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MS Scholar, Iqra University, Islamabad, Pakistan.
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corresponding author, MS Scholar, Iqra University, Islamabad, Pakistan.
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Associate Professor, Iqra University, Islamabad, Pakistan.
The empirical studies proved that the growth of every business depends upon
customer base. Growth and prosperity of mutual funds depend upon the perception
and behavior of investors. There is a need to understand investors' behavior and pref
erences in selecting a mutual fund. Understanding the behavior of a mutual fund
investor is of great importance, for the firms operating in this industry (Barber,
Terrance Odean, Lu Zheng, 2000). The mutual fund industry of Pakistan is not grow
ing as much as in other developing economies (Daily Dawn, 2009).
The present study aims at investigating the mutual fund industry of Pakistan, this
industry started in 1962 but gained importance after privatization in 2000. The study
is significant for the companies operating in mutual fund industry. The areas identi
fied in the study will help mutual funds to understand their weaknesses as compared
to their competitors and in attracting & retaining investors by focusing on demands.
Furthermore, it is beneficial for new investors to recognize the essential features in
investment decisionmaking.
Prior research. Investment decision is based on the return and the risk associat
ed with the investment. Every investor expects higher gain on investment with low
risk. Mutual funds are the best option for investors to get return with low risk. The
objective of studying related literature is to identify different factors which an indi
vidual investor keeps in mind while making a choice of mutual fund with relation to
the demography of investors. Investment in a mutual fund seems quite a simple deci
sion but there are a number of important behavioral aspects which influence the
process of selecting a particular mutual fund. Prospect theory explains that investors
get distressed by forthcoming losses and get happy by equal gains.
Research studies have examined that the size of a fund is also significant in
attracting investors. Large mutual funds are able to develop better marketing strate
gies and employ more research staff, which provides more organized and updated
information for portfolio selection (Shukla and Van Inwegen, 1995). Some studies
revealed an inverse relationship between fund size and performance. The basic cause
of this performance deterioration is the pressure of the investment and portfolio
selection style becomes aggressive and frequently changes to gain more profits
(Golec, 1996; Ang et al., 1998; Grinblatt and Titman, 1989).
Another important factor which has gained the importance for investors select
ing a mutual fund is the cost of transaction associated with buying and selling done by
a fund manager (Ramasamy et al., 2003). Studies have found inverse relationship
between expense ratio and performance of mutual fund. Performance is measured by
the return derived by an investor. This return decreases as the expense ratio increases.
The increase in expense ratio is caused by the active trading strategy of a fund man
ager. For active trading a fund manager has to deploy a large research team. Investors
tend to select a fund in which transactions are less in number and resultantly having
low expense ratio (Liljeblom and Loflund, 2000). Mutual funds with low expense
ratio are more advantageous for investors than the funds with high ratio (Ippolito,
1989; Elton, Gruber and Blake, 1996 and Golec, 1996).
The characteristics of a fund manager are also considered by the investors while
selecting a particular mutual fund because a manager of a fund decides: how much to
invest? When to invest? Where to invest? Some characteristics are of great concern for
investors like experience, qualification, and investment style of fund manager. Shukla
and Inwegen (1995) analyzed performance of local and foreign mutual fund man
agers and found that local fund managers outperformed. The reasons behind their
better performance are: proper knowledge and information about taxes, legal and
institutional constrains, portfolio selection and street information. Therefore, local
fund managers have more access to a market and information, which help them in
making the right investment decision (Ang, Chen and Lin, 1998).
Golec (1996) explained that performance of a particular fund associates with
experience of a fund manager. It is also found that the age of a manager is not a sig
nificant factor which can influence performance. Good analytical skills acquired by
a manager with experience and having valuable market information are two traits of
a manager which yield better returns (Ang et al., 1998). Management style of man
agers does matter for performance as well as for investors' choice. If a fund manager
is persistent in his investment strategy then positive performance results are achiev
able. Qualification of a fund manager has not any significant importance in affecting
fund performance (Indro, Jiang and Hu, 1998).
Method. Mutual funds have both institutional and individual investors. The tar
get population of the study is individual mutual fund investors in Pakistan. The
researchers used a nonprobability, purposive sampling technique. The sample was
selected after getting investors' data from 23 mutual fund companies. The sample data
was purposively collected from the investors having investment more than PAK Rs.
2,00,000. The data is collected through a pretested questionnaire from the subjects.
The questionnaire was adapted from the research on Malaysian capital market by
Ramasamy and Matthew (2003). They studied the investor preferences at Malaysian
mutual fund market. They administered their survey on financial advisors. The
aspects in demography of the respondents are given in Table 1.
Table 1. Demographics of Respondents
Gender % age Marital status % age
Male 79 Married 76
Female 21 Unmarried 6
Age Widow 12
30–40 6 Divorced 6
41–50 23 Occupation
51–60 60 Business 56
61 and above 11 Salaried 15
Education Retired 12
Undergraduate 6 *Others 17
Graduate 17 Annual Income
Postgraduate 74 > 500,000 15
MS/PhD 3 5,00,001–7,50,000 17
7,50,001–1,000,000 23
< 1,000,001 45
* others are household savings.
In the first part the respondents were asked about their demographic informa
tion. In the second part the respondents were asked to select their preferred charac
teristic of a mutual fund which they want in their fund. These choices are given below
in Table 2. Total 1530 questionnaires were distributed among population of the study
and the response was 22%. Total number of the useable responses was 337.
The respondents were asked to choose only one item against each mentioned
characteristic of a mutual fund and from first to last the researchers aimed at finding
investor preferences in every area. Independent sample ttest and analysis of variance
(ANOVA) were applied on the collected responses. For ttest the hypotheses of the
study are as follows:
H1: There is a significant difference between male and female investors in selecting
mutual fund upon the basis of past performance of mutual fund.
H2: There is a significant difference between male and female investors in selecting
mutual fund upon the basis of experience of fund manager.
H3: There is a significant difference between male and female investors in selecting
mutual fund upon the basis investment style of fund manager
H4: There is a significant difference between male and female investors in selecting
mutual fund upon the basis fund type.
H5: There is a significant difference between male and female investors in selecting
mutual fund upon the basis of affiliation of mutual fund.
H6: There is a significant difference between male and female investors in selecting
mutual fund upon the basis of number of funds managed.
Table 3. Mutual Fund Selection Behavior between Male and Female Investors
(Independent Sample ttest, N = 337)
Variables Gender Mean P-value Hypotheses
Performance Male 2.7164 0.032 Accepted
Female 1.5797
Experience of Fund Manager Male 2.0000 0.000 Accepted
Female 1.2899
Investment Style of Fund Manager Male 1.8291 0.000 Accepted
Female 1.0000
Fund Type Male 1.5582 0.040 Accepted
Female 2.2754
Affiliation of Mutual Fund Male 1.7836 0.005 Accepted
Female 2.8551
Number of Funds Managed Male 1.7836 0.005 Accepted
Female 1.0551
The results of the independent sample ttest show that all the hypotheses are
accepted and gender has created a difference in choosing a mutual fund for invest
ment. All the calculated Pvalues are less than P < 0.05 showing a significant differ
ence. Upon the basis of calculated Pvalue all assumed hypotheses are accepted.
The results of ANOVA show there is a significant difference (P = .0000 and F
Statistics = 11.292) within a group in selecting a mutual fund upon the basis of their
age differences. Age groups 30–40 and 61 and above have same response for past per
formance having mean value 3.0000. Other two groups have means 2.1718 and 2.2250
respectively. This shows a preference for consistent growth over the last 5 years. All the
age groups of respondents preferred more than 7 years experience of fund manager
except second age group (mean = 1.2154). Young investors prefer aggressive style,
stock fund and affiliation with financial institutions for their funds.
Other demographic aspects are qualification of an investor, marital status, occu
pation, and income level. Postgraduate investors like impressive growth last year with
mean 2.1200. They are the investors who like aggressive investment style with mean
2.0000 and stock fund with mean 1.2680. Their presence is for diversified fund hav
ing mean value (1.8550). Unmarried investors prefer impressive growth last year with
mean 2.0000 and aggressive investment style along with preference for stock fund.
The results show that widows like to choose less risky investment option. Retired peo
ple are also afraid of taking risk and like consistency of the fund performance. They
are conservative in investment style and prefer to invest in fund affiliated with gov
ernment with mean value (3.0000, 1.0000, and 1.0000 respectively). Average income
level groups i.e., 500,000–750,000, 750,001–10,00,000 are more risktaking. They
have aggressive investment style and like to invest in stock funds.
Discussion. Present study has investigated the effects of demography of the
investors on the selection of mutual funds for their investment decisions. The results
have shown there is a significant difference in different demographic aspects on
choice of investors. The first hypothesis of the study is based upon the dichotomy of
the respondents; the males and females have different choice about the funds upon
the basis of performance and fear of investment loss (Danial and Amos, 1979). There
is a significant difference of choice of mutual fund among male and female investors
with significant Pvalues less than .05. The investors make their investment decision
upon the basis of their knowledge about the attributes of their investment options
(Shukla and Inwegen, 1995).
The analysis of variances (ANOVA) indicates that several factors are important
for an investor while selecting a mutual fund. ANOVA results show that demography
of investors significantly affects selection behavior. They consider some attributes of
mutual funds more important than others. The results depict that mutual funds must
have consistent growth for past 5 years. This consistent growth will help funds to
attract a large pool of investors (Ramasamy and Matthew, 2003). Young investors are
found more risk taking than the investors in other age groups and they prefer to select
stock funds for their investment having mean value of 1.000. It has also been observed
that the age group of 41–50 requires regular cash inflows, therefore they choose
income fund for their investments (mean = 2.359). The old age investors are risk
averse. They select conservative investment style and pension funds for them (mean
= 2.5128). There is a significant impact of education of investors on their selection
behavior. Less educated investors select stock fund while more educated gave mixed
response for given categories of mutual funds. Unmarried investors are more aggres
sive. They tend to invest in funds whose managers' investment style is aggressive
(mean = 1.000). Widows investor are risk averse therefore they select pension funds
with mean = 2.487. Only retired investors like to invest in pension funds. Pension
funds should focus on this segment of the market.
Practical implications & future research. The study aims at investigating the
investor selection behavior towards a mutual fund. This study is helpful to companies
operating in mutual fund industry of Pakistan. The results of the study will help fund
managers in attracting and retaining investors. Mutual fund managers may also offer
new services and funds to attract/retain investors. Furthermore, managers can suggest
investors to invest in different types of funds based on demographics. Individual
investors can inspect the characteristics of funds before selection an investment.
Future researchers can take some other categories of investors for analyzing their
preferences in selecting mutual funds. Secondly, further research can add more char
acteristics of mutual funds like fund size, transaction cost and corporate social
responsibility of mutual funds. Along with this, future research can produce better
results by increasing the sample size.
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