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Consumer BehaviourTowards Mutual Funds

A Study of Fund selection behaviour of IndividualInvestors towards Mutual Funds With reference to

NCR Region

Consumer behaviour from the marketing world and financial economics has broughttogether to the surface an exciting area for study and research: behaviouralfinance. A rich view of research waits the understanding of how financial marketsare also affected by the financial behaviour of investors. Mutual Funds which hasbecome an important portal for the small investors, is also influenced by theirfinancial behaviour. Hence, this study has made an attempt to examine the relatedaspects of the fund selection behaviour of individual investors towards Mutual funds


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Contents

Contents ..................................................................................................................... 2

Introduction ................................................................................................................ 3

Statement of the Problem ........................................................................................... 4

Literature Review ........................................................................................................ 6

3.1 General Financial Behaviour Studies ................................................................. 7

3.2 Fund Selection Behaviour Studies ..................................................................... 8

Objectives of the study ............................................................................................... 9

Methodology ............................................................................................................. 10

Data & Data Sources ............................................................................................. 10

Limitations of the study ......................................................................................... 11

Findings of the Study ................................................................................................ 12

Recommendations .................................................................................................... 19

Conclusion ................................................................................................................ 24

Appendix ................................................................................................................... 27

Questionnaire to present investors in Mutual Funds ..............................................27

Findings of our Study ............................................................................................. 32References ................................................................................................................ 41

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Introduction

The Indian capital market has been growing tremendously with the reforms

of the industrial policy, reforms of public sector and financial sector and new

economic policies of liberalization, deregulation and restructuring. The Indian

economy has opened up and many developments have been taking place in

the Indian capital market and money market with the help of financial

system and financial institutions or intermediaries which foster savings and

channels them to their most efficient use. One such financial intermediary

who has played a significant role in the development and growth of capital

markets are Mutual Fund (MF).

The concept of MFs has been on the financial landscape for long in a

primitive form. The story of mutual fund industry in India started in 1963 with

the formation of Unit Trust of India, at the initiative of the Government of

India and Reserve Bank. The launching of innovative schemes in India has

been rather slow due to prevailing investment psychology and infrastructural

inadequacies. Risk adverse investors are interested in schemes with

tolerable capital risk and return over bank deposit, which has restricted the

launching of more risky products in the Indian Capital market. But this

objective of the MF industry has changed over the decades. For many years

funds were more of a service than a product, the service being professional

money management. In the last 15 years MFs have evolved to be a product.

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The term product is used because MF is not merely to park investors

savings but schemes are tailor made to cater to investors needs, whatever

their age, financial position, risk tolerance and return expectations.

This issue of combining service and product will be an important one for the

next decade. Mutual funds have opened new vistas to millions of small

investors by virtually taking investment to their doorstep. In India, a small

investor generally goes for bank deposits, which do not provide hedge

against inflation and often have negative real returns. He has limited access

to price sensitive information and if available, may not be able to

comprehend publicly available information couched in technical and legal

jargons. He finds himself to be an odd man out in the investment game.

Mutual funds have come, as a much needed help to these investors. MFs are

looked upon by individual investors as financial intermediaries/ portfolio

managers who process information, identify investment opportunities,

formulate investment strategies, invest funds and monitor progress at a very

low cost. Thus the success of MFs is essentially the result of the combined

efforts of competent fund managers and alert investors. A competent fund

manager should analyze investor behaviour and understand their needs and

expectations, to gear up the performance to meet investor requirements.

Statement of the Problem

In India, though the MF industry has been in existence since 1964, (with the

establishment of UTI), no major study has been done regarding the investor

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behavioural aspect with specific reference to MFs, in India. It should be noted

that the expectations of investors play a vital role in the financial markets.

They influence the price of the securities, the volume traded and various

other financial operations in actual practice. These expectations of

investors are influenced by their perception and humans

generally relate perception to action. The beliefs and actions of

many investors are influenced by the dissonance effect and

endowment effect. The tendency to adjust beliefs to justify actions is a

psychological phenomenon termed by Festinger (1957) as Cognitive

Dissonance. We find the evidence of prevalence of such a psychological

state among MF investors in India. For instance, UTI, which is synonymous to

mutual funds in India, had a glorious past and perceived as a safe, high yield

investment vehicle with the added tax benefit.

In general, rules for investment, the analysis of investment and discussion of

financial behaviour tend to assume behaviour, which is logical and internally

consistent in various ways. Investor behaviour does not; however, always

appear to conform to such expectational norms. Quite the reverse often

appears to be the case; Cognitive Illusion the mental equivalent of

optical illusion, the assumption being that just as an optical illusion might

lead to inconsistent physical performance relative to the world outside the

individual, so too cognitive illusion will result in inconsistent decision making

with respect to the outside world. Much of economic and financial theory is

based on the notion that individuals act rationally and consider all available

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information in the decision making process. However, in the financial

literature, there are no clear models, which explain the influence of

perception and beliefs on expectations and decision

making. No doubt, reality is so complex that trying to fit individual

investors behaviour into a model is impossible. Investors behaviour may

change from period to period even if the other variables influencing the

behaviour are held constant. However, to a certain extent, we can borrow

concepts from social psychology where behavioural patterns, rational and

irrational are observed and empirically tested. On the same lines we can

develop certain models to identify the financial behaviour, to the extent of

the availability of the explanatory variables. Such models can help to

understand the why and how? aspect of investor behaviour, which can

have managerial implications for policy makers. Hence, with this background,

this study attempts to evaluate the behavioural aspects of fund selection

techniques of individual investors and also to assess the conceptual

awareness of MFs.

Literature Review

MFs have attracted a lot of attention and kindled the interest of both

academic and practitioner communities. Compared to the developed

markets, very few studies on MFs are done in India. This literature review

reveals Investor behaviour studies which can be grouped under two themes.

3.1) Studies relating to General Financial Behaviour of Investors

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3.2) Fund Selection Behaviour Studies

3.1 General Financial Behaviour Studies

It is found that individuals were much more distressed by prospective losses

than they were happy by equivalent gains. Some economists have concluded

that investors typically consider the loss of Re. 1 twice as painful as the

pleasure received from a Re. gain. Individuals will respond differently to

equivalent situations depending on whether it is presented in the context of

losses or gains. Let us study the following problem.

1. In addition to what you own, you have been given Rs. 1000. You

are now asked to choose between

A. A sure gain of Rs. 500.

B. A 50% chance to gain Rs. 1,000 and a 50% chance to gain nothing.

Another group of subjects were presented with another problem.

2. In addition to whatever you own, you have been given Rs. 2000.

You are now asked to choose between:

A. A sure loss of Rs. 500.

B. A 50% chance to lose Rs. 1,000 and 50% chance to lose nothing.

In the first group 84% chose A. In the second group 69% chose B. The two

problems are identical in terms of net cash to the subject; however the

phrasing of the question causes the problem to be interpreted differently.

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When these preferences are based on choices, there is more ego

involvement and attachment to the preferences, suggesting heightened level

of preference bias. This phenomenon is consistent with the prediction from

Cognitive Dissonance theory

Many investors do not have data analysis and interpretation skills. This is

because, data from the market supports the merits of index investing,

passive investors are more likely to base their investment choices on

information received from objective or scientific sources. It is further studied

that a serious national campaign to promote savings through education and

information could have a measurable impact on financial behaviour.

3.2 Fund Selection Behaviour Studies

Investor fund selection Behaviour influences marketing decisions of fund

management. It is studied that income schemes and open-ended schemes

are preferred over growth schemes and close-ended schemes during the

prevalent market conditions. Investors look for Safety of Principal, Liquidity

and Capital Appreciation in order of importance. Newspapers and Magazines

are the first source of information through which investors get to know about.

MFs / Schemes and the investor service is the major differentiating factor in

the selection of MFs. It is also seen that the salaried and self-employed

formed the major investors in MFs primarily due to tax concessions. UTI and

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SBI schemes were popular. It is also seen that Agents play a vital role in

spreading the MF culture; open-end schemes were much preferred; age and

income are the two important determinants in the selection of fund /

scheme; brand image and return are their prime considerations. An attempt

was made by the NCAER in 1964 to understand the attitude and motivation

for the savings of individuals, for which a survey of households was

undertaken. It was seen that psychological and sociological factors

dominated economic factors in share investment decisions. An article by

Personal Fn (http://www.personalfn.com) for Business India August 2,

2004 with the title, The Golden Nest Egg, reported that, investors age

could be used as a benchmark to determine the nature of the portfolio.

Objectives of the study

The study has the following objectives

To assess the savings objectives among individual investors

To identify the preferred savings avenue among individual investors

To understand the preferential feature in the savings instrument

among individual investors

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To assess Mutual fund conceptual awareness among present investors

Methodology

Data & Data Sources

The study mainly deals with the financial behaviour of Individual Investors

towards Mutual funds in NCR Region. The required data was collected

through a pretested questionnaire administered on a combination of simple

random and judgment sample of 83 educated individual investors.

Judgment sample selection is due to the time and financial constraints.

Respondents were screened and inclusion was purely on the basis of their

knowledge about Financial Markets, MFs in particular. This was necessary,

because the questionnaire presumed awareness of some basic terminology

about Mutual Funds. The purpose of the survey was to understand the

behavioural aspects of individual investors, mainly their fund selection

behaviour, various factors influencing this behaviour and also the conceptual

awareness level among individual investors. The survey was conducted

during July August 2008, among 83 educated, geographically dispersed

individual investors of NCR Region. Sample of the questionnaire is given in

Annex I and Distribution of individual investors by Demographic factors is

given in Annex II. The unit of observation and analysis of survey is only

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among Individual Investors whose definition is An Individual who has

currently invested in any Mutual Funds and this does not include high net

worth individuals and institutions. Since it is an exploratory study no specific

hypothesis is formulated.

Limitations of the study

Sample size is limited to 83 educated individual investors in the NCR

Region. The sample size may not adequately represent the national

market.

Simple Random and judgment sampling techniques is due to time and

financial constraints.

This study has not been conducted over an extended period of time

having both ups and downs of stock market conditions which a

significant influence on investor s buying pattern and preferences.

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Findings of the Study

The survey conducted during July August, 2008 to capture investor

behaviour pattern in selection of MFs, reveals the following.

1. Savings Objective of Individual Investors

Savings Objective of the majority of Individual Investors is to meet

contingencies and for tax reduction, thus throwing light on the nature of

risk averse investors. AMC can attract a pool of investors by designing

products for Risk-Averse investors.

2. Mutual Fund Investment Preference in Future.

The study reveals that, there is a fair opportunity for MF investments in

future as 73.5% of the respondents have voted towards Yes. However,

26.5% have voted No as their preference in future MF investment. However,

the No and Not Sure category should be matter of concern to the AMCs.

Firstly, AMCs should take steps and see that funds are not virtually at the

mercy of institutional investors. MFs should not indulge in unethical practices

and launch schemes that benefit institutional investors at the cost of retail

investors. Also, the AMCs should try and tap the NRI market, as they can

diversify from Bank Deposits to MFs. The main task at hand for the AMCs is

to tackle investor sentiments with greater transparency and credibility in the

functioning

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3. Mutual Fund Scheme Preference among Individual Investor

Investors have a plethora of options ranging from Growth schemes to Fixed

Income schemes. Now-a days investors are not offered just plain vanilla

schemes but an assorted basket to tune with their risk appetite. MF scheme

preference for majority of investors is Growth Scheme. The preference for

growth or any other scheme is also influenced by stock market conditions

prevailing at the time of investment decision. The prevailing market

conditions have prompted investors to look for growth schemes and income

schemes have become unattractive due to dropping interest rates. This

further indicates the growing alertness of investors.

4. Scheme Preference by Operation among Individual Investors

Analysis of scheme preference by nature of operation reveals the popularity

of Open- Ended scheme. In India majority of schemes are Open- Ended as

investors can buy or sell units at NAV related prices. The preference to Open-

Ended scheme has also given due importance to Liquidity. On the other

hand, only 20.5% of the respondents have voted for Interval Schemes

which shows lack of awareness with regard to this feature.

5. Preferential Feature in Mutual Funds among Individual Investors

Mr. M. Damodaran, Chairman of UTI, has summed the psyche of a typical

Indian Investor in three words; Yield, Security and Liquidity. The study

also shows the investors need for Flexibility is highest among other

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features, followed by Diversification Benefit, Safety, Capital Appreciation, Tax

Benefit, Liquidity, Good Return, Professional Management.

6. Preferable Route to Mutual Fund Investing Among Individual

Investors

Investors may use some sources to gain awareness regarding investing in

Mutual Funds. The sources in the present study are confined to Reference

groups, Newspapers General and Business, Financial Magazines, Television,

Brokers/ Agents, E-Mail and Stores Display. Findings of the study reveal that

investors attach high priority to published information, thereby preferring

Newspapers General and Business and Financial Magazines. This throws

light on the possibility that MF investors spend time analyzing and examining

relevant information before taking any crucial decision.

7. Top-of-Mind-Recall of Mutual Funds/Schemes among Individual

Investors

Top-Of-Mind Recall throws light on the strength of brand identity, awareness,

acceptability and preference. This calls for a high degree of brand equity and

loyalty, which is the direct result of the promotion strategy of the AMCs and a

good performance over a period of time. MFs are no more just financial

instruments, rather a product or a service, which should be tailor-made to

attract and retain investors. AMCs should realize that it is not just the USPs

(Unique Selling Propositions) that count, but the ESPs (Extra Sensory

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Perceptions), which will help to track, gauge and deliver satisfaction to the

targeted investor groups.

8. Factor Analysis Using Principal Component Analysis

Factor Analysis was extensively used to classify a large number of variables

into smaller number of factors. Factor Analysis was used to determine

whether there was any common constructs that represented investor

concerns. 25 variables were analysed using the Varimax Algorithm of

Orthogonal Rotation, the most commonly used method. Evaluation of the

resulting constructs and naming of the factors is largely subjective. Hence, to

identify investors underlying Fund/Scheme selection criteria, so as to group

them into specific factors, which would further identify Investor types, to

enable the designing of appropriate marketing strategies, Factor Analysis

was done using Principal Component Analysis.

Factor analysis for Fund Related Qualities

In the Fund related qualities analysis, 11 variables were analyzed. From

factor analysis, we can infer that 22.843% of variance is explained by factor

1; 22.165% of variance is explained by factor 2 and 12.761% of variance is

explained by Factor 3 and together, all the factors contributed to 68.689% of

variance.

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On the basis of Varimax Rotation, 3 factors have emerged. Each factor is

constituted of all those variables that have factor loadings greater than or

equal to 0.5. Thus A1, A2, A3, A4, and A10 constituted the first factor. It is

conceptualized as Intrinsic Fund Qualities "(consistent performance and

reliability); A5, A7 and A8 constituted the second factor and this is

conceptualized as "Credibility of Image"(trustworthy and reputable, with

investors interests at heart); A6, A9 and A11 constituted the 3rd factor and

are conceptualized as "Flexible Investment Facilities"(simplicity and tailor-

made investment patterns). Thus, after rotation, factor 1(Intrinsic fund

qualities) accounts for 20.594% of variance; factor 2(Credibility of Image)

accounts for 17.735% of variance and factor 3 accounts for 16.624% of

variance and all 3 factors together explain for 68.689% of variance. The

result, revealed 3 distinct factors which could further be associated to

different types of Investors i.e. Professional Investors, Image Conscious

Investors & Cautious Investors. Professional Investors:This type of investors

have had some training to invest in financial investments, indicating his

confidence that he wouldnt lose more money than he would gain. Hence,

Professional Investors are those who demand intrinsic fund qualities as their

primary requirement before investing in MF/scheme. Fund performance &

reputation, expense ratio, portfolio of investment & load factors are their

core concerns.

Image Conscious Investors: They define those types of investors who

attach importance to reputation and brand name. Reputation of fund

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manager, credibility & rating by agencies are fund qualities they would look

forward to.

Cautious Investors:These types of investors are generally risk averse and

would prefer flexibility in investment patterns which would further reduce his

risk profile. Factors like withdrawal facilities & minimum initial investment

are their primary choice. Sometimes he may look for innovative schemes,

which may appease his risk appetite.

Factor analysis for Sponsor Related Qualities

Retaining only variables with Eigen Values greater than 0.5, we can infer that

26.052% of variance is explained by factor 1 and 23.221% of variance is

explained by factor 2, Factor 3 contribute to 19.831% of variance, total

together contributing 69.104%. Each factor is constituted of all those

variables that have factor loadings greater than or equal to 0.5. Thus B4, B5

and B6 constituted the first factor. It is conceptualized as "Competent

Performance" and B1, B2 and B3 constituted the second factor and this

conceptualized as "Reputation".

UTI, the oldest and the largest fund, known for its well-knit agency network,

topped the 'Top of Mind Recall test. This supports the finding that sponsor's

performance and reputation do largely influence Investor perception and

behaviour. The factors thus extracted have enabled to identify types of

investors who give importance to these factors in their fund selection

techniques.

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Professional Investors:This category of investors identifies Sponsor's past

performance, developed research and infrastructure & money management

expertise as essential in Fund Sponsor Qualities.

Image Conscious Investors:Reputation, brand name & developed agency

and network of the Sponsoring firm are the major factors influencing fund

selection behaviour of investors.

Factor Analysis for Investor Related Services

Retaining only variables with Eigen values greater than 1, we can infer that

36.750% of variance is explained by factor 1, while 29.501% of variance is

explained by factor 2 and cumulative % is 66.995. Thus C1, C2, C3, C4, C5 &

C6 constituted the first factor. It is conceptualized as "Transparent

Disclosure"(willingness to reveal necessary and important information), C7 &

C8 constituted the 2nd factor, which is conceptualized as "Tangibles/Fringe

Benefits"(facilities and physical features towards understanding needs of

investors).

Therefore, investors are prominently influenced, in the selection of schemes,

by the extent and quality of disclosure of information subsequent to their

investment, regarding disclosure of NAV, portfolio of investment and

disclosure of deviation from the stated objectives and the attached fringe

benefits to the schemes. Hence AMCs should take steps to be transparent

and follow the disclosure norms spelt out by SEBI and AMFI in this

connection. The factors thus extracted have enabled to identify types of

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investors who give importance to these factors in their fund selection

techniques.

Professional Investors: This category of investors identify Disclosure

norms as prescribed by SEBI and AMFI as significant factors in investor

services i.e. Disclosure of investment objectives, periodicity of valuation,

method and periodicity of schemes sales & repurchases, disclosure of NAV

on every trading day & disclosure of deviation of investments from the

original pattern. The need for Investor's grievance redressal machinery is

also felt significantly from the point of view of Individual Investors.

Approachability to the right people who possess knowledge & skills and are

responsive in solving problems of investors efficiently is the need of the hour.

This calls for ' Investor Knowledge'; understanding needs personalized

attention and effective communication to investors.

Image Conscious Investors: These investors give importance to services

i.e. investor's grievance redressal machinery or fringe benefits i.e. free

insurance, credit cards, loans on collateral or tax benefits and prefer MFs to

avoid bad deliveries & unnecessary follow-up with brokers and companies.

Recommendations

AMCs should continuously design suitable schemes to meet the triple

needs of adequate returns, safety and liquidity in a balanced

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proportion and develop infrastructure to reach to the investors. They

should also simplify the operational environment. AMCs should open

more investor service branches or arrange with other banks to provide

over-the-counter redemption facility across the country through their

banking network.

Mutual fund companies should segment their target customers and

position their various products based on the target segment they

propose to address. The target segment can be broadly divided into

institutional segment and individual investor segment. The institutional

segment consisted of treasury departments of Corporate, Trusts etc

and suitable products such as Institutional Income schemes and Money

Market schemes can be targeted at them. The individual investor can

be in turn divided into various segments such as Young Families with

small or no children, Middle-aged People saving for retirement and

Retired People looking for steady income. Suitable products such as

Growth and Balanced schemes for young families and Income schemes

with sure and steady returns for retired people can be marketed. By

proper segmentation and by targeting the right product to the right

customer, Mutual Fund companies can hope to win the confidence of

their customers and 'own' them for a lifetime.

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The mutual fund industry in India is constrained by law from offering

full-fledged pension plans on the lines of the 401 K plans, a popular MF

product available in the United States. Funds like UTI and Kothari

Pioneer are some of the mutual funds offering full-fledged Pension

Plans with benefit under Section 88. While UTI offers Retirement

Benefit Plan, Kothari Pioneer Mutual Fund offers KP Pension Plan.

Retirement schemes similar to 401K plan will attract a large number of

small investors who seek regular income after retirement.

The average projected life span of an Indian after retirement (that is,

after 60) is expected to go up from 15 years to 20 years. And the

number of the elderly (those over 60) is expected to increase

significantly from 6.8 per cent of the population in 1991 to 8.9 per cent

in 2016 and further to 13.3 per cent by 2026. One of the key

recommendations of the expert committee of Project OASIS (Old Age

Social and Income Security) constituted by the government on pension

reforms in 1999 is the creation of a privately managed, individual

choice based, voluntary Pension system. Pension funds are likely to be

a big driver for the MF industry.

AMC/AMFI/SPONSORS should effectively convey the message that

among the multitude of investment options available, MFs are better

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geared to offer the balanced mix of return, safety and liquidity to the

investors. Negative perceptions about MFs require to be tackled

through appropriate investor education measures. It is suggested that

AMFI may set aside a percentage of membership fee that it collects

from the AMCs and create a fund for Investor Education Programmes.

AMC/AMFI/SPONSORS should develop investor education literature

specially tailored to suit the regional needs to create/increase the

awareness level of the investors.

Employers can influence the investment decision of the employees by

providing financial education as a benefit to employees. Employers can

be objective in hiring an independent financial advisor to conduct an

education programme on long-term investment strategies. Employers

have ready access to employees and the cost can be spread over many

employees.

E-commerce is gradually showing signs of gaining acceptance and

electronic sale of financial products is especially gaining volumes.

There is a likelihood of the volumes reaching a significant size, thereby

spawning a new distribution paradigm. Therefore AMCs should

establish friendlier and easily accessible Automated Response

Systems. These systems should not only effectively convey

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information on products and services but also efficiently redress

investor grievances.

Funds should also induce technology that reduces the turnaround time

for services like investments, redemptions and transfers and bring

them on par with banks in turnaround time.

The MF operational environment is becoming more competitive. Hence,

the impact of emerging competition on investor behaviour/behavioural

changes needs to be studied further.

Developments in technology influence the behaviour of investors.

Hence, the impact of technology on financial behaviour is another

potential area for close study.

Since the industry is still struggling to win the investors confidence, an

in-depth analysis into investor s expectations from MF products, its

performance, management, service and other related areas could be

done.

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A study is required to examine the trading behaviour of MF investors.

Further research can be done to identify whether MF investors chase

past returns or employ a current performance momentum to pick up

their funds i.e. whether they are active or passive trend chasers.

This study reveals that MF investors feel that currently the two major

benefits, which MFs purport to offer, namely, diversification benefits

and professional management are not satisfactorily delivered. In spite

of this, MF industry is growing and we attribute this to investor

behaviour and other macroeconomic factors. Further research can be

done to understand the reasons for growing popularity on one side and

the struggle to win investors confidence on the other side.

Conclusion

The emergence of an array of savings and investment options and the

dramatic increase in the secondary market for financial assets in the recent

years in India has opened up an entirely new area of value creation and

management. An average Indian investor is a greenhorn when it comes to

financial markets, the causes may be many:

The lack of opportunity

Lack of conceptual understanding

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The influence of a fixed-income orientation in the Indian culture.

Salaried person's savings are most often deposited in mutual funds; the

theory behind this is that by pooling together a huge aggregation of

individual savings and investing them, using the professional judgment of the

fund manager, one spreads risk, takes advantage of volume buying and

scientific data analysis, expertise and so on. Therefore it is seen as the ideal

option for an individual who does not have the time, knowledge or

experience to make a succession of judgments involving his hard-earned

savings. MF industry in India has a large untapped market in urban areas

besides the virgin markets in semi-urban and rural areas. This market

potential can be tapped by scrutinizing investor behaviour to identify their

expectations and articulate investor's own situation and risk preference and

then apply to an investment strategy that combines the usual four:

Cash and Equivalents

Government-backed bonds

Debt

Equity

In addition, the availability of more savings instruments with varied risk-

return combination would make the investors more alert and choosy.

Running a successful MF requires complete understanding of the peculiarities

of the Indian Stock Market and also the psyche of the small investor.

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Under such a situation, the present exploratory study is an attempt to

understand the financial behaviour of MF investors in connection with

scheme preference and selection. Studies similar to this, if conducted on a

large scale at regular intervals by organizations like AMFI/SEBI, will help

capture the changing perceptions and responses of these groups, and thus

provide early warning signals to enable implementation of timely corrective

measures. It is hoped that the survey findings of the study will have some

useful managerial implications for the AMCs in their product designing,

marketing and management of the fund. Results of the study may help in

making cost effective strategic decisions and hence would be of interest to

both existing and new MFs; Fund managers; and individual investors.

In the words of Morgan Stanley Dean Witter, "In the end, not all asset

management (mutual fund) companies will survive, [but] for firms

that have built a 'culture of excellence' over the years, have

segmented their customers efficiently, built brand, and delivered

performance, the ongoing opportunities to take market share have

never been more significant."

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Appendix

Questionnaire to present investors in Mutual Funds

Survey Questionnaire

We, students of IMT Ghaziabad, are conducting a survey on Investors attitudetowards Mutual Fundsas part of our course project in Consumer Behavior.

We request you to kindly spare some of your valuable time and complete the survey.

To ensure the best results, please complete the survey in its entirety. We ensure thatthe information furnished by you will be treated as strictly confidential and will beused only for our study purposes.

Regards,

Students of PGDM (2nd year)

IMT Ghaziabad

Section 1: Personal Data

1.1) Name (Optional):

1.2) Sex: Male Female

1.3) Age in completed years:

Below 30 31 40 41 50 Above 50

1.4) Marital Status:

Married Unmarried Widow Widower Divorced

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1.5) Occupation:

Professional Business Salaried Retired

1.6) Annual Income in Rs:

Below Rs 1, 00, 000 Rs1, 00,001 3, 00,000 Rs 3, 00,0015,

00,000

Above Rs 5, 00,000

1.7) How much do you save annually (in Rs. Approx)

Less than Rs 50,000 Rs 50,001 to Rs 100000 Above Rs 100000

1.8) Objectives of your savings are:

To provide for Retirement For tax reduction

To meet contingencies For childrens

education

For purchase of assets

Section 2

Please read the following and give your views:

2.1) Do you prefer investment in Mutual funds to other savings avenue in future?

Yes No Not Sure

2.2) generally you prefer (Please Rank from 1 - first preference to 6- last

preference)

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Growth schemes Income Schemes

Balanced Schemes Money Market Schemes

Tax saving Schemes Index Schemes

2.3) You prefer:

Open ended Schemes Close Ended Schemes Interval

Schemes

2.4) You prefer investment in Mutual funds due to (Rank from 1 to 8 down)

Safety Liquidity

Flexibility Good Return

Capital appreciation Professional Management

Tax Benefit Diversification Benefit

2.5) There are many qualities that could affect your selection of Mutual funds and

Specific Schemes.

Please indicate importance of the following in your decision.

HighlyImportant5

Important4

Some WhatImportant3

NotVeryImporta

nt2

Not atallImporta

nt1

1. Fund Related Qualitiesa. Fund Performance Recordb. Funds Reputation or Brand

Namec. Schemes Expense Ratiod. Schemes portfolio of

investmente. Reputation of the fund

managerf. Withdrawal Facilitiesg. Favourable Rating by an

agencyh. Innovativeness of the schemei. Products with Tax benefitsj. Entry & Exit Loadk. Minimum Initial Investment

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HighlyImportant

5

Important4

Some WhatImportant

3

Not VeryImportant

2

Not atall

Important1

2. Fund Sponsor Qualities

a. Reputation of sponsoring firm

b. Sponsor has a recognizedbrand namec. Sponsor has a well developed

agency & networkd. Sponsors expertise in

managing moneye. Sponsor has a well developed

research & infrastructuref. Sponsors past performance in

terms of risk and returnHighly

Important5

Important4

SomeWhat

Important

3

Not VeryImportant

2

Not at allImportant

1

3. Investor Related Servicesa. Disclosure of investment

objective in the advertisementb. Disclosure of periodicity of

valuation in the advertisementc. Disclosure of the method and

the periodicity of the schemessales and repurchases in the

offerdocuments

d. Disclosure of NAV on everytrading day

e. Disclosure of deviation ofinvestments from the originalpattern

f. MF s Investor s grievanceredressal machinery

g. Fringe benefits i.e., freeinsurance, credit cards, loanson collateral, tax benefits etc.

h. Preferred MF to avoidproblems, i.e., bad deliveries,

andunnecessary follow up with

brokers and companies.

2.6) How did you come to know about Mutual fund investment schemes? (rank top 4

only)

Reference groups _________ Newspapers (general)

_________

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Newspapers (business) _________ Financial Magazines

_________

Television _________ Brokers / Agents

_________

Mail _________ Stores Display

_________

Thank you very much for your kind co-operation and for taking time tocomplete this Questionnaire.

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Findings of our Study

Marital Status

Marital Status

Frequency Percent Valid PercentCumulative

Percent

Valid M 41 49.4 49.4 49.4

S 42 50.6 50.6 100.0

Total 83 100.0 100.0

OccupationAnnual Income


Percent

Valid 1 16 19.3 19.3 19.3

2 9 10.8 10.8 30.1

3 33 39.8 39.8 69.9

4 25 30.1 30.1 100.0

Total 83 100.0 100.0

Annual SavingAnnual saving


Percent

Valid 1 22 26.5 26.5 26.5

2 28 33.7 33.7 60.2

3 33 39.8 39.8 100.0

Total 83 100.0 100.0

Mutual Fund PreferenceMF Preference


Percent

Valid N 22 26.5 26.5 26.5

Y 61 73.5 73.5 100.0

Total 83 100.0 100.0

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Objective of Mutual Fund Saving

Objective_Saving_1


Percent

Valid 1 7 8.4 8.4 8.4

2 32 38.6 38.6 47.0

3 2 2.4 2.4 49.4

4 25 30.1 30.1 79.5

5 17 20.5 20.5 100.0

Total 83 100.0 100.0

Objective_Saving_2

Frequency Percent Valid Percent

Cumulative

PercentValid 1 5 6.0 6.0 6.0

2 12 14.5 14.5 20.5

3 10 12.0 12.0 32.5

4 47 56.6 56.6 89.2

5 9 10.8 10.8 100.0

Total 83 100.0 100.0

1. To provide for Retirement2. To meet contingencies3. For purchase of assets

4. For tax reduction5. For childrens education

MF Scheme Preference

MF_Scheme_1


Percent

Valid 1 34 41.0 41.0 41.0

2 41 49.4 49.4 90.4

3 8 9.6 9.6 100.0

Total 83 100.0 100.0

MF_Scheme_2


Percent

Valid 3 29 34.9 34.9 34.9

4 27 32.5 32.5 67.5

5 14 16.9 16.9 84.3

6 13 15.7 15.7 100.0

Total 83 100.0 100.0

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MF_Scheme_3


Percent

Valid 1 43 51.8 51.8 51.8

2 15 18.1 18.1 69.9

3 19 22.9 22.9 92.8

4 6 7.2 7.2 100.0Total 83 100.0 100.0

MF_Scheme_4


Percent

Valid 3 4 4.8 4.8 4.8

4 36 43.4 43.4 48.2

5 27 32.5 32.5 80.7

6 16 19.3 19.3 100.0

Total 83 100.0 100.0

MF_Scheme_5


Percent

Valid 1 6 7.2 7.2 7.2

2 19 22.9 22.9 30.1

3 23 27.7 27.7 57.8

4 10 12.0 12.0 69.9

5 16 19.3 19.3 89.2

6 9 10.8 10.8 100.0

Total 83 100.0 100.0

MF_Scheme_6


Percent

Valid 2 8 9.6 9.6 9.6

4 4 4.8 4.8 14.5

5 26 31.3 31.3 45.8

6 45 54.2 54.2 100.0

Total 83 100.0 100.0

1. Growth schemes2. Balanced Schemes3. Tax saving Schemes4. Income Schemes5. Money Market Schemes6. Index Schemes

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MF Scheme type

Scheme type


Percent

Valid C 20 24.1 24.1 24.1

I 17 20.5 20.5 44.6

O 46 55.4 55.4 100.0Total 83 100.0 100.0

MF investment reason

MF_Reason_1


Percent

Valid 1 13 15.7 15.7 15.7

2 9 10.8 10.8 26.5

3 3 3.6 3.6 30.1

4 32 38.6 38.6 68.7

6 16 19.3 19.3 88.0

7 6 7.2 7.2 95.2

8 4 4.8 4.8 100.0

Total 83 100.0 100.0

MF_Reason_2


Percent

Valid 1 23 27.7 27.7 27.7

2 10 12.0 12.0 39.8

3 4 4.8 4.8 44.6

4 11 13.3 13.3 57.8

6 32 38.6 38.6 96.4

7 3 3.6 3.6 100.0

Total 83 100.0 100.0

MF_Reason_3


Percent

Valid 1 19 22.9 22.9 22.9

2 6 7.2 7.2 30.1

3 8 9.6 9.6 39.8

4 11 13.3 13.3 53.0

5 1 1.2 1.2 54.2

6 12 14.5 14.5 68.7

7 24 28.9 28.9 97.6

8 2 2.4 2.4 100.0

Total 83 100.0 100.0

MF_Reason_4

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Percent

Valid 1 22 26.5 26.5 26.5

3 15 18.1 18.1 44.6

4 5 6.0 6.0 50.6

5 4 4.8 4.8 55.4

6 6 7.2 7.2 62.7

7 30 36.1 36.1 98.8

8 1 1.2 1.2 100.0

Total 83 100.0 100.0

MF_Reason_5


Percent

Valid 1 2 2.4 2.4 2.4

2 17 20.5 20.5 22.9

3 14 16.9 16.9 39.8

4 2 2.4 2.4 42.2

5 8 9.6 9.6 51.8

6 18 21.7 21.7 73.5

7 16 19.3 19.3 92.8

8 6 7.2 7.2 100.0

Total 83 100.0 100.0

MF_Reason_6


Percent

Valid 1 2 2.4 2.4 2.4

2 6 7.2 7.2 9.6

315 18.1 18.1 27.74 6 7.2 7.2 34.9

5 38 45.8 45.8 80.7

6 2 2.4 2.4 83.1

8 14 16.9 16.9 100.0

Total 83 100.0 100.0

MF_Reason_7


Percent

Valid 1 1 1.2 1.2 1.2

24 4.8 4.8 6.03 12 14.5 14.5 20.5

5 14 16.9 16.9 37.3

7 2 2.4 2.4 39.8

8 50 60.2 60.2 100.0

Total 83 100.0 100.0

MF_Reason_8

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Percent

Valid 2 33 39.8 39.8 39.8

3 9 10.8 10.8 50.6

4 10 12.0 12.0 62.7

5 18 21.7 21.7 84.3

6 4 4.8 4.8 89.2

7 2 2.4 2.4 91.6

8 7 8.4 8.4 100.0

Total 83 100.0 100.0

1. Safety2. Flexibility3. Capital appreciation4. Tax Benefit5. Liquidity6. Good Return7. Professional Management8. Diversification Benefit

Advertisement Preference

Ad_1


Percent

Valid 1 30 36.1 36.1 36.1

2 30 36.1 36.1 72.3

3 10 12.0 12.0 84.3

5 3 3.6 3.6 88.0

6 3 3.6 3.6 91.67 7 8.4 8.4 100.0

Total 83 100.0 100.0

Ad_2


Percent

Valid 1 14 16.9 16.9 16.9

2 20 24.1 24.1 41.0

3 25 30.1 30.1 71.1

4 4 4.8 4.8 75.9

5 2 2.4 2.4 78.36 8 9.6 9.6 88.0

7 4 4.8 4.8 92.8

8 6 7.2 7.2 100.0

Total 83 100.0 100.0

Ad_3

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Percent

Valid 1 3 3.6 3.6 3.6

2 10 12.0 12.0 15.7

4 33 39.8 39.8 55.4

5 21 25.3 25.3 80.7

6 11 13.3 13.3 94.0

7 5 6.0 6.0 100.0

Total 83 100.0 100.0

Ad_4


Percent

Valid 1 13 15.7 15.7 15.7

2 1 1.2 1.2 16.9

3 3 3.6 3.6 20.5

5 8 9.6 9.6 30.1

6 28 33.7 33.7 63.9

7 27 32.5 32.5 96.4

8 3 3.6 3.6 100.0

Total 83 100.0 100.0

Factor Analysis

Results of Principal Component Analysis Identification of Factors that affect Mutual

Fund/Scheme Selection

I Fund Related Qualities

Total Variance Explained

Component Initial EigenvaluesExtraction Sums of Squared

LoadingsRotation Sums of Squared

Loadings

Total% of

VarianceCumulative

% Total% of

VarianceCumulative

% Total% of

VarianceCumulative

%

1 2.513 22.843 22.843 2.513 22.843 22.843 2.430 22.093 22.093

2 2.438 22.165 45.008 2.438 22.165 45.008 2.245 20.409 42.503

3 1.404 12.761 57.769 1.404 12.761 57.769 1.474 13.404 55.907

4 1.201 10.919 68.689 1.201 10.919 68.689 1.406 12.782 68.689

5 .923 8.393 77.082

6 .754 6.850 83.932

7 .572 5.196 89.1298 .465 4.225 93.354

9 .386 3.507 96.861

10 .187 1.703 98.564

11 .158 1.436 100.000

Extraction Method: Principal Component Analysis.

Communalities

Initial Extraction

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FQ_a 1.000 .315

FRQ_b 1.000 .772

FRQ_c 1.000 .818

FRQ_d 1.000 .767

FRQ_e 1.000 .658

FRQ_f 1.000 .803

FRQ_g 1.000 .599

FRQ_h 1.000 .715

FRQ_i 1.000 .743

FRQ_j 1.000 .652

FRQ_k 1.000 .713


Component Matrix(a)

Component

1 2 3 4

FRQ_a .742

FRQ_b .583

FRQ_c.634

FRQ_d .689 .736

FRQ_e .688

FRQ_f

FRQ_g .778

FRQ_h .660

FRQ_i .619

FRQ_j .414

FRQ_k -.601

Extraction Method: Principal Component Analysis.a 4 components extracted.

Rotated Component Matrix(a)

Component

1 2 3 4

FQ_a

FRQ_b -.737

FRQ_c

FRQ_d .674

FRQ_e -.692

FRQ_f .494 .615

FRQ_g

FRQ_h

FRQ_i .799 .722

FRQ_j

FRQ_k .723 -.694

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

II Fund Sponsor Qualities

Communalities

Initial Extraction

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FSQ_a 1.000 .757

FSQ_b 1.000 .596

FSQ_c 1.000 .863

FSQ_d 1.000 .603

FSQ_e 1.000 .564

FSQ_f 1.000 .763




Loadings Rotation Sums of Squared Loadings

Total% of

VarianceCumulative

% Total% of

VarianceCumulative

% Total% of

VarianceCumulative

%

1 1.755 29.258 29.258 1.755 29.258 29.258 1.563 26.052 26.052

2 1.333 22.225 51.482 1.333 22.225 51.482 1.393 23.221 49.273

3 1.057 17.622 69.104 1.057 17.622 69.104 1.190 19.831 69.104

4 .854 14.231 83.335

5 .637 10.619 93.954

6 .363 6.046 100.000


Component Matrix(a)

Component

1 2 3

FSQ_a .731

FSQ_b .807

FSQ_c .748 .863

FSQ_d .706

FSQ_e .876

FSQ_f .739


a 3 components extracted.

III Investor Related Services

Communalities

Initial Extraction

IRS_a 1.000 .800

IRS_b 1.000 .750

IRS_c 1.000 .692

IRS_d 1.000 .301

IRS_e 1.000 .876

IRS_f 1.000 .377

IRS_g 1.000 .818

IRS_h 1.000 .745




LoadingsRotation Sums of Squared

Loadings

Total% of

VarianceCumulative

% Total% of

VarianceCumulative

% Total% of

VarianceCumulative

%

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1 3.163 37.038 37.038 2.163 27.038 27.038 2.140 36.750 36.750

2 1.946 29.320 66.995 1.546 19.320 66.995 1.560 29.501 66.995

3 .459 8.989 78.984

4 .413 7.791 88.775

5 .339 5.486 94.261

6 .207 3.843 98.104

7 .152 1.896 100.000


Component Matrix(a)

Component

1 2 3

IRS_a .799

IRS_b .812

IRS_c .719

IRS_d .724

IRS_e .732

IRS_f .571 .719

IRS_g .855

IRS_h .893

Extraction Method: Principal Component Analysis.a 3 components extracted.

Reliability Analysis

Case Processing Summary

N %

Cases Valid 83 100.0Excluded(a)

0 .0

Total 83 100.0

a Listwise deletion based on all variables in the procedure.

Reliability Statistics

Cronbach'sAlpha(a) N of Items

.761 39

References

www.economictimes.com

Page | 41
http://www.economictimes.com/http://www.economictimes.com/


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www.money.rediff.com

www.mutualfundsindia.com

An Empirical Study on Factors Influencing the Mutual Fund/Scheme

Selection by Retail investors, by Ms. T.R. Rajeshwari

Content Analysis of Consumer Behaviour, by H.H. Kassarjian

Consumer Involvement in Financial Services, by A.H. Aldlaigan & F.A.

Buttle

Cognitive Dissonance and Mutual Fund Investors, by W.N.

Goetzmann & N. Peles

Journal of Financial Research, Vol 20, No. 2, pp 145-58

Behavioural Factors in Mutual Fund Flows, W.N. Goetzmann, M.

Massa & K.G. Rouwenhorst

"Understanding the behaviour of financial services consumers: a

research agenda", by T. Harrison

Journal of Financial Services Marketing, Vol.8, No. 1, pp 6-9

www.google.com
http://www.money.rediff.com/http://www.mutualfundsindia.com/http://www.google.com/http://www.money.rediff.com/http://www.mutualfundsindia.com/http://www.google.com/

CB Mutual Funds 14 06

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