A STUDY ON INVESTOR S PERCEPTION TOWARDS MUTUAL FUND SELECTION IN THE DISTRICT OF KOZHIKODE, KERALA STATE, INDIA.

Transcription

1 A STUDY ON INVESTOR S PERCEPTION TOWARDS MUTUAL FUND SELECTION IN THE DISTRICT OF KOZHIKODE, KERALA STATE, INDIA Dr. RIYAS. KALATHINKAL 1 MUHAMMAD IMTHIYAZ AHMED 2 SHAFI.K 3 SHAREENA P P 4 1 Faculty, Department of Business Studies, Shinas College of Technology, Ministry of Manpower, Sultanate of Oman 2 Faculty and OJT Coordinator, Department of Business Studies, Shinas College of Technology, Ministry of Manpower, Sultanate of Oman 3 Assistant Professor in Commerce, Department of commerce and management studies MES College of Arts and Science, Kallanthode, NIT Post, Chathamangalam, Kozhikode District, Kerala. 4 Assistant Professor in commerce, Department of Commerce, MOMO College Mukkam Manaseerey Post, Kozhikode District, Kerala, India ABSTRACT The Indian equity market has gained significantly during the last one year and mutual funds are not left far behind. Both the avenues have created wealth for investors. Consumer behavior from the marketing world and financial economics has brought together to the surface of an exciting area for study and research. But the equity market has attracted much more attention than the mutual funds market. The reason behind this is that in India investment in the equity market has been there since long but the mutual fund market is still growing. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realized is shared by its unit holders in proportion to the number of units owned by them. A rich view of research waits this sophisticated understanding of how financial markets are also affected by the financial behavior of investors. With the reforms of industrial policy, public sector and financial sector and the many developments in the Indian money market and capital market, mutual funds, which has become an important portal for the small investors, is also influenced by their financial behavior. Thus a mutual fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.hence this study is an attempt to examine the related aspects of the fund selection behavior of individual investors towards mutual funds, in the district of Kozhikode, Kerala State, India. Key words: Asset Management Company (AMC), Mutual funds (MF S), Investors perception, Net Asset Value (NAV). INTRODUCTION The Indian capital market has been growing tremendously with the reforms in industrial policy, reforms in public and financial sector, and new economic policies of liberalization, deregulation and restructuring. The Indian economy has opened up and many developments have been taken place in the Indian capital market and money market with the help of financial system and financial institutions or intermediaries which foster savings and channeled them to their most efficient use. One such financial intermediary who has played a significant role in the development and growth of 48 admin@icmrr.org

2 capital markets is Mutual Funds (MF).More than 10 million mutual fund investors are there in India. However, there is a very limited knowledge of investment decision-making processes and consumer behavior, as applied to financial assets and service.the present study adds to this area of study by an investigation using techniques from consumer behavior research. However, in the financial literature there is no clear model, this explains the influence of perception and beliefs on expectations and decision making. The study was conducted among the investing public in Kozhikode district, Kerala state in India to identify the factors considered in the choice of mutual funds. While there are so many factors that can drive an investor s choice of a specific scheme, some major factors like brand name, liquidity, past performance etc, were taken into consideration for the purpose of the study. OBJECTIVES OF THE STUDY The study has the following objectives: 1. To identify the preferred savings avenue among the investors 2. To assess Mutual Fund selection behavior among the investors. 3. To identify the sources influencing the selection decision of the investors. 4. To understand the fund qualities that influences the selection of Mutual Funds. RESEARCH METHODOLOGY The study mainly deals with the financial behavior of investors towards Mutual Funds in Kozhikode District, Kerala State, India. The required data would be collected through a questionnaire administered on a simple random and judgment sample of 100 educated investors in mutual funds. RESEARCH DESIGN The Research methodology used in this project is descriptive research. PRIMARY DATA Sources of collecting primary data are structured questionnaire, direct personal interview and observation method. SECONDARY DATA Sources of collecting data were annual reports, periodically published journals on MF s, and other official websites. REVIEW OF LITERATURE Malhotra and Robert (1997) reported that the preoccupation of MF investors using performance evaluation as selection criteria is misguided because of volatility of returns. This may be due to superior management or just good luck; it is difficult to determine. The findings of Ferris and Chance (1987 and 1991) are consistent with the findings of Malhotra and Robert (1997). Lu Zheng (1998) examined the fund selection ability of MF investors and found that the investor s decisions are based on short-term future performance and investors use fund-specific information in their selection decision. SujitSikdar and Amrit Pal Singh (1996) carried out a survey with a objective to understand the behavioral aspects of the investors of the North Eastern region towards equity and MF s investment portfolio. The survey revealed that the salaried and self-employed formed the major investors in MF s primarily due to tax concessions.. UTI and SBI schemes were popular in that part of the country 49 admin@icmrr.org

3 then and other funds had not proved to be a big hit during the time when the survey was done.raja Rajan (1997, 1998) high lightened segmentation of investors on the basis of their characteristics, investment size, and the relationship between stage in life cycle of the investors and their investment pattern. LIMITATIONS OF THE STUDY 1. The sample size of 100 may not adequately represent the national market. 2. Simple random and judgment sampling is due to time and financial constraints. 3. Some of the respondents not reveal correct information. DATA ANALYSIS The study was conducted by distributing questionnaires to 100 investors in Kerala, Kozhikode district out of the 100 respondents 63% of the respondents are males and 37% are females. From the respondents 44% of the respondents are below the age of 35, 32% are between 31 and 40, 16% are above 50 and only 8% are between the age group of The age of the respondents and the media to know about Mutual funds. It shows that 65.9% of the respondents belonging to the age of 30 have acquired the awareness of mutual funds through television. This age group is more fascinated in watching television and it is an attractive media where the youngsters are very keenly interested. Education level of the respondents shows that 37% of the respondents are graduates, 41% are post-graduates, 16% are professional degree holders and only 6% are school finals. Academic qualification of the respondents and the current preferences of Savings Avenue. It is clear that the post graduates have invested in life insurance as a current preference of Savings Avenue. Most of the investors feel it is essential to invest in life insurance first than before exercising any other option. The respondents have an annual income of 1,00,000-3,00,000, 27% have income between 3,00,000-5,00,000, 10% are below 1,00,000 and only 4% have income above 5,00,000. Annual income of the respondents and the current preferences of savings avenues, the current preference of Savings Avenue is maximum among investors with an annual income of Rs. 1,00,000 to 3, 00,000. They feel it is essential to invest in life insurance than any other savings avenue. 55.9% of the investors with an income of 1, 00,000 to 3,00,000 have invested in life insurance. 45% of the respondents know about the mutual funds through TV, 36% through newspapers and the rest through reference groups and brokers. Among the respondents 49% like to go for growth schemes, 37% for income schemes and the rest 14% for money market and tax-savings schemes. And 42% of the respondents prefer open-ended as well as interval schemes and only 16% prefer closed ended schemes. The collected information regarding reasons for investing in mutual funds shows that 65% of the respondents invest in Mutual Funds in order to earn good returns. 17% prefer MF s as they ensure the safety of the investors, 10% prefer to invest so that it helps them to earn capital appreciation over a period of time and the rest 8% invests in MF s in order to ensure liquidity and also for professional management admin@icmrr.org

4 Table No.1 FACTORS INFLUENCING FOR MUTUAL FUND SELECTION BEHAVIOR OF INVESTORS Fund related qualities HI I SWI NVI NAAI Total Fund performance record Fund brand name Fund withdrawal facilities Favorable ratings Scheme innovativeness Minimum initial investment Fund sponsor qualities Reputation of sponsoring firm Sponsor credibility Agency and network Expertise Research and infrastructure Past performance Investor related services Disclosure in advertisement Periodic valuation Disclosure of NAV Grievance redressal machinery Fringe benefits Preferred MF Source: Primary Data (HI- Highly Important, I- Important, SWI- Some what Important, NVI- Not very Important, NAAI- Not at all Important) Interpretations Fund Performance record The above table shows that 57% of the investors consider that the fund performance record is important, 28% feel it is some what important and only 12% consider it highly important. This is because the fund performance record helps the investor to have a clear idea about the performance of the record and helps them to decide whether to invest or not to invest. Fund Brand name 61% of the investors which forms a majority feel fund brand name is highly important in selecting the mutual funds because funds with brand name can always be trusted and returns can be fully assured. Fund Withdrawal facilities 59% of the investors feel that withdrawal facilities are important because it helps them to switch on to a better option when the chosen fund is not performing well. In case the withdrawal facilities are not in favor of the investors they refrain from selecting that particular fund admin@icmrr.org

5 Favorable ratings 54% of the investors feel favorable rating is important whereas 31% feel it is highly important and only 15% feel it is some what important. This is because ratings help the investors in identifying the performance and the rankings given to the funds. Scheme Innovativeness 55% feel it is highly important as innovativeness in the schemes helps in bringing out more attractive schemes for the investors and helps them to switch to different options at different times. Minimum Initial Investment 39% feel initial investment is highly important, 30% feel it is important and the others feel it is not very important. Initial investment is a matter of concern for investors who has a lesser amount of income whereas for those who have high income do not consider it very important. Since Kozhikode district in Kerala consists of middle class income groups, initial investment should be considered as well. Reputation of the sponsoring firm The above table shows that 56% of the investors consider it important, 20% consider it some what important and 18% feel it is highly important. This is due to the fact that a good reputation and fame helps the investors to trust in the sponsor. Sponsor credibility The table shows that 66% of the investors consider brand name as highly important and 22% consider it important. A branded sponsor can be trusted because they always remain faithful to their customers to keep up their name. Agency and network 65% of the investors feel a well developed agency and network is some what important because it does not matter much if the sponsor has a big agency or not. The performance matters more so this criterion is given lesser importance by the investors. Expertise in managing money 50% feel this criterion is some what important whereas the rest feel it is important. This is due to the fact that the sponsor should be an expert in placing the investor s money in the right place at the right time. Research and infrastructure 34% of the investors feel it is some what important, 13% feel it is highly important, 15% feel it is important, 32% feel it is not very important and 6% feel it is not at all important. There is a diverse opinion in this matter as research and development criteria depend on the type of investors investing in the mutual funds. Past performance The table shows 52% consider it is important, 30% somewhatimportant, 14% highly important and the rest is not important. The majority feel it is important due to the fact that it guarantees the future performance of the sponsor to a certain extent. Disclosure of investment objective. 32% feel it is not very important, 28% feel it is not at all important, and a very few percent of investors feel it is important. This is due to the fact the investors would not like their information and objectives being made public through advertisements admin@icmrr.org

6 Periodic valuation The table shows 38% feel it is not very important, and an equal proportion of 33% feel it is some what important. The disclosure of periodic valuation also depends on the investors whether they like it to be disclosed or not. Therefore, it is difficult to reach at a definite conclusion. Disclosure of NAV The table shows that a majority of 59% of investors feel that it is some what important to disclose NAV whereas a few feel it is important. This is necessary as it helps the investors to keep in track the performance of the funds. Grievance redressal machinery The table shows 50% of the investors feel it is not important. The other opinions vary among investors because a grievance redressal machinery is not of much importance because the funds do not have much issues related to them that have to be addressed through a channel. Fringe Benefits Majority of the investors about 84% of them feel fringe benefits is very important because fringe benefits help the investors to earn extra benefits with the scheme. The benefits earn additional income for the investors and so it is of due importance. Preferred MF to avoid problems 73% of the investors feel already preferred mutual funds help in avoiding problems and 20% feel it is some what important. They feel it is better so that by investing in already preferred MF s, the investors can avoid a lot of problems that may arise if he or she invests in new mutual funds. FINDINGS 1. The media through which the respondents became aware about the MF s is television and newspapers. 2. Most of the investors prefer open-ended and interval schemes in order to earn more returns and liquidity. 3. The main reason behind investing in MF s is to earn good returns and for safety and liquidity. 4. The fund related qualities like fund performance record, brand name, withdrawal facilities, ratings, etc are generally considered to be important by the investors. 5. Among the sponsor related qualities, the reputation, brand name and expertise of the sponsors were considered important. 6. Among the investor related qualities, the disclosure of NAV and fringe benefits are considered important. 7. The analysis gives a clear picture that the younger generations are keener in investing in the recent upcoming debt instruments than the older ones. The respondents below the age of 30 are more aware of the financial markets and are more interested in following the recent trends in the financial markets. 8. The analysis explains that most of the respondents are post-graduates followed by graduates. This is so because the graduates and post-graduates are more aware of the financial markets than the school final or professional degree holders as they are from the commerce background. They keep in touch with the financial markets and are more aware of the changing trends than those from the science background. 9. The analysis shows that the maximum percent of respondents who invests in MF s are having an income range between 1,00,000 to 3,00,000. This is because they are cautious investors and they want to invest in such a way that they are able to get maximum returns from their investments admin@icmrr.org

7 10. It can be observed from the analysis that most of the respondents know about the mutual funds through TV as it is the most attractive media of spreading information. The rest of the respondents are aware of MF s through newspapers because it is a media which reaches out to every common man. 11. The analysis indicates that most of the investors prefer growth schemes as it gives them capital appreciation over a long period of time. Income schemes are preferred as they give steady and regular income to the investors. 12. The analysis explains that most of the investors prefer open ended schemes as they have no maturity period and gives liquidity. Interval schemes are equally preferred as it is a combination of both open ended and close ended schemes. 13. The table shows that 62.50% of the respondents with professional degree are aware of mutual funds through newspapers. This is due to the fact that the professionals do not have much time to spend watching television or keeping in touch with other sources. The only media that they are opened to are newspapers. RECOMMENDATIONS 1. Since the investors need for liquidity and returns is found to be high, more of the new schemes and openings for subscription can be open-ended. 2. AMC s should continuously design suitable schemes to meet the triple needs of adequate returns, safety and liquidity in a balanced proportion and develop infrastructure to reach to the investors. 3. The MF s operational environment is becoming more competitive. Hence, the impact of emerging competition on investor behavior/behavioral changes needs to be studied further. Developments in technology influence the behavior of investors. Hence, the impact of technology on financial behavior is another potential area for close study. Since the industry is still struggling to win the investor s confidence, an in-depth analysis into investor expectations from MF products, its performance, management, service and other related areas can be given more importance. 4. This study reveals that MF investors feel that currently there are two major benefits, which MF s offer, namely, diversification benefits and professional management are not satisfactorily delivered. In spite of this, MF s industry is growing faster and we attribute this to investor behaviour and other macroeconomic factors. Further research can be done to understand the reasons for growing popularity on one side and the struggle to win investor s confidence on the other side. 5. By proper segmentation and by targeting the right product to the right customer, MF companies can cope to win the confidence of their customers and own them for a life time. CONCLUSIONS The emergence of an array of savings and investment options and the dramatic increase in the secondary market for financial assets in the recent years in India has opened up an entirely new area of value creation and management.. MF industry in India has a large untapped market in urban areas besides the virgin markets in the semi-urban and rural areas. This market potential can be tapped by scrutinizing investor behavior to identify their expectations and articulate investor s own situation and risk preference. In addition, the availability of more savings instruments with varied risk-return combination would make the investors more alert and choosy. Running a successful MF requires complete understanding of the peculiarities of the Indian Stock Market and also the psyche of the small investors. Under such 54 admin@icmrr.org

8 a situation, the present exploratory study is an attempt to understand the financial behavior of investors in connection with scheme preference and selection. Investor s choice of a MF scheme is influenced by the offer or its brand popularity, which reduces the perceived risk of an investor. Hence, we find more of open-ended schemes. The past performance or the track record of a fund, as publicized and discussed by various MF trackers, certainly is an important driver for choosing MF scheme. The results suggested that there were distinct investor segments that value different attributes. The results have implications for the marketing of financial products and for the providers of financial advice. Those providing advice to the growing market of individual investors need to have an accurate understanding of clients attitudes to investment. If they do not; it will be extremely difficult for them to provide appropriate advice that will satisfy the client in the long-term.given our limited knowledge of investment decision-making processes and consumer behavior as it applies to financial assets and services, the possibilities for future research in this area are extensive. As it has already been noted, the range of attributes used in this study was not exhaustive. There is a scope for further investigation into attributes that were not included in the present study, including the influence that a company s environmental and social credentials might have on investors choices. Additionally, a larger sample size covering more centers can improve the reliability and validity of the results. REFERENCES 1. Source: finance foreign studies 2. Source: ICFAI Journal of Behavioral Finance, Vol III 3. The Mutual Funds Book: How to Invest in Mutual Funds & Earn High Rates of Returns Safely Paperback April 1, 2008by Alan Northcott 4. Mutual Funds in India: Emerging Issues, NaliniPravaTripathy Indian MUTUALFUNDS Handbook A Guide for INDUSTRY Professionals and Intelligent Investors (3rd Revised Edition) SundarSankaran 6. The International Encyclopedia of Mutual Funds, Closed-End Funds, and REITs Hardcover January 1, 2000 by Peter W. Madlem (Author), Thomas K. Sykes (Author) 7. Common Sense on Mutual Funds: Fully Updated 10th Anniversary Edition Hardcover December 2, The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition) (Collins Business Essentials) Paperback February 21, by Benjamin Graham 55 admin@icmrr.org