CHAPTER-1

INTRODUCTION
In this globalised era we have different instrument both for capital market and
money market to invest .The vital motto of this investment is to get maximum
benefit with a little risk.sometime people hesitate to invest ,the reason is very clear
i.e risk-return aspect .This aspects compelled the market maker to find out a better
alternative and perhaps the solution is MUTUAL FUND.

Consumer behavior from the marketing world and financial economics has
brought together to the surface an exciting area for study and research: behavioral
finance. The realization that this is a serious subject is, however, barely dawning.
Analysts seem to treat financial markets as an aggregate of statistical observations,
technical and fundamental analysis. A rich view of research waits this sophisticated
understanding of how financial markets are also affected by the ‘financial
behavior’ of investors. With the reforms of industrial policy, public sector,
financial sector and the many developments in the Indian money market and capital
market, Mutual Funds which has become an important portal for the small
investors, is also influenced by their financial behavior. Hence, this study has made
an attempt to examine the related aspects of the fund selection behavior of
individual investors towards Mutual funds. From the researchers and
academicians point of view, such a study will help in developing and expanding
knowledge in this field.

Behavioral finance is the paradigm where financial markets are studied

using models that are less narrow than those based on Von Neumann-Morgenstern
expected utility theory and arbitrage assumptions. Specifically, behavioral finance
has two building blocks: cognitive psychology and the limits to arbitrage.
Cognitive refers to how people think. There is a huge psychology literature
documenting that people make systematic errors in the way that they think: they
are overconfident, they put too much weight on recent experience, etc. Their
preferences may also create distortions. Behavioral finance uses this body of
knowledge, rather than taking the arrogant approach that it should be ignored.
Limits to arbitrage refer to predicting in what circumstances arbitrage forces will
be effective, and when they won't be.

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 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 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 is 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. The term ‘product’ is used because MF is not merely to park investor’
s savings but schemes are ‘ tailor made’ to cater to investor’ s 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. 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 behavior and understand their needs and expectations, to gear up
the performance to meet investor requirements.

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LITERATURE REVIEW

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 behavioral 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.

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

discussion of financial behavior tend to assume behavior, which is logical and
internally consistent in various ways. Investor behavior does not; however, always
appear to conform to such expectation norms. Quite the reverse often appears to be
the case; Kahneman and Riepe speak of “ 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 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
investor’s behaviour into a model is impossible. Investor’s 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.

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 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.
1) Studies relating to General Financial Behaviour of Investors.
2) Fund Selection Behaviour Studies.
1) General Financial Behaviour Studies:
Daniel Kahneman and Amos Tversky (1979) originally described “ Prospect
Theory” and found that individuals were much more distressed by prospective
losses than they were happy by equivalent gains.
Robert J. Shiller (1993) reported that 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.
Phillip (1995) reported that there is a change in financial decision-making and
investor behavior as a result of participating in investor education programmes
sponsored by employees.
Berhein and Garnette (1996) affirmed Philip’ s findings and further stated that a
serious national campaign to promote savings through education and information
could have a measurable impact on financial behaviour.
Hirshleifer (2001) categorized different types of cognitive errors that investors
make i.e. self-deception, occur because people tend to think that they are better
than they really are; heuristic simplification, which occurs because individuals have
limited attention, memory and processing capabilities.
2) Fund Selection Behaviour Studies:

Investor fund selection Behaviour influences marketing decisions of fund

management and has captured the attention of researchers. The findings are
reported below:
• Foreign Studies:
Ippolito (1992) and Bogle (1992) reported that fund selection by investors is based
on past performance of the funds and money flows into winning funds more rapidly
than they flow out of losing funds.
Goetzman (1993) and Grubber (1996) studied the ability of investors to select
funds and found evidence to support selection ability among active fund investors.
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Malhotra and Robert (1997) reported that the preoccupation of MF investors with
using performance evaluation as selection criteria is misguided because of
volatility of returns, which may be due to superior management or just good luck is
difficult to determine.
Lu Zheng (1998) examined the fund selection ability of MF investors and found
that the investor’s decisions are based on short-term future performance and
investors use fund specific information in their selection decision.
• Indian Studies:
Gupta L.C. (1993), Madhusudan (1996) and Ajay Srinivasan (1999) and
others have conducted extensive research regarding investor expectations,
protection, awareness and fund selection behaviour. Few striking ones among the
other studies are given below.
Gupta L.C. (1993) conducted a household investor survey with the objective to
provide data on investor preferences on MFs and other financial assets.
Madhusudhan V. Jambodekar (2008) conducted a study to assess the
awareness of MFs among investors, to identify the information sources influencing
the buyer decision and the factors influencing the choice of a particular fund. The
study revealed 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.
Sujit Sikidar and Amrit Pal Singh (1996) carried out a survey with an
objective to understand the behavioural aspects of the investors of the North
Eastern region towards equity and MFs investment portfolio. The survey revealed
that the salaried and self-employed formed the major investors in MFs primarily
due to tax concessions. UTI and SBI schemes were popular in that part of the
country then and other funds had not proved to be a big hit during the time when
the survey was done.
Syama Sunder (1998) conducted a survey to get an insight into the MF
operations of private institutions with special reference to Kothari Pioneer. The
survey revealed that the awareness about MF concept was poor during that time in
small cities like Vishakapatnam.

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 Shanmugham (2001) conducted a survey of 201 individual investors to study
the information sourcing by investors, their perception of various investment
strategy dimensions and the factors motivating share investment decisions, and
reported that, psychological and sociological factors dominated economic
factors in share investment decisions.
Rajeshwari T.R and Rama Moorthy V.E (2002) studied the financial
behaviour and factors influencing fund/scheme selection of retail investors by
conducting Factor Analysis using Principal Component Analysis, to identify the
investor’ s underlying fund/scheme selection criteria, so as to group them into
specific market segment for designing of the appropriate marketing strategy.
Kiran D. and Rao U.S. (2004) identified investor group segments using the
demographic and psychographic characteristics of investors using two statistical
techniques, namely – Multinomial Logistic Regression (MLR) and Factor Analysis.

Raja Rajan (2007) highlightened segmentation of investors on the basis of their

characteristics, investment size, and the relationship between stage in life cycle of
the investors and their investment pattern

PURPOSE OF THE STUDY

The present study is made as a part of the MBA programme for the
Following
general Objectives:
A-1: To assess the savings objectives among individual investors.
A-2: To identify the preferred savings avenue among individual investors.
A-3: To understand the preferential feature in the savings instrument among
individual investors.
A-4: To assess Mutual fund conceptual awareness among present investors.
The study also attempts to test/assess other specific objectives such as:
other specific objectives
B-1: To assess the fund/ scheme preference of investors
B-2: To evaluate fund qualities that would affect the selection of Mutual funds.

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B-3: To perceive the preferred communication mode of investors.
B-4: To understand the fund sponsor qualities influencing the selection of
MFs/Schemes.
B-5: To identify the information sources influencing the scheme selection decision
of investors.
B-6: To identify the most popular Mutual Funds among individual investors.
B-7: To assess the influence of personal variables on the MF conceptual awareness
level of individual investors.
B-8: To evaluate investor related services that would affect the selection of Mutual
funds.
B-9: To establish a relationship between types of investors and MF qualities that
influence MF/Scheme selection.

Limitations of the Study:

Every work has a particular advantage and disadvantage. So there is
always a boundary line, whatever is to be done. This project work has also same
problem with some disadvantages. The various problems or limitation of the study
are as follows:
1. Sample size is limited to 50 educated individual investors in the city of orissa .
The sample size may not adequately represent the national market.

2. Simple Random and judgement sampling techniques is due to time and financial
constraints.

3. 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.

Despite of certain limitations, efforts has been taken to make the

project report scientific and reliable one as far as possible.

CHAPTER -2
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 METHODOLOGY
Data and Data Sources:

The study mainly deals with the financial behaviour of Individual

Investors towards Mutual funds in orissa. The required data was collected through
a pretested questionnaire administered on a combination of simple random and
judgment sample of 50 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 behavioral aspects of

individual investors, mainly their fund selection behavior, various factors
influencing this behavior and also the conceptual awareness level among individual
investors. The survey was conducted during July 2010, among 50 educated,
geographically dispersed individual investors of Orissa. Sample of the
questionnaire is given in Annex I and Distribution of individual investors by
Demographic factors is given in Annex II, A 2.1. The unit of observation and
analysis of survey is only 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 (i.e., those who earn above Rs. 10, 00,000/- per
annum) and institutions. Since it is an exploratory study no specific hypothesis is
formulated.
• Research Design:
Research design forms the backbone of any research work. In this study the research design is
exploratory.

• Sampling Plan:
The sampling plan is simple random sampling.

• Total Sample Size:

Total sample size consists of 50 people

• Research Tools:
The research tools used in this study is questionnaire survey. The questionnaire survey
was used to obtain data from the respondents

CHAPTER -3

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 MUTUAL FUND CONCEPTUAL FRAMEWORK

CONCEPT
A mutual fund is an investment vehicle for investors
who pool their savings for investing in diversified portfolio of
securities with the aim of attractive yields appreciation in their
value. Mutual funds become a hot favorite of millions of people all
over the world.

A mutual fund is a professionally managed type of

collective investment scheme that pools money from many
investors and invests typically in investment securities (stocks,
bonds, short-term money market instruments, other mutual funds,
other securities, and/or commodities such as precious metals).

The mutual fund will have a fund manager that trades

(buys and sells) the fund's investments in accordance with the
fund's investment objective. In the U.S., a fund registered with the
Securities and Exchange Commission (SEC) under both SEC and
Internal Revenue Service (IRS) rules must distribute nearly all of
its net income and net realized gains from the sale of securities (if
any) to its investors at least annually. Most funds are overseen by
a board of directors or trustees (if the U.S. fund is organized as a
trust as they commonly are) which is charged with ensuring the
fund is managed appropriately by its investment adviser and
other service organizations and vendors, all in the best interests
of the fund's investors.

Definition-
Securities and Exchange Board of India (Mutual Funds ) Regulations , 1996
define “ mutual fund establish in the form of a trust to raise monies through the
sale of units to the public or a section of the public under one or more schemes for
investing in securities, including money market instruments ”

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 PARTIES TO MUTUAL FUND

SPONSER

TRUSTEES

ASSET MANAGEMENT
CUSTODIAN COMPANY

REGISTAR
DISTIBUTER BANKER &
OS/AGENTS
TRANSFER
AGENT
Figure-1.1

TYPES OF MUTUAL FUND-

There are number of mutual funds to suit the needs and preference of investors.
The choice of the fund is linked to the demand of the investor.

To achieve the differing objectives of the investors, MF adopts different

strategy and accordingly offers different schemes of investment.

(A) ACCORDING TO OWNERSHIP

According to ownership, MF in India may be classified as fallows---

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1-Public sector mutual fund

UTI has been functioning in the arena of MF business in India since

1963-64.SBI MF was the 1s’t among all the public sector commercial banks that
started operations during November 1987. There after a number of public sector
organizations like IND bank-MF, CAN bank-MF, BOI-MF, PNB-MF etc. have
joined in the MF business in a short span of time.

2-Private sector mutual fund

Seeing the success and growth of MFs in the Indian capital market, the Govt
of India allowed the private sectors corporate to join the MFs industry on
February 14, 1992. Since then a number of private sector companies have
approached SEBI for permission to set of private MF.

(B) ACCORDING TO SCHEME OF OPERATION

According to the scheme of operations the MF s could be divided into

three categories as follows

1-Open-ended schemes/Funds-

Open ended scheme means a scheme of MFs which offers units of sale
without specifying any duration for redemption. These schemes do not have
a fixed maturity and entry to the fund is always open to investors who can
subscribe it at any time. Similarly, the investors have an option to get their
holdings redeemed at any time. The fund redeems or repurchases the units at
periodically announced rates. These repurchase’ are based upon the net
current assets value of the fund.

Features:-

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 1) There is a complete flexibility with regard to one’s investment or dis
investments .In other words; there is free entry and exit of investor in
open ended fund.

2) There units are not publicly traded but, the fund is ready to repurchase
them and resale them at any time.

3) The investor is offered instant liquidity in the sense that the units can be
sold on any working day to the Fund. In fact, the operates just like a bank
account where in one can get cash across the counter for any number of units
sold.

4) The main objective of this fund is income generation. The investors get
dividend, rights or bonuses as rewards for their investment.

5) Since the units are not listed on the stock market. Their prices are linked
to the Net Asset Value (NAV) of the units. The NAV is determined by the
Fund and it varies from time to time.

2-Close-ended Schemes/Funds-

A close ended scheme means any scheme of MF in which the period of

maturity of the scheme is specified. Unlike open ended funds, the corpus of
closed ended scheme is fixed and investors can subscribe directly to the
scheme only at the time of initial issue. After the initial issue is closed, a
person can buy or sell the units of the scheme in the secondary market i.e.,
the stock exchanges where these are listed.

Feature:-

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 1) The period and the target amount of the fund is definite and fixed
beforehand.

2) Once the period is over and/or the target is reached, the door is closed for
the investors. They cannot purchase any more units.

3) These units are publicly traded through stock exchange and generally,
there is no repurchase facility by the fund.

4) The main objective of this fund is capital appreciation.

5) At the time of redemption, the entire investment pertaining to a close-end

scheme is liquidated and the proceeds are distributed among the unit holders.

6) If the market condition is not favourable, it may also affect the investor
since he may not get the full benefit of capital appreciation in the value of
the investment.

3- Interval Schemes/Funds-

An interval scheme is a scheme of MF which is kept open for a specific

interval and after that it operates as a closed scheme. Thus,

It combines the features of both open ended as well as close-ended schemes.

Interval schemes have been permitted by the SEBI in recent year only.

(C) ACCORDING TO PORTFOLIO -

MFs can also be classified according to portfolio or the objectives of the

fund. Some of these funds are discussed as follows:

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 1-Income Fund-

These funds aim at providing maximum current return /income to the

investors. The investments are made in stocks yielding higher returns and
capital appreciation is of small importance. Such funds distribute the income
earned by them periodically amongst the investors. There may be income
funds of two types; some funds may concentrate on low risk, constant returns
while others, may aim at maximum returns at the cost of some risk.

2-Growth Funds-

These funds aim at providing capital appreciation in the value of

investment. Such funds invest in growth oriented securities have a potential
to appreciate in long run. Growth funds concentrate on value appreciation of
securities and not on the regularity of income and are also known as “Nest
eggs” or “Long haul” investment. However, the risk involved in such funds
is higher than the income funds.

3-Balanced/Conservative Fund-

Balance funds spend both on common stock and preferred stock.

some part of funds is spend on buying equity while other part is used in
acquiring interest bearing debentures and preference shares ensuring certain
amount of divided. Some funds generally spend half the funds on equity
stock while the other half is spent on preferred stock. Balanced funds ensure
both appreciation in stock as well as regular return in the space of interest
and dividend.
4-Stock/Equity Fund-
These funds mainly invest in shares of the companies. The
investment may vary from “blue chip” companies to newly established
companies.stocks fund may have further sub-division such as income funds
and growth funds. A special type of equity fund is known as “ index fund ”
or “never beat market fund ”.

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 5-Bond Fund—
These funds employ their resources in bonds. These investment
ensure fixed & regular income. Sometimes bonds are available in the market
at lower than face value, the net income on these bond goes higher because
interest will be received on the face value of the bond.

6-Specialised Funds-
These funds invest in a particular type of securities. The funds may
specialize in securities of companies dealing in a particular product, firms in
particular industry or certain income producing securities. Any investors
wanting to invest in a particular security will prefer a fund dealing in such
security.
7-Leverage Funds-
The primary aim of leverage funds is to maximize capital
appreciation. These funds may use even borrowed fund for buying
speculative stock which ensure a profit in the future.
The cost of raising loan funds and the gain from holding shares is the
profit of the leverage fund. The leverage is used to the benefit of the
shareholders.
8-Taxation Fund-
MFs may be designed to suit the tax payers. The contributors to such
fund get some concession in income tax. The investors are required to keep
the money with the fund for a certain period called lock up period which at
present is 3 years in India. These funds among the unit of holders.
9-Money Market Mutual Funds (MMMF) –
MMMF means a scheme of a mutual fund which has been set up with
the objective of investing exclusively in money market instruments. These
instruments include treasury bills, dated government securities with an
unexpired maturity of up to 1 year, call and notice money, commercial paper
and bills accepted by banks and certificates of deposits. While equities and
bonds or debentures dominate the portfolio of “capital market mutual funds”
the money market instruments constitute the only portfolio of “money
market mutual funds” .

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(D) ACCORDING TO LOCATION-

Mutual fund can also be classified on the basis of location from

where these mobilise funds, as:

1-Domestic Funds –

These are funds which mobilise savings of people within the country
where investments are made. Domestic funds can further be sub-divided on the
basis of scheme of operation or portfolio as discussed in the earlier pages.

2-Off-shore Funds –

Off-shore mutual funds are those which raise or mobilise funds in

countries other than where investments are to be made. These funds attract
foreign savings for investment in India.

(E) OTHERS TYPES MUTUAL FUNDS-

In addition to the above mentioned mutual funds, there can be some

other types of mutual funds also such as, “Loan Funds” and “Non-Loan
Funds” based upon the expenses/fees to be changed; ‘Hub and spoke
funds’ which are basically fund of funds, etc.

CRITERIAN IN SELECTION OF MUTUAL FUND

It is very important to carefully analyse a mutual fund before one chooses
the right fund for himself .the fallowing are a set of features to be looked into in a
mutual fund.

(a) Fund manager’s track record --- The fund manager’s should have proven
track record as efficient fund management is able to create confidence in the
mind of the investor.
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 (b) Portfolio quality— High credit ratings of investments means that the fund is
investing in low risk instruments, indicating portfolio safety.

(c) Number of retail investors and average holding size--- It is easier to

deploy and manage small funds but even if a few investors leave it, a small
fund could be in trouble.

(d) Size of fund--- Critical mass gives access to opportunities not available to
smaller fund.

(e) Weighted average maturity—Longer maturities hedge against downward

movement in interest rates while it could lose out on short-term upswings in
interest rates. Short maturities project against rising interest rates.

(f) Sudden change in portfolio or NAV—This might be a case of a revamp of

the portfolio for good but also beware that it might suddenly be open to more
risk due to a change in investments.

(g) Dividend frequency—Tax free dividends are good for those looking for
regular returns but frequent dividends can hinder capital growth through
redeployment.

PRONS & CONS OF MUTUAL FUND INVESTMENT

Benefits –

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Professional management-The funds are managed by skilled and professionally
experienced managers with a back up of a research team.

Portfolio diversification-Mutual funds generally invest in a well-diversified

portfolio of securities which reduces the risk. This enables even small investors to
hold a diversified investment portfolio.

Professional Management- The funds are managed by a highly skilled and

professionally experienced managers with a back of a research team. Small
investors cannot hire such professionals, but can get the benefit through investing
in mutual funds.

Liquidity- Investors hold those shares or bonds which they cannot sell as per their
convenience and intention. But an investors who have made investment in mutual
funds can liquidate the investment by selling the units back to the MF (open-ended
funds) or in the open- market (close -funds)

Reduction in Transaction Costs- A direct investor into shares bears the entire
cost of investing such as brokerage charge and custody of securities. Investing
through a MF gives the benefit of economies of scale, the MFs incur lesser costs
because of larger volumes, a benefit passed on to their investors.

Convince and flexibility—Investor can easily transfer /switch their holdings from
one scheme to another within the same MF.

Transparency—The investor also get updated information about the funds.

Safety-In India all MF are register with SEBI and strictly regulated as per the
mutual fund regulation which provides excellent investor protection.

Low cost of management—No mutual funds can increase the cost beyond
prescribed limit 2.5% maximum and any extra cost of management is to be borne
by the AMC.

High returns-Over a medium to long term investments, investors always get

higher return in mutual fund as compared to other avenues of investment.

Drawbacks-----

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No control over cost--- An investor in a mutual fund has no control over the
overall cost of the investing. H e pays investment management fees as long as he
owns units in the fund.

Difficulty in selection of fund – A large veriety of mutual fund schemes often

makes the choice difficult for a common investor . one may need professional
advice in selecting the appropriate scheme.

Fund manager’s shifting loyalties-performance of funds could be severely

affected by shift of fund managers or their loyalties.

GROWTH OF MUTUAL FUND INDUSTRY IN INDIA

Massachusetts Investors Trust (now MFS Investment Management) was

founded on March 21, 1924, and, after one year, it had 200 shareholders and
$392,000 in assets. The entire industry, which included a few closed-end funds,
represented less than $10 million in 1924.

The stock market crash of 1929 hindered the growth of mutual funds. In
response to the stock market crash, Congress passed the Securities Act of 1933 and
the Securities Exchange Act of 1934. These laws require that a fund be registered
with the U.S. Securities and Exchange Commission (SEC) and provide prospective
investors with a prospectus that contains required disclosures about the fund, the
securities themselves, and fund manager. The Investment Company Act of 1940
sets forth the guidelines with which all SEC-registered funds must comply.

With renewed confidence in the stock market, mutual funds began to

blossom. By the end of the 1960s, there were approximately 270 funds with $48
billion in assets. The first retail index fund, First Index Investment Trust, was
formed in 1976 and headed by John Bogle, who conceptualized many of the key
tenets of the industry in his 1951 senior thesis at Princeton University.[2] It is now
called the Vanguard 500 Index Fund and is one of the world's largest mutual funds,
with more than $100 billion in assets.

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 A key factor in mutual-fund growth was the 1975 change in the Internal
Revenue Code allowing individuals to open individual retirement accounts (IRAs).
Even people already enrolled in corporate pension plans could contribute a limited
amount (at the time, up to $2,000 a year). Mutual funds are now popular in
employer-sponsored "defined-contribution" retirement plans.

As of October 2007, there are 8,015 mutual funds that belong to the
Investment Company Institute (ICI), a national trade association of investment
companies in the United States, with combined assets of $12.356 trillion. In early
2008, the worldwide value of all mutual funds totaled more than $26 trillion.

CHAPTER -4
FINDINGS

FINDINGS OF THE STUDY:

The survey conducted during July, 2010, in Orissa, to capture
investor behavior pattern in selection of MFs, reveals the following.
1.Savings Objective of Individual Investors

Savings Objective of the majority of Individual Investors is ‘to

provide for Retirement’, 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. Savings Instrument Preference among Individual Investors

Asset preference pattern of investors provides an insight into the

investment attitude of investors, which will influence the policy formation for
garnering the individual savings. The study reveals that ‘Pension and Provident

IMIT,CUTTACK Page 20
Fund’ are the most popular savings instrument among individual investors of
orissa, as it is one of the few financial products, which enable an average salaried
person to get reasonable and regular returns, along with safety of capital.

3. Current Attitude of Individual Investors towards the Following Financial

Instruments, In the Indian Capital Market.

Every asset class has different characteristics. Stocks have the

potential to provide high total returns with proportionate level of risk, while bonds
may provide lower risks along with regular income. The attitude of every
individual investor may be influenced by their investment goals, risk tolerance,
time horizon, personal circumstances or performance aspect of the asset class.
As MF is an ideal vehicle for both Debt and Equity products, it has the potential to
emerge as one of the major growth drivers of the market in future.
4. Mutual Fund Investment Preference in Future.

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

future as 49% of the respondents have voted towards ‘Yes’. However, 11% have
voted ‘No’ and 40% as ‘Not Sure’ as their preference in future MF investment.
However, the ‘ No’ and ‘ Not Sure’ category should be matter of concern to the
AMCs. There must be ample reasons for 51% (11 + 40; No and Not Sure category)
of the investors to have posed a negative approach towards MFs.

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

5. Mutual Fund Scheme Preference among Individual Investor

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.

IMIT,CUTTACK Page 21
6. 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.
7. 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 ‘ Good Return’ is highest among other features, followed by
Safety, Liquidity, Tax Benefit, Capital Appreciation, Professional Management and
Diversification Benefits.

8. 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 & 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 & 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.

9. Preferred Mode of Communication in Mutual Fund Investing Among

Individual Investors

The survey reveals that, 29% of the respondents of orissa use Internet facility
to know more about MFs. Another 29% of respondents prefer to get routine or
special information like NAV, dividend, bonus, change in asset mix etc. by
personally visiting the office. While 30% of the respondents prefer to
telephone the office and 12% in the survey have no preferences. The results of the
study show that almost equal importance is given to all modes of communication.
This gives the message of catapulting improvement in Internet and
telecommunication services in India. Now-a-days financial services are ‘ just
a phone call away’ . There is also possibility of more usage of automated services
if made more.

10. Preference of Mutual Fund Investing Over Equity Investing

IMIT,CUTTACK Page 22
 The emergence of an array of savings and investment options and the
dramatic increase in the popularity of Mutual Funds, in the recent years in India,
has opened up an entirely new area for value creation and management. The causes
are many; lack of opportunity, lack of conceptual understanding and the influence
of fixed income orientation in the Indian culture.The study too revealed that 48%
of the small investors of Orissa preferred to invest in MFs .
11. Mutual Fund Conceptual Awareness Level of Individual Investors

Investors, while taking their investment decisions use unique internal

characteristics (influenced by their cognitive domain) and also yield to the
environmental pressures of the external financial markets. ‘ Awareness’ belongs to
the cognitive domain. Hence, it is essential for the AMCs to know the level of
awareness about MFs among the investing public. This will enable them to create
an external environment that can influence investment decisions of investors. The
study reveals that the general awareness level among individual investors of the
concept and functioning of MFs is good. The number of respondents who have
good awareness level of MFs results to 53%. This could be attributed to the wide
publicity given to MF industry by the media for varied reasons.The challenge
would be to educate these investors about the advantages of investing in mutual
funds compared to traditional saving instruments. The results of Chi-Square test
shows that Awareness level is Dependent only on Academic Qualifications. AMCs
should take note of this and follow a segmented approach in marketing the product
and in creating awareness.

12. Factors Influencing Fund/Scheme Selection by Individual Investors

A set of 25 statements, sub grouped into Fund related factors, Sponsor

related factors and Investor service related factors, were used to assess the scheme
selection behaviour of investors. Among the 11 fund related variables analysed ‘
Fund Performance Record’ was considered as ‘ Highly Important’ ;Lastly
among the analysis of the 8 statements formulated regarding ‘ Investor related
services’ all variables were considered ‘ Important’ except ‘ Fringe benefits’ .

13. Factor Analysis Using Principal Component Analysis

“Often among the many variables you measure, a few are more related to
each other, than they are to others. Factor Analysis allows us to look at these
groups of variables that tend to relate to each other and estimate what underlying
reasons might cause these variables to be more highly correlated with each

IMIT,CUTTACK Page 23
other” , Jeff Miller, Vice President, consulting and analytical, Burke, Inc.This tool
of SPSS 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. Bartlett's

test of sphericity and Kaiser- Meyer Olkin (KMO) measure of sampling adequacy
were used to examine the appropriateness of factor analysis. The approximate chi-
square statistic is 249.175 with 55 degrees of freedom, which is significant
at .000 levels. The KMO statistic (0.810) is also large (>0.5) Hence factor analysis
is considered an appropriate technique for further analysis of data.
Retaining only the variables with Eigen values greater than one (Kaiser's
criterion), we can infer that 34.818% of variance is explained by factor 1; 10.857%
of variance is explained by factor 2 and 9.277% of variance is explained by Factor
3 and together, all the factors contributed to 54.952% of variance. Factor loadings
are very high in case of factor 1(9 out of 11 variables have factor loading >0.5).
Therefore, Varimax Rotation was done to obtain factors that can be named and
interpreted. Under Varimax Rotation 5 out of 11 variables have factor loadings>0.5
in case of factor 1. This reveals that 45% of variables are clubbed into one factor.
On the basis of Varimax Rotation with Kaiser Normalisation, 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 investor’ s 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

IMIT,CUTTACK Page 24
Image) accounts for 17.735% of variance and factor 3 accounts for 16.624% of
variance and all 3 factors together explain for 54.952% 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 wouldn’ t 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 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 Investor Related Services

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 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
IMIT,CUTTACK Page 25
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.

15. Multinomial Logistic Regression

Multinomial Logistic Regression (MLR) can be used to predict a dependent

variable on the basis of independents and to determine the percent of variance in
the dependent variable explained by the independents, to rank the relative
importance of independents and to assess interaction effects. In this
study, MLR was employed to seek a relationship between Fund qualities that affect
selection of MFs/Schemes and types of investors.
Segmentation of investor groups involves identifying homogenous groups
of investors who behave differently according to their characteristics. The risk
capacity of an investor also needs to be understood thoroughly for classifying
investors groups. This categorization provides us with an important piece of
information, regarding individual’ s eagerness towards identifying those fund
qualities that influence MF/Scheme selection. The survey asked the investors to
rate their current attitude towards the risky Financial Instruments, Shares, on a 5-
point Likert Scale where 5= Highly Favourable to 1 = Not At All
Favourable. Considering their current attitude, the investors were grouped into 5
types based on their Risk profile and Expectations. Table gives the classification of
Investor groups.

Classification of Investor Groups

Investor Types Risk Profile Expectations

Professional Takes Necessary Risks Maximum Return

Ambitious Highly Risk Taking High Short Term Returns

Moderate Comfortable Levels of Good, Steady Return

Risk

IMIT,CUTTACK Page 26
Conservative Risk Averse Regular Income rather than
Capital Gains

Cautious Extremely Risk Averse Minimum Return/ Capital

Preservation
Figure-1.2

To classify the large number of Fund Qualities into smaller number of factors with
common constructs,Factor Analysis using Principal Component Analysis was
applied. 7 Principal Components out of 25 fund qualities were extracted and
subsequently named. Results of PCA- Identification of factors that affect
MF/Scheme selection is given in Table 6.1. An important part of Factor Analysis is
to generate Factor scores for each case or individual survey respondent. Factor/
Component scores reflect the importance or otherwise of each component to each
respondent. In the present study Anderson-Rubin (AR) Factor scores were obtained
for each respondent, for each of the 7 extracted principal factors. The AR method
of deriving Factor scores generates uncorrelated scores with zero mean and unit
standard deviation. MLR technique was employed to seek a relationship between
the Factor scores and types of investors, to indicate statistically important factors
that influence the Fund selection behaviour of different types of
investors. The latter acted as the dependent variable in the regression procedure and
factor scores were the independent variable. The types of investors, in this study
constitute a categorical dependent variable. MLR is specially designed for
situations in which the dependent variable is categorical or discrete in nature.
Given the 5 categorizations for the dependent variable, MLR is simply a
polychotonomous extension of the widely applied dichotonomous logistic
regression model. Additionally, MLR permits independent variables that may be
factors or covariates. The covariates must be continuous and that is the case for the
survey respondents A-R Factor scores. Analysis of MLR indicated that, in the order
of importance, Principal Factors 5, 3, 4 and 7 (Table 6.3) are the only statistically
significant components that influence an investor’ s selection of MFs/Schemes.

IMIT,CUTTACK Page 27
Interpretation of Significance Tests:
‘Likelihood’ is a probability, specifically the probability that the observed
values of the dependent may be predicted from the observed values of the
independent. The log likelihood is its log and varies from 0 to minus infinity.
In the SPSS output for MLR analysis, Log Likelihood Tests appear as ‘ Sig’ in the
‘ Final’ row in the ‘ Model Fitting Information’ . A well fitting model is significant
at .05 levels or lesser than that. In this study, the ‘ Sig’ value in the ‘ Final’ row in
the ‘ Model Fitting Information’ is .001, which proves the analysis to be a well
fitting model. The chi-square statistic is the difference in -2 log-likelihood between
the final model and a reduced model. Omitting an effect from the final model forms
the reduced model. The null hypothesis is that all parameters of that effect are 0.
Cox/Snell, Nagelkerke and Mcfadden psuedo (r2) co-efficient are 44.1%, 47.8% &
22.7%. If the chi-square statistic shows a small p value (p<=0.05), it is assumed a
good model fit. In the present study; Factor 5, “ Competent Performance”;Factor 3,
“ Flexible Investment Facilities” ; Factor 4, “Reputation” and Factor 7, “Fringe
Benefits” have proved significant among other extracted factors, their p value
being <= 0.05.
Therefore, the outcomes of the MLR analysis, allows the AMCs to
identify which combination of variables have significant influence on the Fund

IMIT,CUTTACK Page 28
selection behaviour of investors. The AMC can then apply this knowledge for
developing marketing strategies for all types of investors, present and potential, and
also identify significant drivers that govern an investors’ selection to
MFs/Schemes.

Hence, the largest gap between investor expectations and service delivery
can be bridged with competent performance, flexible investment opportunities,
reputation and fringe benefits or tangibles, if provided by the AMC. The 21st
century investors look for value added services i.e. personalized attention, tailor-
made investment packages, skills and infrastructure for understanding the needs of
a common investor rather than plain vanilla products. A key question to the
marketing managers of MFs is whether they should concentrate on fund qualities
considered commonly important by investors or the dimensions that drive
satisfaction? In the words of Morgan Stanley Dean Witter4; “In the end, not all
Asset Management (Mutual Funds) 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” .

CHAPTER -5
END PART
CONCLUSIONS
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 and
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
IMIT,CUTTACK Page 29
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, and equity.

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. 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. 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 investor.
PRINCIPAL SUGGESTIONS
• Since the investors need for liquidity is found to be high, we suggest that more of
the new schemes opening for subscription be Open-ended.

• AMCs should continuously design suitable schemes to meet the triple needs of
adequate returns, safety and liquidity in a balanced 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

IMIT,CUTTACK Page 30
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.
• 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.

• 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 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.

IMIT,CUTTACK Page 31
• Advisory services are becoming more critical to investors and independent
financial advisors and planners are gaining ground. The US accreditation body for
Financial Planners was set up in Delhi in the name of Association of Financial
Planners (AFP) and soon professional Certified Financial Planners (CFPs) will be
available to investors to assist them in their financial planning
needs. Banks are planning to enter into advisory services in a big way. An entirely
new distribution channel can be created consisting of professional advisors who
will exert substantial influence on what products investors will buy.

• 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 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.
Suggestions for Further Research:

• The MF operational environment is becoming more competitive. Hence, the

impact of emerging competition on investor behavior / 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.

• 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.

IMIT,CUTTACK Page 32
• 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
behavior 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.

In the words of Morgan Stanley Dean Witter4, "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."

**********
Annex
QUESTIONNAIRE TO PRESENT INVESTORS IN MUTUAL FUNDS
Dear Sir / Madam,
Mutual funds have opened new vistas to millions of small investors by virtually taking
investment to their very doorstep. The scientific investment approach and investor
oriented benefits has made the industry grow to $7.4 trillion by year end 2003.
I am currently engaged in a study on Investors attitude towards Mutual Funds .In
this connection I request You to read the following items carefully and answer them. The
answers your give will be held confidential and used purely for academic purpose.
Please put a tick mark in the square corresponding your choice. I thank you for your
time.
PART A: 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) Academic Qualifications:
School Final Graduate Post – Graduate Professional Degree 
1.5) Marital Status:
Married Unmarried Widow Widower Divorced 
1.6) Occupation:
Professional Business Salaried Retired 
1.7) Annual Income in Rs:
Below Rs 1, 00, 000 Rs1, 00,001 – 3, 00,000 
Rs 3, 00,001–5, 00,000 Above Rs 5, 00,000 
1.8) How much do you save annually (in Rs. Approx)
Less than Rs 50,000 Rs 50,001 to Rs 100000 Above Rs 100000 

IMIT,CUTTACK Page 33
 1.9) Objectives of your savings are :
To provide for Retirement For tax reduction 
To meet contingencies For children’ s education 
For purchase of assets 
1.10) What is your current preference of savings avenue? (Rank from 1 first preference to
10 last preference)
Currency Bank Deposit Life Insurance Pension & Provident Fund Shares
Units of UTI & Mutual funds 
Postal Savings Chits Real Estate Gold 

PART B: Please read the following and give your views:

2.1) What is your current attitude towards the following Financial Instruments, in the
Indian Capital Market?
Financial Highly Favourable Some what Not very Not at all
Instruments Favourable favourable favourable favourable
a) Shares
b) Debentures
c) Mutual
Funds
d) Bonds
2.2) Do you prefer investment in Mutual funds to other savings avenue in future?
Yes No Not Sure 
2.3) Generally you prefer (Please Rank from 1 first preference to 6  last
preference)
Growth schemes Income Schemes 
Balanced Schemes Money Market Schemes 
Tax saving Schemes Index Schemes 
2.4) You prefer:
Open ended Schemes Close Ended Schemes 
Interval Schemes 
2.5) 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 
2.6) There are many qualities that could affect your selection of Mutual funds and Specific
Schemes.
Please indicate importance of the following in your decision.
Highly Important------1 Important---------2
Somewhat Important-3 Not very Important-4
Not at all Important -- 5
I. Fund Related Qualities
a) Fund performance record 
b) Funds reputation or brand name 
c) Scheme’ s expenses ratio 
d) Scheme’ s portfolio investment 
e) Reputation of the Fund Manager/ Scheme
f) Withdrawal facilities 
g) Favourable rating by a rating agency 
h) Innovativeness of the scheme 
i) Products with tax benefits 

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j) Entry & Exit load 
k) Minimum initial investment 
II- Investor Related Services
a) Disclosure of investment objective in the advertisement 
b) Disclosure of periodicity of valuation in the advertisement 
c) Disclosure of the method and the periodicity of the schemes sales andrepurchases in the
offer documents 
d) Disclosure of NAV on every trading day 
e) Disclosure of deviation of investments from the original pattern 
f) MF’s Investor’s grievance redressal machinery 
g) Fringe benefits i.e., free insurance, credit cards,l oans on collateral, tax benefits etc.

h) Preferred MF to avoid problems, i.e., bad deliveries, and unnecessary follow up with
brokers and companies. 
2.7) How did you come to know about Mutual fund investment schemes?
Reference groups ----------------- Internet------------------
Newspapers (general) ------------
Newspapers (business) -----------
Financial Magazines --------------- Television ----------------
Brokers / Agents ------------------
Mail --------------------------------- Stores Display -----------
2.8) While contacting the fund or trying to get routine / special information would you
rather communicate with a computerized automated response system or a person.
(Please tick one response).
I prefer automated response 
I prefer to personally visit the office 
I prefer to telephone the office 
I have no preferences 
2.9) Do you think Mutual fund investing is a best alternative to equity investing?
Yes No Do not know 
2.10) Name a few Mutual funds existing in the Indian capital Market at present, you know
1)
2)
3)
4)

PART C: Please read the following statements and indicate your views by putting a
tick mark in the appropriate square.
( Yes -1, No-2, Don’t know-3 )

3.1) Investment in M F helps you realize the benefits of stock Market investing.

3.2) M F investing gives a definite positive return.

3.3) Return of the Principal amount invested in any MF is assured.

3.4) MF returns and Principal are fully protected and
guaranteed by Association of Mutual funds (AMFI) 
3.5) Bank sponsored Mutual funds give a definite positive return which
is greater than Bank fixed deposits rate for a similar period

3.6) Entry and exit out of Mutual funds is easy


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3.7) Due to professional investment, a good return can be expected ofMutual fund
  
3.8) Ups and downs of stock Market will not affect the return from MF.

3.9) There are many MF schemes to meet the varied needs of investors.

3.10) AMFI protects the interests of MF industry and the unit holders.


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

BIBILIOGRAPHY

REFERENCES BOOKS:
• Gupta, L.C.,- -Mutual Funds and Asset Preference,

• Kishore Ravi. M.—Strategic financial management

• Aggarwal.gupta---Financial Services

JOURNALS AND PERIODICALS:

• Bhatt, M. Narayana,“ Setting standards for investor services”, Economic Times,

• The Journal of Finance

• “Aspects of Investor Psychology” , Journal of Portfolio Management

• “ Stages in life cycle and investment pattern”, The Indian Journal of Commerce

WEBSITES:

• “AMFI-Mutual fund industry”, < http://www.amfiindia.com/mutualind.html

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 • “ Investor Home Online <http://www.investorhome.com/psych.htm

• The Hindu Business line <http://www.thehindubusinessline.com

• “The Rediff Money Special <http://www.rediff.com/money/2000/aug/28spec.htm

• www.google.com

• www.nseindia.com

• www.scribd.com

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