A study of Brokers/Agents (Entrepreneur) opportunities in the Mutual fund in pune.

Transcription

1 Feb., 2012 Financial management A study of Brokers/Agents (Entrepreneur) opportunities in the Mutual fund in pune. Prof. A. C. Panda Sinhgad Institute of management, vadgaon, pune Prof. Devyani Ingale Sinhgad Institute of management, vadgaon, pune Abstract The mutual fund is structured around a fairly simple concept, the mitigation of risk through the spreading of investments across multiple entities, which is achieved by the pooling of a number of small investments into a large bucket. MF are mainly targeted to small investors, salaried people who are familiar of stock market but want to get the benefits of stock market investing. At the retail investors are unique and heterogeneous; their fund/scheme selection differs from investor to investor. The subject is interest of Asset management companies and academia to understand the behaviour of retail mutual fund Investor. The Asset Management Companies (AMCs) wants to understand the fund/scheme selection/ switching behaviour of the investors to design suitable products to meet the changing financial needs of the targeted investors. With this aim survey was conducted among 200 Mutual Fund Investors in pune to study the factors influencing the mutual fund selection behaviour of Retail Investors. This paper discusses the survey findings. It will help the AMCs in designing and marketing for their products. Key Words: Mutual Fund, Asset Management Companies, investor s behaviour Introduction: In today s volatile market environment, mutual funds are looked upon as a transparent and low cost investment vehicle, which attracts a fair share of investor attention helping spur the growth of the industry Mutual funds as an investment vehicle have gained immense popularity in the current scenario, which is clearly reflected in the robust growth levels of assets under management. However, despite this growth, penetration levels in India are low as compared to other global economies. Assets under management as a percentage of GDP is less than 5 per cent in India as compared to 70 per cent in the US, 61 per cent in France and 37 per cent in Brazil. The mutual fund industry started in India in a small way with the UTI Act creating what was effectively a small savings division within the RBI. Over a period of 25 years this grew fairly successfully and gave investors a good return, and therefore in 1989, as the next logical step, public sector banks and financial ISSN Chronicle Of The Neville Wadia Institute Of Management Studies And Research 245

2 Financial management Feb., 2012 institutions were allowed to float mutual funds and their success emboldened the government to allow the private sector to foray into this area. The initial years of the industry also saw the emerging years of the Indian equity market, when a number of mistakes were made and hence the mutual fund schemes, which invested in lesser-known stocks and at very high levels, became loss leaders for retail investors. From those days to today the retail investor, for whom the mutual fund is actually intended, has not yet returned to the industry in a big way. But to be fair, the industry too has focused on brining in the large investor, so that it can create a significant base corpus, which can make the retail investor feel more secure. The perception and expectations of investors play a vital role in mutual fund investment as it influence the price of the securities; the volume traded and determines quite a lot of things in actual practice. The beliefs and actions of many investors are influenced by the dissonance effect and endowment effect. The tendency to adjust beliefs to justify past actions is a psychological phenomenon termed by Festinger (1957) as Cognitive Dissonance. Even though investment in mutual fund is a psychological phenomenon, in the financial literature, there are no models which explain the influence of these perceptions and beliefs on Expectations and Decision Making. Because of our own inability to understand the sources of motivations and the basis of these expectations we tend to ignore it. In reality it is very to fit an individual investor s beliefs into a model But, to a certain extent, we can study the psychology and behavioural patterns of the investors Statement Of The Problem The Indian mutual fund industry has grown robustly, average assets under management indicated vibrant growth levels posting a y-o-y growth of 47% in , and the total AUM stood at Rs 613,979 crore, as of March 31, Aggregate funds mobilized during the year also grew 84%, supplemented by around 174 new schemes launched during April 2009 to March The investor base has also steadily expanded and between November 2009 to March 2010, there was an addition of 60,834 investors. In spite of India offering an exciting retail environment, with abundant growth opportunities, participation from the segment of retail investors continues to remain at deplorably low levels. As of March 31, 2010, the participation from the retail segment was 26.6%, a marginal increase from 21.3% as on March 31, Currently (as on 31/3/2011) there are 1131 schemes (Source: Mutual Fund Year Book, 2000) with varied objectives and AMCs compete against one another by launching new products or repositioning old ones. MF industries are facing competition within the industry. To survive in the market the AMCs need to understand the fund selection/switching behaviour of the investors, so that they can design the product which will meet the investment criteria of the investors, else survival of funds will be difficult in future. With this background an attempt is made in this paper to study the factors influencing the fund/ scheme selection behaviour of Retail Investors. Literature Review: A lot of research has been done on Behavioural Finance which consist of investor perceptions, preferences, attitudes and behaviour. Ippolito (1992) found that fund/scheme 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. Gupta L.C. (1993) conducted a household investor survey with the objective to provide data on investor 246 Chronicle Of The Neville Wadia Institute Of Management Studies And Research ISSN

3 Feb., 2012 Financial management preferences on MFs and other financial assets. 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. Goetzman (1997) states that there is evidence that investor psychology affects fund/scheme selection and switching. 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. Agents play a vital role in spreading the MF culture; open-end schemes were much preferred then; age and income are the two important determinants in the selection of fund / scheme; brand image and return are their prime considerations. Gupta (1994) made a household investor survey with the objective to provide data on the investor preferences on MFs and other financial assets. The findings of the study were more appropriate, at that time, to the policy makers and mutual funds to design the financial products for the future. Shanmugham (2000) conducted a survey of 201 individual investors to study the information sourcing by investors, their perceptions of various investment strategy dimensions and the factors motivating share investment decisions, and reports that among the various factors, psychological and sociological factors dominated the economic factors in share investment decisions. Madhusudhan V Jambodekar (1996) conducted a study to assess the awareness of MFs 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 MFs/Schemes and investor service is a major differentiating factor in the selection of Mutual Fund Schemes. 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 mutual funds investment portfolio. The survey revealed that the salaried and self employed formed the major investors in mutural fund 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 survey was done. Anjan Chakarabarti and Harsh Rungta (2000) stressed the importance of brand effect in determining the competitive position of the AMCs. Their study reveals that brand image factor, though cannot be easily captured by computable performance measures, influences the investor s perception and hence his fund/scheme slection. 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 In this paper, an attempt is made to study the factors which influence the Investors in their selection of the fund/scheme. ISSN Chronicle Of The Neville Wadia Institute Of Management Studies And Research 247

4 Financial management Feb., 2012 Scope Of The Study: The present study is undertaken to know the factor which influence the investment behaviour of the retail investor. For the purpose of study a survey has been conducted in pune city only. Objective Of The Study: The study has the following objectives i. To study the most preferred avenues for investment among investors ii. To study the preference of Mutual fund scheme of the investors iii. To study the motive of investing in Mutual Funds iv. To know the source of information which influence the scheme selection decision? v. To study various factors that influences the investor s fund/scheme selection Research Methodlogy: The study uses the primary data, which is collected through a survey conducted in pune city. The survey was conducted among 200 retail investors. The required data was collected through a pre-tested questionnaire which was administered in a judgement sample of 200 retail investors. Judgement sample selection is used due to the time and financial constraints. Results And Discussion: RESULTS AND DISCUSSION: Most preferred Investment Avenues Savings Avenue % Bank Deposits 28 Postal Savings 25 Life Insurance 15 Pension and PF 11 Mutual Funds 9 Equity / Stock 7 Others 6 Deposits Most preferred Investment Avenues % Bank 7% 6% 9% Postal Savings Life Insurance 11% Pension and PF 15% 25% Mutual Funds Equity / Stock Others The study shows that Bank deposit and postal savings are most preferred investment avenues, while mutual fund and equity are least preferred investment Most preferred Mutual fund Schemes Schemes % Equity 23 Growth 28 Balanced 18 Income 13 Tax savings 20 Most preferred Mutual fund Schemes 20% 13% 18% 22% Equity Grow th Balanced Income Tax savings AS far as the investment in mutual funds is concerned, growth funds are the most preferred investment schemes. The income funds are least preferred investment schemes. 248 Chronicle Of The Neville Wadia Institute Of Management Studies And Research ISSN

5 Feb., 2012 Financial management Objective of investing in Mutual fund Objective % Safety 33 Liquidity 15 Return 20 Growth 10 Tax Benefit 23 Objective of investing in Mutual fund 23% Safety 32% Liquidity 10% 20% 15% Return Grow th Tax Benefit The study shows that while investing in mutual fund the main objective is safety rather than return and liquidity. Source of Information for investing in Mutual Fund Savings Avenue % Brokers/Agent 28 News Papers / Magazines 13 Friends 15 Brokers/Agent Source of Information for investing in Mutual Fund New s Papers / Magazines 8% 13% 3% Friends Self Self 23 T.V 8 Internet 13 22% 14% 13% T.V Internet Advertisement 3 The study shows that the investors are influenced by the agents. they consult their brokers while investing in mutual funds. Factors influencing the Mutual Fund/Scheme Selection behaviour Factors % Brand Name (Fund House) 30 Fund manager 5 Past Performance 28 Investor services 8 Fund Scheme 13 Brokers/Agent Recommendation 18 Factors influencing the Mutual Fund/Scheme Selection behaviou Brand Name (Fund House) 13% 8% 18% 29% 5% Fund manager Past Performance Investor services Fund Scheme Brokers/Agent Recommendation ISSN Chronicle Of The Neville Wadia Institute Of Management Studies And Research 249

6 Financial management Feb., 2012 Summury Of Findings And Conclusion From the present study it is found the i. Most of the people prefer to invest in Banks and post offices, i.e. 28% and 25% respectively. People investing Mutual funds and capital market related product is less. Which may be lack of awareness or fear of loosing money? ii. Among the mutual fund Investor Growth fund is most preferred scheme, as investors are looking for long term growth. iii. It is found that the investor s are risk averse, as the give priority to safety over return, then the nest objective of investment is tax saving. iv. It is also found that the most of the people trust the broker or agents, as they depend, on the broker for selecting the best fund. v. There are various factors which influences the buying behaviour of the retail investor, from the study it as found that 30% of the decisions are influenced by the brand, that is the name of fund house. The next major influence is past performance of mutual fund schemes. Further Scope Of The Research i. A Study on Corporate governance of Fund house, does the investor get the detail information of all fund houses before investing ii. A study may undertaken to know mutual fund investors investment pattern, (Portfolio selection) iii. Influence of E-trading in the Mutual fund investors decission Limitations of the Study: 1) Sample size is limited to 200 investors in pune city only, which may not represent the national market. 2. Simple Random and judgement sampling techniques is due to time and financial constraints. 250 Chronicle Of The Neville Wadia Institute Of Management Studies And Research ISSN