CHAPTER 1

INTRODUCTION

1. INTRODUCTION
Mutual funds have become extremely popular over the last 20 years. What was once just another obscure financial instrument is now a part of our daily lives. Trillions of dollars are invested in mutual funds all across the world. Mutual funds are so popular because they offer diversification as they hold many investment positions, they are managed by professional money managers and are less expensive than stocks as they do not carry hefty commissions. Mutual funds is an investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. Mutual funds are operated by money managers, who invest the fund's capital and attempt to produce capital gains and income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus.

One of the main advantages of mutual funds is that they give small investors access to professionally managed, diversified portfolios of equities, bonds and other securities, which would be quite difficult (if not impossible) to create with a small amount of capital. Each shareholder participates proportionally in the gain or loss of the fund. Mutual fund units, or shares, are issued and can typically be purchased or redeemed as needed at the fund's current net asset value (NAV) per share, which is sometimes expressed as NAVPS.

1.1A History of Mutual Funds

Mutual funds really captured the public's attention in the 1980s and '90s when mutual fund investment hit record highs and investors saw incredible returns. However, the idea of pooling assets for investment purposes has been around for a long time. Here we look at the evolution of this investment vehicle, from its beginnings in the Netherlands in the 18th century to its present status as a growing, international industry with fund holdings accounting for trillions of dollars in the United States alone.

In the Beginning Historians are uncertain of the origins of investment funds; some cite the closed-end investment companies launched in the Netherlands in 1822 by King William I as the first mutual funds, while others point to a Dutch merchant named Adriaan van Ketwich whose investment trust created in 1774 may have given the king the idea. Ketwich probably theorized that diversification would increase the appeal of investments to smaller investors with minimal capital. The name of Ketwich's fund,Eendragt Maakt Magt, translates to "unity creates strength". The next wave of near-mutual funds included an investment trust launched in Switzerland in 1849, followed by similar vehicles created inScotland in the 1880s. The idea of pooling resources and spreading risk using closed-end investments soon took root in Great Britain and France, making its way to the United States in the 1890s. The Boston Personal Property Trust, formed in 1893, was the first closed-end fund in the U.S. The creation of the Alexander Fund in Philadelphia in 1907 was an important step in the evolution toward what we know as the modern mutual fund. The Alexander Fund featured semi-annual issues and allowed investors to make withdrawals on demand. The Arrival of the Modern Fund The creation of the Massachusetts Investors' Trust in Boston, Massachusetts, heralded the arrival of the modern mutual fund in 1924. The fund went public in 1928, eventually spawning the mutual fund firm known today as MFS Investment Management. State Street Investors' Trust was the custodian of the Massachusetts Investors' Trust. Later, State Street Investors started its own fund in 1924 with Richard Paine, Richard Saltonstall and Paul Cabot at the helm. Saltonstall was also affiliated with Scudder, Stevens and Clark, an outfit that would launch the first no-load fund in 1928. A momentous year in the history of the mutual fund, 1928 also saw the launch of the Wellington Fund, which was the first mutual fund to include stocks and bonds, as opposed to direct merchant bank style of investments in business and trade. Regulation and Expansion By 1929, there were 19 open-ended mutual funds competing with nearly 700 closed-end funds. With the stock market crash of 1929, the dynamic began to change as highly-leveraged closedend funds were wiped out and small open-end funds managed to survive. Government regulators also began to take notice of the fledgling mutual fund industry. The creation of the Securities and Exchange Commission (SEC), the passage of the Securities Act of
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1933 and the enactment of the Securities Exchange Act of 1934 put in place safeguards to protect investors: mutual funds were required to register with the SEC and to provide disclosure in the form of a prospectus. The Investment Company Act of 1940 put in place additional regulations that required more disclosures and sought to minimize conflicts of interest. The mutual fund industry continued to expand. At the beginning of the 1950s, the number of open-end funds topped 100. In 1954, the financial markets overcame their 1929 peak, and the mutual fund industry began to grow in earnest, adding some 50 new funds over the course of the decade. The 1960s saw the rise of aggressive growth funds, with more than 100 new funds established and billions of dollars in new asset inflows. Hundreds of new funds were launched throughout the 1960s until the bear market of 1969 cooled the public appetite for mutual funds. Money flowed out of mutual funds as quickly as investors could redeem their shares, but the industry's growth later resumed. Recent Developments In 1971, William Fouse and John McQuown of Wells Fargo Bank established the first index fund, a concept that John Bogle would use as a foundation on which to build The Vanguard Group, a mutual fund powerhouse renowned for low-cost index funds. The 1970s also saw the rise of the no-loadfund. This new way of doing business had an enormous impact on the way mutual funds were sold and would make a major contribution to the industry's success. With the 1980s and '90s came bull market mania and previously obscure fund managers became superstars; Max Heine, Michael Price and Peter Lynch, the mutual fund industry's top gunslingers, became household names and money poured into the retail investment industry at a stunning pace. More recently, the burst of the tech bubble and a spate of scandals involving big names in the industry took much of the shine off of the industry's reputation. Shady dealings at major fund companies demonstrated that mutual funds aren't always benign investments managed by folks who have their shareholders' best interests in mind. Despite the 2003 mutual fund scandals and the global financial crisis of 2008-2009, the story of the mutual fund is far from over. In fact, the industry is still growing. In the U.S. alone there are more than 10,000 mutual funds, and if one accounts for all share classes of similar funds, fund holdings are measured in the trillions of dollars. Despite the launch of separate accounts, exchange-traded funds and other competing products, the mutual fund industry remains healthy and fund ownership continues to grow.

1.1b TYPES OF MUTUAL FUND SCHEMES

Mutual fund schemes may be classified on the basis of its structure and its investment objective. By Structure: Open-ended Funds: An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity.

Closed ended Funds: A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor. Interval Funds: Interval funds combine the features of open-ended and close-ended schemes. They are open for sale or redemption during pre-determined intervals at NAV related prices

By Investment Objective

Growth Funds: The aim of growth funds is to provide capital appreciation over the medium to long term. Such schemes normally invest a majority of their corpus in equities. It has been proved that returns from stocks, have outperformed most other kind of investments held over the long term. Growth schemes are ideal for investors having a long term outlook seeking growth over a period of time. Income Funds: The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures and Government securities. Income Funds are ideal for capital stability and regular income.

Balanced Fund: The aim of balanced funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents.

Money Market Funds: The aim of money market funds is to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money.

Other Schemes

Tax Saving Schemes: These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws as the Government offers tax incentives for investment in specified avenues. Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemes are allowed as deduction u/s 80C of the Income Tax Act, 1961.

Special Schemes Industry Specific Schemes: Industry Specific Schemes invest only in the industries specified in the offer document. The investment of these funds is limited to specific industries like InfoTech, FMCG, and Pharmaceuticals etc. Index Schemes: Index Funds attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50 Sectoral Schemes: Sectoral Funds are those which invest exclusively in a specified sector. This could be an industry or a group of industries or various segments such as 'A' Group shares or initial public offerings.

1.1c BENEFITS OF MUTUAL FUND

Professional Management Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme. Diversification Mutual Funds invest in a number of companies across a broad cross section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. Affordability A mutual fund invests in a portfolio of assets, i.e. bonds, shares etc. depending upon the investment objective of the scheme. An investor can buy into a portfolio of equities, which would otherwise be extremely expensive. Tax Benefits There is no capital gains tax on mutual funds if invested for more than one year. Dividends distributed by them are tax-free in the hands of the investor. Also investments under ELSS are exempted under Section 80C of the Income Tax Act. Return Potential Over a medium to long term, mutual funds have the potential to provide a higher return as they invest in a diversified basket of selected securities Low Costs Investing in the capital markets because the benefits of scale in brokerage, mutual funds are a relatively less expensive way to invest compared to directly custodial and other fees translate into lower costs for investors. Liquidity In open ended schemes, the investor gets the money back promptly at MAV related prices from the mutual fund. In closed ended schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the mutual fund.

Transparency You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund managers investment strategy and outlook. Flexibility Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience. Well Regulated All mutual funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors.

1.1d DISADVANTAGES OF MUTUAL FUNDS

There are certainly some benefits to mutual fund investing, but you should also be aware of the drawbacks associated with mutual funds. No Insurance Mutual funds, although, regulated by the government are not insured against losses. That means that despite the risk-reducing diversification benefits provided by mutual funds, losses can occur, and it is possible (although extremely unlikely) that you could even lose your entire investment. Dilution Although diversification reduces the amount of risk involved in investing in mutual funds, it can also be a disadvantage due to dilution. By holding a large number of different investments, mutual funds tend to do neither exceptionally well nor exceptionally poorly. Fees and Expenses Most mutual funds charge management and operating fees that pay for the fund's management expenses (usually around 1.0% to 1.5% per year). In addition, some mutual funds charge high sales commissions, 12b-1 fees, and redemption fees.

Poor Performance Returns on a mutual fund are by no means guaranteed. In fact, on average, around 75% of all mutual funds fail to beat the major market indexes, like the S&P 500. Loss of Control The managers of mutual funds make all of the decisions about which securities to buy and sell and when to do so. This can make it difficult for you when trying to manage your portfolio. Trading Limitations Although mutual funds are highly liquid in general, most mutual funds (called openended funds) cannot be bought or sold in the middle of the trading day. Size Some mutual funds are too big to find enough good investments. This is especially true of funds that focus on small companies, given that there are strict rules about how much of a single company a fund may own.

1.1e MUTUAL FUNDS IN INDIA

The company that puts together a mutual fund is called an Asset Management Company (AMC). The Securities and Exchange Board of India (SEBI) mutual fund regulations require that the funds objectives are clearly spelt out in the prospectus. In addition, every mutual fund has a board of directors that is supposed to represent the shareholders' interests, rather than the AMCs. (moneycontrol.com) These products are now tailor made to suit specific needs of investors. Intensified competition and involvement of private players in the race of MFs have forced professional managers to bring innovation in mutual funds. Thus, mutual funds industry has moved from offering a handful of schemes like equity, debt or balanced funds to liquid, money market, sector specific funds, I index funds and gilt edged funds .With the entry of private sector funds in 1993, a new era starting the Indian MFs industry giving the Indian investors a wider choice of fund families. In the course of time the number of MF houses went on increasing, with many foreign MFs setting up funds in India and also the industry has witnessed several mergers and acquisitions. But in India mutual fund could not get its expected heights. In a country of 120 crore people there are only 4 crore (3.5 per cent) mutual fund unit investors. On the contrary in developed countries like US, every second citizen is a mutual fund unit holder (Kelkar 2012).
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Our paper studies investors perception towards mutual funds .We try to find out various factors which have affected the growth in mutual funds.

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1.2 REVIEW OF LITERATURE:

(Dr. Anjum, 2011) conducted a study on investors awareness and perception about mutual funds. The present investigation outlined that mostly the investors have positive approach towards investing in mutual funds. In order to maintain their confidence in mutual funds they should be provided with timely information relating to different trends in the mutual fund industry. For achieving heights in the financial sector, the mutual fund companies should formulate the strategies in such a way that helps in fulfilling the investors expectations. Today the main task before mutual fund industry is to convert the potential investors into the reality investors. New and more innovative schemes should be launched from time to time so that investors confidence should be maintained. All this will lead to the overall growth and development of the mutual fund industry.

(Dr. Sharma, 2012) analyzed Indian Investors Perception towards Mutual Funds. The results reveal that in order to secure the patronage of Indian investor mutual fund companies are expected to ensure full disclosure and regular updates of the relevant information along with the assurance of safety and monetary benefits. (Singh & Jha, 2009) conducted a study on awareness & acceptability of mutual funds and found that consumers basically prefer mutual fund due to return potential, liquidity and safety and they were not totally aware about the systematic investment plan. The invertors will also consider various factors before investing in mutual fund. (Dr. Singh, 2012) conducted a study on investors attitude towards mutual funds as an investment option. The study shows that most of respondents are still confused about the mutual funds and have not formed any attitude towards the mutual fund for investment purpose. It has been observed that most of the respondents having lack of awareness about the various function of mutual funds. Moreover, as far as the demographic factors are concerned, gender, income and level of education have significantly influence the investors attitude towards mutual funds. On the other hand the other two demographic factors like age and occupation have not been found influencing the attitude of investors towards mutual funds. As far as the benefits provided by

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mutual funds are concerned, return potential and liquidity have been perceived to be most attractive by the invertors followed by flexibility, transparency and affordability. (Desigan, 2006) conducted a study on women investors perception towards investment and found that women investors basically are indecisive in investing in mutual funds due to various reasons like lack of knowledge about the investment protection and their various investment procedures, market fluctuations, various risks associated with investment, assessment of investment and redressal of grievances regarding their various investment related problems. Savings is a habit specially embodied into women. Even in the past, when women mainly depended on their spouses income, they used to save to meet emergencies as well as for future activities. In those days, women did not have any awareness about various investment outlets. But as time passed, the scenario has totally changed. (Dr. Rao, 2011) analyzed investors perceptions towards mutual fund schemes. He analyzed that the behavioural finance has been recognized as an important area in the study of recent finance literature. It implicit objective is to discover and remedy the deviation from the rational decision making in the investment process. The purpose of this study is to examine the role of various social-economic factors affectively the investment decision of the investors. The results an obtained from a survey and has been analyzed by the chi-squire test. The result shows that, socio- economic factors are significantly influence the investment behaviour of the investors.

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1.3 NEED OF STUDY

The purpose of this paper is to study the investors perception and satisfaction towards the mutual funds industries. It also aimed at identifying the section criteria investors seem to use in selecting a mutual fund institution that suits the investors investment objective and also to identify the factors that are responsible for selection of schemes floated by various organizations. The study utilized the survey approach. The sample consisted of 100 respondents. The study tries to find out that the expectations of customers towards the mutual fund companies and also whether the companies satisfy the customers expectations. For this purpose we did analysis to identify the gaps between the expectation and satisfaction level of the customers. This paper also tries to identify the factors which influence the satisfaction level of customers with respect to mutual fund companies.

1.4

FOCUS GROUP INTERVIEW

Participants in the summary mutual fund focus groups consider a number of criteria in making a decision about an investment, including the following: Control Risk Sale by prospectus Liquidity Minimum investment Tax benefits

In a discussion on stocks vs. mutual funds some respondents agreed that they would prefer leaving details to others. They wont like to bother about ups and downs in investments and would like to leave it to an expert. While on the same time some participants didnt want to lose control of their investments. They wanted to make the decisions themselves. There was agreement on risk factor in investments. In case of Mutual funds risk factor is less, because investment is diversified. This was unanimous opinion of participants. Mutual funds are sold by prospectus. One respondent said that mutual funds prospectus is usually very complex and confusing. Sometimes this acts as discouraging factor for investors. Investors in open-ended mutual funds can buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis on all working days. For some respondents this is very important factors, as the money can be liquidated easily.
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Few respondents were inclined to invest in mutual fund as minimum amount to be invested in mutual fund is very low as compared to stocks. Equity Linked Savings Schemes (ELSS) offer tax rebates to investors. Also, Dividend income from Mutual Funds is tax-free in the hands of the investor.

1.5

OBJECTIVES
Main objective of study is to test investors perception towards mutual funds. Sub-objectives are: To study the factors which influence the investors perception towards mutual funds. To study means of normative influence which determine the perception towards mutual funds To study how risk affects the investments in mutual funds To study effect of demographics on risk perception

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HYPOTHESIS

H0a There is no Relation between gender and risk perception H0bThere is no Relation between age and risk perception H0cThere is no Relation between occupation and risk perception

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CHAPTER 2
Research Methodology

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2.

Research Methodology

This study examined risk perception of investors towards mutual funds. The survey approach was used for this study. First, the research method is discussed after which the data collection and analysis procedures are explained. Justifications for the suitability of the chosen methods are also presented throughout the chapter.

Objective

Hypothesis

Dependent And Independent Variables

Risk Perception Age Gender Occupation

Data Collection Instrument

Likert scale
Nominal Scale

To study the factors is no which influence the There Relation between investors perception towards gender and risk perception mutual funds To study means of normative influence which determine the perception towards mutual funds There is no Relation between age and risk perception

There is no Relation between To study how risk occupation and risk affects the perception investments in mutual funds

To study effect of demographics on risk perception

Table 2.1:Research Methodology

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2.1

Research Design

Research can be classified in one of three categories.

Exploratory research:
Exploratory research has the goal of formulating problems more precisely, clarifying concepts, gathering explanations, gaining insight, eliminating impractical ideas, and forming hypotheses. Exploratory research can be performed using a literature search, surveying certain people about their experiences, focus groups, and case studies.

Causal research
Causal research seeks to find cause and effect relationships between variables. It accomplishes this goal through laboratory and field experiments. If the objective is to determine which variable might be causing certain behavior, i.e. whether there is a cause and effect relationship between variables, causal research must be undertaken.

Descriptive research
Descriptive research is more rigid than exploratory research and seeks to describe users of a product, determine the proportion of the population that uses a product, or predict future demand for a product. As opposed to exploratory research, descriptive research should define questions, people surveyed, and the method of analysis prior to beginning data collection. In other words, the who, what, where, when, why, and how aspects of the research should be defined. Such preparation allows one the opportunity to make any required changes before the costly process of data collection has begun. There are two basic types of descriptive research: Longitudinal studies or Panel Research studies Cross-sectional studies

The study of Investors Perception Towards Mutual Funds Requires determining the proportion of the population that uses a product and define questions, people surveyed, and the method of analysis prior to beginning data collection moreover the data gathered in this type of design consists of responses from a sample which contains a large number of sources. Thus, this research qualifies as DESCRIPTIVE RESEARCH.
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Fig.2.1:Primary Data

2.1.1 Type of Research

The study undertaken is of Descriptive Research in nature

2.1.2 Nature of Research

The study is quantitative in nature.

2.2 Data Collection

Secondary Data Before going through the time and expense of collecting primary data, one should check for secondary data that previously may have been collected for other purposes but that can be used in the immediate study.
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Secondary data has the advantage of saving time and reducing data gathering costs. The disadvantages are that the data may not fit the problem perfectly and that the accuracy may be more difficult to verify for secondary data than for primary data. Some secondary data is republished by organizations other than the original source. Because errors can occur and important explanations may be missing in republished data, one should obtain secondary data directly from its source. One also should consider who the source is and whether the results may be biased. .

NOTE: The nature of the study does not quite require any extensive usage of secondary sources of data. But few journals were referred which introduce and elaborate the Investor perception dimensions, for analyzing the primary data collected. Primary Data Often, secondary data must be supplemented by primary data originated specifically for the study at hand. Some common types of primary data are: Demographic and socioeconomic characteristics Psychological and lifestyle characteristics Attitudes and opinions Awareness and knowledge - for example, brand awareness Intentions - for example, purchase intentions Motivation Behaviour

Primary data can be obtained by communication or by observation. Communication involves questioning respondents either verbally or in writing. This method is versatile, since one need only to ask for the information, however, the response may not be accurate. Communication usually is quicker and cheaper than observation. Observation involves the recording of actions and is performed by either a person or some mechanical or electronic device. Observation is less versatile than communication since some attributes of a person may not be readily observable, such as attitudes, perception, knowledge, intentions, and motivation. Observation also might take longer since observers may have to wait for appropriate events to occur, though observation using scanner data might be quicker and more cost effective. Observation typically is more accurate than communication.

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NOTE: For the analysis of the Investors perception primary data was collected using questionnaire containing 18 questions. The data collection method chosen for this study was random sampling in which is which each unit (e.g., persons, cases) in the accessible population has an equal chance of being included in the sample, and the probability of a unit being selected is not affected by the selection of other units from the accessible population.(Charles Teddlie and Fen Yu,(2007,p.79) In terms of this study, random sampling was chosen because overall market analysis had to be done to understand attitude of consumers towards beauty products. Thus, the population chosen for this study was the 91 consumers who submitted their responses to online posted forms for questionnaire.

2.2.1 Questionnaire
A questionnaire served as a data-gathering instrument. Questionnaire was posted online to collect responses. It was based on scales (5-point Likert scales) to measure the variables considered in this study. The survey was done by using Google Docs to create a questionnaire. The survey was written and implemented in English. The questions in the survey were designed based on the determined research problem and questions as well as the theory presented in literature review. By combining the theory with the research objectives, altogether 20 questions were formulated. All the questions were close ended.

Questions were such that they covered all the dimensions of attitude under study. For example: Risk: How do you rate the risks associated with Mutual Funds. General Awareness: Do you have any knowledge about Mutual Funds? Technical Knowledge: Do you know what is systematic risk Apart from such questions, a Likert scale is used to measure upon factors such as liquidity, High Return, Price etc. Factor analysis will be used to identify the factors which contribute maximum towards the perception. The order of the questions was designed so that it would be easy and convenient for the respondents to answer and thus the questions do not follow the order of the literature review. The
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survey starts with questions related to age, occupation, gender and income in order to learn about the demographics of the respondents. The questionnaire can be found in appendix I. After making sure the survey was understandable and the link for online form worked as intended, a link was posted online on various investment forums, mutual fund companies pages on social networks. TABLE 2.2:Questionnaire sections
Section A Section B Section C Section D Section E Section F Demographics General Awareness Technical Knowledge Normative Influence Risk Factors

2.3

Data analysis

To arrive at pertinent analysis, the collected data was put to a planned statistical analysis using SPSS package. After scoring the questionnaires the data of all the people was pooled and tabulated. To arrive at certain conclusion regarding the hypothesis advanced in the process investigation, the description of the statistical tools which were applied for the analysis of data. STATISTICAL TOOLS FOR DATA ANALYSIS Survey was conducted using Likert based questionnaire ranging from 1 = Strongly Disagree to 5 = Strongly Agree, and Nominal Scale. Further SPSS 17.0 was used for analyzing the data.

2.3.1 FACTOR ANALYSIS Factor analysis is a statistical method used to describe variability among observed correlated variables in terms of a potentially lower number of unobserved variables called factors. In other words, it is possible, for example, that variations in three or four observed variables mainly reflect the variations in fewer unobserved variables. Factor analysis searches for such joint variations in response to unobserved latent variables. The observed variables are modelled as linear combinations of the potential factors, plus "error" terms. The information gained about the interdependencies between observed variables can be used later to reduce the
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set of variables in a dataset. Computationally this technique is equivalent to low rank approximation of the matrix of observed variables. Factor analysis originated in psychometrics, and is used in behavioural sciences, social sciences, marketing, product management, operations research, and other applied sciences that deal with large quantities of data. Factor analysis is related to principal component analysis (PCA), but the two are not identical. Latent variable models, including factor analysis, use regression modelling techniques to test hypotheses producing error terms, while PCA is a descriptive statistical technique. There has been significant controversy in the field over the equivalence or otherwise of the two techniques. 2.3.2 Chi-Square Analysis: In order to compare observed data with data we would expect to obtain according to a specific hypothesis Chi-Square Analysis is used. In order word Chi-Square Analysis is used to examine differences with categorical variables. The Chi-Square Test is generally used to evaluate differences between experimental or observed data and expected or hypothetical data. As a goodness of fit test, it tells us how well a set of observations fits the outcome predicted by the hypothesis being tested. It tells us whether there is a statistically significant difference between what we observed and what we expected.

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CHAPTER 3
Results & Findings

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3. Results and Findings

For the research, SPSS is used as the statistical data analysis tool as it offers greater flexibility in data analysis and graphical representation. After scoring the questionnaires the data of all the people was pooled and tabulated. Following steps were followed:

A database in SPSS was created for logging incoming data

Checked readability, completeness and responses by respondent

Checked missing values prior running analysis

Data analysis Chart Figure 3.1 To arrive at certain conclusion regarding the hypothesis advanced in the process investigation, the description of the statistical tools which were applied for the analysis of data, is as follows:

Chi Square for relationship establishement

Cronbach alpha for reliability test

Factor analysis for finding factors responsible

Data Analysis Tests Used Figure 3.2

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Chi Square Analysis: Test is generally used to evaluate differences between experimental or observed data and expected or hypothetical data. As a goodness of fit test, it tells us how well a set of observations fits the outcome predicted by the hypothesis being tested. It tells us whether there is a statistically significant difference between what we observed and what we expected. Generally, Null hypothesis is that there is no significant difference between the observed results and the ones expected. To test this hypothesis, the Chi-Square test is used. First, calculate a number called the Chi-Square value then use a probability table to tell how likely it is that we would get these results by chance alone. If the probability of getting our observed results by chance is greater than or equal to 5% (p=0.05), then we conclude there is no significant difference between the observed and expected results. We accept our hypothesis. If, however, the probability of getting these results is less than 5% (p<0.05), it is highly unlikely that this is due to chance. (Something else is going on, even if we dont know what.) In this case, we reject our hypothesis. CALCULATING CHI-SQUARE (Chi is the Greek letter ) The formula for calculating the Chi-Square value is CHI-SQUARE (X2) = (observed expected)2/expected To analyse the data, we then use a probability table to see how likely it is that we could get this X2 value (from these observations) purely by chance. To do this, we also need to know the degrees of freedom (df), or how many of the numbers in our data are determined independently of the rest. (For example, if we had 2 numbers that had to add to 10, and one were 4, the other would have to be 6. We could pick anything for the first number, and determine it independently, but the second number would then have to have a particular value in order for the sum to be 10. If we had 3 numbers that had to add to 10, the first two could be independent, but the third would have to have a particular value to add to 10. ) Cronbach Alpha: Cronbach's alpha is a measure of internal consistency, that is, how closely related a set of items are as a group. A "high" value of alpha is often used (along with substantive arguments and possibly other statistical measures) as evidence that the items measure an underlying (or latent) construct. However, a high alpha does not imply that the measure is uni-dimensional. If, in addition to measuring internal consistency, you wish to provide evidence that the scale in question is uni-dimensional, additional analyses can be performed. Exploratory factor analysis is

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one method of checking dimensionality. Technically speaking, Cronbach's alpha is not a statistical test - it is a coefficient of reliability (or consistency). Cronbach's alpha can be written as a function of the number of test items and the average intercorrelation among the items. i.e

Here N is equal to the number of items, c-bar is the average inter-item covariance among the items and v-bar equals the average variance. One can see from this formula that if you increase the number of items, you increase Cronbach's alpha. Additionally, if the average inter-item correlation is low, alpha will be low. As the average inter-item correlation increases, Cronbach's alpha increases as well (holding the number of items constant). Factor Analysis: It is a statistical method used to describe variability among observed, correlated variables in terms of a potentially lower number of unobserved variables called factors. In other words, it is possible, for example, that variations in three or four observed variables mainly reflect the variations in fewer unobserved variables. Factor analysis searches for such joint variations in response to unobserved latent variables. The observed variables are modelled as linear combinations of the potential factors, plus "error" terms. The information gained about the interdependencies between observed variables can be used later to reduce the set of variables in a dataset. Computationally this technique is equivalent to low rank approximation of the matrix of observed variables. Factor analysis originated in psychometrics, and is used in behavioural sciences, social sciences, marketing, product management, operations research, and other applied sciences that deal with large quantities of data.

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3.1
Age:

DEMOGRAPHIC VARIABLES

This Research Study contains age group categorized as follows: Upto 22 years 23-35 35-45 45-55 Above 55 years

Figure 3.3: Age

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Table 3.1 : Age Frequency Table Age Upto 22 yrs 23-35 35-45 45-55 Total Values 12 61 7 11 91 Percentage 13.2% 67% 7.7% 12.1%

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

Figure 3.4: Gender

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Table 3.2: Gender Frequency Table: Gender Male Female Total Values 75 16 91 Percentage 82.4% 17.6%

Education Level: We have chosen people with different education leve to see the variation in the perception as people having different education background have different thinking of investing in the mutual funds. The

Figure 3.5 : Education

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Education level is divided as follows: Under-Graduate Graduate Post-Graduate Others

Table 3.3 : Education Frequency Table Education Level Under-graduate graduate Post graduate Others 0 91 Values 0 57 34 Percentage 0% 62.6% 37.4% 0%

Income level The income level of a family does have an impact on the consumption and saving capacity. The monthly income level is categorized ,to check its impact on investors perception, as follows: Less than Rs. 10,000 Rs. 10,001 to Rs. 15,000 Rs. 15,001 to Rs. 20,000 Rs 20,000 to Rs. 30,000. Above Rs 30,001

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Fig. 3.6:Income Level 4. What is your monthly family income approximately? Table 3.4:Monthly Family Income Frequency Percent Rs. 10,001 to 15000 1 1.1 Rs. 15,001 to 20,000 7 7.7 Rs. 20,001 to 30,000 2 2.2 Rs. 30,001 and above 81 89.0 Total 91 100.0

3.2Chi-Square Test: All together 91 responses were received. Now to validate the data , listwise deletion has been followed for the responses so received.

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3.2.1 Relation between Gender and Risk perception towards mutual funds: Table 3.5:Chi Square Test-Gender
Chi-Square Tests Value Pearson Chi-Square Likelihood Ratio Linear-by-Linear Association N of Valid Cases 29.200a 25.803 11.081 91 Df 5 5 1 Asymp. Sig. (2sided) .000 .000 .001

a. 7 cells (58.3%) have expected count less than 5. The minimum expected count is .18.

Since the significant value is .000 which is less than .05. our null hypothesis is rejected. The Analysis shows that there is some relationship between gender of the investor and the risk perception towards mutual funds. Thus, our null hypothesis was wrong and the alternative hypothesis turned out to be true. This implies that male and female perceives risk involved in mutual funds differently.

3.2.2Relation between Age and Risk perception towards mutual funds: Table 3.6 :Chi Square Test-Age
Chi-Square Tests Value 12.770a 16.805 .905 91 df Asymp. Sig. (2-sided) .620 .331 .342

Pearson Chi-Square Likelihood Ratio Linear-by-Linear Association N of Valid Cases

15 15 1

a. 20 cells (83.3%) have expected count less than 5. The minimum expected count is .08.

Since the significant value is .620 which is more than .05. our null hypothesis is accepted. The Analysis shows that there is some relationship between age of the investor and the risk perception towards mutual funds. Thus, our null hypothesis is right and the alternative hypothesis turned out to be wrong. This implies that age factors does play role in perceiving risk involved in mutual funds differently.
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3.2.3 Relation between Occupation and risk perception towards mutual funds: Table 3.7: Chi Square Test-Occupation
Chi-Square Tests Value Pearson Chi-Square Likelihood Ratio Linear-by-Linear Association N of Valid Cases 47.781a 49.107 8.085 91 Df 10 10 1 Asymp. Sig. (2sided) .000 .000 .004

a. 11 cells (61.1%) have expected count less than 5. The minimum expected count is .19.

Since the significant value is .000 which is less than .05. Our null hypothesis is rejected. The Analysis shows that there is some relationship between Occupation of the investor and the risk perception towards mutual funds. Thus, our null hypothesis was wrong and the alternative hypothesis turned out to be true. This implies that different streams of education does change the perception towards risk involved in mutual funds . 3.3 Reliability Test: Now to check the reliability of the factor analysis test various tests are followed. As a parametric datas reliability is checked by Cronbachs alpha we used it for our analysis. The findings are as follows:

A. Normative Influence factors: To find the factors that influence the investors to invest in a particular mutual fund, the seven items were tested for reliability listed as television , internet , journals , family and friends, Advertisements, Financial advisors and sales representatives. Table 3.8:Reliability Statistics_1
Reliability Statistics Cronbach's Alpha .771 N of Items 7

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Table 3.9:Intraclass Correlation Coefficient_1

Intraclass Correlation Coefficient Intraclass Correlationb Single Measures Average Measures .325 .771c
a

95% Confidence Interval Lower Bound .238 .686 Upper Bound .428 .840

Two-way mixed effects model where people effects are random and measures effects are fixed. a. The estimator is the same, whether the interaction effect is present or not. b. Type C intraclass correlation coefficients using a consistency definition-the between-measure variance is excluded from the denominator variance. c. This estimate is computed assuming the interaction effect is absent, because it is not estimable otherwise.

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

A. Factors changing the perception of investors towards mutual funds: To find the factors that helps the investors in decision making to invest in a particular mutual fund, the fourteen items were tested for reliability listed as Liquidity, High Return, Professional Management, Diversification, Brand Image, Price, Risk, Transparency, Re-dressal of grievances, Private investment schemes Public investment, Frequency of returns,past experience, fixed rate of return,knowledge about mutual funds. . Table 3.10:Reliability Statistics_2
Reliability Statistics Cronbach's Alpha .836 N of Items 14

Table 3.11:Intraclass Correlation Coefficient_2

Intraclass Correlation Coefficient c. This estimate is computed assuming the interaction effect is absent, because it is not estimable otherwise. Intraclass Correlationb Single Measures Average Measures .267 .836c
a

95% Confidence Interval Lower Bound .198 .776 Upper Bound .357 .886

Two-way mixed effects model where people effects are random and measures effects are fixed. a. The estimator is the same, whether the interaction effect is present or not.

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

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

3.4 Factor Analysis:

A. Factors changing the perception of investors towards mutual funds: Table 3.12:KMO and Bartletts Test_1
KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy. Approx. Chi-Square Bartlett's Test of Sphericity Df Sig. .639 864.363 91 .000

As it can be seen from the above table that the significance value is .639 which is greater than .60. This is means factor analysis holds good for this sample data. Table 3.13:Total Variance_1
Total Variance Explained Component 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Initial Eigenvalues Total 5.085 3.216 1.540 1.337 .694 .623 .425 .303 .269 .171 .132 .104 .066 .036 % of Variance 36.323 22.975 10.998 9.553 4.959 4.447 3.033 2.161 1.924 1.225 .940 .740 .468 .254 Cumulative % 36.323 59.298 70.295 79.849 84.807 89.255 92.288 94.449 96.373 97.598 98.538 99.278 99.746 100.000

Extraction Method: Principal Component Analysis.

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From the above table it can be inferred that there are four significant factors having eigen value greater than 1 and these 4 factors collectivelyaccounts for almost 80 % of the perception phenomena.

Fig. 3.7 From the above graph, it can be seen there are total five points that are collectively showing steepness of the graph and hence there are total four (5-1=4) factors contributing significantly while others are showing gradual change in the graph. Table 3.14:Rotated Component Matrix_1
Rotated Component Matrix a Component 1 Liquidity High Return Professional management Diversification Price Risk Transparency Redressal of grievances Private investment scheme public investment Frequency of return past experience Fixed rate of return knowledge about mutual fund .269 .844 .545 .627 -.160 .037 .820 .272 .099 .022 .132 .687 .365 .891 2 -.054 .042 .624 .142 -.162 -.073 .248 .830 .895 .917 .200 .003 -.108 .209 3 .826 .253 .136 .141 .568 -.121 .029 -.058 .073 .030 .894 .535 .377 .034 4 .215 .172 -.105 .399 .739 .874 .022 -.040 -.053 -.080 .048 -.179 .780 .019

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Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. a. Rotation converged in 6 iterations.

Now these 4 factors can be found with the help of above table as follows: 1. Checking the first column significant value are .844(high return), .820(transparency),.891(knowledge about mutual fund)- these can clubbed into transparency as a first factor. 2. Checking the second column significant value are .830(Redressal of grievances), .917(Public investment scheme),.895 (Private investment scheme)- these can clubbed into security as a second factor. 3. Checking the third column significant value are .826(liquidity), .894(frequency of return),- these can clubbed into Time frame of investment as a third factor. 4. Checking the fourth column significant value are .874(risk), .78(Fixed rate of return)these can clubbed into Conservatism as a fourth factor.

B. Normative Influence factors

Table 3.15 KMO and Bartletts Test_2

KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy. Approx. Chi-Square Bartlett's Test of Sphericity Df Sig. .673 261.754 21 .000

As it can be seen from the above table that the significance value is .673 which is greater than .60. This is means factor analysis on these items holds good for this sample data. Table 3.16:Total Variance_2
Total Variance Explained Component 1 2 3 4 5 6 7 Initial Eigenvalues Total 3.238 1.657 .812 .528 .350 .249 .165 % of Variance 46.254 23.678 11.607 7.547 4.997 3.555 2.362 Cumulative % 46.254 69.932 81.539 89.086 94.083 97.638 100.000

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Extraction Method: Principal Component Analysis.

From the above table it can be inferred that there are two significant factors having eigen value greater than 1 and these 2 factors collectivelyaccounts for almost 70 % of the normative influence phenomena.

Fig. 3.8 From the above graph, it can be seen there are total three points that are collectively showing steepness of the graph and hence there are total two (3-1= 2) factors contributing significantly while others are showing gradual change in the graph.

Table 3.17: Rotated ComponentMatrix

Rotated Component Matrix a Component 1 Television Internet Journals Friends /Relatives Sales Representatives Advertisement Financial Advisors .593 .858 .843 .737 .080 -.037 .819 2 .520 .223 -.144 .303 .915 .768 -.125

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Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. a. Rotation converged in 3 iterations.

Now these 2 factors can be found with the help of above table as follows: 1. Checking the first column significant value are .858(internet), .843(journals),.819(financial advisors)- these can clubbed into Professional Sources as a first factor. 2. Checking the second column significant value are .915(Sales Representatives), .768(advertisements)- these can clubbed into Mass media as a second factor.

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CHAPTER 4
Conclusions & Recommendations

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4.1

Conclusions

We can conclude from our study that perception of investors depends on various factors. As evident from analysis risk perception varies with occupation and gender. This means investors risk perception varies with level of occupation. This maybe because of varying levels of knowledge and experience across various occupations. It may be possible that people in Business occupation have better understanding of mutual funds than people in agricultural occupation. Risk perception also varies with gender. It simply means males and females perceive risk differently. Reason may be varying literacy rates among males and females. It also depends on culture.

4.2 Recommendations
Based upon conclusions we recommend that Mutual fund companies should target investors carefully. Risk perception of investors varies with gender & occupations, so companies should do thorough research beforehand. As it might not be a good idea to target student occupation or people with agricultural occupation. Companies can target a particular segment of population. This would reduce cost and increase profitability.

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Appendix
Perception of Investors towards Mutual Funds Dear Respondent, We, Ankita Mahajan, Gursimran Singh, Harsimran Singh and Karminder Kaur, students of UBS, are conducting a research on Perception of Investors towards Mutual Funds as a part of our MBA Course curriculum at UBS, Chandigarh. Please respond to the following questions. We assure you that your responses will be kept confidential. The purpose of this research is purely academic. 1. Age

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

2. Gender

Male Female

3. Qualification

Under-Graduate Graduation Post-Graduation Others

4. Occupation

Doctor Engineer Business Agriculture Others

5. What is your monthly family income approximately?

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

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

6. Do you save?

Yes No

7. Do you have any knowledge about Mutual Funds?

Yes No

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

Yes No

9. Do you know what is systematic risk

Yes No

10. Do u know what is unsystematic risk

Yes No

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

Yes No

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

Yes No

13. Which are the primary sources of your knowledge about Mutual Funds as an investment option? *Corresponding to your choices how would you rate their influence on your final Mutual Fund purchase decision. Please rank them on a scale of 1-5 with 1 representing minimal influence and 5 representing Strong influence
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1 Television Internet Newspaper / Journals Friends / Relatives Sales Representatives Advertisement

Financial advisors 14. What kind of investments you wish to make?

Public Private

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

1 2 3 4 5

16. According to you how much does systematic risk(Systematic risk is the risks inherent to the entire market segment as interest rates) affects the Mutual funds investment. *rating 1 for low and 5 for high risk

1 2 3 4 5

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

1 2
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3 4 5

18. While investing your money, how these factors affect your decision ? *Corresponding to your choices how would you rate their influence on your final Mutual Fund purchase decision. Please rank them on a scale of 1-5 with 1 representing minimal influence and 5 representing Strong influence 1 2 3 4 5 Liquidity High Return Professional Management Diversification Price Risk Transparency Re-dressal of grievances Private investment schemes Public investment schemes Frequency of returns Past Experience Fixed rate of returns Knowledge about Mutual Funds

45

Select Bibliography/References
DR BIMAL ANJUM ; RAMANDEEP SAINI (2011) INVESTORS AWARENESS AND PERCEPTION ABOUT MUTUAL FUNDS
Dr. Nishi Sharma (2012) Indian Investors Perception towards Mutual Funds

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

Dr. Binod Kumar Singh (2012) : A study on investors attitude towards mutual funds as an investment option
Desigan et al (2006), Women Investors Perception Towards Investment: An empirical Study, Indian Journal of Marketing.

DR.K.LAKSHMANA RAO (2011) analysis of investors perceptions towards mutual fund schemes Business World Magazine
Outlook Money Magazine

www.mutualfundsindia.com www.amfiindia.com www.valueresearchonline.com. www.bseindia.com www.nseindia.com www.google.com www.moneycontrol.com www.moneycontrol.com

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