CHPATER - 4 RESEARCH MEHTODOLOGY

Transcription

1 CHPATER - 4 RESEARCH MEHTODOLOGY 4.1 Introduction: Considering the complexity of investment decision making as well as the structure of mutual fund industry in India, the aim of this thesis is to survey mutual funds, individual investor s behaviour and to reveal heuristics or biases. This chapter describes the overall approach of the research as well as choice of methods,data collection and criticisms of sources. Research is the systematic and objective identification, collection, analysis dissemination, and use of information for the purpose of improving decision- making related to the identification and solution of problems (and opportunities) in behaviour research. It is a step by step process. Thus meticulous planning is required at all the stages of behavioural research process. The procedure followed at each stage has to be methodologically sound, well documented, and as much as possible planned. The present study has been carried out by systematically following steps of research: Step: 1: Problem Identification and Problem Formulation Step: 2: Approach to the problem Step:3: Research Design Step: 4: Fieldwork or Data collection Step:5: Data Preparation and Analysis Step:7: Manuscript Writing or Report preparation and presentation. 4.2 Problem Identification: As discussed earlier, it is imperative that consumer (investor behaviour) is influenced by various factors like personal (age, stage in life cycle, occupation, economic circumstances, etc.) financial education, risk attitude and awareness and perception about market. Individual decision making is the complex process of analysing various factors and choosing a particular alternative from many available financial alternatives at market level. Making investment decision is not an exception from above, and is the most crucial decision faced by investors. Behavioural finance is becoming an integral part of decision making process because it heavily influences the investors investment performance. So understanding of how individual s emotions result in irrational behaviour isindispensable for any investor. 153

2 It is assumed that the gap exists between the financial theory and actual behaviour of investor in market. The study is attempted to give insight into the real financial behaviour of mutual fund investor which is deviating from pure economic theory. The proposed study aims at highlighting the issues in providing a base for understanding Mutual fund investor s behaviour with specific reference to behavioural finance approach. After a thorough study of research done in field of investors in financial market, one critical aspect of research in India is missing that is Behavioural Finance research in detail to understand financial decision of investors into Indian Capital Market. In India, research is mainly focused on investors behaviour from only consumer buying behaviour perspective, which is not sufficient to understand economic decision of investment. From a generalised model of consumer behaviour (investor attitude & behaviour), one infers the need for focus study of investors behaviour rather than consumer behaviour in general, which can pinpoint issues of investors decision making, their perception and behaviour from behavioural finance theory perspective. This is new paradigm shift in fundamental theory of finance for economic decision and behaviour of investors in financial market. 4.3 Approach to the problem: Development of an approach to the problem includes formulating an objective or theoretical framework, analytical model, research questions, hypothesis and identifying characteristics or factors that influence the research design. The general approach of a study is affected by the researcher s frame of reference, which refers to one s overall knowledge, norms and values. The approach of this study is based upon the frame of reference, which works as an individual scale. Therefore, it is important that researcher maintains an objective approach to research study Scope of Study: This study is based on primary and secondary source of information. It mainly concentrates on awareness, perception, attitude, and behaviour of investors. It also focuseson the study of analysing the behavioural bias and heuristics, that affect investor individual investment decision, their choices, reaction to market information, sell, buy and hold decision of investment, factors affecting their investment decisions. For theresearch, data was collected from various cities of Gujarat state viz. Ahmedabad, Ankleshwar, Bharuch, Bhavnagar, Bhuj (Kutchchh), Rajkot, Surat, Vadodara, Vapi and Valsad.Data was collected from investors of mutual funds, who 154

3 were having investment in MFs at present or in past. While, those who did not invest into mutual funds, were not inquired to check the factor for not preferring mutual fund investments. It also includes information pertaining, to investor s personal profiling, or demographics which are objective and quantifiable population characteristics. They are supportive to identify, analyse, collect, and measure the diverse of investors across the state if any. Demographic factors covered here are gender, age, income, occupation, education, and family status. Problem statement of research issue: Behaviour of Mutual funds investors are rational in their investment decision making Objectives: The study investigated the mutual fund investor s perception, attitude and behaviour with specific reference to behavioural finance approach in Gujarat state because behavioural finance is a new emerging field to understand financial behaviour and decision making of investors. The following broad objectives are set out: Primary Objective: To study Investment behaviour of Individual Investor in Mutual funds in Gujarat state through Behavioural finance Approach Secondary Objectives: To study various available mutual funds in India. To examine role and performance of mutual funds as an investment vehicle. To study regulatory frame work of mutual fund industry in India. Toidentify the behavioural factors, that influence Mutual fund Investor s investment behaviour. To test applicability of Behavioural finance approach in investment decisions of Mutual Fund investors. 1. To study various available Mutual Funds in India. There are large numbers of mutual fund players in Indian Mutual Fund Industry. Around fifty five players were existing by the end of year The present research focuses on understanding the performance of various mutual funds in Indian financial market through secondary data. 155

4 2. To examine role and performance of mutual funds as an investment vehicle. This study tries to provide explanation of trends in mutual fund Industry, as well as its role as investment vehicle to individual investors. Theobjective is to get insight into, which schemes are performing well, which are poor performer, as well as schemes that are outperforming benchmark and providing significant return and role to wealth building of the investors. 3. To study regulatory frame work of mutual fund industry in India. This study is an attempt to highlight the regulatory framework of the mutual funds industry as well as role of regulators in protecting investors interest etc. This may provide insight into what are the measures taken by Government as well as regulatory authorities to promote, develop, and structure the industry that is needed for inclusive growth of economy as a whole. 4.To identify the factors, that influence Mutual fund Investor s investment decision behaviour. Behavioural factors play a very important role in making investment decisions as well as financial wealth creation of investors. Investor behaviour is influenced by various elements viz. Awareness of Mutual fund investor, Perception of Mutual fund investors and Decision making criteria. So sub-objectives of study here are: (a) To check awareness of mutual fund investors. (b) To examine perception of mutual fund investors. (c) To analyse the factors that affect decision of mutual fund s investors. Investors are often not aware of their deeper motives and may not exactly know what they really want. A mutual fund house makes schemes for investors, which results in plethora of MFs Schemes in Indian Market. But investors have to search and understand their need and objectives with what is available in market. 5. To test applicability of Behavioural finance approach in investment decisions of Mutual Fund investors. In India, still there is less work done on behavioural finance approach in general and its influence on behaviour of investors in specific.behavioural finance poses a question on efficiency of financial market and rationality of investor s decision making. According to Behavioural finance approach, investor s decision is affected by various heuristics and behavioural (psychological) biases, in financial market. At this juncture, it is significant to testbehavioural finance approach of investors decision 156

5 making. So, this research study focusesto examine applicability of behavioural finance approach to investment behaviour of mutual fund investors. There are numbers of behavioural finance-biases that affect investor s investment decisions, viz. Heuristics, framing and prospect theory, and other psychological biases.this study is aiming to answer certain questions to test applicability of behavioural finance approach to investment behaviour viz.(i) Are Mutual fund investors are rational in their investment behaviour/ decision making? (ii) How do Prospect theory and framing affect the investor s investment behaviour? (iii) How do heuristics/ behavioural biases affect investor s investment behaviour? (iv)how do other psychological biases affect investor s investment behaviour? 4.3.3: Hypotheses of the study: Attempt is also made to test following hypotheses: 1. There is no association of Awareness about mutual funds with demographic factors. 2. The decision of selecting MFs schemes is not dependent on demographic factors. 3. Investment behaviour of MFs investors is independent of frame dependence& Disposition effect. 4. Investment behaviour of MFs investors is independent of heuristics and biases. 5. Performance judgment about MFs is independent of behavioural biases. 4.4 Research Design: For the Present study, a Descriptive research design has been used, which is typically more formal and structured than exploratory research. It is based on large, representative samples, and the data obtained are subject to quantitative analysis. Descriptive research design is the most suitable research design as it describes the characteristics of consumer(investor) behaviour with regard to perception, preference, decision making, factors that affect the behaviour. However, exploration is followed only at secondary collection data level to refine the objectives of research. Survey and observation are two important methods that can be used in case of descriptive research. The present study has been carried out by survey method through administration of structured questionnaire for obtaining information. 157

6 4.4.1 Sources of Data The present study has used both sources of information namely primary data and secondary data. Primary data: Preliminary scanning of various secondary data sources preceded primary data collection. The primary data investigation proceeded on the framed objectives of the present study. The research instrument consisted of a structured questionnaire. Measurement scales like Nominal, Ordinal, Likert s etc.were used to collect first hand responses from investors of mutual funds in Gujarat state. This primary data has been put to further statistical analysis so as to find some useful information and generate inferences related to the objectiveof the study. Secondary Data: The published material from books on mutual funds, behavioural finance and financial management has been referred to clarify the concept of behavioural finance and its investment behavioural implication based on study. Magazine in the area of mutual funds have been studied to know the emerging trend in mutual fund industry. Further information regarding mutual funds has been collected from various reports of NCAER Survey, CII Mutual Fund Summit Report, Report of security market of SEBI, RBI etc. Over and above this, many scholarly journals including those from several e-journal database has been examined and thoroughly reviewed. These references taken in form of secondary data are used in literature review and some other chapters Sampling plan: Sampling is the method of obtaining information from a portion of the large group of population The Universe: For this research, the universe was identified as all the mutual fund investors in India The population: Since, the study was related to the mutual fund investors of Gujarat, all mutual fund investors of Gujarat state were considered as population. 158

7 Sampling unit: Sampling unit for the study is an individual mutual fund investor Sampling Techniques: Sampling techniques may be broadly classified as probability and non-probability sampling. The underlying difference between the two is that the former is based on chance and the later relies more on personal judgment of the researcher. Nonprobability sampling techniques can be further classified under the main heads namely convenience Sampling, judgment Sampling, Quota Sampling, and Snowball Sampling. The present research is based on non-probability convenience sampling Size of the Sample: Total 1,237 responses were received. However, 55 questionnaires were not filled properly and hence rejected. Following table gives the details of 1,182 respondents: Sr. No. Table 4.1 Representation of Sample Name of City/District Number of Respondent (Investors) Percent 1 Ahmedabad Ankleshwar Bharuch Bhavnagar Kutchchh Vapi & Valsad Rajkot Surat Vadodara Total 1, Instruments of Data Collection: The data was collected by the way of personal discussion for designing the questionnaire, which was conducted with mutual fund investors, agents, advisors and employee of AMC. The main study was carried out through structured questionnaire. 159

8 Pre-testing of Questionnaire: The work related to Questionnaire was started during the second phase of research and the following steps were undertaken to pre/pilot Testing of the questionnaire: Assessment of the information required as per objectives of research. Measurement of reliability with respect to adoption of a structured questionnaire including questions like multiple choice, dichotomous and use of various scales. Predicting the biasness of respondent s on the basic use of word/ language, order of question, etc. All aspects of questionnaires had been tested, including question content, wording, sequence, form, layout and instructions. Subject experts were approached to ensure that the questions were properly phrased and logically sequenced. Subsequently, the questionnaire was sent to approximately 30 respondents on the basis of convenience sampling. After studying their response some variables were modified. Finally, the responses obtained from the pre-test were coded and analysed. The analysis of pre-test responses served as a check on the adequacy of data for problem identification and highlighted necessary information required for data analysis. The pilot survey enabled the researcher to modify and add, or eliminate few variables, and final questionnaire was designed Questionnaire description (Annexure-IV.I): The study is based on primary data, derived through a descriptive method using pretested structured instrument. In order to study the investor s behaviour of MFs industry, the researcher has used various behavioural finance variables. The rationale was (1) investors awareness about MFs (2) investor perceptions (3) the factors affecting investor behaviour (4) test of behavioural finance approach. The instrument consisted of three sections. The first section of study instruments is pertaining to information related to awareness and perception of MFs investors. Main aim of this section of questionnaire is to fetch the information regarding, investment horizon, preference for particular scheme, awareness about mutual fund products and investors perception about role and performance of MFs. Second part of the first section is aimed to gather the information regarding the selection of mutual fund schemes and factors of analysis considered by investors. (Questionnaire statement reliability- Cronbach s Alpha0.711 for 16 items) 160

9 The second section of the questionnaire consisted of various behavioural finance variable related information under study. The questions consisted in this section were about Prospect theory, Frame dependence, disposition effect, mental accounting, regret aversion, representative heuristic, familiarity biases, overconfidence, cognitive dissonance, SAB, and other psychological biases.(questionnaire statement reliability- Cronbach s Alpha for 24 items statements) and for other parts of it (Questionnaire statement reliability- Cronbach s Alpha for 24 items) The third section of the questionnaire consisted of demographic information about the investors under study. The question of this section aimed at deriving information about name, gender, age groups, education, income groups, occupation and family stage.(for Reliability Statistics, refer Annexure IV.II) 4.4.5Method of Data Collection: During this phase the field investigators make contact with respondentsand administer the questionnaire. In order to collect the data systematically, the researcher has used services of well-educated investigators with finance management background and who were trained with the specificity of the questionnaire and finally assigned the job of data collection. They have been given prior training, required explanation, and understanding of each and every aspect of questions. Constant guidance, supervision, and follow up had been done to collect the data correctly and within specified time limit. Data had been collected simultaneously from major cities of Gujarat state during the month of May, June, July and August Data Preparation and Analysis Under data preparation, tasks like editing, coding, transcription, and verification of data were performed. At the end of each week, responses received through questionnaire daily, were entered in the computer system after fair editing. The information, which has been missed and doubtful, was either rejected or reconfirmed, and qualitative points mentioned by the interviewee were listed down in the note. The questionnaire with less than 75% response had been rejected and not considered for analysis. Entries in the computer system were done by the following Questionnaire Coding Schemes, where codes were assigned to each response. A data had been prepared containing all the variables and responses for each question in a code with the help of MS-Excel. Analysis of data was initiated after the data is converted into useful information. Raw data as collected from questionnaire cannot be used unless it is processed in some way to make it amenable to drawing conclusions. There are the numbers of different data 161

10 analysis techniques that are available for analysis. It can be classified into (i) Univariate involving single variable at a time (ii) Bivariate- involving two variables at a time (iii) Multivariate- involving three or more variables simultaneously. Decision as to which of the statistical techniques could be used were made on the basis of various criteria like (a) the scales and other characteristics of data (b) objectives of the study, (c) Characteristics of the research design etc.the various data analysis Techniques used for the overall analysis are given as under: for the purpose of advanced statistical data analysis, SPSS (Software Version 16 &17 were used.) Univariate Techniques: Univariate techniques are appropriate when there is a single measurement of each element in the sample, or there are several measurements of each element but each variable is analysed in isolation Frequency Distribution and percentile: For certain questions where one variable was to be considered at a time, frequency distribution was carried out, to obtain count of number of responses. Bar charts, Percentages etc. were used for further analysis of such questions. Other statistics like, Mean and Mean based ranking, and Cross Tabulation, etc. were used One Sample t test, and One way ANOVA (Metric data): For hypothesis testing, one sample t test or independent t was carried out at 95% confidence level. To carry out further analysis one way ANOVA- multiple comparison test was carried out. This helps in two ways (a) in accepting/rejecting hypothesis and (b) making pair wise comparisons Multivariate Techniques: Multivariate techniques aresuitable for analysing data when there are two or more measurement of each element and where the variables are analysed simultaneously Interdependence technique: To find the interdependence relationship if any, between the 24 statements, factor analysis was carried out. Factor analysis helped in data reduction and summarisation in six factors. Factors help in explaining the correlations among set of variables. 162

11 4.7 Report Preparation and Presentation: Finally, the entire study had been documented in a written report that spread in nine chapters introducing various concepts elated to behavioural Finance, Mutual funds, investor perception and behaviour. It includes overview of mutual fund industry, behavioural finance as core aspect of study, research methodology, analysis and interpretation of the data followed by results. Finally it has reported about finding, and conclusions of study and its financial implication. 163