Above 20%

73

584

5.84

III

15-20%

24

56

1344

13.44

II

10-15%

52

44

2288

22.88

5-!0%

16

27

432

4.32

IV

Total

100

4648

61

Interpretation:
The table highlights the Garrett score, total score, mean score and rank.
Here, the factors having highest mean value is considered to be the most
important factor. Here, the expected rate of return of 10-15%,and has the
highest mean value of(22.88).So, it is ranked as 1 st and considered as the
most important factor. The other rate of returns such as 15-20%,above 20%
and 5-10% are ranked respectively.
15. If not invested in mutual fund, why?
PERCENTILE POSITION
Table 4.16
Rank

Percentile position

Garretts table value

100(1-0.5)/3

= 16.66

69

100(2-0.5)/3

= 50

50

100(3-0.5)/3
Total no. of Garretts

Factor

respondent
No

= 83.33
Total score

31
Mean score Rank

score

s
15

69

1035

35.6

50

100

3.44

III

31

372

12.8

II

Specific
Reason
High Risk

Not aware 12
of mutual
fund
Total

29

1507

Table 4.16.1
Interpretation:
62

The table highlights the Garrett score, total score, mean score and rank.
Here, the factors having highest mean value is considered to be the most
important factor. Those people who doesnt invest in mutual fund have no
specific reason for .The highest mean score (35.6) is obtained for the factor
no specific reason It has been ranked as 1st and also considered as the
most important factor. The 2nd rank goes to the factor not aware of mutual
funds and 3rd rank goes to the factor high risk.
16. Have you faced any kind of loss from investment in mutual
funds?
PERCENTILE POSITION
Table 4.17
Rank

Percentile position

Garretts table value

100(1-0.5)/2

= 25

63

100(2-0.5)/2

= 75

37

Table 4.17.1
Factor

Total

no.

of Garretts score Total

Mean

score

score

respondents

Rank

No

48

63

3024

30.24

Yes

23

37

851

8.51

II

Total

100

3875

Interpretation:
The table highlights the Garrett score, total score, mean score and rank.
Here, the factors having highest mean value is considered to be the most
important factor. The factor No indicates the

highest mean of

(30.24).Therefore, 1st rank is given to it and considered as the most

63

important factor.The factor No indicates the mean value 8.51 which has
been ranked 2nd.

17. Did the loss deter you from any further investments?
PERCENTILE POSITION
Table 4.18
Rank

Percentile position

Garretts table value

100(1-0.5)/2

= 25

63

100(2-0.5)/2

= 75

37

Table 4.18.1
Factor

Total

no.

of Garretts score Total

Mean

score

score

respondents

Rank

No

45

63

2835

28.35

Yes

26

37

962

9.62

II

Total

3797

Interpretation:
The table highlights the Garrett score, total score, mean score and rank.
Here, the factors having highest mean value is considered to be the most
important factor. The factor No indicates the highest mean score of
(28.35).Therefore, 1st rank is given to it and considered as the most
important factor.

64

18. Are you satisfied with your investment option?

PERCENTILE POSITION
Table 4.19
Rank

Percentile position

Garretts table value

100(1-0.5)/2

= 25

63

100(2-0.5)/2

= 75

37

Table 4.19.1
Factor

Total

no.

of Garretts score Total

Mean

score

score

respondents

Rank

No

13

63

819

8.19

II

Yes

87

37

3219

32.19

Total

4038

Interpretation:
The table highlights the Garrett score, total score, mean score and rank.
Here, the factors having highest mean value is considered to be the most
important factor. The factor Yes indicates the

highest mean of

(32.19).Therefore, 1st rank is given to it and considered as the most

important factor.

65

FINDINGS

Most of the people among the 100 respondents have the average

monthly savings of 10000-25000.

Most of the people among the 100 respondents invest their money in
mutual funds. From the study it is found that the mutual fund is the

most preferred investment avenue.

While investing in mutual funds most of the respondents prefer high
return. The investors consider the rate of return as an important
factor while other factors liquidity, low risk and company reputation

are considered to be secondary.

Majority of the respondents from the selected sample has found to

be invested in mutual fund.

Majority of people invest 5-10% of their savings in mutual fund.
Most of the people came to know about the mutual funds by peer
groups. The next important source of information regarding the

investments was from financial advisors.

Majority of investors prefer public sector mutual funds to invest

their money.
The most attracted feature of mutual funds for the investors is tax

benefit as well as the safety and return of the investment.

Majority of the respondents prefer the systematic investment plan

over one time investment plan.

The growth funds scheme is the scheme choosen by majority of the
people. Regular income fund is the next preferred mutual fund

scheme.
Most of the mutual fund investors find themselves as an investor

when they are aware of specific schemes invested.

It is found that the investors prefer the automotive sector to invest
when comparing to the other sectors like pharmaceuticals, oil and
gas etc.
66

The investors prefer to buy the investments from the brokers and the

sub-brokers
On analyzing the expected return of the investors from the
investment, most of the respondents reported that they expect a rate
of 10-15% return.

Some of the respondents did not prefer to invest in mutual fund

because they are not aware of the mutual fund schemes.

Among the selected sample size, majority of the investors reported

that they havent faced any kind of loss on investing in mutual
funds.

The majority of the investor agreed that the loss from an investment
did not deter the further investment.

Most of the investors from the selected sample are found to be

satisfied with
their investment option.

SUGGESTIONS

The mutual fund companies should attempt to set up their branch

presence in smaller towns for tapping the potential.

There should be introduction of mandatory rating for mutual fund

products through Rating agencies to increase investor confidence.

Efforts should be put to increase the investor awareness and
financial literacy, resulting in an increase in the contribution of the

retail investors to the mutual fund industry.

The awareness of mutual fund & its various schemes should be
increased among the people by proper advertising, promotion and

conducting investors meets.

New fund offer (NFO) applications and other mutual fund
applications should be in regional languages also. This will help all

67

type of the investors to understand the details and risk factors more

clearly.
All mutual fund companies should give a card named investment
card to their investors. This is just like an ATM card. The investors
can use the card for fresh investment, additional investment,
redemption and dividend purpose. Necessary investment machines
like ATM machines should be arranged in all mutual fund offices. It
helps the investors to do the transactions without delay and enable
the asset management companies to reduce the complaints related to

redemption and dividend issues.

SEBI should take strong steps to control the biased investment
recommendation given by financial journals, dailies, websites and
visual medias.It is essential to take steps against misleading
advertisements especially in the launching of new fund offers

(NFO).
Poor portfolio management is the major problem of investors in
mutual fund. This is inspite of the professional management of the

funds. Hence efficiency audit should be made mandatory.

SEBI should encourage to organize investor associations, so that
they can contribute more to the development of mutual fund
industry. This helps in providing necessary assistance to the needy

investors.
To attract the younger generation into the mutual fund industry,
mutual fund should be included in school curriculam.

CONCLUSION
In todays volatile market environment, mutual funds are looked upon as a
transparent and low cost investment vehicle, which attracts a fair share of
investor attention helping spur the growth of the industry. AMCs therefore
need to reorient their business towards fulfilling customer needs. As
customers seek trusted advisors, the manufacturer distributor-customer
relationship is expected to be centered not on the sale of products, but for
68

collectively promoting the financial success of customers across all facets of

their professional and personal lives. This requires creating a collaborative
network of experts in funds management and financial advice, innovative
product offerings, efficient service delivery and supporting technology. The
mutual fund industry today needs to develop products to fulfill customer
needs and help customers understand how its products cater to their needs.
Performance of the industry has been strong and it is well-placed to achieve
sustainable growth levels. The way forward for the next couple of years for
the mutual fund industry would be influenced hugely by the journey
undertaken till this point of time and the changing demographic profile of
investors.

BIBLIOGRAPHY
Peter, D., & Saez, E. (2011). The Case for a Progressive Tax: From Basic
Research to Policy Recommendations. Journal of Economic Perspectives ,
165-190.
Ahuja, F. A. (2006). Decision Function and the Decisional Matrix for
Mutual fund Investment. Review of Professional Management, Vol.4(2) .
Alexander G., C. a. (2007). Does Motivation Matter When Assessing Trade
perfomance?An analysis of mutual funds. Review of Financial Studies,
Vol.20 (1) .
Amitabh, G. (2004). Investment Performance of Indian Mutual Funds. An
Empirical Study Finance India, Vol.14(3), September .
Anderson, E. T., Fong, N. M., Simester, D. I., & Tucker, C. E. (2009). How
Sales Taxes Affect Customer and firm behaviour:the role of search on the
internet. Journal of Marketing Research , 1-45.
69

Arif, M. M., & Sharma, P. D. (2013). Direct taxation in India: Trends and
patterns. Asian journal of research in business economics and management ,
45-60.
Arugaslan O., E. E. (2008). Risk-adjusted Performance of International
Mutual Funds. Managerial Finance, Vol.34(1).
Balanaga Gurunathan, K. (2007). An Investors Requirements in Indian
Securities Market. Delhi Business Review, Vol. 8(10) .
Bandyopadhyay, S. (2012). A primer on goods and services in India. social
science research network( working paper) .
Bello, Z. Y. (2005). Socially Responsible Investing and Portfolio
Diversification. The Journal of Financial Research, Vol. XXVIII (1).
Bhalla. (2004). Investment Management. S.Chand &Company Ltd, New
Delhi.
Bodla, B. a. (2007). Performance of Mutual Funds in India An Empirical
Study of Growth Schemes. GIT AM Journal of Management, Vol.5(4) .
Byrne, K. (n.d.). Risk and investment in mutual funds. The ICFAI Journal
of Behavioural Finance, Vol.IV(2) .
Chakrabarti, A. a. (2000). Mutual Funds Industry in India: An Indepth look
into the problems of credibility, Risk and Brand,. The ICFAI Journal of
Applied Finance,vo6(2) .
Chalam. (2003). Investors Behavioral Pattern of Investment and their
Preferences of Mutual Funds. Southern Economist, Vol.41(19).
Che Azm, A. A., & Kamarulzaman, Y. (2010). Adoption of tax e-filing: A
conceptual paper. African Journal of Business Management , 599-603.
Cintra, M. (2010). A new tax technology: the Brazilian experience with a
general bank transaction tax. journal of accounting and taxation .
70

Cornia, G. C., Edmiston, K. D., Sheffirn, S. M., & Sexton, T. A. (2000). An

Analysis of the feasibility of implementing a single rates salex tax. National
tax journal , 1327-1350.
Djawadi, B. M. The impact of tax knowledge and budget spending influence
on tax compliance. Discussion Paper Series (2013).
Doman, S., & Nienaber, G. (2012). Tax education: current view and
preferences of south african employers. international business amd
economics research journal , 951-962.
Doran, M. (2009). Tax Penalties and Tax Compliance. Harvard Journal On
Legislation , 111-116.
Dua, M. (2005). Financial Services New Innovations. Delhi: Deep & Deep
Publications Pvt. Ltd.,.
Fallan, L. (n.d.). Gender, Exposure to tax knowledge and attitudes towards
taxation; An experiment approach.
Fatt, C. K., & Sek Khin, E. W. (2011). A study on self- assessment tax
system awareness in Malaysia. Journal of Applied sciences research , 881.
Fernandes, K. (2003). Evaluating Index Fund Implementation in India.
The iup journal .
Fossen, F. M., & Glocker, D. (2011). Expected future earnings,taxation and
university

enrollment.

interest

tax

public

finance(

Springer

science+business media) , 688-723.

Furnham, & Adrian. (2005). understanding the meaninng of tax: young
people's knowlwdge of the principles of taxation. journal of socioeconomics , 703-713.
Ganapthy, R. (2008). Mutual Fund: The Tiger Unleashed. Facts For You,
Vol.28 (5) .
71

Gelade, G. a. (2005). Test of a Service Profit Chain Model in the Retail

Banking sector. Journal of Occupational and Organizational Psychology.
Griggs, j., & Walker, R. (2005). The new tax credit system: knowledge and
awareness among recipients.
Gupta, D. (2013). personal income tax structure in India: an evaluation.
pacific business review international , 1-6.
Gupta, L. a. (2000). Return on Indian Equities 1980-99: The Sensex
portfolio. Economic & Political Weekly, Vol.XXXV(5).
Guptha, K. a. (2006). Investors Perception on Mutual funds. Review of
Professional Management, Vol.4(2) .
Hanumantha Rao and Vijay Kr. Mishra. (2007). Mutual Funds Industry in
India: Attaining Maturity. Portfolio Organiser, Vol.8(3) .
Hore, N. (2013). An investigation on effective strategies to crub tax evasion:
a survey of Beitbridge ZIMRA staff and clients, Zimbabwe. Elite research
journal of accounting and business management , 1-9.
Jaspal Singh and Subash Chander. (2004). An Empirical Analysis of
Perceptions of Investors towards mutual funds. Finance India, Vol.XVIII(4) .
Kamaluddin, A., & Madi, N. (2005). Tax literacy and tax awareness of
salaried individuals in Sabah and Sarawak. journal of financial reporting
and accounting , 71-89.
Kapil, R. K. (1998). economic reforms. portfolio organiser vol7(7) .
Khan, M. A., & Shadad, N. (2013). Impact of value Added tax(VAT)
revenue in major states in India. Romanian journal of fiscal policy , 27-46.
Kim, R. a. (2006). Gender Differences in Explicit and Implicit Risk
Attitudes: A Socially Facilitated Phenomenon. British Journal of Social
Psychology, Vol 45 .
72

Kulbhushan Chandel and Verma, O. (2005). Managing Mutual Fund

Investments in the Era of Change. The Journal of Banking, Information
Technology and Management,vol 2 .
Kumar, R. (2005). Investors preference in mutual funds. Journal of
Financial Economics, Vol 67 .
Kumar, S. a. (2005). Performance Evaluation of Mutual Funds: A Case
study. Southern Economist Vol 44 .
Lai, M. L., Zalilawati, Y., Amran, M. M., & Choong, K. F. (2013). QUEST
FOR TAX EDUCATION IN NON-ACCOUNTNG CURRICULM: A
MALAYASIAN STUDY. Asian Social Science , 154-162.
Lala, D. B. (2013). comparative analysis of income tax reforms in India pre
and post 1991. proceeding of the global conference on business, economics
and social science , 111-128.
Ling, L. M., & Bahari, A. B. (2009). Introducing tax education in nonaccounting curriculum in higher education. journal of financial reporting
and accounting , 37-51.
Lynch A.W., a. M. (2003). How Investors Interpret Past Fund Returns.
Journal of Finance Vol 58 .
Machogu, D. G., & Amayi, D. B. (2013). Effect of tax payer education on
voluntary tax compliance among SME's in Mwanza city-Tanzania. Internal
journal of marketing and financial services and management research .
Mansuri, S. (2012). TAX AWARENESS AND TAX PLANNING AMONG
INDIVIDUAL ASSESSEE: A STUDY. (D. Y. Dalvadi, Ed.) 1.
Mazza. (n.d.). How Do Family Strategies Affect Fund Performance?
Journal of Financial Economics,Vo642003 .

73

McGee, R. W., Ho, S. S., & Li, A. Y. (2008). A comparative study on

perceived ethics of tax evasion: Hong Kong Vs The United States. Journal
of Business Ethics , 147-158.
Miller, A. M. (2008). Undergraduate tax education: a comparison of
educators' and employers' perceptions in the UK. (C. M.Woods, Ed.) (10).
Mishra, R. a. (2007). Indian Mutual fund Industry an indept analysis.
Journal of Financial and Quantitative Analysis, Vol.41 .
Mohan Nayak, V. (2008). Service Standards of LIC Mutual Funds: A
Study. Southern Economist, Vol.47(5) .
Mohana, S. (2006). Mutual Funds and Indian Capital Market. Portfolio
Organiser .
Mohanty. (2006). Financial Services New Innovations. New Delhi: Deep &
Deep Publications Pvt. Ltd.
Moorthy, M. K., Samsuri, A. S., Hussin, S. B., Othman, M. S., & Chelliah,
M. K. (2014). E-Filing Behaviour among Academics in Perak State in
Malaysia. Technology and Investment , 79-94.
Muttappan, P. (2006). Factors Influencing Mutual Fund Decision Making.
Southern Economist vol 45 .
N.S, B., & p, P. M. (2009). the impact of income tax rates (ITR) on the
economic development of Botswana. journal of accounting and taxation ,
08-22.
Nigam, D. (2006). Mutual Funds: A Prospering Reality. Portfolio
Organizer, Vol.7(2) .
Olabisi, J. (2010). An assessment of tax evasion and tax avoidance in Lagos
state. journal of research in national development .

74

Omer, T. C., weaver, C. D., & Jaron. (2012). Investments in tax planning,
tax avoidance and the new economy business model. social science
research network( working papers) .
Palande, P. S. (2011). Income tax problems and Recommendations. Indian
Streams Research Journal , 168-171.
Parkhi, S. (2011). Taxation awareness of MBA students-role of
professionals.
Poirson, H. (2006). The tax system in India: could reform spur growth? .
IMF working paper , 1-24.
Propheter, G. (2012). Use tax awareness and compliance:A survey analysis.
R, G., & M, S. (2012). E-filing of income tax awareness and satisfaction
level of individual tax payers in combatore city, India. research journal of
management science , 6-11.
Rajan, R. (1997,1998). Investment Size Based Segmentation of Individual
Investors,. The Indian Journal of Commerce , 21-28.
Rajeswari, T. a. (2002). Performance Evaluation of Selected Mutual Funds
and investors behaviour. Sri Sathya Sai Institute of higher learning.
Rao, M. G. (2005). Tax system reform in India: achievements and
challenges ahead. Journal of asian economics , 993-1011.
Rao, R. (2003). MUtual Funds . Indian Journal of Commerce .
Razak, A. A., & Adafula, C. J. (2013). Evaluating tax payers attitude and its
influence on tax compliance decisions in Tamale,Ghana. journal of
accounting and taxation , 48-57.
Ring, R. J. (1992). Consumers Share and Producers Share of the General
Sales tax. National Tax Journal , 79-90.

75

Rizea, M., & Croitoru, E. L. (2010). Acts of tax evasion and fruad and
financial impact of these phenomena in the european union. Romanian
Economic and business Review , 116-125.
Sarkar, J. a. (2001). Performance Evaluation of Mutual Funds in India.
NMIS management review vol6 .
Sasaki R., a. R. (2008). Mutual Funds and Investors Interest. New Delhi:
The Hindu Business Line.
sehgal, g. &. (1998). Investment perfomance of mutual funds. iup journal .
Selvaraj, V. a. (2007). Performance of Mutual Funds. Facts For
You,Vol.27(8), .
Shahroodi, S. M. (2010). investigation of the effective factors in the
efficiency of tax system. journal of accounting and taxation , 42-45.
Shahroudy, S. M. (2011). investigation of the effective factors in collection
of occupation tax in Iran. journal of accounting and taxation , 125-129.
Singh, j. l. (2004). An Empirical Analysis of Perceptions of Investors
towards mutual funds. Finance India, Vol.XVIII .
Singh, S. C. (2006). Investors Preference for Investment in Mutual funds :
An emperical evidence. The Journal of Behavioral Finance .
Slemrod, J. (2007). Cheating Ourselves: The Economics of tax evasion.
Journal of economic perspectives , 25-48.
Sodhi, H. a. (2004). Performance Evaluation of Equity Mutual Funds:
Empirical Evidence From India. Dias Technology Review, Vol.1 (2) .
Sofat, R. A. (2008). Promising Avenues of Investment Mutual Funds,.
Portfolio Organiser .

76

Sorescu, S. a. (2006). The Cross Section of Analyst Recommendations.

Journal of Financial and Quantitative Analysis, Vol.41.
Srivastava, A. (2007). An Analysis of Behavior of Investors in India. The
ICFAI Journal of Behavioural Finance, Vol.IV(2) .
Terrance. (1998). Are Invertors Reluctant to Realize their losses. The
Journal of Finance, Vol.53(5) .
Tripathy, N. P. (1996). Mutual funds creates awareness among urban and
rural middle class people. Investopedia , 40-50.
Uma, K., & Lingaperumal, G. (2013). Awareness of tax planning- a study
with special reference to government employees. intrenational journal of
research in computer application and management , 113.
Verma. (2006). Role of Mutual Funds in Developing Indian Capital Market.
Indian Journal of Commerce, Vol. 43(165).
Vijayalakshmi, S. (2007). Mutual Funds: Present and Future Scenario.
Portfolio Organiser,Vol.8(3) .
Weisbach, D. A. (2012). Is knowledge of the tax law socially desirable. 1
(January 31 , 2013).
Wolmarans, H. (2001). postgraduate education in taxation by means of a
flexible learning model: a new educational paradigm. Meditari acountancy
research , 333-349.
Zaman, S. a. (1996). Role of media in mutual funds. investopedia .

77

ANNEXURE
(First of all thanking you for participating in the survey. I request
you to spend few minutes for filling this questionnaire. The
information you provide will be kept confidential and
anonymous. Results will be shown in aggregate data only. Your
answers will never be communicated to anyone and will be used
for academic purpose only)

1.

Locality: Rural

Urban

Semi-

2.
3.
4.
5.

urban
Gender:
Male
Female
Age in Completed years: 21-30
31-40
41-50
Marital Status: Married
Single
Educational background: Undergraduate Graduate (Professional
course)

78

Graduate (Non-Professional course)

Post Graduation &

above
6. Occupation/Employment: Employed

Self Employed

Student
7. Average Monthly savings of your family : Below 10000

10000

to25000
25000 to 40000
40000 to 60000
60000 & Above
8. What kind of investment do you prefer most?
Savings account
Fixed deposits
Insurance
Mutual funds
9. While investing which factor do you prefer most?
Liquidity
High return
Low risk

Company

Reputation
10. Have you ever invested in mutual funds?
Yes
No
If yes:
11. How much percentage of your savings will you invest in mutual
funds?
5-10%

10-15%

15-20%

20-25%

Above
12. How did you come to know about mutual Funds?
Advertisements
Peer groups

25 and

Banks

Financial Advisor
13. In which kind of mutual fund would you like to invest?

Private
Public
14. Which feature of mutual fund attracts you most?
Diversification

Better safety and Return

Reduction in
risk and transaction cost
Tax benefit

Regular income
Investment objectives

15. When you invest in mutual fund which mode of investment do you
prefer?
One time investment
Systematic investment plan
16. Which mutual fund scheme have you used?
Open Ended schemes
Close Ended Schemes
Liquid Funds
Growth Funds

Regular Income Funds

79

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

Totally ignorant
Partial knowledge of mutual funds
Aware of only specific schemes invested in
fully aware
18. Which sector would you prefer to invest in the mutual fund sector?
Banking and Financial services
Oil & Gas

Information technology

Pharmaceuticals

Automotive

Other
19. From where do you purchase mutual funds?
Directly from AMCs

Brokers only

Brokers and

Sub Brokers
Other sources
20. What is your expected rate of return from your investment?
5-10%
10-15%
15-20%
21. If not invested in mutual fund, why?
No specific reason
High Risk
Not Aware of
Mutual funds
22. Have you faced any kind of loss from investment in mutual funds?
Yes

No

23. Did the loss deter you from any further investments?
Yes
No
24. Are you satisfied with your investment option?
Yes
No

80