Factors that affect mutual fund investment decision of Indian investors

Transcription

1 328 Int. J. Behavioural Accounting and Finance, Vol. 2, Nos. 3/4, 2011 Factors that affect mutual fund investment decision of Indian investors Amarjit Gill* College of Business Administration, Trident University International, 5757 Plaza Drive, CA 90630, USA *Corresponding author Nahum Biger School of Business, Academic Center Carmel, Shaar Palmer 4, Haifa, 33031, Israel Harvinder S. Mand Sikh National College, Banga, Sahid Bhagat Singh Nagar, , East Punjab, India Sukhinder S. Gill Global Pacific Financial Services Ltd., Street, Surrey, BC, V3T-4V5, Canada Abstract: The paper seeks to extend the findings of Gill and Biger (2009) related to gender differences and factors that affect stock investment decision of Western Canadian investors by examining the affects of: 1 investors investment expertise 2 investors knowledge of neutral information 3 investors consultation with investment advisors on their decisions to invest in mutual funds. The present study is based on a sample of people living in Punjab and Delhi areas of India. Subjects were asked about their beliefs and feelings in relations to their investment decisions with particular reference to investments in mutual funds. We found that the degree of mutual fund investment decision is related to the degree of Indian investors perceptions about their: Copyright 2011 Inderscience Enterprises Ltd.

2 Factors that affect mutual fund investment decision of Indian investors investment expertise 2 general knowledge about the economy and the concept of mutual funds 3 consultation with investment advisors. Family size also plays some role in the decision to invest in mutual funds. The valuable and useful recommendations for the investment managers and investment advisors have also been provided in the paper. Keywords: expertise about investing; general knowledge of individuals about the economy and mutual funds in general; consultation of the investor with advisors; decision about investing in the mutual funds; India. Reference to this paper should be made as follows: Gill, A., Biger, N., Mand, H.S. and Gill, S.S. (2011) Factors that affect mutual fund investment decision of Indian investors, Int. J. Behavioural Accounting and Finance, Vol. 2, Nos. 3/4, pp Biographical notes: Amarjit Gill received his PhD from Touro University International (Branch Campus of Touro College, New York), CA, USA in Currently, he is a Professor of Business Administration at Trident University International, CA, USA. His research interests include finance and management. Nahum Biger received his PhD from York University in Canada in He is the Dean and Professor of Financial Economics at the School of Business, Academic Center Carmel in Haifa, Israel and a Distinguished Visiting Professor of Finance and Management, Ecole nacional des ponts et chaussees, School of International Management, Paris, France. Harvinder S. Mand is currently a Lecturer in Finance at Sikh National College, Banga, Punjab, India. His research interests include finance and management. Sukhinder S. Gill is an Insurance and Investment Advisor at the Global Pacific Financial Services Ltd., Surrey, British Columbia, Canada. He has been working in this area for the last ten years. 1 Introduction The paper investigates factors that affect decisions of Indian investors to invest in equity mutual funds. We wished to examine motivations and understand the behaviour of mutual fund investors. The literature of behavioural finance usually assumes that information structure and the characteristics of market participants systematically influence individuals investment decisions [Al-Tamimi, (2006), p.225, who refers to the pioneering researchers in the field]. The theory claims that investor s market behaviour derives from psychological principles of decision making. The field of behavioural finance focuses upon the ways investors interpret and act on information in the process of making investment decisions. In addition, the field of behavioural finance places an emphasis upon investor behaviour that at times leads to various market anomalies [Gill and Biger, (2009), p.136]. A market anomaly is defined as a price and/or return distortion in a financial market. One of the factors that cause market anomalies is the investor attitudes toward risk. When

3 330 A. Gill et al. investors incur losses, they regret for their actions and are more cautious not to risk a further loss. Conversely, investors are willing to take more risk when they make money and are ready to run the risk of an equity market dip. This sort of behaviour leads to an equity security price bubble. Another factor that may cause market anomaly is the institutional investors. Sivalingam (2009) explains that the larger the amount of funds held by institutional investors, the more likely they will be able to influence the prices of equity shares. Thus, market anomalies are market patterns that seem to lead to abnormal returns, or extra-ordinary gains or losses, in the securities market. The theory of behavioural finance also helps to explain why and how markets might be inefficient (Sewell, 2007). The theory dates back to the paper by Slovic (1972) and the theory has been revitalised in the late 1980s. Then De Bondt and Thaler (1985) published a paper on behavioural finance in which they asked the following question: Does the stock market overreact? Their article gave evidence to support the hypothesis that cognitive bias (investors over-reaction to a long series of bad news) could produce predictable mispricing of stocks traded on the New York Stock Exchange (NYSE). Since then academic researchers conducted extensive research into the impact of psychological processes on financial decision making (Olsen, 1998). A better understanding of behavioural processes and outcomes is important for financial planners in devising appropriate asset allocation strategies for their clients. Hence, the purpose of this study is to explore factors that affect the mutual fund investment decision of Indian investors. This study may benefit investment companies. Identifying factors that affect individuals investment decisions would be instrumental for their future policies and strategies. The government too may find that identifying factors that influence investors decisions might be considered in the process of legislations pertaining to financial markets. It may consider additional procedures that may be in line with investors desires and hence improve the efficiency of financial markets. The results can be generalised to the financial management industry. Several researchers such as Nagy and Obenberger (1994), Al-Tamimi (2006), and most recently Gill and Biger (2009) have conducted research on factors influencing investor behavior. These authors did not examine relationships between different variables related to mutual fund investment behaviour. The present study presents an analysis of such relationships and sheds additional light on the process leading to investment in equity mutual funds. 2 Factors influencing investment decision Al-Tamimi (2006) reported that investors consider accounting information, self-image/firm-image, neutral information such as familiarity with macroeconomic indicators, expert recommendations, and personal financial needs before investing in equity securities. Investors invest in equity securities to obtain higher rate of return and to diversify risk (Gill and Biger, 2009). Investment risk is a multidimensional construct with four principal attributes: 1 the possibility of a very large loss 2 the possibility of rate of return that is lower than target return

4 Factors that affect mutual fund investment decision of Indian investors the ability to control loss 4 the investor s level of knowledge [Olsen, 1997; Gill and Biger, (2009), p.137]. Nagy and Obenberger (1994) argue that although the classical wealth-maximisation criterion is important to investors, they employ diverse criteria when choosing investment in equities. The investor s (perceived) expertise is one of the principle attributes that impact on investment decision. The relative importance of investor knowledge is a function of idiosyncratic investor and asset characteristics. Gill and Biger (2009) indicate that investors proportional investment in equity securities as part of their entire investment portfolio is positively affected by their own perceived equity investment expertise. Byrne (2005) argues that improved investment knowledge and experience enable people to make better investment decisions. The more accurately investors perceive risk using information, the better they understand the link between risk and return on mutual fund investment. Better understanding of the link between risk and return in mutual fund investment may lead to higher tendency to invest in mutual funds [Gill and Biger, (2009), p.137]. Kadiyala and Rau (2004) also suggest that investors appear to under-react to prior information and to information conveyed by events that lead to the different patterns, return continuations, and long-horizon return. Investor knowledge of neutral information plays an important role in investment decision making process. The concept of neutral information, in the context of this study, is defined as the investors understanding of 1 recent mutual fund price movement 2 the current economic indicators (e.g., business cycle, GDP, etc.) 3 the fluctuation/developments in the mutual fund index. This concept was used long ago by Siegel et al. (1979) who found that many investors view financial statements as not useful for the purpose of investment decision-making. These researchers conjectured that there are other sources of information which investors feel to be more informative for investment decisions. Other sources of information can be price movement in the equity funds, current economic indicators, and the fluctuation/developments in the mutual fund index (Gill and Biger, 2009). This information is termed here neutral information because fluctuations in mutual funds prices, knowledge and understanding of macroeconomic indicators, and developments of mutual funds indexes are not directly related to potential investors characteristics. Economic data on financial markets, especially equity funds, is complex, imperfect, and puzzling. Simons (2004) explains that many macroeconomic series are reported on a quarterly basis with a lag of several weeks and are frequently revised. He also indicates that profits as a percentage of GDP appear to lead real total returns on investment. Barber and Odean (2008) found that individual investors display attention-driven buying behaviour. The attention can be related to economic indicators, mutual fund prices, and mutual fund indexes. Therefore it is important for the mutual fund investors to understand financial market data. Merikas et al. (2003) reported that people base their equity fund purchase decisions on economic criteria combined with diverse other variables. In addition, they explain that speculative factors like recent price movements in the firm s stocks, and affordable share price influence investors investment behaviour significantly.

5 332 A. Gill et al. Odean (1998) argues that many investors trade too much because they are overconfident about the quality of their information. Such investors may overvalue the importance of events that catch their attention, thus leading them to trade sub-optimally. In a recent study, Gill and Biger (2009) found that investors proportional investment in equity securities as part of their entire investment portfolio is positively affected by their own perceived knowledge of what we call here neutral information. Nagy and Obenberger (1994) indicate that the recommendations of brokerage house, individual stock brokers, family members, and friends induce active trading. Barber et al. (2001) examined changes in analysts recommendations and concluded that these are positively associated with future excess return on securities. De Bondt and Thaler (1987) suggest that the representativeness heuristic of investment advisors may lead investors to buy securities with strong recent returns. Although many investors rely on professional expertise, most of them tend to vary of these information channels. In addition, many individual investors neither follow nor understand the various classical valuation models (Gill and Biger, 2009) that rank mutual funds according to their risk-adjusted performance when they assess mutual funds in their purchase decision. Indeed Gill and Biger (2009) have found that investors proportional investment in equity securities as part of their entire investment portfolio is positively affected by their own perceived consultation with an advisor. Krishnan and Booker (2002) analysed the factors influencing the decisions of investors who use analysts recommendations to arrive at a short-term decision to hold or to sell an equity fund. Their findings indicate that a strong form of the analyst s summary recommendation report (e.g., one with additional information supporting the analyst s position further) reduces the disposition error for gains and also reduces the disposition error for losses. Finally O Neal (2004) suggests that investment advisors and brokers play a significant role in equity funds trading activities. The limited literature review indicates that factors such as investment expertise, knowledge of neutral information, and consultation with advisors impact on mutual fund investment decision of investors. It is important to note that there is a joint family system in India which increases the number of family members. The average family size in India is 5.24 (Niranjan et al., 2005). The large number of family members may impact on the decisions of investors to invest in mutual funds. It has also been observed that women are more risk averse than men and the young are more risk seeking than the old (Clark and Strauss, 2008). Barber and Odean (2001) argue that men are more overconfident than women in the area of investment. Investors age and gender may also affect mutual fund investment behaviour. Gender in particular may be a moderating variable reflecting perhaps the different approach of female and male investors to invest in mutual funds. Therefore, it is theorised that investment expertise, knowledge of neutral information, and intensity of consultation with advisors positively impact on mutual fund investment decision. We also examine the extent to which family size, age, and gender affect the intensity of mutual fund investment. The following hypotheses were formulated: H1 Investors proportional investment in mutual funds as part of their entire investment portfolio is positively related to their own perceived expertise about mutual fund investment.

6 Factors that affect mutual fund investment decision of Indian investors 333 H2 H3 Investors proportional investment in mutual funds as part of their entire investment portfolio is positively affected by their own perceived knowledge and exposure to general economic information. Investors proportional investment in mutual funds as part of their entire investment portfolio is positively affected by their own perceived intensity of consultation with an advisor. Conjecture: There might be differences regarding the nature of the relationship between the factors and the proportional investment in mutual funds as part of the investment portfolio based on the investors level of education. Investors level of education helps them understand the level of risk in the mutual fund market. Finke and Huston (2003) indicate that investors with higher level of education are willing take higher risk. It may be because they understand the risk in securities investment better than the investors who have lower level of education. 3 Method 3.1 Research design This study utilised survey research (a non-experimental field study design). To test the hypotheses, p <.05 significance level was used to accept or reject a null hypothesis. 3.2 Measurement Consistent with previous research, all measures pertaining to expertise of investors, investor knowledge of neutral information, investor consultation with an advisor, and mutual fund investment decision of investors were adopted from Gill and Biger s (2009) study. All the scale items were reworded and the reliability of these re-worded items was re-tested for construct validity. Respondents were asked to indicate their agreement with each item, using a five-point Likert scale ranging from none to extreme, related to 1 investment expertise of investors 2 investor knowledge of neutral information 3 investor consultation with an advisor variables. Respondents were asked to indicate their agreement with each item, using a five-point Likert scale ranging from 0% 5%% to 76% 100% related to investment decision of investors variable. Three control variables age, family size, and gender were also used in this study. 1 Age control variable was measured by a single item that asked respondents to indicate their ages. Categorised alternative responses were: a b c 40 50

7 334 A. Gill et al. d e 60 and over. 2 Family size control variable was measured by a single item that asked respondents to indicate number of family members in the family. Categorised alternative responses were: a 1 3 b 4 6 c 7 9 d 10 or more. 3 Gender control variable was measured by a single item that asked respondents to indicate their genders. Categorised alternative responses were: 0 male and 1 female Investment expertise of investors Investment expertise of investors is operationalised as the extent to which investors are experienced and understand the mutual fund investment risk. Gill and Biger (2009) used the two-item tolerance-of-freedom scale which measures the investors knowledge and experience on investment products. Based on Gill and Biger s (2009) confirmatory factor analysis (CFA), two items were selected to measure the investment expertise of investors variable. Scale items were reworded and the reliability of these re-worded items was re-tested. We calculated a Cronbach s alpha of.97 on the responses of the 30 respondents who participated in the pre-test of the above scale items. Both items were included in the final questionnaire Investor knowledge of neutral information Investor knowledge of neutral information is operationalised as the extent to which investors understand: 1 recent mutual fund price movement 2 the current economic indicators (e.g., business cycle, GDP, etc.) 3 the fluctuation/developments in the mutual fund index. Gill and Biger (2009) used three items to measure investor knowledge of neutral information variable. Based on Gill and Biger s (2009) CFA, all three items were selected to measure this variable. Scale items were reworded and the reliability of these re-worded items was re-tested. We calculated a Cronbach s alpha of.91 on the responses of the 30 respondents who participated in the pre-test of the above scale items. All three items were included in the final questionnaire.

8 Factors that affect mutual fund investment decision of Indian investors Investor consultation with an advisor Investor consultation with an advisor is operationalised as the extent to which investors consult their: 1 brokers 2 family members 3 friends before investing in mutual funds. Gill and Biger (2009) used three items to measure investor consultation with an advisor variable. Based on Gill and Biger s (2009) CFA, all three items were selected to measure the investor consultation with an advisor variable. Scale items were reworded and the reliability of these re-worded items was re-tested. We calculated a Cronbach s alpha of.89 on the responses of the 30 respondents who participated in the pre-test of the above scale items. All three items were included in the final questionnaire Investment decision of investors Investment decision of investors is operationalised as the proportion of investors total portfolio that they allocate in mutual funds in order to earn higher rate of return and to diversify risk. Gill and Biger (2009) used three items to measure investment decision of investors variable. Based on that study, two items were selected to measure the investment decision of investors variable. Scale items were reworded and the reliability of these re-worded items was re-tested. We calculated a Cronbach s alpha of.95 on the responses of the 30 respondents who participated in the pre-test of the above scale items. These two items were included in the final questionnaire. 3.3 Sampling frame, questionnaire distribution, and collection The current study consisted of the population of Indian investors who are employed and invest funds in guaranteed investment funds and/or stock market. Indian investors living in Punjab (Chandigarh, Ludhiana, Banga) and Delhi areas of India were chosen as a sampling frame. To avoid sampling bias issues, it was ensured that subjects are selected from Indian investors only. 3.4 Sampling method, sampling issues, and possible planned solutions This study applied a convenience (non-random) sampling method to select and recruit the research participants. To avoid sampling bias, surveyors were asked to only choose participants that are indeed representative of the population. Non-Indian investors were excluded. To achieve a convenience sample, an exhaustive list of Indian investors names and telephone numbers was created in order to distribute surveys and to conduct telephone interviews. Survey questionnaire bundles coupled with an instruction sheet were provided to participating surveyors for distribution.

9 336 A. Gill et al. Approximately 900 surveys were distributed and 284 were returned, 8 of which were not usable. The overall response rate was roughly one third. 4 Study procedures 4.1 Issues related to confidentiality of the research participants All individuals who were approached were assured that their names will not be disclosed and confidentiality will be strictly maintained. In addition all subjects were requested to NOT disclose their names on the questionnaire. Since the research was based on the survey questionnaire investors were not coerced to respond to any specific question. All subjects were provided with stamped envelopes and confidentiality was assured. There was no obligation for the subjects to answer questions over the telephone or in person. Before any telephone interview the person was asked for willingness to participate. Investors consent letter specifically indicated that by completing the survey, subjects have consented to participate in the study. Any information that was obtained in connection with this study and that can be identified with subjects will remain confidential and will be disclosed only with subjects permission or as required by law. 5 Analysis and results 5.1 Data analysis methods Measures of central tendency, variance, skewness, and kurtosis were calculated on responses to all of the items. Skewness measures for all of the items were within the range of: to , which is considered to be an excellent range for most research that requires using statistics appropriate to normal distributions. Therefore, we used statistics that assume scalar values and symmetric distributions to test our hypotheses. Table 1 shows investor data statistics. We began our analysis by factor analysing responses to the 10 items that described the respondents feelings about their investment expertise of investors, investor knowledge of neutral information, investor consultation of an advisor, and mutual fund investment decision of investors. Using a principle component rotation and a Varimax rotation, we ran a CFA on the ten items. Four factors explained 94.63% of the variance in the ten items (see Table 2), and all of the items loaded on the expected factors (see Table 3). We then computed Cronbach s Alphas on the above indicated clusters of items: investment expertise of investors ; investor knowledge of neutral Information ; investor consultation of an advisor ; and mutual fund investment decision of investors We factor analysed the question subsets so that we could calculate weighted factor scores. In terms of these weighted factor score items: two investment expertise of investors, three investor knowledge of neutral information, three investor consultation of an advisor, and two mutual fund investment decision of investors, loaded approximately equally.

10 Factors that affect mutual fund investment decision of Indian investors 337 Table 1 Investor data statistics N = 276 x σ Age Family size Investment expertise of investors To what extent do you? IEOI1) understand the mutual fund investment-risk? IEOI2) have mutual fund investment experience? Investor knowledge of neutral information To what extent do you understand? IKONI1) recent mutual fund price movement? IKONI2) the current economic indicators (e.g., business cycle, GDP, etc.)? IKONI3) the fluctuation/developments in the mutual fund index? Investor consultation of an advisor To what extent do you consult? ICOA1) a broker before investing in mutual funds? ICOA2) your family members before investing in mutual funds? ICOA3) your friends before investing in mutual funds? Investment decision of investors What proportion of your total individual portfolio (e.g., RRSPs, real estate investment, personal savings, etc.) do you allocate in mutual funds to? IDOI1) obtain higher rate of return? IDOI2) diversify risk? Notes: N = number of responses σ = standard deviation x = mean score Table 2 Total variance explained rotation sums of square loadings Total variance explained Rotation sums of squared loadings Component Total % of variance Cumulative % Note: Extraction method: principal component analysis.

11 338 A. Gill et al. Table 3 Rotated component matrix Component To what extent do you? IEOI1) understand the mutual fund investment-risk? IEOI2) have mutual fund investment experience? To what extent do you understand? IKONI1) recent mutual fund price movement? IKONI2) the current economic indicators (e.g., business IKONI3) the fluctuation/developments in the mutual fund To what extent do you consult? ICWA1) a broker before investing in mutual funds? ICWA2) your family members before investing in mutual ICWA3) your friends before investing in mutual funds? What proportion of your total individual portfolio (e.g., RRSPs, real estate investment, personal savings, etc.) do you allocate in mutual funds to? IDOI1) obtain higher rate of return? IDOI2) diversify risk? Notes: Extraction method: principal component analysis. Rotation method: Varimax with Kaiser normalisation. Rotation converged in 6 iterations. Table 4 Pearson bivariate correlation analysis IDOI IEOI IKONI ICOA Age Family size Gender IDOI ** 0.796** 0.812** 0.129* IEOI ** 0.717** IKONI ** 0.150* ICOA ** Age ** 0.143* Family size Gender 1 Notes: **Correlation is significant at the 0.01 level (two-tailed) *Correlation is significant at the 0.05 level (two-tailed) IEOI = investment expertise of investors IKONI = investor knowledge of neutral information ICOA = investor consultation of an advisor IDOI = investment decision of investors Table 4 provides the Pearson correlation for the variables that we used in the regression model. Pearson s correlation analysis was used for data to find the factors that affect mutual fund investment decision of Indian investors. We found that the investment

12 Factors that affect mutual fund investment decision of Indian investors 339 expertise of investors, investor knowledge of neutral information, and investor consultation of an advisor are positively correlated with the investment decision of Indian investors. The positive correlations explain that investment expertise of investors, investor knowledge of neutral information, and investor consultation of an advisor positively impact on the investment decision of Indian mutual fund investors. A negative relationship between investors age and investment decision of investors were also found. The negative relationship explains that as the Indian investors get older, their tendency to invest in mutual funds tend to go down. Table 5 a, b, c Regression coefficients Un-standardised coefficients Standardised coefficients c B Std. error Beta t Sig. (Constant) Collinearity statistics Tolerance IEOI IKONI ICOA Age Family size Gender Notes: Regression equation: IDOI = IEOI IKONI ICOA Age Family Size Gender a dependent variable: IDOI. b independent variables: IEOI, IKONI, ICOA, age, family size, and gender. Age was dealt with as a single dummy variable: and over. Average scores ( / 2 = 24) were calculated to conduct regression analysis. Family Size was dealt with as a single dummy variable: or more. Average scores (1 + 3 / 2 = 2) were calculated to conduct regression analysis. Gender was dealt with as a single dummy variable: 0 male, 1 female. c Linear regression through the origin. VIF 6 Testing of hypotheses It was hypothesised that investors proportional investment in mutual funds as part of their entire investment portfolio is positively related to their own perceived

13 340 A. Gill et al. 1 expertise about mutual fund investment 2 knowledge and exposure to general economic information 3 intensity of consultation with an advisor. Positive relationships between 1 IEOI and IDOI 2 IKONI and IDOI 3 ICOA and IDOI 4 family size and IDOI were found (see Table 5). That is, Indian investors proportional investment in mutual funds as part of their entire investment portfolio is positively related to their own 1 perceived mutual fund investment expertise 2 knowledge and exposure to neutral information 3 intensity of consultation with an advisor. No significant relationships between 1 gender and IDOI 2 age and IDOI were found (see Table 5). The test for multicolinearity was also performed. All the variance inflation factor (VIF) coefficients are less than 4 and tolerance coefficients are greater than Nevertheless, we performed an additional regression test that is reported at the end of the section before discussion. Table 6 Model summary R R 2 Adjusted R 2 SEE a Notes: a Predictors: (Constant), gender, family, IEOI, age, ICOA, and IKONI. SEE = standard error of the estimate. Note that around 75.80% of the variance in the degree of mutual investment decision of the Indian investors can be explained by the degree of perceived gender, family size, IEOI, age, ICOA, and IKONI (see Table 6). The r 2 (0.758) is high due to the high correlations between 1 IEOI and IKONI [r = 0.826] 2 IEOI and ICOA [r = 0.717] 3 IKONI and ICOA [r = 0.745] (see Table 4). That is, the higher the correlation among independent variables, the higher the r 2. The high significant positive correlations between

14 Factors that affect mutual fund investment decision of Indian investors investment expertise of investors and investor consultation of an advisor 2 investor knowledge of neutral information and investor consultation of an advisor may be because of the joint family system in India in which people ask other people s opinion before making investment decisions. Table 7 ANOVA a, b Sum of squares df Mean square F Sig. Regression a Residual Total Notes: a Predictors: (xonstant), gender, family size, IEOI, age, ICOA, and IKONI. b Dependent variable: IDOI. As shown in Table 7, ANOVA s test is significant at Further examination of the data indicates that some of the explanatory variables exhibit relatively high multicolinearity. Therefore, we performed an additional regression test where only explanatory variables that have non-significant linear correlations among them were included. The variable that are significant are IEOI, IKONI, and ICOA with the following results: Table 8a Revised regression results R R 2 Adjusted R 2 SEE Note: Predictors: (constant), ICOA, IEOI, and IKONI. Table 8b ANOVA a, b Sum of squares df Mean square F Sig. Regression a Residual Total Notes: a Predictors: (constant), ICOA, IEOI, and IKONI. b Dependent variable: IDOI. Table 8c With the regressions coefficients Explanation B SE T P (Constant) IEOI Expertise IKONI General information ICOA Consultation with advisors Note: Dependent variable: IDOI.

15 342 A. Gill et al. 7 Discussion The main purpose of this study was to determine whether investors proportional investment in mutual funds as part of their entire investment portfolio is positively affected by their own perceived 1 mutual fund investment expertise 2 knowledge of neutral information 3 consultation of an advisor. This was done by surveying a sample of Indian investors. These investors perceptions and judgments are the basis of our findings that investors proportional investment in mutual funds as part of their entire investment portfolio is positively affected by their own perceived 1 mutual fund investment expertise 2 knowledge of neutral information 3 consultation of an advisor. Figure 1 Factors influencing mutual fund investment decision of investors Figure 1 shows the factors that influence the mutual fund investment decision of Indian investors. The overall ranking of the factors that lead investors to invest in mutual funds are as follows: 1 ICOA (Beta = 0.470) 2 IKONI (Beta = 0.285) 3 IEOI (Beta = 0.183). The above findings are only marginally affected by investors family size. Age and gender were not significant factor in the investment decisions. The findings of this paper

16 Factors that affect mutual fund investment decision of Indian investors 343 lend some support to Nagy and Obenberger s (1994), Al-Tamimi s (2006), and Gill and Biger s (2009) research on the factors that influence investor behaviour. 7.1 Recommendations for investment advisors The significant positive correlations between 1 investment expertise of investors and investor consultation of an advisor 2 investor knowledge of neutral information and investor consultation of an advisor show that Indian investors are risk averse. To reduce the perceived investment risk, they seek consultants advice before investing in equity funds. Thus, Indian investors can be considered conservative investors. Therefore, investment advisors must be careful when they provide investment advice to invest in equity funds. That is, investment advisors should not suggest aggressive funds to conservative investors because it may create ethical issues. The significant negative correlation between investor knowledge of neutral information and age describes that older investors have low knowledge of neutral information. This may be because once investors start to get older, their interest in neutral information tends to go down due to the lower propensity to invest in equity funds. That is, investment advisors should not suggest aggressive funds to older investors. The conservative investment advice such as investing money in fixed-income funds may be appropriate for the older Indian investors. The significant positive correlation between family and age indicates that Indian investors seek older family members advice before investing money in the equity funds. This may be because of the joint family system in India. Therefore, investment advisors must understand the joint family system in India and its impact on investment behaviour of investors. The significant positive correlation between gender and investor consultation of an advisor explains that the male and female investors may not have same intensity to seek investment consultant s advice. The significant negative correlation between gender and age points out that there is a gender difference based on the investors age (see Table 4). Therefore, investment advisors must treat each investor differently based the age, gender, and individual situation. In addition, the investment advisors must understand the gender differences in India. Finally, the investment consultants must understand the joint impact of investment expertise of investors, investor knowledge of neutral information, investor consultation of an advisor, and family size on the investment behaviour of Indian investors. This, in turn, will help investment managers and investment advisors to succeed in the investment management field. 7.2 Practical implications The practical implications is that if investors perceive that they have higher level of 1 investment expertise 2 general knowledge and understanding of macroeconomic indicators 3 consultation of an advisor, their proportional investment in mutual funds as part of their entire investment portfolio tends to rise.

17 344 A. Gill et al. 7.3 Future research This study focused on Indian investors, and responses were garnered regarding their investment expertise, familiarity with economic information, consultation of an advisor, and investments in equity mutual funds. While the study investigated the investor-side of this relationship, future research might seek to assess both investor and investment advisor perspectives to ascertain the consistency across the dyad. To further enhance the generalisation of the findings beyond the mutual fund market, additional research in other fields is advocated, complemented by studies focusing on a longitudinal design, allowing for tracking and assessing the evolution of the determinants of investor behaviour over time. References Al-Tamimi, H.A. (2006) Factors influencing individual investor behavior: an empirical study of UAE financial markets, The Business Review, Vol. 5, No. 2, pp Barber, B.M. and Odean, T. (2001) Boys will be boys: gender, overconfidence, and common stock investment, The Quarterly Journal of Economics, Vol. 116, No. 1, pp Barber, B.M. and Odean, T. (2008) All that glitters: the effect of attention and news on the buying behavior of individual and institutional investors, The Review of Financial Studies, Vol. 21, No. 2, pp Barber, B.M., McNichols, L.M. and Truman, B. (2001) Can investors profit from the prophets? Consensus analyst recommendations and stock returns, Journal of Finance, Vol. 6, No. 2, pp Byrne, K. (2005) How do consumers evaluate risk in financial products?, Journal of Financial Services Marketing, Vol. 10, No. 1, pp Clark, G. and Strauss, K. (2008) Individual pension-related risk propensities: the effects of socio-demographic characteristics and a spousal pension entitlement on risk attitudes, Ageing and Society, Vol. 28, No. 6, pp De Bondt, W. and Thaler. R. (1987) Further evidence on investor overreaction and stock market seasonality, Journal of Finance, Vol. 42, No. 3, pp De Bondt, W.F. and Thaler. R. (1985) Does the stock market overreact?, Journal of Finance, Vol. 40, No. 3, pp Finke, M. and Huston, S. (2003) The brighter side of financial risk: financial risk and tolerance and wealth, Journal of Family and Economic Issues, Vol. 24, No. 3, pp Gill, A. and Biger, N. (2009) Gender differences and factors that affect stock investment decision of Western Canadian investors, International Journal of Behavioural Accounting and Finance, Vol. 1, No. 2, pp Kadiyala, P. and Rau, R. (2004) Investor reaction to corporate event announcement: under reaction or overreaction?, Journal of Business, Vol. 77, No. 2, pp Krishnan, R. and Booker, D.M. (2002) Investors use of analysts recommendations, Behavioral Research in Accounting, Vol. 14, No. 1, pp Merikas, A., Merikas, A. and Prasad, D. (2003) Factors influencing Greek investor behavior on the Athens stock exchange, Paper presented at the Annual Meeting of the Academy of Financial Services, 8 9 October, Denver, Colorado. Nagy, R.A. and Obenberger, R.W. (1994) Factors influencing investor behavior, Financial Analysts Journal, Vol. 50, No. 40, pp Niranjan, M., Nair, S. and Roy, T.K. (2005) A socio-demographic analysis of the size and structure of the family in India, Journal of Comparative Family Studies, Vol. 36, No. 4, pp

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