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Determinants of investment Investment

behaviour of
behaviour of investors towards investors
mutual funds
Inderjit Kaur and K.P. Kaushik 19
National Institute of Financial Management, Faridabad, India
Received 20 April 2015
Revised 22 July 2015
3 October 2015
Abstract 15 November 2015
Accepted 15 December 2015
Purpose – Mutual funds in India have not been as favourable investment alternatives as in developed
countries, as assets under management of mutual funds to gross domestic product in India have been
7-8 per cent compared to 37 per cent globally. Further, investor base of mutual funds has been narrow,
as retail investors constitute 98 per cent of folios but contributed only 58 per cent of investments in
September 2014. To broaden the investor base for mutual funds in India, it remains imperative to
understand the determinants of investment behaviour of investors towards mutual funds. This study
aims to achieve this objective.
Design/methodology/approach – Based on the theory of planned behaviour, the study examined
the effect of awareness, attitude (perception for outcome) and socioeconomic conditions of an investor
on his investment behaviour towards mutual funds with the logit model. The results are based on 450
valid responses from the primary survey in Delhi-NCR.
Findings – The research provided that investment behaviour could be explained with awareness,
perception and socioeconomic characteristics of individual investors. Better awareness related to
various aspects of mutual funds will have a positive effect on investment in mutual funds. Contrary to
belief, risk perception for mutual funds had no effect on the investment decision. Further, socioeconomic
characteristics such as age, gender, occupation, income and education of investors had an impact on the
awareness about mutual funds.
Research limitations/implications – As the study has been confined to Delhi-NCR, it should be
considered a pilot study and needs to be replicated in other states of India to have more robust results.
Practical implications – The study has implications for mutual funds and regulators. The study
highlights a lack of awareness about mutual funds among particular sections of society as a reason for
non-investment in mutual funds. The mutual funds and regulators need to focus on females, older age
groups and middle-income groups in their efforts to improve their awareness about mutual funds. This
would improve their investor base and flow of funds in mutual funds. Furthermore, the process of
investment in mutual funds needs to simplified.
Originality/value – In an Indian context, this study has been the first attempt to understand the
systematic relation between actual investment behaviour towards mutual funds and various
determinants such as socioeconomic characteristics, awareness and attitude (perception) about mutual
funds.
Keywords Awareness, Mutual funds, Perception, Factor analysis, Investor behaviour
Paper type Research paper

Journal of Indian Business

1. Introduction Research
The economic growth of India, among many other factors, has been associated with its Vol. 8 No. 1, 2016
pp. 19-42
financial sector development, as it facilitates the efficient mobilization and allocation of © Emerald Group Publishing Limited
1755-4195
resources. The financial intermediaries within the financial sector are important, as they DOI 10.1108/JIBR-04-2015-0051
JIBR mobilize the savings of the household sector through various instruments. Mutual
8,1 funds, being one such financial intermediary, provide the benefit of pooling resources
and portfolio diversification of an investor with professional acumen at a lower cost. In
India, the first mutual fund, UTI, was established in 1963 and since then the landscape
of mutual funds has evolved in terms of varied sponsors and the number of products
offered. In 2002, Unit Trust of India Act 1963 was repealed, which provided a
20 level-playing field for all mutual funds in India under the ambit of SEBI as the
regulatory body. Though the total net assets of mutual funds have grown with a
compound annual growth rate of 20.54 per cent over the period 2002-2012[1], the ratio of
assets under management to gross domestic product has been 7-8 per cent compared to
37 per cent globally (PWC, 2010, 2013, 2014; KPMG, 2014). This has been coupled with
the narrow investor base, as 98 per cent of the retailed investors contributed only 66 per
cent of assets under management during 2012-2014[2]. Further, there has been net
outflow of funds in the recent years, for the financial years 2008-2009, 2010-2011 and
2011-2012. Though, the recent outflow of funds could be explained with poor stock
market returns and macroeconomic environment, as it has been found that
macroeconomic conditions affect the flow of funds in mutual funds (Warther, 1995;
Santini and Aber, 1998; Cao et al., 2008; Siera, 2012; and Jank, 2012). But a narrow
investor base and comparative low assets under the management of mutual funds
manifest the behaviour of investors towards mutual funds. A better understanding of
determinants of investor behaviour for mutual funds is needed to address the issue of
narrow investor base in India.
The investment behaviour of an individual can be studied under the theoretical
framework of Ajzen’s (1991) theory of planned behaviour (TPB), which has been an
extension of Fishbein and Ajzen’s (1975) (Ajzen and Fishbein, 1980) theory of reasoned
action (TRA). TRA provided that intention is the immediate antecedent of behaviour. It
propounded that the behaviour of an individual would be guided by his/her behavioural
intention (BI), which in turn is the function of a person’s attitude towards an act (A) and
subjective norms (SNs). The attitude towards behaviour has been defined as an
individual’s positive and negative feelings about performing a particular behaviour,
which depends on individual’s assessment about consequences of his/her decision. SNs
have been defined as an individual’s perception of desirability of a particular behaviour
to the people important to individual. The TPB further improved TRA by incorporating
another element “perceived behaviour control” (PBC), i.e. the skills and knowledge to
perform the action. The PBC referred to the individual’s perception about his/her ability
to perform a given behaviour.
The TPB model could be applied to study investment behaviour towards mutual
funds. An individual investor formulates his/her A towards mutual funds based on the
outcome of his investment, i.e. his/her perception about benefits and risks from mutual
funds vis-à-vis other investment alternatives. The SN behaviour would depend on the
socioeconomic status of the individual, as socioeconomic categories such as gender,
occupation, income and age may affect investment behaviour. Further, the most
important barrier or facilitator for his/her investment behaviour could be an awareness
or knowledge about mutual funds (the PCB). Thus, it can be said that attitude or
perception of the outcome from investment in mutual funds, SNs and awareness about
mutual funds could determine the investment behaviour of an individual towards
mutual funds.
 Based on this, the objective of the present study has been to study the effect of Investment
selected determinants, such as the attitude, SNs and awareness, on the investor’s behaviour of
behaviour towards mutual funds. The remainder of the paper has been organized as investors
follows: Section 2 provides empirical evidences in the context of understanding of
investor behaviour towards mutual funds. Section 3 provides discussion on research
methodology. Section 4 provides empirical findings of the study. Section 5 provides
implications of the study, and finally, Section 6 provides limitations of study with future 21
directions for research.

2. Empirical evidences
The research on determinants of investment in mutual funds could be broadly
categorized into two categories based on the focus of the study: mutual funds and
investors. The studies with a focus on mutual funds have mainly attempted to examine
the effect of various fund-related attributes on the flow of funds or investment in mutual
funds. It has been found that investors’ investment in mutual funds has been affected by
the performance of mutual funds (Grubber, 1996; Singh and Vanita, 2002; Bu and Lacey,
2008; Sapp and Tiwari, 2004), advertisement expenditure (Siri and Tufano, 1998;
Cashman et al., 2014), fund size (Cashman et al., 2014), fund age (Chavlier and Ellison,
1997), redemption fee and load/no load (Cashman et al., 2014). Further studies have
found that a macroeconomic environment (Santini and Aber, 1998; Siera, 2012; Jank,
2012) and stock market conditions (Warther, 1995; Cao et al., 2008) also affect the
investment in mutual funds.
The studies with a focus on investors have mainly studied the socioeconomic
characteristics, perception and awareness of mutual fund investors (MFIs). Barber and
Odean (2013), based on the literature survey on behavioural finance, maintained that the
decisions/choices of individual investors have been influenced by their social settings.
The personal characteristics, such as age, education level, investment experience and
extent of financial literacy, affect the investor’s choice of financial services and their
perceived risk from financial service (Falk and Matlulich, 1976; Mitchell and Greatorex,
1993).
In India, the main objective to invest in mutual funds has been risk management
(Walia and Kiran, 2009; Pandey, 2011), better efficiency and flexibility than stock
market (Vyas, 2012; Kaur et al., 2013) and tax savings (Singh and Vanita, 2002; Saini
et al., 2011; Das, 2012; Kothari and Mindargi, 2013; Prabhu and Vachalekar, 2014). But
the findings by Gupta (1993), Ranganathan (2006), Parihar et al. (2009), NCAER (2011),
Prathap and Rajamohan (2013) and Kumar and Rajkumar (2014) suggested that
investment choice in mutual funds had been determined by various personal
characteristics of investors. The studies have applied the chi-square test and the
analysis of variance technique to compare the preference for mutual funds for various
social categories.
Wang (2006, 2009) found that knowledge provided the necessary information and
confidence to the investors. The investors with accurate knowledge have a better ability
to access and digest the information about mutual funds (Chang, 2004; Hallahan, 2000).
Wang (2009) provided that knowledge and risk-taking behaviour have been highly
correlated and both have gender differences. Keller and Siegrist (2006) and Booth and
Nolen (2009) found no difference in investment behaviour of men and women in the
JIBR USA, but Badunenko et al. (2009) found that women were less likely to invest in risky
8,1 financial assets in Europe.
In India, the positive effect of education on perception and a level of awareness about
mutual funds was found by Ranganathan (2006), Bhatt and Bhatt (2012), Rathnamani
(2013) and Subramanya and Murthy (2013). But, contrary to these findings, Parihar et al.
(2009), Das (2012) and Mehta and Shah (2012) found no effect of education on perception
22 and level of awareness about mutual funds. Either one or a few attributes, such as age,
income, gender and occupation, have been found to be significant determinants of
perception and awareness about mutual funds by Parihar et al. (2009), Saha and Dey
(2011), Bhatt and Bhatt (2012), Vipparthi and Margam (2012), Das (2012), Mehta and
Shah (2012), Rathnamani (2013), Subramanya and Murthy (2013) and Kumar and
Rajkumar (2014).
In the light of the above discussion, it can be said that, despite the voluminous
research on investor behaviour for mutual funds in India, the issue of the effect of
determinants such as perception, awareness and socioeconomic characteristics on
actual investment behaviour has not been fully addressed. Therefore, it would be
relevant to study the systematic effect of these on the actual investment behaviour for
mutual funds.

3. Research methodology
3.1 Data
3.1.1 Questionnaire design. The primary data related to socioeconomic characteristics,
attitude and awareness of respondents have been collected through structured
questionnaires. The data on various socioeconomic characteristics, such as gender, age,
marital status, education, investment criteria, income and level of savings, have been
collected through direct questions. The attitude and awareness about mutual funds
have been measured with constructs. The attitude of an investor has been defined as the
perception about consequences of investing in mutual funds. The consequences have
been measured on the outcome related to perception for return and risk in comparison to
various other investment alternatives. The perceptions about mutual funds on these
criteria have been measured on a five-point Likert scale. The awareness about various
aspects of mutual funds, such as net asset value, returns from mutual funds and risks
associated with mutual funds, has been measured with a three-point scale (yes/no/don’t
know). We have followed Alexander et al. (1998) for the statements related to awareness
about mutual funds.
3.1.2 Sampling design. The objective of the study has been to research the effect of
attitude, socioeconomic conditions and awareness about mutual funds on investment
behaviour of investors. As behaviour towards mutual funds can be actually observed,
this has been considered as the first criteria to select the sampling unit. An equal number
of investors and non-investors of mutual funds have been selected in the sample. At the
second stage, to give equal representation to all occupation groups, we have collected
data from equal number of respondents from three occupational groups: government
employees, private sector employees and own-business groups.
The scope of the study has been limited to Delhi-National Capital Region
(Delhi-NCR) due to limited resources. The NCAER (2011) survey of investors
provided 245 lakh investors in India, and thus, it can be safely assumed that the
investor size in the Delhi-NCR region is greater than one lakh. Based on Cochran’s
formula, Bartlett et al. (2001) and The Research Advisors (2006) have provided Investment
adequate sample size at a 95 per cent confidence level with 0.05 margin of error for behaviour of
above one lakh population to be 384. The questionnaires were circulated through investors
e-mails, online surveys and in-person. The online survey has been circulated
through the professional networking website www.linkedin.com. Through
referrals, the questionnaire has also been circulated through e-mails and in-person.
Out of 500 responses, 450 responses were found to be usable, as others have 23
non-response in one or few items. The first round of canvassing period has been
from August 2014 to October 2014 and for second round has been from December
2014 to January 2015.

3.2 Methodology
The study has proposed that investor behaviour towards mutual funds could be
determined by the attitude of an investor towards investment in mutual funds
(perception for return and risk), socioeconomic environment of an investor and his/her
awareness/knowledge about mutual funds. As the perception and awareness about
mutual funds have been measured with a number of items, we have first developed
scales related to return and risk perceptions for mutual funds and their awareness about
mutual funds with the principal component method of factor analysis. The factor
analysis technique has the advantage of removing redundancy from a set of correlated
variables pointing towards latent variables and thereby providing smaller set of
“derived” or “latent” variables. Further, it provides standardized factors which are
based on factor loadings on observed variables that can be utilized as variables for
further analysis. The reliability of the scales has been tested with Cronbach’s alpha,
while applicability of factor analysis and sampling adequacy has been tested with
Bartlett’s test of sphericity and the Kaiser–Meyer–Olkin (KMO) test.
The data have been analysed at the item level with a t-test, a ␺2-test and the
Wilcoxon–Mann–Whitney test and at the scale level with the regression method. At
first, the descriptive statistics of MFIs and mutual fund non-investors (MFNIs) have
been compared with parametric and non-parametric tests to ascertain whether there
exists statistically significant difference in responses of the two groups. The choice of
test has been dependent on the type of data. The investors’ socioeconomic profile
contained nominal, ordinal and ratio scaled data, while perception and awareness of
investors have been measured on an interval scale.
The equality of mean for two groups, the MFIs and MFNIs, for ratio type of data, such
as income and age of the investors, has been compared with a t-test. The null and
alternative hypotheses for the t-test are:
H0. ␮MFI ⫽ ␮NMFI
H1. ␮MFI ⫽ ␮NMFI
The qualitative data in investors’ socioeconomic profile, such as gender, marital status
and education level, have been compared with Pearson’s ␺2-test. The test has been
applied to test whether there has been significant difference in expected and observed
frequencies in MFIs and MFNIs categories for various attributes of investors. The null
and alternative hypotheses for the ␺2-test are:
JIBR H0. There is no significant difference in expected and observed frequencies in two
8,1 categories.
H1. There is difference in expected and observed frequencies in two categories.
In case the frequency in any cell or category has been equal to or less than five, then it is more
appropriate to apply Fisher’s exact test than the ␺2-test. The null hypothesis for Fisher’s test
24 has been same as the ␺2-test. As an interval type of scale would violate the assumption of
normal distribution, therefore, perception and awareness about mutual funds for the two
groups have been compared with the non-parametric Wilcoxon–Mann–Whitney test, as it
relaxes this assumption. The null and alternative hypotheses are:
H0. The probability distribution of both groups has been equal.
H1. The probability distribution of both groups has not been equal.
Further, the effect of determinants, including attitude, awareness and socioeconomic
environment, has been studied with the regression method. The investment behaviour
towards mutual funds has been considered as the linear function of determinants of
investment behaviour. The regression model that directly considered the actual
investment behaviour for mutual funds has been formulated as:

D . MFd ⫽ ␣ ⫹ ⌺i⫽1
7
␤i socio ⫺ demoi ⫹ ⌺j⫽1
k
␤j percep ⫺ retj ⫹ ⌺l⫽1
m
␤l percep
(1)
⫺ riskl ⫹ ⌺p⫽1
q
␤p invest ⫺ critp ⫹ ⌺x⫽1
y
␤x awarex ⫹ ␧

Where,
D.MF ⫽ actual investment behaviour for mutual funds, wherein it takes the
value of 1 and 0 based on investor’s investment status, i.e. equal to 1,
investor in mutual funds, and 0, non-investor in mutual funds;
socio-demoi ⫽ demographic and socioeconomic characteristics for each respondent;
percep-retj ⫽ return perception factors obtained from scale developed with factor
analysis;
percep-riskl ⫽ risk perception factors obtained from scale developed with factor
analysis;
invest-critp ⫽ investment criteria factors obtained from scale developed with factor
analysis; and
awarex ⫽ awareness about mutual fund factors obtained from scale developed
with factor analysis.
The equation (1) has been estimated with the logit regression method due to the nominal
dependent variable. The robust standard errors have been applied to overcome possible
heteroskedasticity. We have not considered the occupation of an individual as an
independent variable, as it has been one of the criteria used to select the sample, and an
equal number of respondents from each occupational group has been considered in the
sample. We have further examined the effect of socioeconomic characteristics of
investors on his/her awareness level about mutual funds. The regression model
estimated for purpose is:

yi ⫽ ␣ ⫹ ⌺i⫽1
8
␤i socio ⫺ demoi ⫹ ␧ (2)
Where, Investment
yi ⫽ mutual fund awareness factor obtained with factor analysis; and behaviour of
socio-demoi ⫽ socioeconomic characteristics of investor. investors
The equation (2) has been estimated for each of the mutual fund awareness factors with
the ordinary least squares (OLS) method. We have applied robust standard errors to
overcome possible heteroskedasticity. 25
4. Empirical findings and discussion
In this section, the empirical findings of this study have been discussed. This section has
been divided into four subsections. The item-wise comparison of MFI and MFNI has
been provided in Section 4.1. Section 4.2 provides findings on scales developed to
measure the attitude of investors, including their perception for mutual funds on return
and risk and their awareness levels. Sections 4.3 and 4.4 provide findings and discussion
on the effect of determinants of investment behaviour for mutual funds and awareness
level of investors.

4.1 Item-wise comparison

The results for item-wise comparison of MFIs and MFNIs for various characteristics,
such as their demographic and socioeconomic profile, investment portfolio, investment
criteria, risk-return perception and mutual fund awareness level, have been reported in
Tables I-V. The item-wise comparisons provide that the most distinguishing difference
between MFIs and MFNIs has been their income per month and level of savings per
month. The per month income of MFIs was 62.790 Rupees, while it was 46.890 Rupees
for MFNIs. Further percentage of respondents in higher level of savings has been high
for MFIs compared to MFNIs.
The composition of a current portfolio of all respondents provides high preference for
bank fixed deposits, followed by real estate and investment in other categories, i.e.
general provident fund, public provident fund and having a joint “kitty” with friends.
Bonds and debentures, chit funds and post-office schemes have been the least preferred.
The average investment in mutual funds has been 9 per cent of total investments.
Similar findings have been found from their investment perception for various
investment alternatives. Based on risk and return perception, bank fixed deposits and
real estate has been the most preferred investment alternative. The stock market, bonds
and debentures and chit funds have not been preferred on the basis of both risk and
return. Our findings on investors’ demographic profile and their investment portfolio
have been similar to NCAER (2011) Household Survey on Savings and Investments for
urban India. A comparison of investment portfolios of MFI and MFNI provides that
their portfolios differ for their investments in mutual funds, shares and cash and bank
balance. Non-investors of mutual funds keep higher percentage of cash compared to
fund investors. This has been further supported from their significant difference in
perception for various investment alternatives. Non-investors in mutual funds have
better perception for investment in gold/silver/metals.
Further, there has been significant difference in investment criteria for MFI and
MFNI. The interesting finding for awareness about mutual funds has been that the
mode value for MFNIs has been “1”, i.e. “don’t know”, for all statements except one. This
shows that the lack of knowledge about mutual funds is one of the reasons for not
JIBR All Non-fund Fund
8,1 respondents investors investors Fisher test
Variable N (%) N (%) N (%) ␺2 statistic p statistic

Panel A: qualitative variables

Gender
26 Male 369 82.000 164 72.889 205 91.111 13.700* 0.000 0.000*
Female 81 18.000 61 27.111 20 8.889
Marital status
Single 132 29.333 70 31.111 62 27.556 0.369 0.543 0.598
Married 318 70.667 155 68.889 163 72.444
Education
Matric 27 6.000 17 7.556 10 4.444 9.844* 0.007 0.008*
Graduation 194 43.111 114 50.667 80 35.556
Post-graduation and above 229 50.889 94 41.778 135 60.000
Profession/Education
No 301 66.889 158 70.222 143 63.556 1.521 0.217 0.243
Yes 149 33.111 67 29.778 82 36.444
Savings (%)
Less than 10 121 26.889 78 34.667 43 19.111 14.568* 0.006 0.004*
11-20 170 37.778 88 39.111 82 36.444
21-30 93 20.667 31 13.778 62 27.556
Above 30 65 14.444 27 12.000 38 16.889
Don’t save 1 0.222 1 0.444

Non-fund Fund
Variable Mean Minimum Maximum SD investor investor Differences t-statistic p

Panel B: quantitative variables

Table I. Age (in years) 35.510 19 66 10.250 35.720 35.080 0.638 0.513 0.609
Demographic and Income per month
socioeconomic (Rupees in thousand) 52.070 7 160 36.530 46.890 62.790 ⫺15.900 ⫺3.660* 0.000
characteristics of
respondents Note: * Indicates significant at 1% level of significance

investing in mutual funds. The results confirm the report on mutual fund investment by
PWC (2013) in India. The investors in mutual funds believe that mutual funds don’t
mitigate the risk associated with the stock market. But they understand the risks
associated with investment in mutual funds.
Thus, the comparison of descriptive statistics of MFIs and MFNIs based on appropriate
tests shows significant difference in the socioeconomic profile of investors. The perception
and awareness about mutual funds are significantly different for MFI and MFNI.

4.2 Factor extraction

As the number of items measuring each of investment criteria, perception and
awareness of respondents could be related to broad underlying criteria, we have applied
factor analysis. The results for tests related to reliability of scale and applicability of
factor analysis have been reported in Table VI.
No. Investment alternative Mean SD Minimum Median Maximum t-statistic p
Investment
behaviour of
1 Bank fixed All 19.260 24.136 0 10 100 ⫺1.048 0.295
deposits Non-fund 18.261 26.012 0 10 100
investors
investors
Fund investors 21.327 19.654 0 20 70
2 Post-office schemes All 2.679 6.857 0 0 80 0.302 0.763
Non-fund 2.761 7.833 0 0 80 27
investors
Fund investors 2.510 4.196 0 0 15
3 Real estate All 17.700 23.712 0 0 90 1.509 0.132
Non-fund 19.110 25.176 0 0 90
investors
Fund investors 14.782 20.154 0 0 75
4 Gold/Silver/Metals All 8.032 12.427 0 0 100 ⫺1.483 0.139
Non-fund 9.535 10.231 0 10 70
investors
Fund investors 7.306 13.322 0 0 100
5 Mutual funds All 4.282 9.280 0 0 50 ⫺7.839* 0.000
Non-fund 1.656 5.400 0 0 40
investors
Fund investors 9.718 12.697 0 5 50
6 Life insurance All 10.268 18.619 0 5 100 1.022 0.308
Non-fund 11.019 21.541 0 5 100
investors
Fund investors 8.713 10.121 0 5 40
7 Chit funds All 1.223 4.200 0 0 30 0.966 0.335
Non-fund 1.383 4.448 0 0 30
investors
Fund investors 0.891 3.633 0 0 20
8 Shares All 5.326 12.423 0 0 95 ⫺3.610* 0.000
Non-fund 3.589 11.837 0 0 95
investors
Fund investors 8.921 12.887 0 0 65
9 Bonds and All 0.787 2.980 0 0 30 ⫺0.142 0.887
debentures Non-fund 0.770 2.550 0 0 12
investors
Fund investors 0.822 3.729 0 0 30
10 Cash and bank All 14.079 24.280 0 5 100 2.419** 0.016
balance Non-fund 16.380 28.070 0 5 100
investors
Fund investors 9.317 12.198 0 5 40
11 Others (general All 14.426 25.144 0 0 100 1.629 0.104
provident fund, Non-fund 16.038 27.038 0 0 100
employees investors
provident fund, Fund investors 11.089 20.405 0 0 95 Table II.
kitty with friends) Current investment
portfolio of
Notes: * , ** indicates significant at 1, 5% level of significance respondents
JIBR Wilcoxon –
8,1 All Non-fund Fund Mann –
respondents investors investors Whitney test
No. Investment Modea Mediana Modea Mediana Modea Mediana statistic p

1 Bank fixed deposits Return 5 4 5 4 5 4 2.767* 0.006

28 Risk 5 4 5 4 5 5 ⫺0.852 0.394
2 Post-office schemes Return 1 3 1 3 2 2 0.678 0.498
Risk 5 3 5 3 5 4 ⫺2.259** 0.024
3 Real estate Return 5 4 5 4 5 4 ⫺1.147 0.251
Risk 5 4 5 4 5 3 0.525 0.600
4 Gold/Silver/Metals Return 4 3 4 3 2 3 ⫺0.407 0.684
Risk 4 4 4 4 3 3 0.735 0.463
5 Mutual funds Return 1 3 1 2 4 3 ⫺5.882* 0.000
Risk 1 2 1 2 4 3 ⫺4.669* 0.000
6 Insurance Return 4 3 2 3 4 3 ⫺1.455 0.146
Risk 3 3 3 3 3 3 0.798 0.425
7 Chit funds Return 1 1 1 1 1 1 0.279 0.780
Risk 1 1 1 1 1 1 1.654*** 0.098
8 Stock market Return 1 2 1 1 2 3 ⫺5.657* 0.000
Table III. Risk 1 2 1 2 2 2 ⫺2.868* 0.004
Risk-return 9 Bonds and debentures Return 1 2 1 1 2 2 ⫺3.717* 0.000
perception of Risk 1 2 1 1 1 3 ⫺3.357* 0.001
respondents for
various investment Notes: * , ** and *** indicate significance at 1, 5 and 10% level of significance,
alternatives respectively; a risk-return perception has been measured on five-point Likert scale

Wilcoxon –
All Non-fund Fund Mann –
Investment respondents investors investors Whitney test
No. criteria Modea Mediana Modea Mediana Modea Mediana statistic p

1 Returns 4 4 4 4 4 4 ⫺2.371* 0.018

2 Liquidity 4 4 4 3 4 4 ⫺2.276** 0.023
3 Ease of investment 4 3 4 3 4 4 ⫺3.072* 0.002
4 Transaction cost 4 3 4 3 4 3 ⫺2.942* 0.003
5 Tax consideration 4 4 4 4 4 4 ⫺3.319* 0.001
Table IV. 6 Social security 4 4 4 4 4 4 ⫺1.731*** 0.083
Relative preference of
investment criteria Notes: * , ** and *** indicate significance at 1, 5 and 10% level of significance, respectively; a preference
for investment of investment criteria has been measured on five-point Likert scale

The sampling adequacy for factor analysis could be ascertained with the KMO test. All
measures have tested greater than or equal to 0.6, which provides an adequate sample
size for factor analysis. Bartlett’s test of sphericity provides the applicability of factor
analysis based on the presence of underlying correlations in the data. For all the
measures, a null hypothesis has been rejected for Bartlett’s test of sphericity, providing
suitability of data for factor analysis. Cronbach’s alpha provides internal consistency of
the scale. George and Mallery (2003) provide that Cronbach’s alpha value should be at
least equal to 0.7. Though all measures have Cronbach alpha close to 0.7, for return
 Wilcoxon – Mann
All respondents Non-fund investors Fund investors – Whitney test
No. Statement Modea Mediana Modea Mediana Modea Mediana statistic p

1 Mutual funds are instrument of investment 1 2 1 2 2 2 ⫺3.151* 0.001

like banks and insurance companies
2 Mutual funds provide better returns than 3 2 1 2 2 2 ⫺2.420** 0.015
directly investing in share market
3 Mutual funds provide assured returns 1 2 1 2 2 2 ⫺3.317* 0.000
4 It is easy to monitor investment with 1 2 1 1 3 3 ⫺7.390* 0.000
mutual funds
5 Compared to bank and post-office deposits, 1 2 1 2 2 2 ⫺3.549* 0.000
mutual funds provide less return
6 It is easy to invest in mutual funds 3 2 1 2 3 3 ⫺6.860* 0.000
7 There is safety of money with mutual 1 2 1 2 2 2 ⫺5.404* 0.000
funds
8 Mutual fund investments cannot be 1 2 1 1 3 2 ⫺4.848* 0.000
liquidated easily as compared to bank and
postal deposits
9 Only large amounts can be invested in 2 2 2 2 2 2 ⫺3.601* 0.001
mutual funds
10 Fund managers act in their vested interest 1 2 1 1 2 2 ⫺3.495* 0.001
11 Mutual funds provide tax benefits 3 2 1 2 3 3 ⫺4.560* 0.000
12 Mutual funds take care of the risk 1 2 1 1 3 2 ⫺5.742* 0.000
associated with share market
13 Only experts can invest in mutual funds 2 2 1 2 2 2 ⫺3.163* 0.001
a
Notes: * , ** indicates significant at 1, 5% level of significance; awareness about mutual funds has been measured on three-point scale, where 3–yes,
2–no and 1– don’t know

Table V.
29

mutual funds
investors
behaviour of
Investment

various aspects of
Awareness about
JIBR perception, it has been close to 0.6, which is questionable; but, as other criteria have been
8,1 satisfied, we have applied the factor analysis technique to return perception as well. We
have extracted factors with the principal component analysis method and initial factors
have been rotated with the varimax rotation. The number of factors has been decided on
the eigen value greater than one criterion. The results for factor extraction have been
reported in Appendixes 1 and 2.
30 We have obtained two factors for investment criteria, and three factors for each
return perception, risk perception and mutual fund awareness. The two factors obtained
for investment criteria have been identified as “Fundamental Operational Criteria”
(return, liquidity, ease of investment and transaction cost) and “Investment Objective
Criteria” (tax consideration and social security). For return perception for various
investment alternatives, the three factors have been named as “Modern-Institutional
Investments” (mutual funds, stock market, bonds and debentures and insurance),
“Traditional-Non Institutional Investments” (real estate, gold/silver/metals and chit
funds) and “Traditional-Institutional Investments” (bank fixed deposits and post-office
schemes). For risk perception for various investment alternatives, the three factors have
been named as “Institutional-High Risk” (mutual funds, stock market and bonds and
debentures), “Hedgers” (real estate, gold/silver/metals, chit funds and insurance) and
“Institutional-Low Risk” (bank fixed deposits and post-office schemes). For mutual fund
awareness, the three factors have been identified as “Benefits of Mutual Funds”, “Myths
about Mutual Funds” and “Risk Associated with Mutual Funds”.

4.3 Determinants of investment behaviour towards mutual funds

The effect of socioeconomic characteristics, investment criteria, risk-return perception
and awareness level about mutual funds on the investment behaviour for mutual funds
has been estimated in Equation (1). The equation to include factors for these measures
has provided as:

D.MFd ⫽ ␣ ⫹ ⌺i⫽1
7
␤i socio ⫺ demoi ⫹ ⌺j⫽1
3
␤j percep ⫺ retj ⫹ ⌺l⫽1
3
␤l percep
(3)
⫺ riskl ⫹ ⌺p⫽1
2
␤p invest ⫺ critp ⫹ ⌺x⫽1
3
␤xawarex ⫹ ␧

Where,
D. MFd
⫽ 兵1, investor in mutual funds
0, non⫺investor in mutual funds

Bartlett’s test
Cronbach’s Kaiser–Meyer– of sphericity
Construct N alpha Olkin App. ⌿2 df p-value

Investment criteria 6 0.796 0.810 554.43* 15 0.000

Return perception 9 0.572 0.593 526.53* 36 0.000
Table VI. Risk perception 9 0.668 0.653 936.89* 36 0.000
Statistical test for Mutual fund perception 13 0.853 0.888 1,369.91* 78 0.000
applicability of factor
analysis Note: * Indicates significant at 1% level of significance
 socio-demoi ⫽ seven demographic and socioeconomic characteristics for each Investment
respondent; behaviour of
percep-retj ⫽ three return perception factors;
percep-riskl ⫽ three risk perception factors;
investors
invest-critp ⫽ two investment criteria factors; and
awarex ⫽ three awareness about mutual fund factors.
Equation (3) has been estimated with the logit regression method due to nominal 31
dependent variable with robust standard errors. The regression estimates have been
provided in Table VII. The occupation of respondent has not been considered, as it has
been the criterion for sample selection and equal number of respondents from each
occupation group has been selected in the sample.
The findings of the determinants of mutual fund investment behaviour provided
that income (␤ ⫽ 0.015); age (␤ ⫽ ⫺0.140); marital status (␤ ⫽ 1.306); gender (␤ ⫽
⫺1.528); level of savings at 20-30 per cent (␤ ⫽ 1.034); factors of mutual fund
awareness, i.e. benefits of mutual funds (␤ ⫽ 0.846); myths about mutual funds (␤ ⫽
0.387); risks of mutual funds (␤ ⫽ 0.476); fundamental operational factor of
investment criteria (␤ ⫽ 0.548); and return perception for traditional-institutional
investments (␤ ⫽ ⫺0.440) are statistically significant variables. Thus, the results
provide that having a high income, being male, young, married and with a higher
level of savings and considerate of fundamental operational investment criteria,
factors such as transaction cost, ease of investment, return and liquidity, negative
return perception for traditional institutional investments (such as banks and
post-office schemes) and respondents with better awareness about mutual funds
tend to invest in mutual funds. But this could be due to higher income leading to a
better level of savings and ability to explore investment alternatives other than
traditional ones; this could be due to respondents preferring to invest in mutual
funds also having negative return perceptions for traditional institutional
investments such as banks and post-office savings. The negative effect of age and
gender could also due to conservative investment behaviour of these social groups.
Niessen and Ruenzi (2007), Beckmann et al. (2007) and Welch and Wang (2013) have
reported more risk aversion among women compared to men. The findings related to
investment behaviour towards mutual funds have been consistent with those of
Parihar et al. (2009), Vipparthi and Margam (2012) and Rathnamani (2013) for effect
of age, income and gender in India. However, the findings have been not consistent
with those of Saha and Dey’s (2011) for the effect of gender and Ranganathan (2006),
Bhatt and Bhatt (2012) and Rathnamani (2013) for the effect of education.
Thus, the findings of the regression model provided that socioeconomic
characteristics, awareness and perception about mutual funds affect the investment
behaviour for mutual funds. The TPB has provided that buying or investment
behaviour of an individual is guided by BIs. We have investigated whether BIs towards
investment decisions in mutual funds have been the sum total of socioeconomic profile
(SNs), perception (attitude) and awareness (perceived behavioural control). Our findings
provide that better awareness about mutual funds with economic capacity creates
positive BIs about mutual funds. The marginal section of society, that includes women,
older people and those in low-income groups, has negative BIs towards investment in
mutual funds.
JIBR Variable Coefficient z p
8,1
Income 0.015** 2.010 0.044
Age ⫺0.140* ⫺3.580 0.000
Marital status
Married 1.306* 2.680 0.007
32 Education
Graduation ⫺0.233 ⫺0.330 0.741
Post-graduation 0.104 0.140 0.888

Professional education
Yes ⫺0.331 ⫺0.870 0.384

Gender
Female ⫺1.528* ⫺2.980 0.003

Savings (%)
11-20 0.416 0.990 0.322
20-30 1.034** 2.230 0.026
Above 30 0.702 1.430 0.153

Mutual fund awareness

Benefits of mutual funds 0.846* 4.140 0.000
Myths about mutual funds 0.387** 2.250 0.024
Risks of mutual funds 0.476* 2.650 0.008

Investment criteria
Fundamental operational criteria 0.548* 2.580 0.010
Investment objective criteria 0.249 1.390 0.164

Return perception
Modern-institutional 0.317 1.480 0.139
Traditional-non-institutional ⫺0.042 ⫺0.200 0.840
Traditional-institutional ⫺0.440** ⫺2.190 0.029

Risk perception
Institutional-high risk ⫺0.214 ⫺0.920 0.359
Hedgers ⫺0.125 ⫺0.560 0.573
Institutional-low risk ⫺0.056 ⫺0.260 0.792
Constant 2.220*** 1.880 0.060
Log likelihood ⫺128.22
Wald ␺2 (23) 84.490
Table VII. Prob ⬎ ␺2 0.000
Determinants of Pseudo R2 0.341
investment decision
in mutual funds Notes: * , ** and *** indicate significance at 1, 5 and 10% level of significance, respectively

4.4 Determinants of awareness about mutual funds

As awareness about mutual funds has been the important determinant for making
the decision to invest in mutual funds, we have further examined the effect of
socioeconomic and demographic characteristics on the awareness about mutual
funds with Equation (2). The equation has been estimated for each of the three Investment
factors related to mutual fund awareness. The regression models are: behaviour of
F1i ⫽ ␣ ⫹ ⌺i⫽1
8
␤i socio ⫺ demoi ⫹ ␧ (4) investors

F2i ⫽ ␣ ⫹ ⌺i⫽1
8
␤i socio ⫺ demoi ⫹ ␧ (5)

F3i ⫽ ␣ ⫹ ⌺i⫽1
8
␤i socio ⫺ demoi ⫹ ␧ (6) 33

Where,
F1 ⫽ mutual fund awareness factor, i.e. benefits of mutual funds;
F2 ⫽ myths about mutual funds;
F3 ⫽ risk associated with mutual funds respectively; and
socio-demoi ⫽ demographic and socioeconomic characteristics for each respondent.
Equations (4)-(6) have been estimated with the OLS method with robust standard errors.
The regression estimates with each factor as dependent variable have been provided in
Table VIII.
4.4.1 Benefits of mutual funds. The findings related to the effect of demographic
characteristics on the mutual fund factor benefits of mutual funds provided that there
has been significant effect of age (␤ ⫽ ⫺0.022), post-graduate and above education (␤ ⫽
0.580), gender (␤ ⫽ ⫺0.296) and occupation groups, namely, private employees (␤ ⫽
⫺0.396) and the own-business group (␤ ⫽ ⫺0.305), of respondent on the awareness
about benefits accrued from mutual funds. This showed that older people, females,
private sector employees and own-business owners, compared to government
employees, have less awareness about the benefits of mutual funds, while higher
education improves the awareness about benefits of mutual funds. The findings for the
effects of gender have been inconsistent with the earlier findings of Saha and Dey (2011),
but consistent with the findings of Parihar et al. (2009) and Vipparthi and Margam
(2012).
4.4.2 Myths about mutual funds. The p-values for the demographic characteristics
provided that the effects of income (␤ ⫽ 0.005), age (␤ ⫽ ⫺0.020) and gender
(␤ ⫽ ⫺0.277) have been significant. This showed that older persons and females have
less awareness about certain myths about mutual funds. The higher the income, the
better the awareness about mutual funds.
4.4.3 Risk associated with mutual funds. The regression estimates for effect of
demographic characteristics on mutual fund awareness provided that the effects of
income (␤ ⫽ 0.009), age (␤ ⫽ ⫺0.033), education (graduation (␤ ⫽ ⫺0.885),
post-graduation and above (␤ ⫽ ⫺0.995) and own-business occupation group (␤ ⫽
⫺0.392) have been significant. This showed that older, higher education and
own-business occupation group respondents had less awareness about the risks
associated with mutual funds, while higher-income groups had more awareness about
risks associated with investments in mutual funds. Thus, the higher education group
has better awareness about benefits of mutual funds but not about risk associated with
mutual funds. The findings for awareness about risk associated with mutual funds have
been inconsistent with findings of Alexander et al. (1998) in the USA.
Thus, socioeconomic characteristics of an individual affect his/her awareness about
mutual funds. The higher-income groups have better awareness about the myths
 8,1

34
JIBR

Effect of

awareness
mutual fund
Table VIII.

demographic
characteristics on
F1–Benefits of mutual funds F2–Myths about mutual funds F3–Risk with mutual funds
Variable Coefficient t-statistic p Coefficient t-statistic p Coefficient t-statistic p

Income 0.004 1.570 0.117 0.005** 2.550 0.011 0.009* 4.110 0.000
Age ⫺0.022** ⫺2.530 0.012 ⫺0.020*** ⫺1.960 0.051 ⫺0.033* ⫺3.480 0.001
Marital status
Married ⫺0.024 ⫺0.140 0.891 0.016 0.090 0.927 0.129 0.750 0.454
Education
Graduation 0.406 1.270 0.204 0.026 0.090 0.930 ⫺0.885* ⫺2.990 0.003
Post-graduation 0.580*** 1.730 0.085 ⫺0.357 ⫺1.140 0.256 ⫺0.955* ⫺3.080 0.002
Professional education
Yes ⫺0.119 ⫺0.860 0.391 0.184 1.410 0.161 0.035 0.270 0.786
Gender
Female ⫺0.296** ⫺2.130 0.034 ⫺0.277*** ⫺1.800 0.073 ⫺0.217 ⫺1.380 0.168
Occupation
Private employment ⫺0.396** ⫺2.220 0.027 ⫺0.047 ⫺0.270 0.784 ⫺0.148 ⫺0.930 0.354
Own ⫺0.305*** ⫺1.770 0.078 ⫺0.052 ⫺0.300 0.765 ⫺0.392** ⫺2.430 0.016
Savings (%)
11-20 0.281 1.960 0.051 ⫺0.125 ⫺0.830 0.407 ⫺0.056 ⫺0.380 0.701
21-30 0.281 1.690 0.092 ⫺0.150 ⫺0.810 0.416 ⫺0.238 ⫺1.450 0.148
Above 30 0.189 1.010 0.314 ⫺0.275 ⫺1.500 0.134 ⫺0.139 ⫺0.850 0.395
Constant 0.293 0.650 0.513 0.686** 1.620 0.107 1.731* 4.250 0.000
Adjusted R2 0.116 0.091 0.139
F 3.970 2.350 4.850
p 0.000 0.005 0.000

Notes: * , ** and *** indicate significance at 1, 5 and 10% level of significance, respectively
and risks associated with mutual funds compared to government employees, private Investment
and own-business occupational groups, who have less awareness about the benefits and behaviour of
risks associated with mutual funds. The higher age and female groups had a negative
effect on investment decisions about mutual funds and also show less awareness about
investors
mutual funds. Thus, it can be said that SNs affect the perceived behavioural control, and
the poor awareness about mutual funds has been the cause for negative BIs of these
groups. 35

5. Implications of the study

The study has important implications for mutual funds and regulatory bodies in India.
It has established important relationships between investment decisions in mutual
funds and various socioeconomic characteristics, awareness levels and perceptions of
an investor. Further, the study has also provided relationships between demographic
and socioeconomic characteristics of respondents and their awareness about mutual
funds. The mutual funds need to spread awareness about mutual funds with regards to
three aspects: benefits from mutual funds, risks associated with mutual funds and
myths about mutual funds. The recent efforts of the Association of Mutual Funds of
India (AMFI) and mutual funds have been in this direction, but there has been further
need to focus on specific groups of investors, such as the older age group, females and
middle-income groups. This is required, as females constitute 24.6 per cent of the
working population[3] in India (Census of India, 2011) and could be the potential target
group to broaden the investor base for mutual funds. Though we have selected an equal
number of investors and non-investors from each occupational group, the awareness
levels of private sector and own-business groups provide that these occupational groups
could be another target group. The combined efforts of regulators and mutual funds
should be more intense in this regard, as awareness about mutual funds has a positive
effect on investment in mutual funds. There can be interesting financial awareness in
TV programmes for short durations in popular entertainment and news channels rather
than on business news channels.
In addition, mutual funds also should simplify their processes for investment and
redemption, as fundamental operational criteria affect the investment decision. There
could be selling of mutual fund products at the post office, or micro-finance institutions
or mutual funds could engage local residents in the network channel so as to bring more
awareness and wider base as Chakrabarti et al. (2014) have found that the low
penetration of mutual funds in suburban areas has been due to a lack of focus of
financial advisors. The mutual funds can widen their investment base and can
contribute in the financial development of economy by improving awareness about
them among specific sections of society.

6. Limitations and recommendations for future research

Though the study has certain important implications, its major limitation has been that
the findings could not generalized due to comparisons in it being of only 225 MFIs and
MFNIs in the Delhi-NCR region. Thus, results could be only applicable to Delhi-NCR and
cannot be extended to Tier I, II or III cities in India. The study has applied the snowball
sampling technique and may not be representative of the true population. The sample
JIBR has been skewed towards the male respondents, as there have been only 81 females in
8,1 the sample. Thus, it is suggested that study may be replicated to a more representative
sample for other cities or a separate pan-India study with wider sample size.

Notes
36 1. Based on data culled from “Handbook of Statistics on Indian Securities Market, 2013” by
SEBI.
2. Based on data culled from website of Association of Mutual Funds of India (AMFI).
3. Based on calculations for main-workers category in the 15-59-year age group.

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JIBR Appendix 1
8,1

Initial eigenvaluesa Rotation sums of squared loadingsb

(%) of Cumulative (%) of Cumulative
40 Component Total Variance (%) Total Variance (%)

Panel A: Investment criteria

1 3.021 50.354 50.354 2.153 35.889 35.889
2 1.034 17.229 67.583 1.902 31.694 67.583
3 0.574 9.572 77.155
4 0.550 9.163 86.318
5 0.462 7.701 94.019
6 0.359 5.981 100.000
Panel B: Return perception
1 2.287 25.415 25.415 2.153 23.927 23.927
2 1.646 18.293 43.709 1.689 18.769 42.695
3 1.472 16.361 60.069 1.564 17.374 60.069
4 0.961 10.680 70.749
5 0.766 8.506 79.254
6 0.596 6.625 85.879
7 0.518 5.758 91.638
8 0.395 4.384 96.022
9 0.358 3.978 100.000
Panel C: Risk perception
1 2.712 30.132 30.132 2.243 24.920 24.920
2 2.088 23.197 53.329 2.084 23.160 48.081
3 1.399 15.547 68.876 1.872 20.795 68.876
4 0.767 8.518 77.394
5 0.729 8.102 85.496
6 0.402 4.472 89.968
7 0.363 4.028 93.996
8 0.304 3.380 97.376
9 0.236 2.624 100.000
Panel D: Mutual fund perception
1 5.216 40.127 40.127 3.303 25.410 25.410
2 1.143 8.790 48.917 2.420 18.618 44.029
3 1.098 8.445 57.362 1.733 13.334 57.362
4 0.873 6.712 64.074
5 0.794 6.111 70.185
6 0.679 5.220 75.405
7 0.586 4.506 79.911
8 0.570 4.386 84.297
9 0.515 3.965 88.262
10 0.436 3.351 91.613
11 0.395 3.038 94.651
12 0.358 2.756 97.407
13 0.337 2.593 100.000

Table AI. Notes: a The factors are extracted with principal component method; b the initial factors are rotated
Factor extraction with varimax rotation the number of factors selected is based on eigenvalue ⬎ 1 criteria
Appendix 2 Investment
behaviour of
investors
Components
Investment criteria Fundamental operational Investment objective
41
Return 0.836 0.003
Liquidity 0.780 0.182
Ease of investment 0.559 0.559 Table AII.
Transaction cost 0.655 0.507 Factor loadings:
Tax ⫺0.042 0.876 factors for
Social security 0.320 0.729 investment criteria

Components
Investment alternative Modern-inst. Traditional-non-inst. Traditional-inst.

Bank fixed deposits ⫺0.111 ⫺0.073 0.848

Post-office schemes 0.050 0.091 0.827
Real estate 0.161 0.684 0.107
Gold/Silver/Metals 0.076 0.847 0.115
Chit funds ⫺0.070 0.685 ⫺0.177
Mutual funds 0.785 0.065 ⫺0.015 Table AIII.
Insurance 0.419 0.055 0.283 Factor loadings:
Stock market 0.784 ⫺0.029 ⫺0.153 factors for return
Bonds and debentures 0.834 0.111 ⫺0.004 perception

Components
Investment alternative Inst.-high risk Hedgers Inst.-low risk

Bank fixed deposits ⫺0.145 0.120 0.901

Post-office schemes 0.098 0.051 0.904
Real estate ⫺0.014 0.833 0.023
Gold/Silver/Metals 0.014 0.878 0.169
Insurance 0.310 0.553 0.192
Chit funds 0.265 0.514 ⫺0.305 Table AIV.
Mutual funds 0.840 0.102 0.041 Factor loadings:
Stock market 0.817 0.049 ⫺0.269 factors for risk
Bonds and debentures 0.820 0.143 0.089 perception
JIBR Components
8,1 Statements Benefits of MF Myths about MF Risk with MF

Statement 1 0.570 0.404 ⫺0.024

Statement 2 0.701 0.105 0.096
Statement 4 0.763 0.016 0.246
42 Statement 8 0.538 0.326 0.203
Statement 11 0.503 0.398 0.081
Statement 12 0.700 0.270 0.082
Statement 6 0.707 0.272 0.314
Statement 5 0.324 0.581 0.069
Statement 9 0.366 0.546 0.243
Table AV. Statement 10 0.190 0.747 0.138
Factor loadings: Statement 13 0.047 0.764 0.142
factors for mutual Statement 3 0.099 0.156 0.882
fund awareness Statement 7 0.293 0.184 0.793

Corresponding author
Inderjit Kaur can be contacted at: inderobr@gmail.com

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