A STUDY ON FACTORS MOTIVATING THE INVESTMENT DECISION OF MUTUAL FUND INVESTORS IN MADURAI CITY

A STUDY ON FACTORS MOTIVATING THE INVESTMENT DECISION OF MUTUAL FUND INVESTORS IN MADURAI CITY Dr. P. KUMARESAN Professor PRIST School of Business PRIST University, Vallam, Thanjavur E- Mail: pkn.commerce@gmail.com ABSTRACT Mutual funds collects funds from savers and invest them in equities, bonds, government securities, money market instruments etc., and thus build up a diversified portfolio. A decision to make an investment or not to invest in a particular mutual fund scheme is not solely guided by the due consideration of maximization of expected return. It is an outcome of several factors. In this study an attempt is made to study the various factors influencing mutual fund investment decision making. Several variables have taken into consideration for the rotated factor matrix analysis for the investment decisions. KEYWORDS Mutual Fund, Savings, Investors,. Investment Decisions, Rotated Matrix, Rate of Return, Risk Level, Liquidity, Economic Value, Tax Benefits,

A Study On s Motivating The Investment Decision Of Mutual Fund Investors INTRODUCTION Creation of wealth is the primary objective of investors. There are a number of investment opportunities all around the investor to achieve his objectives. There are bank deposits, company deposits, equities, bonds, life insurance policies, small saving schemes, mutual fund products etc. Which create and which in a way compete among themselves for the choice of the investor. Mutual funds mobilize resources from savers and invest them in equities, bonds, government securities, money market instruments etc., and thus build up a diversified portfolio. A decision to investment or not to invest in a particular mutual fund scheme is not solely guided by consideration of maximization of expected return. It is an outcome of several factors. In this study an attempt is made to study the various factors influencing mutual fund investment decision making in Madurai, Tamil Nadu. for collecting the primary data. The sample size of the study was 100 respondents. Judgment sampling method was adopted in the selection of investors. A motive is a driving force that causes a person to take action to satisfy specific needs. While investing in mutual funds the factors that motivate the investors in the study area are classified Rate of return, Level of Risk, Tax, Liquidity, Transparency, Choice of Schemes, Regulations and Professional Management. Among these various motivating factors, the dominant factors were analysed with the help of factor analysis. ROTATED FACTOR MATRIX FOR THE ATTRIBUTES TOWARDS MUTUAL FUND INVESTMENT DECISIONS The rotated factor matrix for the attributes of mutual fund investment towards investment behavior is given in Table METHODOLOGY The study is based on primary data. This was confined to the Madurai city. The primary data was collected from the respondents of the Madurai city. Interview schedule was the main tool TABLE 1: ROTATED FACTOR MATRIX FOR THE ATTRIBUTES TOWARDS MUTUAL FUND INVESTMENT DECISIONS S. No. More than expected return Better than other investment s return 1 2 3 4 5 6 7 8 0.896-0.124 0.027 0.076-0.108 0.012-0.039-0.088 0.885-0.103 0.010 0.028-0.127 0.057-0.066 0.055 Namex International Journal of Management Research 12 Vol. 3, Issue 1, Jan Jun 2013, ISSN: 2250-2076

A Study On s Motivating The Investment Decision Of Mutual Fund Investors like Bank Deposits Emerging Trend in rate of return 0.609 0.135 0.052 0.275 0.308 0.273 0.080-0.233 4. Frequent change in investment Pattern -0.125 0.829 0.006 0.159 0.157-0.048-0.049 0.061 5. Perfect Market Analyzing 0.021 0.712-0.28 0.156-0.167-0.176 0.005 0.404 6. Elimination of risk by application of Law of large -0.294 0.483 0.224-0.300 0.224 0.224 0.002-0.204 numbers 7. Some of the Mutual Funds Schemes are getting various tax 0.030 0.029 0.829-0.012-0.035-0.118-0.128-0.007 benefits 8. Tax exemptions are made with a view to motivate the -0.031-0.017 0.794 0.194 0.107 0.109-0.015-0.036 potential investors. 9. Tax is important factor which influencing the -0.217-0.124-0.387 0.329 0.332 0.087-0.141 0.087 investment decisions 10. Easy Convertibility 0.108 0.007 0.310 0.728-0.086-0.035 0.124 0.121 1 It can be used as a security 0.191 0.366-0.069 0.717 0.009 0.121-0.075-0.101 1 Annual reports are published regularly -0.081-0.007 0.024-0.048 0.706-0.097-0.045-0.087 1 Unit holders are updated on their -0.045 0.050 0.030-0.012 0.625 0.148-0.001 0.122 investment status 14. Investors know the securities and proportion in which 0.366 0.235-0.092 0.054 0.454-0.347 0.035 0.138 their money will be invested 15. Long term capital appreciation 0.123-0.122-0.208 0.189 0.028 0.726-0.016-0.102 16. Fund invest in stock that yield well -0.110-0.116 0.225-0.054 0.166 0.549 0.015 0.527 above average 17. Schemes are positively managed 0.246 0.285 0.129-0.271-0.124 0.440-0.037-0.014 18. Strict Regulations -0.018-0.002 0.072-0.005 0.047-0.044 0.846-0.077 19. Operations are restricted to capital -0.043-0.049-0.207 0.041-0.111 0.025 0.727 0.185 market instruments 20. Very qualified and full time investment managers 0.016 0.206-0.106 0.042 0.054-0.083 0.077 0.772 The above Table exhibits the rotated factor loading for the twenty statements of investors. It is clear from the Table 1 that all the twenty statements have been extracted into eight factors. Namex International Journal of Management Research 13 Vol. 3, Issue 1, Jan Jun 2013, ISSN: 2250-2076

A Study On s Motivating The Investment Decision Of Mutual Fund Investors The Rotated Matrix, for the investment decision factors or attributes of investors towards investing decisions is given below: RETURN The collected funds from investors are invested by mutual funds in various income producing securities of other companies. Actually the interest and dividends received on these securities are the income of original investors. TABLE 2: FACTOR 1 - RATE OF RETURN More than expected return Better than other investment s return like bank deposits Emerging Trend in rate of return 0.896 0.885 0.609 0.839 0.821 0.698 Among the attributes of investment in mutual funds, the variables such as More than expected return, Better than other investment s return like bank deposits and Emerging Trend in rate of return constituted the 1 with higher factor loadings. The above said three variables with higher factor loading on factor 1 are characterized as Rate of Return. These three variables have high communality indicating that the variables within the factor 1 have very high association among them. RISK Risk in a generic sense is the possibility of loss, damage, or harm. Risk is a measure of the possibility that the investor will not receive an expected return on his investment. Risk and reward move hand in hand. TABLE 3: FACTOR 2 - LEVEL OF RISK Frequent Change in investment pattern Perfect market analyzing Elimination of risk by application of Law of large numbers 0.829 0.712 0.483 0.761 0.754 0.601 The variables such as Frequent Change in Investment Pattern, Perfect Market Analyzing and Elimination of risk by application of Law of large numbers with high factor loading constituted factor The above said factors with high factor loading on factor 2 are characterized as Level of Risk. The higher factor loading on its factor helps in identifying factors associated with factor All the factors have high communality, indicating that the variables within factor 2 have very high association. Namex International Journal of Management Research 14 Vol. 3, Issue 1, Jan Jun 2013, ISSN: 2250-2076

A Study On s Motivating The Investment Decision Of Mutual Fund Investors TAX Taxation policies in India with respect to mutual funds have varied over the years. The purpose, over all these years, in part, has been to encourage the growth of the industry. The investors of mutual funds schemes are getting various tax benefits in India on some of the schemes of mutual funds. TABLE 4: FACTOR 3 - TAX Some of the Mutual Funds Schemes are getting various tax benefits. Tax exemptions are made with a view to motivate the potential investors Tax is important factor which influencing the investment decisions 0.829 0.794-0.387 0.722 0.695 0.465 It is observed from the above Table that the variables of investment in mutual funds such as Some of the Mutual Funds Schemes are getting various tax benefits, Tax exemptions are made with a view to motivate the potential investors and Tax is important factor which influencing the investment decisions constituted factor 3 with higher factor loading. The above said three attributes with high factor loading on 3 are characterized as Tax. The higher factor loading of the factors indicate that the factor 3 underlines that variable. The higher value of communality for the three factors indicates that higher amount of variance is explained by the extracted factors. LIQUIDITY Liquidity refers to the speed with which an asset can be converted into cash without much loss of its economic value. Many corporate shares are not actively traded at the stock exchanges. But in case of open-ended scheme the Mutual Funds provide the facility of buy-back of the units from investors at a price fixed by them. Liquidity is thus provided to the investors. TABLE 5: FACTOR 4 - LIQUIDITY Easy Convertibility It can be used as a security 0.728 0.717 0.677 0.720 Among the attributes of investment in mutual funds, the factors, Easy Convertibility and It can be used as a security constituted 4 with higher factor loading. The above said two variables with high factor loading on 4 are characterized as Liquidity. The higher factor loading of the variables indicate that the factor 4 underlines that variable. The higher Namex International Journal of Management Research 15 Vol. 3, Issue 1, Jan Jun 2013, ISSN: 2250-2076

A Study On s Motivating The Investment Decision Of Mutual Fund Investors value of communality for the two variables indicates that higher amount of variance is explained by the extracted factors. TRANSPARENCY Mutual funds are subject to strict regulation and oversight by SEBI. As part of this regulation all mutual funds provide full and complete disclosures about the funds in a written offer documents. TABLE 6: FACTOR 5 - TRANSPARENCY Annual reports are published regularly Unit holders are updated on their investment status Investors know the securities and Proportion in which their money will be invested. 0.706 0.625 0.454 0.527 0.433 0.547 The variables such as Annual reports are published regularly, Unit holders are updated on their investment status and Investors know the securities and Proportion in which their money will be invested with high factor loading constituted factor 5. The above said variables with high factor loading on factor 5 are characterized as Transparency. The higher factor loading on its factor helps in identifying factors associated with factor 5. All the variables have high communality, indicating that the variables within factor 5 have very high association. CHOICES OF SCHEMES AMFI has classified mutual fund schemes into following 7 broad categories according to their basic investment objectives: Growth Income Balanced 4.Liquid & Money Market 5.Gilt 6.Equity Linked Savings Schemes (ELSS) and 7.Fund of Funds. Each of these categories can further be classified into more categories. TABLE 7: FACTOR 6 - CHOICE OF SCHEMES Long term capital appreciation Fund invest in stock that yield well above average Schemes are positively managed 0.726 0.549 0.440 0.647 0.686 0.442 Among the attributes of investment in mutual funds, the variables such as Long term capital appreciation, Fund invest in stock that yield well above average and Schemes are positively managed constituted the 6 with higher factor loadings. The above said three variables with higher factor loading on factor 6 are characterized as Choices of Schemes. These three variables have high communality indicating that the factors within the Namex International Journal of Management Research 16 Vol. 3, Issue 1, Jan Jun 2013, ISSN: 2250-2076

A Study On s Motivating The Investment Decision Of Mutual Fund Investors factor 6 have very high association among them. REGULATIONS Mutual funds are subject to strict regulation and oversight by SEBI. Investments by mutual funds are subject to investment restrictions. These restrictions are essentially prudential norms, most of which are universally followed by mutual funds to ensure portfolio risk diversification. TABLE 8: FACTOR 7 - REGULATIONS Strict Regulations to Assets Management Companies Operations of Mutual Fund Industries are restricted to capital Market Instruments 0.846 0.727 0.732 0.624 Among the attributes of investment in mutual funds, the variables, Strict Regulations to Asset Management Companies and Operations of Mutual Fund Industries are restricted to Capital Market Instruments constituted 7 with higher factor loading. The above said two variables with high factor loading on 7 are characterized as Regulations. The higher factor loading of the variables indicate that the factor 7 underlines that variable. The higher value of communality for the two variables indicates that higher amount of variance is explained by the extracted variables. PROFESSIONAL MANAGEMENT Mutual funds are employing the persons of high caliber and expertise on financial matters. The employed professional experts who manage the investment portfolios efficiently and profitably. Professionals who decide investment strategy on behalf of the unit holders. TABLE 9: FACTOR 8 - PROFESSIONAL MANAGEMENT Very Qualified, Full time investment Managers 0.077 0.667 The attribute Very Qualified, Full time investment Managers characterized as, Professional Management, is constituted as 8 with higher factor loading of 0.077. The value for this attribute is 0.667. INVESTMENT DECISION FACTORS FOR MUTUAL FUNDS analysis of twenty attributes relating to the buying behaviors of mutual funds identified eight investment decision factors and the Namex International Journal of Management Research 17 Vol. 3, Issue 1, Jan Jun 2013, ISSN: 2250-2076

A Study On s Motivating The Investment Decision Of Mutual Fund Investors results are presented in Table shown below: TABLE 10: INVESTMENT DECISION FACTORS FOR MUTUAL FUNDS s Eigen value Percentage of variance Rate of return 629 15.145 Level of Risk 214 1068 Tax 860 1298 4. Liquidity 579 9.899 5. Transparency 354 8.776 6. Choice of Schemes 209 8.045 7. Regulations 167 5.834 8. Professional Management 047 5.234 * Jausar-meyer-Olikin measures of sampling adequacy = 0.696 * Bartlett s Test of Sphericity: Chi-Square = 1270.937 Degree of freedom = 190 Significance = 0.000 Cumulative Percentage of Variance 15.145 28.213 39.511 49.41 58.186 66.231 7065 77.299 It is observed from above Table that the eight factors such as Professional Management, Diversification of Risk, High return, Liquidity, Transparency, Choice of Schemes, Rigid Regulation and Tax Exemption were extracted out of twenty attributes. These factors account for about 77.299 percent of variance in the data. Eigen value for the first factor Professional Management is 629, which indicates that the factor contains very high information than the factors. The first factor, Rate of Return provides the maximum insights of investing decision of mutual funds in the study area. It is a very important factor, because the respondents prefer to invest in mutual funds more than expected return, better than other investment s return they receive from bank deposits and Emerging Trend in rate of return. To improve this situation, Asset Management Company in the mutual fund industry shall give more importance on the attributes concerning More than expected return, Better than other investment s return like bank deposits and Emerging Trend in rate of return. The second important factor called Level of Risk account for 1068 percent variance. The Eigen value of this factor is 214. It explains that people choose to invest in mutual fund if frequent change in investment pattern, perfect market analysis and elimination of risk by application of law of large numbers. The third factor is Tax account for 1298 percent with Eigen value of 860. It shows that investors are encouraged to invest in mutual funds if Some of the Mutual Funds Schemes are getting various tax benefits, Tax exemptions are made with a view to motivate the potential investors and tax is important factor which influencing the investment decisions. Namex International Journal of Management Research 18 Vol. 3, Issue 1, Jan Jun 2013, ISSN: 2250-2076

A Study On s Motivating The Investment Decision Of Mutual Fund Investors The fourth factor is Liquidity account for 9.899 percent variance with the Eigen values of 579, this factor is also important in making a investment in mutual funds. The fifty factor is Transparency account for 8.776 percent with Eigen value of 654. It shows that investors are encouraged to invest in mutual funds if Annual reports are published regularly, Unit holders are updated on their investment status and offer documents disclose full details about the scheme. The sixth important factor called Choice of Schemes account for 8.045 percent variance. The Eigen value of this factor is 209. It explains that people choose to invest in mutual fund if long term capital appreciation, fund invest in stock that yield well above average and schemes are positively managed. The seventh factor is Regulation account for 5.834 percent variance with the Eigen values of 167, this factor is also important in making a investment in mutual funds. The eighth important factor called Professional Management account for 5.234 percent variance. The Eigen value of this factor is 047. It explains that people choose to invest in mutual fund if Very qualified, full time investment managers. High value of Kaiser-Mayer-Olkin (KMO) test of sampling adequacy (0.696) indicates the correlation between the pairs of variables explained by other variables and thus factor analysis is considered to be appropriate in this model. CONCLUSION The analysis among the mutual fund investors in Madurai city relating to the investment decision, Rate of return is identified as the main factor than Level of Risk, Tax, Liquidity, Transparency, Choice of Schemes, Regulations and Professional management run second, third, fourth, fifth, sixth, seventh, eight and so on. No previous studies on motivation factors on mutual fund investment decision have been done in the context of Madurai city. So it will definitely help the fund houses to change their nature and characteristics of their products. REFERENCE Ajayi, Richard A. and Mehdian, Seyed (1994), Rational Investors Reaction to Uncertainty: Evidence from the World s Major Markets, Journal of Business Finance and Accounting, 21(4). Chander Subash and Mahajan, Mukesh (1992), Perception of Investors Towards Mutual Funds: An Empirical Investigation, Indian Journal Commerce, June Bansal, Lalit K. (1996), Mutual Funds Management and Working, Deep & Deep Publications, New Delhi. Haslem, John A. (1988), Investor Guide to Mutual Fund, Prentice Hall, USA. Lavine, Alam (1997), 50 Ways of Mutual Funds Profits, Vision Books, New Delhi. Namex International Journal of Management Research 19 Vol. 3, Issue 1, Jan Jun 2013, ISSN: 2250-2076