IRJMST Vol 8 Issue 10 [Year 2017] ISSN 2250 – 1959 (0nline) 2348 – 9367 (Print)

Investors’ Attitude towards Mutual Funds: A Study on Retail Investors

Sushil kumar1 Dr. Rajneesh Ahlawat2

Research Scholar Sr. Assistant Professor
Dept. of Business Administration Dept. of Business Administration
Chaudhary Devi Lal University, Sirsa Chaudhary Devi Lal University, Sirsa
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Abstract

During the past decades the Financial Market of India witnessed extraordinary innovations
and developments. These developments is narrate to lot of financial alternatives such as Insurance,
Mutual Funds, a variety of financial services such as Factoring, Merchant Banking etc. It is the fact
that financial security is considered a very much important factor in the Investors’ life. The decisions
like where to invest, when to invest and how much to invest are complex for a common investor. The
reason behind this approach is that Investing directly in stock market is a risky task containing
careful judgment regarding the valuation of stocks. In the last few years there are plenty of
investment alternatives have been emerged. The investors have to choose the best among the
different investment alternatives. Basic choice for the investors is to either invest directly into stock
markets or they can invest directly through the Financial Intermediaries. Financial Intermediaries
collect the saving of investors and invest their funds in the portfolio of the Financial Assets. This
study is carried out with the help of ANOVA taking a sample of 150 retail mutual fund investors from
various areas.

Key Words: Retail Investors, Financial Market, Financial Intermediary

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Introduction

India is undeniably emerging as the next big investment place, riding on a high investment
and saving rate, as compared to other Asian Economies. As per the report, “The World 2050”,
published by PwC, The average growth rate of India was probable to be in the range of 5.8 percent
between 2007-50. In India maximum population is less than 25 years of age with proportion of
working population over the next decade. The personal income of young generation is increasing
along with the HNI (High Net worth Income) segment. As per the one of the estimate in India there
are more than 120,000 dollar millionaires and it is increasing. Over the next two decade India is
expected a strong middle class of 500-600 million. Since the 1990’s when the private sector entered
in the Mutual Fund, the industry has traversed a long path. Over the last two years, the growth rate of
AUM (Asset under Management) is slowing down due to the economic and financial crises which
crooked the confidence of investors and also suffered a dent. From the last few quarters, the sale of
mutual funds has revitalized which implies regained confidence of investors.

The Indian Asset Management Industry has been on a positive track regarding the growth
diagonally the world. The Indian Mutual Fund industry has surpassed the level of 2007 due to the

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arisen of Economic and Financial crises. This industry has witnessed outstanding growth even with
the discontinuities in the recent years. The GDP growth rate of India has been quilted, primarily due
to the decline in the industrial production. In the next decade, the rate of GDP may lies between 6.5
to 8 per cent after the current initiatives undertaken by the government and regulatory bodies such as
SEBI. The Indian Mutual Fund industry needs to capitalize this momentum. Although, the industry
needs to resolved such as low level of penetration, low level of financial literacy and limited
distribution network to top few cities. The mutual fund industry needs to be spread the distribution
network to reach the semi-urban and rural segments. And further, the Indian population is largely
under-banked with a very low level of financial inclusion. The degree of under-penetration in the
market is a stinging point with the banking and financial services industry as a large amount of
savings is now being channelized into Real Estate and Gold rather than the capital market.

Review of Literature

Madhusudhan V Jambodekar (1996)1 studies the awareness of Mutual funds among investors to
identify the information sources influencing the buying decision and the factors influencing the
choice of a particular fund. The study reveals among other things that income schemes and open
ended schemes are more preferred than Growth Schemes and Close Ended Schemes during the then
prevalent Market conditions investors look for safety of Principal, Liquidity and Capital appreciation
in the order of importance; Newspapers and Magazines are the first source of information through
which investors get to know about Mutual Funds/Schemes and Investor Service is a major
differentiating factor in the selection of Mutual Fund schemes.
Houge & Wellman, (2005), studied that several high-flying mutual fund companies were
investigated for illegal trading practices in 2003. The study also explored the investor reaction
towards these kinds of illegal practices. Such kind of Mutual funds managed by investigated firms
showed a sizeable decline in post-announcement assets under management.
P. Hanumantha Rao and Vijay Kr. Mishra (2007) explained the relationship between investors’
needs and mutual fund. The study examined that most of the schemes were distributed among the
investors according to their investment objective. The study also explored the various varieties of
schemes available for the investors according to their risk taking capabilities. It has been examined
that Equity schemes are considered risk than debts schemes.
Cederburing(2008), examined the behavior of mutual fund managers given their incentive structure.
The study revealed that if fund inflows were unrelated to performance in recessions, the incentive
structure for mutual fund managers changed across the business cycle. The study also explored the
risk taking behavior of managers in response to performance-flow sensitivity.
Walia & Kiran (2009), analyzed investor’s perception and expectations towards the mutual funds
while introducing any financial innovations. The study focused on investors exepectations and
unrevealed parameters which caused for investor dissatisfication.
V.Ingle (2010), focused on the expertise of mutual fund investment. The study examined that due to
lack of expertise, a huge number of retail investors failed to make a best suited investment portfolio.
It has been found in the study that retail investors today have a wide range of mutual fund products
but with the lack of expertise the retail investors are unable to diversify their portfolio

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Athma & Kumar (2012) examined the potential of the mutual fund retail investors while purchasing
the mutual fund schemes. It was found that the investors prefer to purchase those schemes which are
according to their expectations and satisfy their needs. So it was found that they give the preference
to open ended schemes than the closed ended schemes. The study concluded that Mutual fund
industry is growing but still there is need to create more efforts to meet the expectations of the retail
investors.

Sachdeva, Bhatia & Kalra (2013) analyzed the decision pattren of retail investors while purchasing
mutual funds. It was found that investors take decision for purchasing the mutual fund scheme on the
basis of past performance of the scheme and higly influnced by the historical high and low return.
Further it was found that investment decision taken by the investors are not always rational while
making their portfolios and they behave on status quo. The study concluded that various altenative
are available to help the investors to make a better decision regarding the purchasing of mutual fund
schemes.

Research Methodology

It contains problem statement, research design, research objectives, research hypotheses,

sample selection, sampling design, data collection method, data collection instrument, and statistical
techniques.

Objective of Study

1. To find out the opinion of Mutual Fund retail investors with respect to low level of financial
inclusion and under penetration of Banking and Financial Services.

The study is exploratory cum descriptive, exploratory research design is used by developing
hypotheses

H01: There is no significant difference in respondent opinion with respect to low level of financial
inclusion and under penetration of Banking and Financial Services on the basis of age

Sampling and data collection

Sample of 150 retail mutual fund investors has been collected, Judgmental sampling is used. The
study is based on primary data with a set of questionnaire containing 20 research statements.

Statistical Technique

One Way Analysis of Variance (ANOVA) has been used as statistical technique in present study.

Data Analysis and Interpretation

Sr. Research Statements Age N Mean SD Sig

No value
20-30 11 1.18 .405
1 The Banking facilities are still not available for 31-40 86 1.50 .503 0.95
large Indian population 41-50 45 1.49 .506

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51-60 8 1.75 .463

Total 150 1.49 .501
Low level of financial literacy among the people is 20-30 11 1.45 .522 0.38
2 responsible for limited reach of BFSI (Banking, 31-40 86 1.76 .432
Financial Services and Insurance) Sector in India 41-50 45 1.67 .477
51-60 8 1.38 .518
Total 150 1.69 .465
A large amount of Investors’ savings in India is 20-30 11 1.00 .001
3 being invested into Gold and Real-Estate rather than 31-40 86 2.00 .001 0.06
the Capital Markets 41-50 45 3.00 .001
51-60 8 4.00 .001
Total 150 2.33 .692
Most Indians feel that Gold and Property are less 20-30 11 2.18 .603
risky investment alternatives as compared to 31-40 86 2.29 .482
4 direct/indirect investment in Capital Markets 41-50 45 2.67 .477 0.01
51-60 8 2.88 .354
Total 150 2.43 .523
Lack of Investor awareness about Mutual Funds 20-30 11 2.27 .647
results into low retail participation in Mutual Fund 31-40 86 2.84 .838 0.01
5 products 41-50 45 3.60 .889
51-60 8 3.88 1.246
Total 150 3.08 .966
Lack of easily accessibility, reach and distribution 20-30 11 1.00 .001
6 to retail investors is responsible for low level of 31-40 86 1.00 .001
retail participation 41-50 45 1.00 .001 0.23
51-60 8 1.00 .001
Total 150 1.00 .001
7 Most of the mutual funds investors come from Tier- 20-30 11 2.82 1.401
I (Metro Cities) in India 31-40 86 3.20 1.336 0.46
41-50 45 3.47 1.290
51-60 8 3.13 1.246
Total 150 3.25 1.321
8 Investors in Tier-I Cities are significantly better 20-30 11 4.55 .688
informed about the risks and benefits of Mutual 31-40 86 4.33 .743 0.82
Fund products than Investors in Tier-II / Tier-III 41-50 45 4.33 .826
Cities due to better education and awareness 51-60 8 4.25 1.035
Total 150 4.34 .776
The Mutual Fund market in India has a considerable 20-30 11 4.45 .688
amount of untapped latent potential (particularly in 31-40 86 4.33 .846
9 Tier-II and III towns) because of low awareness 41-50 45 4.40 .751 0.73
51-60 8 4.63 .518
Total 150 4.37 .790

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Mutual Funds being “market-driven” are considered 20-30 11 4.00 .894

10 risky whereas Bank FDs ( High Interest rates) are 31-40 86 4.19 .847
believed to be risk-free 41-50 45 4.16 .824 0.41
51-60 8 4.63 .518
Total 150 4.19 .831
Mutual Fund Investor in India is not adequately 20-30 11 4.73 .467
11 informed about favorable risk-reward ratio of 31-40 86 4.35 .699
Mutual Fund products in comparison to alternative 41-50 45 4.24 .773 0.21
investment options 51-60 8 4.50 .535

Total 150 4.35 .706

Mutual Fund consumers are generally not aware 20-30 11 4.09 1.044
12 about their life-stage needs and product-solutions 31-40 86 4.19 .759
suitable for future needs (like education/children 41-50 45 3.93 .889 0.11
marriage, retirement and old age etc.), leading to 51-60 8 4.63 .518
mis-selling Total 150 4.13 .822
Low financial literacy among both the consumers 20-30 11 4.18 .751
13 and distributors create a problem in selling of the 31-40 86 4.24 .766
“right kind” of Mutual Fund products, leading to 41-50 45 4.20 .815 0.94
mis-selling 51-60 8 4.38 1.061
Total 150 4.23 .789
14 Most of the time, the Distributor (selling a large no 20-30 11 3.18 1.401
of products) is unable to give proper guidance to the 31-40 86 4.16 .824
consumer due to limited knowledge 41-50 45 4.09 1.041 0.01
51-60 8 4.38 .744
Total 150 4.08 .966
Indian Mutual Fund market is primarily dependent 20-30 11 4.18 .982
15 on push sales, tax incentives by the Government 31-40 86 4.41 .859
(for tax-free Mutual Fund products) and mandatory 41-50 45 4.31 .733 0.78
SIP (Systematic Investment Plan) payments 51-60 8 4.25 .707
Total 150 4.35 .820
Entry of large number of domestic and foreign 20-30 11 4.27 .905
16 Mutual Fund players has brought healthy 31-40 86 4.23 .697
competition in the market and led to the rapid 41-50 45 4.22 .902 0.99
growth of the Industry by offering new products and 51-60 8 4.25 .463
distribution channels Total 150 4.23 .763
20-30 11 3.36 1.286
The Mutual Fund Industry is currently experiencing 31-40 86 3.88 .999 0.41
17 a slowdown with rising administrative costs and a 41-50 45 3.96 1.127
poor distribution structure, beyond big cities 51-60 8 3.75 1.035
Total 150 3.86 1.062
The investors prefer to invest towards relatively- 20-30 11 3.36 1.206

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18 safe investment options like debt segment not 31-40 86 3.49 1.176 0.34
wanting to undertake risk in volatile and uncertain 41-50 45 3.82 1.134
equity markets 51-60 8 3.88 .991
Total 150 3.60 1.159
The reason behind the declining AUM (Asset under 20-30 11 4.27 1.421
19 Management) under the equity segment implies that 31-40 86 4.66 .679
investors worry about the high risk involved in 41-50 45 4.62 .777 0.39
equity investments in volatile markets 51-60 8 4.38 1.061
Total 150 4.61 .802
20-30 11 4.09 .831
20 Declining total number of folios (despite significant 31-40 86 4.37 .783
growth in AUM) is a significant cause for concern 41-50 45 4.22 .876 0.54
for Mutual Fund Companies in India 51-60 8 4.13 .835
Total 150 4.29 .816

The above table depicts the results come after ANOVA Test. The results show that out of 150
respondents, majority of agree with opinion of mutual fund retail investors regarding low level of
financial inclusion and under penetration of Banking and Financial Services since p value is more
than significant value (0.05). So, null hypothesis is accepted. But it is interesting to know that in 3
cases with respect to the research statements numbers 4, 5 and 14, the p value is less than significant
value (0.05). Here, our null hypothesis is rejected

Conclusion

Low financial inclusion and under-penetration of Banking and Financial services act as a
huge deterrent to the penetration of mutual funds among a large section of Indian population that live
in the hinterland and small towns of India. The level of financial awareness among the educated
professional class is also very low and people are skeptical about thinking beyond traditional
investment avenues Like Bank FDs, gold and property; hampering the spread and penetration of
Mutual Funds in India. Majority of people in India can’t think beyond traditional avenues of
investment like Bank FD’s, gold and property and consider Capital Market (commonly referred to as
Share Market) highly risky, volatile and unsafe for capital protection and appreciation. Lack of
financial literacy leads to a fallacious understanding that mutual funds are also as unsafe and risky as
capital market. Awareness of Mutual Funds in Tier-II towns is comparatively far less than the Ten
Tier-I cities. Thus, for Mutual Fund Industry to grow, proper financial literacy and awareness
programs must be initiated to tap the hitherto untapped market in the hinterland and small towns of
India.

References

Houge, T., & Wellman, J. (2005). Fallout from the Mutual Fund Trading Scandal. Journal of
Busniess Ethics , 129-139.
Cederburing, S. (2008, Jaunuary). Mutual Fund Investor Behaviour across the Business Cycle.
Retrieved from ssrn.com/abstract=1107014

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Walia, N. (May 2009). An Analysis of Ivestor's Risk perception towards Mutual Funds Services.
International Journal of Business and Management , 4 (5), 106-120.
V.Ingle, D. D. (2010, Febuary). Mutual Fuds: The Opportunity for Retail Investors. Investment , pp.
23-27.
Athma, P., & Kumar, K. (July 2012). Mutual Funds in India: An analysis of investors perceptions.
International Journal of Research in Commerce and Management , 3 (7), 21-26.
Sachdeva, S., Bhatia, M., & Kalra, R. (May 2013). Behavioural Effect of Mutual Fund Investor's and
Peception Millenium City. Pacific Business Review International , 5 (1), 89-97.

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