International Journal of Management Research and Technology

Volume 4 • Number 2 • December 2010: 533 – 541 I J M R T

© Serials Publications

MUTUAL FUND INVESTMENT DECISIONS: AN EMPIRICAL

STUDY OF PERCEPTUAL VIEW OF INVESTORS
B. Amarnath*, S. Raghunatha Reddy**, and Thulasi Krishna K.*

Abstract: There is no journey without destination. People have certain goals. Among them economic
goals occupy an important place. To attain such economic goals, everyone has to plan financial
plans. One should plan for future while earning. People should invest in different ways for different
purposes such as children education, children marriages, tax benefits, etc. Thus Mutual Funds come
into mind as they suit for financial needs of all sorts of people. Though Mutual Funds offer good
investment opportunities to the investors, like all the investments, they also carry certain risks. The
investors should compare the risks and expected returns while taking investment decisions. They may
seek advice from experts and consultants including agents and distributors of Mutual Fund schemes
while making investment decisions. The main objective of the present study is to study the investor’s
perceptions of Mutual Fund Investment decision making. The success of Mutual Funds rely at more
transparency, educating the investors in all the respects, improving the margins by identifying the
competitive advantage in the areas of professional management of funds, marketing the schemes in
the rural and semi urban regions, designing the schemes with innovative benefits and improving the
quality of investor services. The study will be helpful to the Mutual Fund industry to understand the
perceptions of investors towards Mutual Funds.

INTRODUCTION
There is no journey without destination. People have certain goals. Among them economic
goals occupy an important place. To attain such economic goals, everyone has to plan financial
plans. One should plan for future while earning. People should invest in different ways for
different purposes such as children education, children marriages, tax benefits, etc. Thus Mutual
Funds come into mind as they suit for financial needs of all sorts of people. Mutual Fund is a
vehicle that enables the money of many people, whose goals are similar and invest their money
in a wide variety of securities. Professional Portfolio Management, Transparency, Diversified
Investment, Liquidity, Low Cost Savings Instrument and a few other factors motivate the small
investors to invest in Mutual Funds.
The Indian Mutual Fund Industry has witnessed major transformation and structural changes
since its inception in 1964, more so during the past decade. The transformation is the result of
policy initiatives taken by the government of India to break the monolithic structure of the
industry in 1987 by permitting public sector banks and insurance corporations such as Life
Insurance Corporation of India and General Insurance Corporation to launch their own funds.
Later, in 1993, is the wake of polices of liberalization and globalization, the government permitted

*
Department of Management Studies, S.V. University, Tirupati-517502, E-mail: drbamarnath@gmail.com,
tkk2007@gmail.com.
**
Kandula School of Management, KSRMCE Campus, KADAPA-516 003,E-mail: raghunathsamanu@gmail.com.
534 International Journal of Management Research and Technology

the private sector to enter into the Mutual Fund Business. As a result, the Industry has now
become more competitive. During the past four and a half decades of its existence, the industry
has grown several folds in terms of size, operations and investor base.
Though Mutual Funds offer good investment opportunities to the investors, like all the
investments, they also carry certain risks. The investors should compare the risks and expected
returns while taking investment decisions. The investors may seek advice from experts and
consultants including agents and distributors of Mutual Fund schemes while making investment
decisions. Indian Mutual Fund industry is as old as four and a half decade, but its growth and
awareness has reached the present level only since last five years. Securities and Exchange
Board of India (SEBI), as a regulator, issued the first set of regulations, governing the transparency
operations and disclosures, standards of Mutual fund industry in 1993. They were revised in 1996.
Though the industry has been operational for so long, it still suffers from shortcomings like
lack of systematic evaluation of investor’s requirements, designing products to suit their specific
needs, lack of depth in the market, lack of proper process and lack of better services. The main
challenges of this industry lie in attracting more number of retail investors and manage their
interest well. Mobilization of funds and educating investors about different funds are the other
key challenges it faces.

OBJECTIVES OF THE STUDY

The main objective of this paper is to study the investor's perceptions of Mutual Fund Investment
decision making. The other objectives are:
1. To study the Mutual Fund awareness among the investors;
2. To study the factors that influence the investor's fund/scheme selection; and
3. To study the interest of Mutual Fund investment in the days of recession.

HYPOTHESES OF THE STUDY

The following hypotheses are set for the study:
1. There is no significant relationship between the demographic factor (Sex) and the
respondent’s awareness of Mutual Funds through different sources.
2. There is no significant difference between demographic variable (Sex) of the respondents
and regarding their opinion on factor influenced to invest in Mutual Funds.

METHODOLOGY
Database
The study is based on both Primary and Secondary data. The Primary data have been collected
through a questionnaire which was administered on a sample of 555 investors. The Secondary
data have been collected from Magazines, Journals, Books, News Papers and Websites.
Sample Size
For the purpose of studying the above objectives, a survey was undertaken through questionnaires.
Investors who invested in Mutual Funds constitute the universe of the study. As no list of investors
Mutual Fund Investment Decisions: An Empirical Study of Perceptual View of Investors 535

was available, UTI agents, share brokers and professional were contacted to establish contact
with investors of Rayalaseema region in Andhra Pradesh. The Survey was conducted among
555 geographically dispersed investors spread over 12 urban and semi-urban cities.

Tools of Analysis
In order to analyse the collected data, the tools like Simple Percentage analysis, Mean, Standard
Deviation and t-tests were used.

RESULTS AND DISCUSSION

Mutual Funds over the years have gained immensely in their popularity. Apart from the many
advantages, like diversification, professional management, the ease of investment process has
proved to be a major enabling factor. However, with the introduction of innovative products, the
world of Mutual Funds now-a-days has a lot to offer to its investors. With the introduction of
diverse options, investors needs to choose a Mutual Fund that meets his risk acceptance and his
risk capacity levels and has similar investment objectives as the investor. Hence it is vital to
analyse the investor’s awareness of Mutual Fund schemes, factors that influence the investing
in Mutual Funds and their interest over Mutual Fund investment during the times of recession.

Source of Awareness of Mutual Funds

Investors’ decision to invest in a particular Mutual Fund is affected by different sources from
where information about working of that fund becomes available to the investors. Mutual Fund
companies inform to their investors about new schemes through various sources. Table 5.1
presents the respondent's opinion about various sources through which they get awareness about
the Mutual Funds. It states that 34.23 percent of the respondents are aware of the Mutual Funds
through advertisements, 35.14 percent of the respondents are aware through Friends or Relatives,
17.11 percent of the respondents are aware through Internet, 2.70 percent of the respondents
are aware through Mutual.

Table 5.1
Source of Awareness of Mutual Funds

Source of information Number of respondents Percentage of total

Advertisement (News papers, TV, etc.) 190 34.23
Friends/Relatives 195 35.14
Internet 95 17.11
Mutual Fund Agent 15 2.70
Others (Professional Financial Advisor, Colleague, etc.) 60 10.82

Fund Agent and 10.82 percent of the respondents are aware through others. Majority of the
respondents are aware of the Mutual Fund investments through Friends or Relatives.
Hypothesis: There is no significant relationship between the demographic factor (Sex) and
the respondent’s awareness of Mutual Funds through different sources.
536 International Journal of Management Research and Technology

Testing of Hypothesis:
Particulars Value
Mean of Males 100
Mean of Females 11
Standard Deviation of Males 73.3
Standard Deviation of Females 8.83
t-value 2.69
Level of Significance (Alpha value) 0.025
tα 2.306

As the t > tα, the said hypothesis is accepted.

Mutual Fund Knowledge

For most of the investors, investing in funds is an ongoing process that begins with a pre-
purchase review of a wide range of fund information and continues with the monitoring of fund
investments. A wealth of information from a variety of sources is available to investors considering
the purchase of Mutual Funds. Analysis of fund costs, performance, volatility and characteristics
are available from sources such as Professional Financial Advisers, Fund Rating Services, the
Media Financial Websites and of course, Mutual Fund companies themselves. Investors evaluate
many different aspects of a fund before investing in Mutual Funds. Table 5.2 provides the
information pertaining to investor’s knowledge about Mutual Funds. 3.60 percent of the
respondents have no knowledge about Mutual Funds, 45.05 percent of the respondents have
some idea, 22.52 percent of the respondents have enough knowledge required for investment
purpose, 26.13 percent of the respondents have good knowledge and only 2.70 percent of the
respondents have complete knowledge about Mutual Funds. It is very clear from the table that
majority of the respondents have some idea but not much.

Table 5.2
Knowledge about Mutual Funds

Knowledge level Number of respondents Percentage of total

Don’t know 20 3.60
Some idea, but not much 250 45.05
Enough knowledge 125 22.52
Good knowledge 145 26.13
Know every thing 15 2.70

Factors Influencing Mutual Fund Investment

After understanding the concept of investment, the investors would like to know how to go
about the task of investment, how much to invest at any moment and when to buy or sell the
securities, This depends on various factors such as investment policy, investment analysis,
Mutual Fund Investment Decisions: An Empirical Study of Perceptual View of Investors 537

portfolio construction and portfolio evaluation and revision, liquidity, safety, incomes and savings,
etc. Every investor tries to derive maximum economic advantage from his investment activity.
Table 5.3 exhibits the factors influencing the Mutual Fund investment. It provide a comprehensive
view of how the sample investors have perceived and considered the factor influenced to invest
in Mutual Funds through the 16 variables selected for the study. The response to each of these
variables has been summarized in the above table. It can be clearly seen that 69.37 percent of
the respondents have given most importance to safety, 49.55 percent of the respondents have
given importance to liquidity aspect, 58.56 percent of the respondents have chosen most important
to return earned, 42.34 percent of the respondents given importance to fund fee and expenses,
63.96 percent of the respondents have opted important to fund’s portfolio of investment,
45.05 percent of the respondents have chosen important to lock in period of the fund,
52.25 percent of the respondents have given importance to tax saving, 53.15 percent of the
respondents have given importance to performance of past schemes, 64.86 percent of the
respondents have opted important to rating of Mutual Fund by rating agencies, 54.95 percent of
the respondents have given importance to the profile of the fund manager, 71.17 percent of the
respondents have chosen important to the profile of the fund agent, 57.66 percent of the
respondents said important to advertisement, 56.76 percent of the respondents told important to
the recommendation of the fund agent, 40.54 percent of the respondents said important to the
recommendation of the friend or relative, 45.05 percent of the respondents told important to the
recommendation of professional financial advisor and 50.45 percent of the respondents opted
most important to the income and savings.

Table 5.3
Factors Influencing Mutual Fund Investment

Influencing factor Most important Important Neutral Un important Highly un important

Safety 385 120 50
(69.37) (21.62) (9.01)
Liquidity 210 275 55 5 10
(37.84) (49.55) (9.91) (0.9) (1.8)
Return earned 325 180 15 25 10
(58.56) (32.43) (2.70) (4.5) (1.81)
Fund fee and expenses 60 235 230 30
(10.82) (42.34) (41.44) (5.41)
Fund’s portfolio of investment 140 355 50 5 5
(25.23) (63.96) (9.01) (0.9) (0.9)
Lock-in-period of the fund 195 250 90 20
(35.14) (45.05) (16.22) (3.6)
Tax saving 190 290 25 40 10
(34.23) (52.25) (4.5) (7.21) (1.8)
Performance of past schemes 160 295 90 5 5
(28.83) (53.15) (16.22) (0.9) (0.91)
Table Contd.
538 International Journal of Management Research and Technology

Table 5.3 Contd.

Rating of Mutual Fund by 95 360 95 5

rating agencies (17.12) (64.86) (17.12) (0.9)
Profile of Fund Manager 125 305 75 40 10
(22.52) (54.95) (13.51) (7.21) (1.8)
Profile of Fund Agent 70 395 50 30 10
(12.61) (71.17) (9.01) (5.41) (1.8)
Advertisements 30 320 140 50 15
(5.41) (57.66) (25.23) (9.01) (2.7)
Recommendation of the 45 315 130 55 10
Fund Agent (8.11) (56.76) (23.42) (9.91) (1.8)
Recommendation of friend 95 225 185 40 10
or relative (17.12) (40.54) (33.33) (7.21) (1.8)
Recommendation of Professional 210 250 70 20 5
Financial Advisor (37.84) (45.05) (12.61) (3.60) (0.91)
Income and savings 280 230 30 10 5
(50.45) (41.44) (5.41) (1.8) (0.91)

Note: Figures in parentheses represent the percentages.

Hypothesis: There is no significant difference between demographic variable of the

respondents (sex) and regarding their opinion on factor influenced to invest in Mutual Funds.
Testing of Hypothesis:
Particulars Value
Mean of Males 166.67
Mean of Females 18.33
Standard Deviation of Males 157.83
Standard Deviation of Females 18.93
t-value 1.62
Level of Significance (Alpha value) 0.10
tα 1.533

As the t > tα, the said hypothesis is accepted.

Impact of Global Crisis on the Plan of Investment in Mutual Funds

Investors with a greater risk tolerance and much deeper pockets may even want to consider
investing in Mutual Funds when there is recession. A few of the investors may fear of recession
and proceed to sell while their portfolios are on the positive side. Table 5.4 provides the details
of the impact of global crisis on the plan of the respondents’ investment in Mutual Funds.
30.63 percent of the respondents are still interested to invest in Mutual Funds, 39.64 percent of
the respondents are strongly believing that this is the right time to invest in Mutual Funds,
Mutual Fund Investment Decisions: An Empirical Study of Perceptual View of Investors 539

21.62 percent of the respondents told that they will post pone the investment and 8.11 percent
of the respondents are not interest in investing in Mutual Funds due to the global crisis.

Table 5.4
Impact of Global Crisis on Plan of Investment in Mutual Funds

Impact Number of respondents Percentage of total

Still interested to invest in Mutual Funds 170 30.63
Strongly believing that this is the right time to
invest in Mutual Funds 220 39.64
Will post pone the investment 120 21.62
Not interested in investing in Mutual Funds 45 8.11

FINDINGS OF THE STUDY

• Majority of the respondents are male (90.09 percent).
• Majority of the respondents are married people (79.28 percent).
• Majority of the respondents are in the age group of 30 to 40 years (39.64 percent).
• Majority of the respondents are employees (55.86 percent).
• Majority of the respondents are under the income level of Rs. 1,00,000 per annum (55.86).
• Majority of the respondents save about 0 to 5 percent from their annual income
(27.03 percent).
• Majority of the respondents have little knowledge about investments (27.93 percent).
• Majority of the respondents invest with an objective of earning income with growth
prospective (50.45 percent).
• Majority of the respondents are investing in Mutual Funds for the last 2 to 3 years
(33.33 percent).
• Majority of the respondents prefer to invest in Mutual Funds (28.83 percent).
• Majority of the respondents are not aware of risks in Mutual Funds (45.05 percent).
• Majority of the respondents know about Growth plan in Mutual Funds (44.14 percent).
• Majority of the respondents are investing in Mutual Funds annually (28.83 percent).
• Majority of the respondents are investing in Mutual Funds through fund agent
(45.05 percent).
• Majority of the respondents have little knowledge about Mutual Fund evaluation
(34.23 percent).
• Majority of the respondents are satisfied regarding the reliability of information provided
by the fund agent (58.56 percent).
• Majority of the respondents are interested to invest in Mutual Funds in future depending
on their performance (32.43 percent).
540 International Journal of Management Research and Technology

SUGGESTIONS
• As majority of the investors lack knowledge about Mutual Funds, the Mutual Fund
companies (MFCs) have to conduct awareness programmes.
• *The MFCs have to improve the quality and efficiency of the Mutual Fund agents as
majority of the investors are investing through them.
• As the investors are not willing to invest in Mutual Funds unless a minimum return is
assured, it is very essential to create in the mind of the investors that Mutual Funds are
market instruments and are subjected to market risks, hence they could not offer guaranteed
income.
• Higher levels of disclosures would help investors choose the right fund.
• More Indians should become aware of the benefits of investing in Mutual Funds and
consider this as a referred vehicle for investment. This should become possible through
greater media involvement, higher penetration as well as increase in the number of fund
advisors.
• Besides the traditional products, Mutual Fund investors could expect ‘outcome-oriented’
products for principal protection and retirement, which will provide more choice to match
their return and risk expectations.
• Investors are expecting to find a Mutual Fund office wherever they reside which makes
sure those investors can access any Mutual Fund at a press of button.
• The MFCs should also concentrate on un-married people and make them to invest in
Mutual Funds.
• The MFCs should also try to mobilize the funds from the people other than employees
opening information centers in different areas of the country.
• Lastly, the MFCs need to take advantage of modern technology like internet and
telecommunications to render services to the investors effectively.

CONCLUSION
Investors’ perceptions of Mutual Funds have been analysed in this study considering various
aspects such as investment objective, knowledge about Mutual Funds, sources of information,
investors’ opinion on factors influencing investment in Mutual Funds and their investment interest
in the days of recession. The success of Mutual Funds rely at more transparency, educating the
investors in all the respects, improving the margins by identifying the competitive advantage in
the areas of professional management of funds, marketing the schemes in the rural and semi
urban regions, designing the schemes with innovative benefits and improving the quality of
investor services. The study will be helpful to the Mutual Fund industry to understand the
perceptions of investors towards Mutual Funds.

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WEBSITES
www.amfiindia.com.
www.sebi.gov.in.
www.mutualfundsindia.com.
www.ici.org.
www.valueresearchonline.com.