CHAPTER – II

REVIEW OF LITERATURE

A Mutual Fund is professionally managed type of collective

investment scheme that tools money from many investors and invest

typically in investment securities (Stocks, Bonds, Short-tem money market

instruments, Other Mutual Funds, other securities and / or commodities such

as precious metals). The Mutual Funds will have a fund manager that rates

(buy and sell) the fund‟s investments in accordance with the investment

objectives.

As of year ended 2008, Mutual Fund industry was managing $

18,974,52 million under 69,032 Mutual Fund scheme and was growing at

CAGR of 7.2 percent from year ended 2000 to year ended 2008 (Investment

Company Institute 2009). In the Mutual Fund Industry originated with the

establishment of Unit Trust of India in 1963 and later it has expanded to

include public sector banks and private sector mutual funds and reached a

sustainable development.

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 Unfortunately the growth in Mutual Fund industry has not been

equally matched by the growth in its research on its purchase and selection.

Most of the research is focused on Mutual Fund performance, return and risk

tolerance. Since most of the studies focused on return and risk value and

contribution of other attributes in Mutual Funds selection behaviour

demanded attention.

The selection criteria that is relatively untouched in vast amount of

Mutual Fund literature is the role played by fund sponsor qualities, factors

influencing in selecting Mutual Fund and specific scheme, investor related

services and problems faced by the investors while investing. Although

research is limited there are few evidences on the relative importance of the

source of information and some of the evidences are summarized below.

Somasundaram (1998)1 in his study entitled “A study on Savings and

Investment Pattern of Salaried Class in Coimbatore District” has found

that bank deposits and chit funds were the best known modes of savings

among investors and the least known modes were Unit Trust of India (UTI)

schemes and Plantation schemes. Attitudes of investors were highly positive

and showed their intention to save for better future. Nearly two-thirds of the

investors were satisfied with their savings. Both income and expenses of a

25
family influenced the level of satisfaction over savings. A large proportion

of investors were concerned about their children's well-being. Among the

dissatisfied investors majorities were of the opinion that cost of living was

too high. The most common mode of investment was bank deposits.

However, a shift was noticed from bank deposits to other forms of

investment. Almost all the investors had invested in gold and silver. Among

several parameters in investing, safety of money was considered to be the

most important element. Next, the investors expected regular return from

their investments.

Rao (1998)2 in his study entitled “Working of Mutual Fund

Organization in India” and it depicted that the most important factors to

choose a mutual fund organization amongst the correspondents is “investors

service”, followed by “income-cum-growth” and Tax benefits and capital

appreciation. Majority of the respondents shared their good willingness to

invest their savings in private sector mutual funds and they strongly agreed

that mutual funds should disclose full information in their annual reports.

Srinivasan (1998)3 in his study titled “Mutual Funds” identified some

questions that investor should ask when choosing a mutual fund. They were:

who are the sponsors of the fund? How clear and transparent were

26
operations? What were funds costs like? What track record does the fund

have? What were the service levels provided by the fund? Do the investors

have all the information they need promptly? Can they invest and redeem

their money quickly and easily? He concluded that mutual funds ought to

form an integral part of any investor‟s investment portfolio. The only

requirement was that one understands his needs and look for the one that

meets the need.

Sunder (1998)4 in his study entitled “Growth Prospects of Mutual

Funds and Investors Perception with Reference to Kothari Pioneer”. The

survey revealed that the awareness about MF concept was poor during that

time in small cities like Vishakapatanam. Agents played an important role in

spreading the Mutual Fund Culture, open-ended schemes were much

preferred, and then age and income were the two important determinants in

the selection of fund/scheme, brand image and return were their prime

considerations while investing in any mutual fund.

Srinivasan (1999)5 in his study titled “Mutual Funds: The New Era”

stated that the future of mutual funds makes the country bright, mainly

because it meets investors needs so perfectly. The open ended fund

27
revolutionized the way Indians invest and lead to the growth of strong

institutional frame work that can support the capital market in the long term.

Shanmugam (2000)6 in his study entitled “Factors Influencing

Investment Decision” conducted a survey of 201 individual investors to

study the information sourcing by investors, their perceptions of various

investment strategy dimensions and the factors motivating share investment

decisions, and reports that among the various factors, psychological and

sociological factors dominated the economic factor in share investment

decisions.

Singh (2000)7 made a study titled “ Mutual Fund Investing

Programmes, Survival and Success” found that several precautions need to

be taken by investors while investing in mutual funds in view of the fact that

some mutual funds had not fared well in the past. Perhaps the major

stumbling block was the inability to predict future top funds which remains

more of an art than a science. Several factors can help foretell a good or bad

performance. In general the favoured ones should be low expense funds,

portfolios that were growing moderately in size and those with modest

turnover ratios. Past performance results were tricky-they can not only be

28
insightful but also misleading. Most of the information needed can be found

in a fund‟s prospectus.

Kumar (2001)8 in his study entitled “Mutual fund in Y2K: Years of

Ladders and Snakers” found the problems for the markets as well as for the

investors. During ups and downs the concept of momentum investing was

driven with the fundamentals taking a backseat. For the year 2000, both the

equities and balanced funds were in the red. The Private sector funds having

diversified portfolio did well during 1999. The value research category of 50

diversified equity funds posted a net loss of 26.52% against the BSE sensex

slide of 20.65% in the calendar year 2000.

Ramachandran and Subramaniam (2001)9 in their study entitled

“Crushed by Mistrust” analysed how investor‟s interest were affected by

Government decision. The Government‟s decision to slash the interest rate

on Public Provident Fund (PPF) savings and the suspension of repurchase of

outstanding units of US-64 had been discussed. The decision will squeeze

the savings of the investors and investments in productive investments. The

author urged the Government to have a holistic view of financial markets

economic cycles and the expectation of savers and investors. The

29
expectation of investors was to sell the unit or repurchase option should be

available.

Rajeswari and Ramamoorthy (2001)10 in their study has made an

attempt to understand the financial behaviour of Mutual Fund investors in

connection with the scheme preference and selection. The post survey

developments are likely to have an influence on the findings. Behavioural

trends usually take time to stabilize and they get disturbed even by a slight

change in any of the influencing variables. the results of the study revealed

that among product qualities the most important factor was performance of

the fund followed by brand name of scheme, among sponsor related factor

the most important factor was expertise by the sponsor in managing money

and in customer services the most important factor was disclosure of

investment objective the second important was methods and periodicity of

valuation in advertisements..

Mishra (2002)11 in his study entitled “ Selectivity and Timing Skills

of Mutual Fund in India : An Empirical Analysis”, examined and concluded

that about 25% of the schemes posses timing skills and 29% had negative

timing parameter indicating that these schemes brought about changes in

their portfolio, based on a wrong forecast of the market trend. Thus in

30
general, it was concluded that in the individual level some of the schemes

had timing skills. The gross value product estimates also revealed that the

systematic risk of Indian mutual funds did not remain stable over time.

Rajeshwari and Moorthy (2002)12 in their study entitled “Performance

Evaluation of Selected Mutual Funds and Investor Behaviour”, found

financial behaviour and factors influencing fund / scheme selection of retail

investors by conducting factor analysis using principal component analysis,

to identify the investor‟s underlying fund/scheme selection criteria, so as to

group them into specific market segment for designing of the appropriate

marketing strategy.

Singh and Vanitha (2002)13 in their study titled “ Mutual Fund

Investors‟ Perceptions and Preferences- A Survey”, the results showed that

as against UTI and other public sector mutual funds, the investors were

increasingly moving towards private sector mutual funds. Absolute returns

from mutual funds and name of promoters had been the basic criteria used

for selecting mutual fund schemes. Public sector mutual fund investors were

not satisfied with the performance of their mutual funds. A majority of the

investors were not aware of the inherent risk in mutual fund investment.

NSCs and PPFs were the most preferred financial assets. Lastly, the

31
investors preferred to invest in the private sector, open-ended and balanced

schemes of mutual funds.

Panda and Tripathy (2002)14 in their study entitled “An Application of

Multidimensional Scaling Model towards Brand Positioning of Mutual

Funds: A Case Study of Tax Saving Schemes”, attempted to monitor the

mutual funds working and also the business connected with in India with a

perspective to enhance the investors‟ confidence in future. The study

revealed that the general perception had been that the mutual funds have

cheated the common investor and disturbed their savings and plans.

Common investors are unsatisfied with the mutual fund schemes other than

UTI. The UTI schemes have a strong positive image among the investors as

a whole.UTI is the only institution which has been able to keep tryst with

trust. Regulatory frame work and mechanism of quick detection of wrong

doings of mutual funds followed by punishment was the need of the hour in

the given situation for common interest of all.

Muthupandi (2002)15 in his study entitled “Attitude of Investors to the

Services of the Unit Trust of India” made an attempt to reveal the attitude of

sample investors. A five- point scale has been devised for measuring the

attitude based on Likert‟s scale. The study revealed that most of the sample

32
respondents had a favourable opinion to the services of the UTI. The

findings brought to light that a majority of the sample investors had positive

attitude to the services of the UTI, only lesser quantum of respondents had

low level of attitude.

Saraoglu & Detzler (2002)16 in their study entitled “A sensible

selection Model” studied the proliferation of mutual funds and found that it

had made it a challenge for investors to select a right fund to invest. In

response to this many magazines and newspapers were available to assist the

investor to make decision regarding the investment. But the investors do not

have proper expertise to make this information useful that guide them in

decision making. A large number of websites and financial software were

available as screening tools. But majority of investors were not able to

screen variable properly and make an asset allocation decisions. These

screening tools do not consider the preferences of investors properly. An

alternative way is to hire broker to make investment decisions keeping in

view investors objectives, preferences and investment constraints.

Qamar and Furqagam (2003)17 conducted a study on “ Savings

Behaviour and Investment Preferences Among Average Urban Households”

and they survey 300 average urban middle class households in Delhi to find

33
out the investment preferences of households that were able to save and to

identify the factors influencing saving behaviour and investment

preferences. Results showed that there was a high propensity to save

moderate-to-high proportions of the income. It was found that the level of

literacy, educational achievement, occupational distribution and income

profile of the respondents largely determine the saving and investment

pattern. The relationship between choice of investments like Bank deposits,

PPF, LIC and stock market instruments on one hand and education level,

occupation and income profile of the respondents on the other is found to be

statistically significant at 1% level of significance.

Singh and Chander (2003)18 in their study entitled “ What Drives the

Investors Towards Mutual Funds: An Empirical Analysis” pointed out that

the need of the hour was to know what characteristics mutual funds should

posses as expected by general investors. The characteristics like “past record

of the organization”, “repurchase of the units” by the funds, “easy

transferability” and “return provided on investment by the fund” had been

rated as important because the money earned and saved was too precious

and the investors do not want to compromise as regards safety of their

invested money along with receiving reasonably good returns over it.

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 Wilcox (2003)19 in his study entitled “Bargain Hunting or Star

Gazing? Investors‟ Preferences for Stock Mutual Funds” studied investors‟

preferences for stock mutual fund in which they conducted a conjoint study

on 50 investors. Analysis showed that investors weighted past performance

more than fee structure. The wealthier and the knowledgeable investors

were more biased towards load while selecting the mutual funds. There

were other factors that affect on decision making, but investors make

cognitive errors while selecting funds.

Singh and Chander (2004)20 in their study entitled “An Empirical

Analysis of Perception of Investors Towards Mutual Funds” studied the

perception of investors towards mutual funds and analyzing the reasons for

withdrawal and/or not investing any more in mutual funds. The study

revealed investors‟ perceptions regarding day-to-day disclosure of net asset

value by the funds and provision for more tax rebates on investment in

mutual funds by the government have emerged as an important requirements

for the investors and the reason of ineffectiveness of controlling bodies like

SEBI and others that resulted in investors‟ disillusionment as regards mutual

fund investment has emerged as one of the major reason of withdrawal from

mutual funds. The funds have under-performed as against expectation and

35
management has been inefficient thereby discouraging investors to keep

their funds parked in mutual funds.

Sapp, Travis, Tiwari and Ashish (2004)21 in their study titled “ Does

Stock Return Momentum Explain the Smarty Money Effect?” showed that

the smart money effect is explained by the stock return momentum

phenomenon documented by further evidence suggested investors do not

select funds based on a momentum investing style, but rather simply choose

funds that were recent winners. The findings stated that a common factor in

stock returns explained the smart money effect offers no affirmation of

investors fund selection ability.

Mehru (2004)22 in his study entitled “Problems of Mutual Funds in

India” classified the problems of mutual fund industry as problem related to

structure, the investors, working and performance. He revealed the investors

who invest in growth or equity schemes consider it an alternative to stock

market investing and the investors who invest in debt schemes expect higher

returns on their investments than returns on the nationalized banks‟ fixed

deposits. The investors expect higher returns and get dissatisfied when they

do not receive the expected returns.

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 Cooper, Gulen and Rau (2005)23 in their study entitled “Changing

Names with Style: Mutual Funds Name Changes and Their Effect on Fund

Flows” evidenced that the year after a fund changes its name to reflect a

current hot style, the fund experienced an average cumulative abnormal flow

of 28%, with no improvement in performance. The increase in flows was

similar across funds whose holdings match the style implied by their new

name and those whose holdings do not, suggesting that investors were

irrationally influenced by cosmetic effects.

Hayes (2005)24 in his study entitled “Socially Responsible Mutual

Funds: Issues to Consider When Investing with Your Conscience”,

suggested that socially responsible mutual funds had a misclassification

problem similar to conventional mutual funds. The level of social screening

varies dramatically within stated style classifications, thus verification of

consistency between fund selections and social principles was irrelevant.

Kumar (2005)25 in his study entitled “Indian Capital Market :

Emerging Role of Mutual Funds” made an in-depth study and revealed most

of the investor‟s preferred to invest in real assets followed by those who

invest in mutual fund schemes. Public sector mutual funds due to their

credibility and safety were largely preferred by retail investors.

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Professionals prefer to invest their major savings in mutual funds to get high

return and tax relief. Most of the individual investors preferred to invest in

debt instruments in comparison to equity investment. Most of the investors

preferred to invest in growth schemes to enjoy the reinvestment benefit

rather than the regular income.

Muthappan (2006)26 in his study entitled “ Factors Influencing

Mutual Fund Investment Decision Making”, revealed that tax exemption

given to the investments made in mutual funds was the most influencing

factor in mutual fund investment decision making. Investors preferred to

invest in private sector mutual funds than others and they preferred to invest

in income schemes of open-ended nature. The track record of the mutual

fund was the most influential factor in the selection of mutual funds. More

than half of the respondents expressed that their objective was reasonably

fulfilled through investment in mutual funds. An important factor which

discouraged investment in mutual funds was fear of fraud ie., security

perception in the minds of the investors.

Xavier, Balasubramanian and Viswanathan (2006)27 in their study

titled “An Approach To Segmenting Mutual Fund Investors” studied the

major factors influencing the choice of a scheme by mutual fund investors,

38
using the conjoint analysis-a technique that decomposes the overall

evaluation of product concepts into component utilities in a multi-attribute

model. This study determined those attributes of mutual fund that were

valued by investors. The results obtained indicated that investors prefer high

quality investment options with high performance and low load factor from

known brand names. The author suggested that there were distinct

investment segments broadly identified as the daredevils, the image-driven

and the conservatives, each having different attitudes and preferences, which

financial services professionals need to recognize while dealing with clients.

Singh and Chander (2006)28 in their study “Investors Preference of

Investment in Mutual Funds: An Empirical Evidence” the simple techniques

like weighted average score, chi-Square, mean, median have been applied

for the purpose of analysis of data and found that the investors consider gold

to be the most preferred form of investment, followed by NSC and Post

Office schemes. Hence, the basic psyche of an Indian investor, who still

prefers to keep his savings in the form of yellow metal, was indicated.

Investors belonging to the salaried category and in the age group of 20-35

years showed inclination towards close-ended growth (equity-oriented)

schemes over the other schemes types. A majority of the investors based

39
their investment decision on the advice of brokers, professionals and

financial advisors.

Varma (2006)29 in her study entitled “Mutual Funds can AMCs

sustain their Big Gains” endeavored to find the underlying reasons for the

growth of mutual funds industry in India and also the factors that could

affect the growth of Asset Management Companies. Study revealed the

AMCs need to focus on the investors‟ financial desires and keeping their

growth track intact. They need to understand the kind of the schemes desired

by the investors so that they were able to get the share of the funds that were

lying in other investment avenues.

Reddy, Babu and Viswanath (2006)30 in their study entitled

“Investors‟ Awareness on Corporate Securities-An Empirical Study”

conducted a survey among the respondents in Bangalore to know the

awareness level on corporate securities. It was found that the equity shares,

debentures and fixed deposits were familiar to all the sample investor.

Further more than 80% of the investors were aware of the investment

avenues. There was no significant relationship between the age and the level

of awareness of investors. Irrespective of the age, investors had awareness

about the investment opportunities, based on the requirements and

40
availability of funds. But there was a significant relationship between the

level of income and the level of awareness of the investors. The study also

revealed that higher income groups were more aware of investment avenues

when compared to small income groups in Bangalore city. The study cleared

that the higher the income of the investor, the higher was the awareness of

investment opportunities. This was due to the investor‟s necessity to

diversify the funds among different instruments. Investors join the investors

clubs to discuss the investment opportunities in different instruments, and

the possible risk and return on their investment. The study found that the

investors club plays a crucial role in the development of investment

awareness.

Rao and Saikia (2006)31 in their study entitled “Mutual Funds

Exploring the Retail Customers Expectations” identified the key factors that

influence customer preferences for a particular mutual fund. The technique

of factor analysis using Varimax Rotations,The Kaiser-Meyer-Olkin

measures, Bartlett‟s test of spheicity are employed. The study found that six

factors identified monetary, core product, fund strength, promotional,

customer expectation and service quality form a view of the customer‟s

preferences and expectations from a mutual fund. A satisfied investor not

only continues to make more investment but also refers his friends and

41
relatives to invest in the same fund, thereby expanding the business through

referrals. There is an impelling need for domestic mutual funds to expand

their investor base.

Ranganathan (2006)32 in her study entitled “A Study Of Fund

Selection Behaviour of Individual Investors towards Mutual Finds with

reference to Mumbai City” attempted to examine the related aspects of the

fund selection behaviour of individual investors towards mutual funds in the

city of Mumbai. The results of Chi-Square test showed the awareness level

was dependent on academic qualifications. Fund related qualities were

analysed and the result revealed three different factors which could further

be associated to different types of investors, i.e., professional investors,

image conscious investors and cautious investors.

Srivastava (2007)33 in his study entitled “An Analysis of Behaviour of

Investors In India” investigated and found that the Indian investors had not

been absolutely logical and rational in their investment behaviour and their

investment decisions were always affected by definite behavioural factors.

In this research 80% of the sample investors agreed at least somewhat that

the stock market was the best investment for long-term holders. The

responses in the research suggested that the investors feel they can make

42
money in the stock market and feel confident that the stock market was

neither over valued nor highly priced. He concluded that the Indian,

investors don‟t believe in the stock market‟s “efficiency”. Additionally he

explored about the investing traditions in India. The responses examined

that investors have acquaintances with respect to the past performance of the

stocks over the other universal investing instruments. Results advocated a

public belief in the Indian Stock market that underlies stock valuation.

Pandey (2008)34 in his study entitled “Performance Appraisal of

Shareholding in Mutual Fund Industry in India” found that in the year 1999,

Bank and Institutions sponsored mutual fund had attained maximum share

holding of 89.99% in mutual fund industry. But in 2006 bank and institution

sponsored mutual fund had only 21.7% market share. It seemed that the

mindset of the Indian masses had been under change. Now they were

performance / returns-oriented, bullish with private sector mutual fund than

public sector undertaking. This observation was supported by the reason that

after 7 years private sector mutual fund had acquired 78.3% share in mutual

fund industry and incompetence appears to be the basic reason for losing

business by Public Sector Undertakings in Mutual Fund industry.

43
 Rethinapandy and Selvakumar (2008)35 in their study entitled “Mutual

Funds Investors‟ Confidence” found that mutual funds provide better

opportunities to investors to get more return. At present, the Indian mutual

fund industry is dominated by private mutual fund companies. Developing

countries like India have good opportunities for mutual funds. FIIs

investments show an evidence for the confidence of foreigners in the Indian

mutual fund industry. The Indian mutual fund industry provided constant

and consistent return to investors. As the Indian Corporate Sector needs

huge funds for its expansion and development programmes, better growth

was expected in the Indian Mutual funds industry

Sudalaimuthu and Kumar (2008)36 in their study entitled “A study on

investors‟ perception towards Mutual Fund Investments” made an attempt to

understand the financial behaviour of mutual fund investors in connection

with the scheme preference and selection. Simple percentage analysis, Chi-

Square test and ANOVA were the tools employed and found mutual fund

intermediaries play an important role in making markets. So improve the

quality and efficiency of market intermediaries and promote new

intermediaries as well as new products. It has been noted that for about

37.6% of the investor‟s feedback from increase in capital appreciation is

dissatisfied. Steps should be taken for funds to make pair and truthful

44
disclosure of information to the investors. Mutual funds need to take

advantage of modern technology like computer and telecommunications to

render service to the investors.

Gupta and Aggarwal (2009)37 in their study entitled “Mutual Fund

Portfolio Creation using Industry Concentration”. The study uses cluster

method, taking industry concentration as a variable to construct the

portfolio. The performance of two types of portfolios had been compared

with the selected benchmarks selected according to the prevalent modes of

mutual fund purchase. Their study reflected the importance of portfolio

creation by the method involved and highlighted the important decision of

risk management, one of the important purposes for which mutual funds

came into being. Out performance by the created portfolio, especially in the

case of risk mitigation, without sacrificing high returns, will surely help the

investors to achieve optimal investment benefits.

Kainth and Kaur (2009)38 in their study entitled “Mutual Fund

Industry in India Investors‟ Perception” recaptured the growth phases and

also the investor perception in investing in mutual funds and found that

namely 60% of the investors had knowledge about the mutual funds

schemes. Furthermore 70% of the investor‟s had invested both in mutual

45
funds as well as stock market directly. Analysis of micro factors influencing

mutual funds revealed that one-third of the sample of (highest) the investors

preferred to invest on the recommendations of their friends and relatives

while one-fourth of the sample of investors depended upon the

recommendations of their financial advisors. Nearly one-fifth of the

investors gave more importance to their own analysis and perception and

equal proportion thought that mutual fund manager‟s image had got a major

role to play while making mutual fund investment. Attempt was also made

to examine the macro factors influencing mutual fund investment. Safety of

investment was the major factor (27%) which influenced their investment

and other factor being tax benefits. Liquidity and conscience were the least

factors for mutual fund investment. Income share and monthly income plan

were very popular among the old-age investors and risk-averse. On the other

hand, balanced share was least popular among the investors.

Walia and Kiran (2009)39 in their study entitled “An Analysis of

Investors‟ Risk Perception towards Mutual Fund Services” conducted a

research and they indentified investor‟s expectations and parameters that

caused dissatisfaction. In this study innovation of mutual funds portfolio

wear also highlighted that these innovations should be according to

46
investors‟ expectations. Major findings of this study were that investors

wanted innovative products and wanted to add quality in existing services.

Vijayalakshmi and Jayasathya (2009)40 in their study entitled “A

Study on the Factors Influencing the Selection of Mutual Fund Company”.

The main focus of the study is, on the factors influencing the respondents on

their choice of Mutual Fund Company. The study found most important

factors consider before investing in the mutual fund are objective of the

scheme, past performance of a research team, services provided by the

company etc,. The best way of surviving and prospering in the competitive

environment is through providing prompt, relevant and efficient information

about Asset under Management, Net Asset Value and information about the

scheme.

Kabra ,Mishra and Dash (2010)41 in their study titled “Factors

Influencing Investment Decision of Generations in India: An Econometric

Study” attempted to find out factors which affects individual investment

decision and differences in the perception of Investors in the decision of

investing on basis of age and on the basis of gender. The data were analysed

using standard techniques of factor analysis, Regression analysis and other

basic techniques. In spite of the phenomenal growth in the security market

47
and quality Initial Public Offerings (IPOs) in the market, the individual

investors prefer investments according to their risk preference. Majority of

investors are found to be using some source and reference groups for taking

decisions. Though they are in the trap of some kind of cognitive illusions

such as overconfidence and narrow framing, they consider multiple factors

and seek diversified information before executing some kind of investment

transaction.

Chandra and Sharma (2010)42 in their study entitled “Investment

Management by Individual Investors: A Behavioural Approach” focused on

how to identify the psychological biases that may drive the momentum

effect in the Indian stock market. The authors mentioned that five main

cognitive biases namely, over confidence, conservatism, representativeness,

under/over opportunities and excess sensitivity to rumors were associated

with stock market investments. The results revealed that two of the five

listed psychological biases were not found to be influential in case of the

Indian investors. At the same time, some cognitive errors such as excess

sensitivity to rumors, conservatism bias and representativeness bias are those

contextual psychological biases which are pertinent in influencing the

investors‟ behaviour in the Indian stock market.

48
 Kasilingam and Jayabal (2010)43 in their study entitled “Segmentation

of Investors‟ Based on Choice Criteria” inferred that the small saving

schemes are designed with good features so as to make it suitable to the

needs of the people, but the facilities offered and services provided were not

attractive enough to provide convenience to investors. To attract the large

resources available in the rural places, financial services should be taken to

the doorstep of those people. As stated earlier the majority of Indian

investors want risk protection to their capital. So the flow of household

savings to the capital market will not increase as there is a high volatility in

the market.

Gupta and Chander (2011)44 in their study “Consideration Of Sources

of Information as Selection Criteria in Mutual Fund Purchase: A

Comparative Study of Retail and Non Retails Investors‟ ” evaluated the

differences between retail and non-retail mutual fund investors against

source of information as selection criteria construct. It was concluded that

there was a significant difference between retail and non-retail mutual fund

investors with respect to factors of advertisement and shows and „published

returns‟, while the former is more important for the retail investors, the latter

is more important for the non-retail investors. The findings of the study

assumed importance in the sense that all advertisements and TV shows

49
regarding mutual funds should be more oriented towards retail investors.

The study has also found that „data and information‟ and advice and

recommendation make no significant difference between retail and non-

retail mutual fund investors. The study also highlights the various

components of the source of information construct their relative importance

and the significant differences if any between retail and non-retail mutual

fund investors.

Chitra and Sridevi (2011)45 in their study entitled “Does Personality

Traits Influence the Choice of Investment” focused on analyzing the

influence of seven personality traits – emotional stability, extra version, risk,

return, agreeability, conscientiousness and reasoning on the choice of the

investment pattern. The study revealed that a strong relationship exist

between personality traits and the method of investment. The important trait

that influences the investment is emotional stability. Every investor must

control his emotions while taking decisions to avoid loss of money.

Adequate information must be provided to the investors to avoid the

volatility in the stock market prices.

Sitlani, Sharma and Sitalini (2011)46 in their study titled “Investment

Choice of Occupance of Financial Services Industry: A Demography Study”

50
was conducted with 177 individual respondents from financial services

industry who were considered reasonably knowledgeable in investment area.

Then an association of various demographic factors with investment choice

was explored. It was found that there is no association between demographic

variables like gender, age, marital status, occupation, household income and

investment choice, where as there is significance association between

qualification and investment choice of occupants of financial services

industry.

Rao (2011)47 in his entitled “Analysis of Individual Investors

Behaviour towards Mutual Fund Schemes (A study on awareness adoption

of different schemes with educational level)” the research findings showed

that with increased level of education is linked with greater risk tolerance.

This tends to support the hypothesis developed in previous researches i.e.

positive relationship exists between educational attainment and financial risk

tolerance.

Kandavel (2011)48 in his study entitled “Factors Influencing the Retail

Investors to Prefer Investment in Mutual Funds in Puducherry: An Empirical

Study” statistical tools like chi square test, analysis of one-way variance,

student t-test, analysis of co-efficient of variation, multiple regression

51
analysis, and percentage analysis have been employed. Chi square test was

employed to measure the association between the demographic profile of the

respondents and their satisfaction with investment in mutual funds and type

of fund preferred. The study looked at the perception level of the retail

investors towards investment in mutual funds. The small investors purchase

behaviour does not have a high level of coherence due to the influence of

different purchase factors. The buying intent of a mutual fund product by a

small investor can be due to multiple reasons depending upon customers risk

return trade off. Presently, more and more funds are entering the industry

and their survival depends on strategic marketing choices of mutual fund

companies, to survive and thrive in this highly promising industry, in the

face of such cutthroat competition. Therefore, the mutual fund industry

today needs to develop products to fulfils customer needs and help

customers understand how its products cater to their needs.

Saini, Bimalanjum and Saini (2011)49 in their study entitled

“Investors‟ Awareness and Perception about Mutual Funds” analysed the

mutual fund investments in relation to investor‟s behaviour. Investors‟

opinion and perception has been studied relating to various issues like type

of mutual fund scheme, main objective behind investing in mutual fund

scheme, role of financial advisors and brokers, investors‟ opinion relating to

52
factors that attract them to invest in mutual funds, sources of information,

deficiencies in the services provided by the mutual fund managers,

challenges before the Indian mutual fund industry etc. The investigation

outlined that mostly the investors have positive approach towards investing

in mutual funds. In order to maintain their confidence in mutual funds they

should be provided with timely information relating to different trends in the

mutual fund industry. For achieving heights in the financial sector, the

mutual fund companies should formulate the strategies in such a way that

helps in fulfilling the investors‟ expectations. The main task before mutual

fund industry is to convert the potential investors into the reality investors.

New and more innovative schemes should be launched from time to time so

that investor‟s confidence should be maintained. All this will lead to the

overall growth and development of the mutual fund industry.

Singh, Singh and Singh (2011)50 in their study entitled “Positioning of

Mutual Funds among Small Town and Sub-Urban Investors” For analysis of

the data, different statistical techniques were used. Cronbach‟s Alpha was

used for measuring the reliability of the questionnaire. For testing the

significance in the difference between the mean scores of different

parameters, Friedman test is done. It is evident that out of several factors

considered for positioning the mutual funds into the small town and sub-

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urban areas, awareness about mutual funds is having the highest influence

on the decision of the investors to make investment in mutual funds. It

means that for penetrating the mutual funds in those areas proper awareness

needs to be created and this should be given the highest priority. The other

things in the order are acceptability of mutual fund, affordability of mutual

fund.

Shaikh and Kalkundarikar (2011)51 in their study entitled “Analysis of

Retail Investor‟s Behaviour in Belgaum District, Karnataka State” made a

pertinent revelation that the level of investment knowledge significantly

leverages the returns on the investments. From the calculated correlation

analysis data it can be observed that 0.096 point change in knowledge boosts

investors return expectation by 1 point. Investors having extensive

investment knowledge has the return expectation of multifold when

compared to other knowledge categories and the correlation analysis

between the occupation of investor and the level of risk assume shows that

there is a negative correlation between these two variables, analysis shows

that a 1 point change in occupation will lead to negative change of 0.053 in

the level of risk taken by the investors.

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 Rao (2011)52 in his study entitled “Analysis of Investors‟ Perceptions

towards Mutual Fund Schemes (With Reference To Awareness and

Adoption of Personal and Family Considerations)”, examined the role of

various social-economic factors that affect the investment decision of the

investors. The chi-squire test has been employed to analyse. He found that

the three leading categories of agencies involved i.e., (i) the Regulatory

authorizes like SEBI, IRDA; (ii) AMFI and (iii) MF Asset Management

Companies have to conduct educational and orientation program in

collaboration with yet other three kinds of leading organizations i.e., (i)

Universities, (ii) Institutes and (iii) Stock Exchanges, on various aspects of

MF Schemes, so that the investors will enhance their knowledge for making

more prudent investment decisions.

Gupta, Chawla and Harkawat (2011)53 in their study titled “An

Analysis of Investor‟s Perception Regarding Mutual Fund” examined to

know the perception of investors towards mutual funds it was found that

80% of the investor knows about mutual funds, so awareness level of mutual

fund is there. Majority of investors are willing to invest in mutual funds. The

investment of about 11 per cent to 30 per cent saving is done in mutual funds

and expected returns are between10 per cent to 30 per cent. So if the mutual

funds firms provide a good return investors are willing to invest in mutual

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funds irrespective of its occupation and time frame. Investors are willing to

invest in 1 to 5 years time frame. Asset management companies can provide

the right kind of need base solutions to their Investors.

Kandavel (2011)54 in his study titled “Perception of the Retail

Investors towards Investment in Mutual Funds in Puducherry: An Empirical

Study” looked at the perception level of the retail investors towards

investment in mutual funds. The small investors purchase behaviour does

not have a high level of coherence due to the influence of different purchase

factors. The buying intent of a mutual fund product by a small investor can

be due to multiple reasons depending upon customers risk return trade off.

Presently, more and more funds are entering the industry and their survival

depends on strategic marketing choices of mutual fund companies, to

survive and thrive in this highly promising industry, in the face of such

cutthroat competition. Therefore, the mutual fund industry today needs to

develop products to fulfill customer needs and help customers understand

how its products cater to their needs.

Vyas (2012)55 in his study entitled “Mutual Fund Investors Behaviour

and Perception in Indore City” focused attention on number of factors. The

study found that mutual funds were not much known to investors, still

56
investor rely upon bank and post office deposits, most of the investor used to

invest in mutual fund for not more than 3 years and they used to quit from

the fund which were not giving desired results. Equity option and SIP mode

of investment were on top priority in investor‟s list. It was also found that

maximum number of investors didn‟t analyse risk in their investment and

they were depending upon their broker and agent for this work.

Das (2012)56 in his study entitled “Small Investor‟s Perceptions on

Mutual Funds in Assam: An Empirical Analysis” The objectives of the

study are to identify the small investor‟s perceptions on mutual funds and to

analyse the factors affecting small investors‟ perception towards mutual

fund. The study aims at finding out the attitude of the small investors

towards investment in mutual funds in Assam. By adopting convenience

sampling, 250 respondents living in five different commercial towns of

Assam were selected for this study. It is concluded that the MFs business in

Assam is still in as embryonic stage. So, concerted efforts are needed for its

success. The success depends upon high returns, professional competence of

Fund managers.

Prasad and Srinivas (2012)57 in their study entitled “A Study of

Selection of Mutual Fund Schemes by Investors With Reference To Andhra

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Pradesh” aims at finding out the selection of Mutual fund schemes by the

investor. The Selection of Mutual fund Schemes based on different qualities

Sponsor, Fund, Investor related qualities and also the current attitude

towards different financial products, and facilities provided by fund houses,

AMFI. This study covers 503 respondents from Major cities in Andhra

Pradesh. The study found that the facilities provided by the fund houses,

AMFI highly satisfied by all the investor except MF returns and Principal

are fully protected and guaranteed by Association of Mutual Funds (AMFI).

Sharma (2012)58 in his study entitled “Indian Investor‟s Perception

towards Mutual Funds” attempted to study the extent to which investors are

satisfied (in terms of different benefits offered by mutual fund companies to

attract investment in mutual fund) and also to identify factors essential for

securing investor‟s penetration. The study found that all the benefits which

emerge out from the investment in mutual fund may be grouped into three

categories. The results reveal that in order to secure the patronage of Indian

investor mutual fund companies are expected to ensure full disclosure and

regular updates of the relevant information along with the assurance of

safety and monetary benefits.

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 D‟Silva, D‟Silva and Bhuptani (2012)59 in their study entitled “A

Study on Factors Influencing Mutual Fund Investment in India” Techniques

like ANOVA, Friedman Test, and KH Test etc were used for purpose of

analysis. The five factors that have been derived through factor analysis will

help the companies to get properly acquainted with the customer

requirements and accordingly deliver them the maximum value for their

investments. Further analysis of the study has revealed that investors do

have inherent specific preference towards Mutual Fund investments. It has

been found that the investors will prefer that mutual fund company the most

which gives maximum attention towards investors needs and requirements.

Further it has also been found that investors with different academic

qualifications also create a significant difference in ranking the certain

parameters towards investment in Mutual Fund. Finally the study also

analyses that the purpose of an investor behind investing in Mutual Fund

definitely influence in the selection of the Mutual Fund scheme for

investment. Thus the need of the hour for all the domestic mutual fund

companies is to expand their investor base which can be possible, only when

the companies are determined to understand the value drivers and thus lure

retail investors to invest in mutual funds.

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 Geetha and Ramesh (2012)60 in their study entitled “A Study on

Relevance of Demographic Factors in Investment Decisions” attempted to

find out the significance of demographic factors of population such as

gender, age, education, occupation, income, savings and family size over

several elements of investment decisions like priorities based on

characteristics of investments, period of investment, reach of information

source, frequency of investment and analytical abilities. The study found

that there has been no significant relationship between demographic factors

and other factors that influence the investment decision making process.

However in case of relationship between demographic factors and periods of

investments, it was found that a few demographic variables such as family

size, annual income and annual savings have significant relationship. But the

rest of the variables such as gender, age, education and occupation have no

significant relations with the period of investments made by the investors.

Sarish and Jain(2012)61 in their study entitled “Analysis Regarding

Mutual Funds Awareness and Opinion” attempted to know about opinion of

investor towards mutual funds and their preference, the investment rationale

studied by mutual funds investors, investor awareness about investment in

mutual funds. Statistical tools like Chi- square test and z test are applied. He

found that Investors Monthly income ranges between 20000 - 40000 (40%)

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and 40001 and above (30%). Most preferred investment is insurance (25%),

fixed deposit (23%) and mutual funds (20%), Post Office, NSC, others

(20%).The most preferred factor for investment is Return on investment

(40%) and safety (40%). Liquidity is the second preferred option (15%),

80% of the investors was aware of mutual funds. Investors know about

Mutual Fund mostly through Advertisement (45%) and Financial Advisors

and Banks (25%).

Das (2012)62 in his study entitled “Semi Urban Investors Attitude and

Preferences in Mutual Funds Investment: Case Study” outlined that mostly

the investors have positive approach towards investing in mutual funds. In

order to maintain their confidence in mutual funds they should be provided

with timely information relating to different trends in the mutual fund

industry. Investors of Nagaon districts of Assam become more cautions after

they lost their savings with unincorporated bodies, Chit funds, Benefit Funds

and some Non-Banking Finance Companies. They are now turning more to

mutual funds. They find a need to increase the public awareness of mutual

funds. According to the investors‟ Opinion, the main reason for the quick

popularity of the mutual funds is the guaranty to redeem at net asset values.

The investors have realized the benefits of investing in mutual funds. They

find that there is a necessity to establish more mutual funds in India to

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decentralize the concentration of mutual funds from metro to semi urban and

rural areas. They determine to go for new funds for their further investments.

Singh(2012)63 in his study entitled “A Study On Investors‟ Attitude

towards Mutual Funds as an Investment Option” examined the impacts of

various demographic factors on investors‟ attitude towards mutual fund have

been studied. The study shows that most of respondents are still confused

about the mutual funds and have not formed any attitude towards the mutual

fund for investment purpose. It has been observed that most of the

respondents having lack of awareness about the various function of mutual

funds. Moreover, as far as the demographic factors are concerned, gender,

income and level of education have significantly influence the investors‟

attitude towards mutual funds. On the other hand the other two demographic

factors like age and occupation have not been found influencing the attitude

of investors‟ towards mutual funds. As far as the benefits provided by

mutual funds are concerned, return potential and liquidity have been

perceived to be most attractive by the invertors‟ followed by flexibility,

transparency and affordability. Apart from the above, in India there is a lot

of scope for the growth of mutual fund companies provided that the funds

satisfy everybody‟s needs and sharp improvements in service standards and

disclosure

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 Dharmaja, Ganesh and Santhi (2012)64 in their study entitled “A

Study on the Individual Investor Behaviour with Special Reference to Geojit

BNP Paribas Financial Service Ltd, Coimbatore.” aimed at identifying the

most and the least influencing factors of the individual investor behaviour.

The data has been analysed using mean score value and chi-square test. The

researcher helped the company to know more about the factors influencing

their investors and also helped to focus on those factors to provide better

customer Service. Majority of the respondents are influenced by the

accounting information of the companies and advocate recommendation is

the least influencing group.

Kumari (2012)65 in her study entitled “Investment Attitude Of Rural

Investors”, studied the five factors i.e. risk, return, peer‟s influence,

advisor‟s influence and friend‟s influence, were taken into account with the

combination of finance theory and psychological theory, to determine the

rural investor‟s decision process regarding their investment. Data has been

analysed using correlation and regression coefficients. It has been found that

all of the rural investors consider the risk and return on investment and most

of them are also dependent on financial advisor‟s opinion because of lacking

the depth knowledge of market.

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 Dimple and Ritu (2012)66 in their study titled “Buying Behaviour and

Perception of Retail Investors towards Mutual Fund Schemes” focused on

how investment behaviour of fund investors varies in terms of preference

and selection of MF schemes. It can be concluded that investors invest their

money in mutual fund with the objective of good return, safety and tax

benefit. In all nine investment avenues, the most preferred investment

vehicle is bank deposit. Investors give equal importance to mutual fund and

share/bond. Growth schemes and balanced schemes are most preferred in

comparison to other schemes. Fixed maturity schemes are least preferred by

mutual fund investors. According to this study it can be said that most

important factor considered by mutual fund investors is quality of

fund/scheme. It is further revealed that the investors are influenced by the

sponsor‟s past performance of risk and return, the reputation enjoyed by the

sponsor and their expertise in managing money when they invest their

money in mutual fund scheme.

Kothari and Mindargi (2013)67 in their study entitled “A Study of

Investor‟s Attitude towards Mutual Fund With Special Reference to

Investors in Solapur City” This study analyses the impact of different

demographic variables on the attitude of investors towards mutual funds.

Apart from this, it also focuses on the benefits delivered by mutual funds to

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investors. To this end, 200 respondents of Solapur City, having different

demographic profiles were surveyed. The study employed percentage

analysis. Only a small segment of the investors are still in Mutual Funds and

the main source sources of information still are the financial advisors

followed by advertisements in different media. The Indian investors

generally invest over period of 2-3 years. Also there is a tendency to invest

in fixed deposits due to the security attached to it. In order to excel and make

mutual funds a success, companies still need to create awareness and

understand the psyche of the Indian customer. The study reveals that the

majority of investors have still not formed any attitude towards mutual fund

investments.

Subramanya and Murthy (2013)68 in their study entitled “Investors

Attitude towards Mutual Fund (Special Reference to Chikkamagalore

District, Karnataka State, India)” aims at finding out the attitude of the small

investors towards investment in mutual funds in Chikkamagalore. To

analyse the primary data simple statistical tools like percentage method and

Chi-Square analysis were used. The study found that the investors have a

positive attitude towards their investment made in Mutual funds. Majority of

the investors prefer Mutual Funds for the returns and feel that it is a safe

measure of investment. As far as the socio economic variables are concerned

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age, gender, qualification, income and occupation have been encouraging

the attitude of investors towards Mutual fund. Investors saving variables are

not influencing the attitude of investors.

Chaudhary (2013)69 in his study entitled “Investment Behaviour of

Engineers towards Mutual Funds: An Analysis of Gender Differences” the

study favours Asset Management Companies for designing suitable products

to meet the changing financial needs of the investors. Thus, examination of a

sample of 200 (83 females and 117 males) investor engineer respondents

discerned the differences in the choice of mutual funds and its likely

implications on future investment for male and female engineer investors.

Research hypotheses have been tested by invoking one-way analysis of

variance (ANOVA). A higher level of awareness and satisfaction among the

male respondents was observed in the study. The study also acknowledges

that the female respondents based their choice of investment largely on the

factors like previous experiences and publicity.

Rathamani (2013)70 in her study entitled “Investor‟s Preferences

towards Mutual Fund Industry in Trichy” aims to analyse to what extend the

mutual fund is effective as an investment mode to the investors, the growth

of mutual fund industry in India, the investors awareness and perception

66
regarding Mutual fund investment, to find preference of investors about

different investment avenue and to find out which factors attracts investors

to invest in mutual fund. The study explains that many investors are

preferred to invest in mutual fund in order to have high return at low level of

risk, safety liquidity. The world of investment has been changing day to day,

so investor‟s preferences toward investment pattern also changed. In the

demographic profile most of the investors are willing to invest only 10% in

their annual personal income, around 39% of investors belongs to age range

of 31 to 40 years. In this study investors are willing to take moderate and

low level risk; most of the investors belong to moderate investment style. In

order to have more investors to invest in mutual funds, mutual fund

companies have to bring some awareness program about the benefits of

investing in mutual funds, and the safety and security provided by mutual

fund companies in this changing stock market situation.

Vipparthi and Margam(2013)71 in their study entitled “Perceptions of

Investors on Mutual Funds: A Comparative Study on Public and Private

Sector Mutual Funds” The study at first tests whether there is any relation

between demographic profile of the investor and selection of mutual fund

alternative from among public sector and private sector. For the purpose of

analysis perceptions of selected investors from public and private sector

67
mutual funds are taken into consideration. The major perceptual factors

identified are Liquidity, Security, Flexibility, Transparency, Returns and Tax

benefits along with Monetary and Core product as the most influencing

factors.

Swain and Sahoo (2013)72 in their study entitled “Investors

Perception and Growth Prospects of Mutual Funds: With Special Reference

to SBI Mutual Fund” made an attempt to understand the financial behaviour

of Mutual Fund investors in connection with the preferences of Brand

(AMC), Products, and Channels etc. He observed that many of people have

fear of investment in Mutual Fund. They think their money will not be

secure in Mutual Fund. They need the knowledge of Mutual Fund and its

related terms.

Palanivelu and Chandrakumar (2013)73 in their entitled “A Study on

Preferred Investment Avenues among Salaried Peoples with Reference to

Namakkal Taluk, Tamil Nadu, India” analysis of the study was undertaken

with the help of survey conducted. It is concluded that in Namakkal Taluk,

Tamil Nadu, India respondents are medium aware about various investment

choices but they do not know aware about stock market, equity, bond and

debentures. All the age groups give more important to invest in Insurance

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and bank deposit. Income level of a respondent is an important factor which

affects portfolio of the respondent. Middle age group, Lower income level

groups respondents are preferred to invest in Insurance and bank deposit

rather than any other investment avenues. Respondents are more aware

about various investment avenues like Insurance, bank deposits, small

savings like post office savings etc. For that awareness program has to be

conducted by Stock Broking firms, because most of the respondents unaware

about these new services about stock market.

Padmaja (2013)74 in her study titled “A Study of Consumer Behaviour

Towards Mutual Funds With Special Reference To ICICI Prudential Mutual

Funds, Vijayawada” examined about investors‟ awareness towards mutual

funds, investor perceptions, their preferences and the extent of satisfaction

towards mutual funds. She found the people lack awareness and information

towards mutual funds; hence awareness relating to mutual funds must be

increased among the investors to encourage them to invest in mutual funds.

Even among the investors who invest in mutual funds are unclear about how

they function and how to manage them. Proper information must be

provided to the investors in order to increase the loyalty among the

investors. Investors‟ fee must be reduced by reducing paper work. Better

commission should be paid to Asset Management Companies. If mutual

69
funds are offered to rural and semi urban investors at subsidized rates like

agricultural loans, the demand for mutual funds increases in rural and semi

urban areas also. Advertising campaigns must be conducted in rural areas to

increase awareness among rural investors.

Jani and Jain (2013)75 in their study titled “A Comparative Analysis of

Investors Buying Behaviour of Urban Rural for Financial Assets Specifically

Focused on Mutual Fund” examined the investor buying behaviour of urban

and rural for financial assets specifically focused on mutual fund, the impact

of various demographic factors like age, gender, education, income etc. on

the buying behavioural pattern of both Investors. . It has found that different

demographical factors have influence on buying behavioural pattern of

investor. The study shows that each demographical (age, gender, income,

educational qualification, occupation etc.) factor had significant bearing on

both urban and rural investors buying behavioural process. As far as,

behavioural pattern is concerned, the study has revealed that both investors

are having same behavioural pattern, marginal deviation was noticed during

analysis. Both investors provide more priority to the financial planner, on the

second place risk and return profile, third place is captured by past

performance and so on. On the basis of study, it can be concluded in order to

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capture urban and rural market, mutual fund companies required to

concentrate on financial planner.

FOREIGN STUDIES

Bogle (1992)1 in his study entitled “Selecting Equity Mutual Funds”

examined and concluded that picking the winning fund is virtually

impossible, because reliance on past performance is of no apparent help.

Picking a winning fund is made easy by selecting a passive all-market index

fund, or perhaps by engaging in thorough research and careful analysis. The

stock market in the 1990s offers annual returns well below those of the

1980s, intelligent investors simply cannot disregard the heavy burden of

costs endemic to most actively managed funds, and clearly should consider

index funds for at least a core portion of their equity holdings.

Nagy and Obenberger (1994)2 in their study entitled “Factors

Influencing Investor Behaviour” they formulated a questionnaire that

included 34 questions. Their findings recommended that classical wealth-

maximization criteria were important to investors, even if investors realize

diverse criteria when choosing stocks. Other factors such as local or

international operations, environmental track record and the firm‟s ethical

value emerge to be given only cursory consideration.

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 Capon (1994)3 in his study entitled “Affluent Investors And Mutual

Fund Purchase” stated that there were many evidences that supports that in

spite of risk and return other factors also effect on mutual fund selection. For

example a consumer survey in the year1990 on mutual fund it was founded

that past performance and level of risk were two aggregate important factors

but other factors also effect like management fees, amount of sales charges,

reputation of fund family, funds already owned in family, recommendation

of magazines and news letter and clarity of accounting statements. Investor

showed different behavioural traits and they prefer different factors while

selecting fund because of different demographic background.

Capon, Fitzsimons and Prince(1996)4 in their study entitled” An

Individual Level Analysis of the Mutual Fund Investment Decision” they

found that investors concentrate their mutual fund investments in a highly

limited number of fund families demonstrates the major importance of

selling funds (any fund)to new mutual fund investors. The actions of such

firms as Dreyfus and Fidelity in strongly advertising low-fee, high-return

money market funds (e.g. Spartan) as "loss leaders" is consistent with this

finding. It also demonstrates the value of building marketing focused

consumer data bases that both enhance cross-selling opportunities to

72
investors in the fund family, and retain data on interested potential investors

so that direct-marketing efforts can be continued.

Malhotra and Robert (1997)5 in their study entitled “Marketing

Research an Applied Orientation” examined and reported that the pre-

occupation of mutual fund investors using performance evaluation as

selection criteria was misguided because of volatility of returns. This may be

due to superior management or just good luck, it is difficult to determine.

Barber, Odean & Zheng (2000)6 in their article “The Behaviour of

Mutual Fund Investors” highlighted three important points:

1) Investors buy only those funds that have showed good past

performance.

2) Investors were relevant to sell losing funds are ready to see winning

fund.

3) Investors were less likely to buy the funds having high transaction fee

ie., brokerage fee, front end load fee. They argued that when

purchasing a fund investor exhibit representative of future

performance. Thus investor buys a fund on basis of past performance.

According to behavioural finance investor‟s exhibit over-confidence

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 while selecting the past winner funds and overly estimates their future

performance.

Sawicki. J. (2001)7 in his study titled “Investors Differential Response

To Managed Fund Performance was Measured in a Different Setting: The

Australian Wholesale Funds Market”. The results confirmed that, like the

U.S. mutual fund investor, institutional investors in Australia react to recent

performance. However, a similar response asymmetry was not detected in

most tests. Evidenced that small, young funds were potential drivers of the

asymmetric response effect was also provided.

Gishu, Yeh and Yamada (2002)8 in their study entitled “The

Behaviour of Taiwan Mutual Fund Investors – Performance and flow

Funds” investigated the investment flow of equity mutual funds in Taiwan,

to identify if there were different patterns in buy and sell behaviour of

mutual funds. For this purpose, the data of the open-end equity mutual funds

from the Taiwan Economic Journal from November 1996 to October 1999

was considered. The results showed that there was a stark difference in the

behaviour of investors who invest small amount of money and those who

invest large amounts in mutual funds. The findings suggest that searching

cost might be an important factor that affects investor decisions. Small

74
investors who are more likely to be small household investors, are interested

to buy large mutual funds that are well known, while large investors tend to

buy small funds that might require a costly search.

Haslem and John (2004)9 in their study “A Tool for Improved Mutual

Fund Transparency” found that mutual funds played an important role in

portfolios and pension plans of individual investors. Achievement of mutual

fund transparency shared not relies solely on more regulations. Fund

managers should also react proactively and positively to needs of share

holders. Improved transparency of fund operations cannot prevent

shareholders from making stupid mistakes, but it would at least help them to

make informed buy and sell decisions. Mutual fund transparency showed

focus on normative transparency that aims to meet the complete needs of

shareholders as owners.

Levy, Haim, Levy, Moshe, Alisor, Natalie (2004)10 in their study

entitled “Home Made Leverage” focused on the assumption that when

investors optimize their portfolio theory, correctly integrate cash flows from

the equity portfolio and cash flows from investment in the risk free asset,

and hence select efficient portfolios located on the security market line. As

there were many mutual funds in the market offering many stock portfolios

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some of them presumably efficient, all investors need to know was how to

choose an efficient fund from the set of available funds. In practice investors

often see a set of historical returns rather than fund means and standard

deviations.

Croson and Urigneezy (2004)11 in the research work titled "Gender

Differences by Preferences" have done an exhaustive review of various

studies on gender differences over a period of time. The authors have

highlighted the differences in perception on the basis of gender. The paper

explains that there is vast difference as to how men or women perceive the

areas of risk taking, social behaviour and competition behaviour. The paper

establishes that women take less risk than men. According to the authors the

various factors that might be responsible for such a difference in preference

may be age, marital status, number of children and culture. The paper further

discusses that gender difference by preference is reduced when the outcome

is unsure as in the case of lottery as the perceptions are made on a subjective

idea of outcome. Similarly the paper establishes the lack of difference in

perception when a population consisting of managers and professionals was

studied. The study disclosed that there is no significant difference in the way

men or women. Managers think of performance, risk and other fund

characteristics. The authors concluded the study by stating that women are

76
risk averse than men as far as investment decision involving risk was

concerned.

Bryant and Chen Liu (2004)12 in their study “Management Structure

and the Risk of Mutual Fund Managers” provide a detailed discussion of the

relationship between mutual fund management structures; fund risk and

performance. T-test and Wilcoxon signed-ranked test are used to test the

mean and the median differences between the multi-risk funds and the

matched funds, respectively. Both tests show no significant differences

between the means and medians of the sample and match funds. They found

that the management structures that mutual fund complexes employee have a

significant effect on the risk exposure of the individual fund managed. On

average, a multiple fund management structure, where a fund manager

operates multiple funds simultaneously, has a 7% increase in objective style-

drift risk exposure than the unitary fund management structure. However,

this increase in risk exposure is not accompanies by an increase in fund

performance.

Michael, Vance, Smythe and Thomas, (2005)13 in their study

“Financial Advisor and Mutual Fund Selection” found that financial advisor

contribute to their clients as they appear to emphasize important information

77
in the mutual fund selection that individual investors either fail to consider

or they were unable to access.

Bollen (2007)14 in his study entitled “Mutual Fund Attributes and

Investor Behaviour” examined the dynamics of investor cash flows in

socially responsible mutual funds. Consistent with anecdotal evidence of

loyalty, the monthly volatility of investor cash flows was lower in socially

responsible funds than in conventional funds. He found strong evidence that

cash flows into socially responsible funds were more sensitive to lagged

positive returns than cash flows into conventional funds and weaker

evidence that cash outflows from socially responsible funds were less

sensitive to lagged negative returns. These results indicated that investors

derive utility from the socially responsible attribute, especially when returns

were positive.

Muga, Rodriguez and Santamari (2007)15 in their study “Persistence

in Mutual Funds in Latin American Emerging Market: The case of Mexico”

found persistence in mutual fund performance both over consecutive time

periods and in a multi-period setting. There was significant spread,

persisting for at least two or three years, between the portfolio with funds

from the top past return quintile and those from the bottom past return

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quintile. The spread remained unexplained by conventional risk factors.

Investors were observed to use information on persistence, since a

significant positive relationship was shown to exist between fund flows and

past returns, though it is a convex relationship which was weaker in the

region of bad returns.

Donner and Oxenstierna (2007)16 in their thesis entitled “The Factors

that Investors Value when Choosing Mutual Funds: Implications from a

Market Dominated by Four Banks” investigated the relationship between

fund flows and fund company/fund specific attributes and analyses what

underlying factors investors value when making investment decisions on the

Swedish market for mutual funds. By conducting a study comprising both an

analysis of fund data and an investor survey, they have been able to analyse

investor behaviour from two viewpoints. The results show that fund

companies should focus on improving the performance of mixed and fixed

income funds as this increases future flows of capital to the fund. Despite the

fact that the Swedish market is dominated by four banks, they do not receive

proportionally larger fund flows than other fund companies. Inexperienced

investors place a greater deal of importance on company specific variables in

relation to fund specific variables. For experienced investors, the

relationship is the opposite. Search and information costs, measured as

79
visibility and company specific variables, are found to be important in the

data analysis, but not significantly favoured by either group in the survey.

Awan and Arshad, (2012)17 in their study entitled “Factors valued by

Investors‟ While Investing in Mutual Fund – A behavioural context”

explores the factors that investors value while making investment decisions

regarding mutual funds and type of behaviour they exhibit. They found that

investment in mutual funds was somewhat not very much risky as

investment in stock market major findings were that investor age group and

cities have different impact on fund selection schemes but income, education

level and occupation had no effect. Attributes like past performance of

fund, reputation of company, withdrawal facility, company services towards

investor have gender impact on decision making. Investors are over

confident in term that they have selected best scheme. Investors were risk

adverse, exhibit representativeness, status quo bias, and were conservative-

Investors consider that losses in investment were due to incorrect

recommendations of family and friends and gains were due to better result of

investing companies. Image conscious investors were more inclined

towards sponsor related service than professional investors.

80
 Jamaludin and Smith (2013)18 in their study entitled “Mutual Fund

Investment Choice Criteria: A Study in Malaysia aims to investigate factors

that are considered important in selecting a mutual fund”. Analysis of the

members‟ survey indicated significant differences in the ranking of fund

selection criteria between Muslim and non-Muslim members. Past

performance and the fund‟s commitment to Islamic principles were

considered as the most important selection criteria among non-Muslim and

Muslim members respectively. Likewise, analysis of the consultants‟ survey

indicated significant differences in the ranking of fund selection criteria

among Muslim and non-Muslim consultants. Both Muslim and non-Muslim

consultants considered the fund‟s commitment to Islamic principles and the

fund‟s past performance as the most important criteria respectively.

CONCLUSION

It is obvious to note that many authors have contributed their research

work on investment behaviour of investors on various schemes highlighting

their objectives towards long term growth and income. The experience of

advanced countries reveals a wide participation of public in Mutual Fund

schemes associated with transparency in operations, better access to

information and variety of choices. But in India it is totally contradictory to

81
foreign policy. It is highly practicing hidden cost and no openness in

operation and restricted access to information by officials involved in

Mutual Fund operations. At this juncture, the researcher felt the need of

studying the investment behaviour of the investors in Mutual Funds in the

study area, because it is much lacking in the previous reviews conducted by

various authors at national and international level. Hence, this was identified

as the research gap and in order to fulfill the gap this particular topic was

chosen purposively and hence this study.

82
END NOTES

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