Consumer Behaviour Towards Mutual Funds

A Study of Fund selection behaviour of Individual Investors towards Mutual Funds With reference to NCR Region

Consumer behaviour from the marketing world and financial economics has brought together to the surface an exciting area for study and research: behavioural finance. A rich view of research waits the understanding of how financial markets are also affected by the financial behaviour of investors. Mutual Funds which has become an important portal for the small investors, is also influenced by their financial behaviour. Hence, this study has made an attempt to examine the related aspects of the fund selection behaviour of individual investors towards Mutual funds

Contents
Contents..................................................................................................................... 2 Introduction................................................................................................................ 3 Statement of the Problem...........................................................................................4 Literature Review........................................................................................................6 3.1 General Financial Behaviour Studies.................................................................7 3.2 Fund Selection Behaviour Studies.....................................................................8 Objectives of the study...............................................................................................9 Methodology............................................................................................................. 10 Data & Data Sources.............................................................................................10 Limitations of the study.........................................................................................11 Findings of the Study................................................................................................12 Recommendations.................................................................................................... 19 Conclusion................................................................................................................ 24 Appendix................................................................................................................... 27 Questionnaire to present investors in Mutual Funds..............................................27 Findings of our Study.............................................................................................32 References................................................................................................................41

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Introduction
The Indian capital market has been growing tremendously with the reforms of the industrial policy, reforms of public sector and financial sector and new economic policies of liberalization, deregulation and restructuring. The Indian economy has opened up and many developments have been taking place in the Indian capital market and money market with the help of financial system and financial institutions or intermediaries which foster savings and channels them to their most efficient use. One such financial intermediary who has played a significant role in the development and growth of capital markets are Mutual Fund (MF). The concept of MFs has been on the financial landscape for long in a primitive form. The story of mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank. The launching of innovative schemes in India has been rather slow due to prevailing investment psychology and infrastructural inadequacies. Risk adverse investors are interested in schemes with tolerable capital risk and return over bank deposit, which has restricted the launching of more risky products in the Indian Capital market. But this objective of the MF industry has changed over the decades. For many years funds were more of a service than a product, the service being professional money management. In the last 15 years MFs have evolved to be a product.
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The term product is used because MF is not merely to park investors savings but schemes are tailor made to cater to investors needs, whatever their age, financial position, risk tolerance and return expectations. This issue of combining service and product will be an important one for the next decade. Mutual funds have opened new vistas to millions of small investors by virtually taking investment to their doorstep. In India, a small investor generally goes for bank deposits, which do not provide hedge against inflation and often have negative real returns. He has limited access to price sensitive information and if available, may not be able to comprehend publicly available information couched in technical and legal jargons. He finds himself to be an odd man out in the investment game. Mutual funds have come, as a much needed help to these investors. MFs are looked upon by individual investors as financial intermediaries/ portfolio managers who process information, identify investment opportunities, formulate investment strategies, invest funds and monitor progress at a very low cost. Thus the success of MFs is essentially the result of the combined efforts of competent fund managers and alert investors. A competent fund manager should analyze investor behaviour and understand their needs and expectations, to gear up the performance to meet investor requirements.

Statement of the Problem

In India, though the MF industry has been in existence since 1964, (with the establishment of UTI), no major study has been done regarding the investor
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behavioural aspect with specific reference to MFs, in India. It should be noted that the expectations of investors play a vital role in the financial markets. They influence the price of the securities, the volume traded and various other financial operations in actual practice. These expectations of investors are influenced by their perception and humans

generally relate perception to action. The beliefs and actions of many investors are influenced by the dissonance effect and

endowment effect. The tendency to adjust beliefs to justify actions is a psychological phenomenon termed by Festinger (1957) as Cognitive Dissonance. We find the evidence of prevalence of such a psychological state among MF investors in India. For instance, UTI, which is synonymous to mutual funds in India, had a glorious past and perceived as a safe, high yield investment vehicle with the added tax benefit. In general, rules for investment, the analysis of investment and discussion of financial behaviour tend to assume behaviour, which is logical and internally consistent in various ways. Investor behaviour does not; however, always appear to conform to such expectational norms. Quite the reverse often appears to be the case; Cognitive Illusion the mental equivalent of optical illusion, the assumption being that just as an optical illusion might lead to inconsistent physical performance relative to the world outside the individual, so too cognitive illusion will result in inconsistent decision making with respect to the outside world. Much of economic and financial theory is based on the notion that individuals act rationally and consider all available

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information in the decision making process. However, in the financial literature, there are no clear models, which explain the influence of perception and beliefs on expectations and decision

making. No doubt, reality is so complex that trying to fit individual investors behaviour into a model is impossible. Investors behaviour may change from period to period even if the other variables influencing the behaviour are held constant. However, to a certain extent, we can borrow concepts from social psychology where behavioural patterns, rational and irrational are observed and empirically tested. On the same lines we can develop certain models to identify the financial behaviour, to the extent of the availability of the explanatory variables. Such models can help to understand the why and how? aspect of investor behaviour, which can have managerial implications for policy makers. Hence, with this background, this study attempts to evaluate the behavioural aspects of fund selection techniques of individual investors and also to assess the conceptual awareness of MFs.

Literature Review
MFs have attracted a lot of attention and kindled the interest of both academic and practitioner communities. Compared to the developed markets, very few studies on MFs are done in India. This literature review reveals Investor behaviour studies which can be grouped under two themes. 3.1) Studies relating to General Financial Behaviour of Investors
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3.2) Fund Selection Behaviour Studies

3.1 General Financial Behaviour Studies

It is found that individuals were much more distressed by prospective losses than they were happy by equivalent gains. Some economists have concluded that investors typically consider the loss of Re. 1 twice as painful as the pleasure received from a Re. gain. Individuals will respond differently to equivalent situations depending on whether it is presented in the context of losses or gains. Let us study the following problem. 1. In addition to what you own, you have been given Rs. 1000. You are now asked to choose between A. A sure gain of Rs. 500. B. A 50% chance to gain Rs. 1,000 and a 50% chance to gain nothing. Another group of subjects were presented with another problem. 2. In addition to whatever you own, you have been given Rs. 2000. You are now asked to choose between: A. A sure loss of Rs. 500. B. A 50% chance to lose Rs. 1,000 and 50% chance to lose nothing. In the first group 84% chose A. In the second group 69% chose B. The two problems are identical in terms of net cash to the subject; however the phrasing of the question causes the problem to be interpreted differently.
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When these preferences are based on choices, there is more ego involvement and attachment to the preferences, suggesting heightened level of preference bias. This phenomenon is consistent with the prediction from Cognitive Dissonance theory Many investors do not have data analysis and interpretation skills. This is because, data from the market supports the merits of index investing, passive investors are more likely to base their investment choices on information received from objective or scientific sources. It is further studied that a serious national campaign to promote savings through education and information could have a measurable impact on financial behaviour.

3.2 Fund Selection Behaviour Studies

Investor fund selection Behaviour influences marketing decisions of fund management. It is studied that income schemes and open-ended schemes are preferred over growth schemes and close-ended schemes during the prevalent market conditions. Investors look for Safety of Principal, Liquidity and Capital Appreciation in order of importance. Newspapers and Magazines are the first source of information through which investors get to know about. MFs / Schemes and the investor service is the major differentiating factor in the selection of MFs. It is also seen that the salaried and self-employed formed the major investors in MFs primarily due to tax concessions. UTI and
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SBI schemes were popular. It is also seen that Agents play a vital role in spreading the MF culture; open-end schemes were much preferred; age and income are the two important determinants in the selection of fund / scheme; brand image and return are their prime considerations. An attempt was made by the NCAER in 1964 to understand the attitude and motivation for the savings of individuals, for which a survey of households was undertaken. It was seen that psychological and sociological factors

dominated economic factors in share investment decisions. An article by Personal Fn (http://www.personalfn.com) for Business India August 2, 2004 with the title, The Golden Nest Egg, reported that, investors age could be used as a benchmark to determine the nature of the portfolio.

Objectives of the study

The study has the following objectives To assess the savings objectives among individual investors To identify the preferred savings avenue among individual investors To understand the preferential feature in the savings instrument among individual investors
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To assess Mutual fund conceptual awareness among present investors

Methodology

Data & Data Sources

The study mainly deals with the financial behaviour of Individual Investors towards Mutual funds in NCR Region. The required data was collected through a pretested questionnaire administered on a combination of simple random and judgment sample of 83 educated individual investors. Judgment sample selection is due to the time and financial constraints. Respondents were screened and inclusion was purely on the basis of their knowledge about Financial Markets, MFs in particular. This was necessary, because the questionnaire presumed awareness of some basic terminology about Mutual Funds. The purpose of the survey was to understand the behavioural aspects of individual investors, mainly their fund selection behaviour, various factors influencing this behaviour and also the conceptual awareness level among individual investors. The survey was conducted during July August 2008, among 83 educated, geographically dispersed individual investors of NCR Region. Sample of the questionnaire is given in Annex I and Distribution of individual investors by Demographic factors is given in Annex II. The unit of observation and analysis of survey is only
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among Individual Investors whose definition is An Individual who has currently invested in any Mutual Funds and this does not include high net worth individuals and institutions. Since it is an exploratory study no specific hypothesis is formulated.

Limitations of the study

Sample size is limited to 83 educated individual investors in the NCR Region. The sample size may not adequately represent the national market.

Simple Random and judgment sampling techniques is due to time and financial constraints.

This study has not been conducted over an extended period of time having both ups and downs of stock market conditions which a significant influence on investor s buying pattern and preferences.

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Findings of the Study

The survey conducted during July August, 2008 to capture investor behaviour pattern in selection of MFs, reveals the following. 1. Savings Objective of Individual Investors Savings Objective of the majority of Individual Investors is to meet contingencies and for tax reduction, thus throwing light on the nature of risk averse investors. AMC can attract a pool of investors by designing products for Risk-Averse investors. 2. Mutual Fund Investment Preference in Future. The study reveals that, there is a fair opportunity for MF investments in future as 73.5% of the respondents have voted towards Yes. However, 26.5% have voted No as their preference in future MF investment. However, the No and Not Sure category should be matter of concern to the AMCs. Firstly, AMCs should take steps and see that funds are not virtually at the mercy of institutional investors. MFs should not indulge in unethical practices and launch schemes that benefit institutional investors at the cost of retail investors. Also, the AMCs should try and tap the NRI market, as they can diversify from Bank Deposits to MFs. The main task at hand for the AMCs is to tackle investor sentiments with greater transparency and credibility in the functioning
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3. Mutual Fund Scheme Preference among Individual Investor Investors have a plethora of options ranging from Growth schemes to Fixed Income schemes. Now-a days investors are not offered just plain vanilla schemes but an assorted basket to tune with their risk appetite. MF scheme preference for majority of investors is Growth Scheme. The preference for growth or any other scheme is also influenced by stock market conditions prevailing at the time of investment decision. The prevailing market conditions have prompted investors to look for growth schemes and income schemes have become unattractive due to dropping interest rates. This further indicates the growing alertness of investors. 4. Scheme Preference by Operation among Individual Investors Analysis of scheme preference by nature of operation reveals the popularity of Open- Ended scheme. In India majority of schemes are Open- Ended as investors can buy or sell units at NAV related prices. The preference to OpenEnded scheme has also given due importance to Liquidity. On the other hand, only 20.5% of the respondents have voted for Interval Schemes which shows lack of awareness with regard to this feature. 5. Preferential Feature in Mutual Funds among Individual Investors Mr. M. Damodaran, Chairman of UTI, has summed the psyche of a typical Indian Investor in three words; Yield, Security and Liquidity. The study also shows the investors need for Flexibility is highest among other

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features, followed by Diversification Benefit, Safety, Capital Appreciation, Tax Benefit, Liquidity, Good Return, Professional Management. 6. Preferable Route to Mutual Fund Investing Among Individual Investors Investors may use some sources to gain awareness regarding investing in Mutual Funds. The sources in the present study are confined to Reference groups, Newspapers General and Business, Financial Magazines, Television, Brokers/ Agents, E-Mail and Stores Display. Findings of the study reveal that investors attach high priority to published information, thereby preferring Newspapers General and Business and Financial Magazines. This throws light on the possibility that MF investors spend time analyzing and examining relevant information before taking any crucial decision. 7. Top-of-Mind-Recall of Mutual Funds/Schemes among Individual Investors Top-Of-Mind Recall throws light on the strength of brand identity, awareness, acceptability and preference. This calls for a high degree of brand equity and loyalty, which is the direct result of the promotion strategy of the AMCs and a good performance over a period of time. MFs are no more just financial instruments, rather a product or a service, which should be tailor-made to attract and retain investors. AMCs should realize that it is not just the USPs (Unique Selling Propositions) that count, but the ESPs (Extra Sensory

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Perceptions), which will help to track, gauge and deliver satisfaction to the targeted investor groups.

8. Factor Analysis Using Principal Component Analysis Factor Analysis was extensively used to classify a large number of variables into smaller number of factors. Factor Analysis was used to determine whether there was any common constructs that represented investor concerns. 25 variables were analysed using the Varimax Algorithm of Orthogonal Rotation, the most commonly used method. Evaluation of the resulting constructs and naming of the factors is largely subjective. Hence, to identify investors underlying Fund/Scheme selection criteria, so as to group them into specific factors, which would further identify Investor types, to enable the designing of appropriate marketing strategies, Factor Analysis was done using Principal Component Analysis. Factor analysis for Fund Related Qualities

In the Fund related qualities analysis, 11 variables were analyzed. From factor analysis, we can infer that 22.843% of variance is explained by factor 1; 22.165% of variance is explained by factor 2 and 12.761% of variance is explained by Factor 3 and together, all the factors contributed to 68.689% of variance.

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On the basis of Varimax Rotation, 3 factors have emerged. Each factor is constituted of all those variables that have factor loadings greater than or equal to 0.5. Thus A1, A2, A3, A4, and A10 constituted the first factor. It is conceptualized as Intrinsic Fund Qualities "(consistent performance and reliability); A5, A7 and A8 constituted the second factor and this is conceptualized as "Credibility of Image"(trustworthy and reputable, with investors interests at heart); A6, A9 and A11 constituted the 3rd factor and are conceptualized as "Flexible Investment Facilities"(simplicity and tailormade investment patterns). Thus, after rotation, factor 1(Intrinsic fund qualities) accounts for 20.594% of variance; factor 2(Credibility of Image) accounts for 17.735% of variance and factor 3 accounts for 16.624% of variance and all 3 factors together explain for 68.689% of variance. The result, revealed 3 distinct factors which could further be associated to different types of Investors i.e. Professional Investors, Image Conscious Investors & Cautious Investors. Professional Investors: This type of investors have had some training to invest in financial investments, indicating his confidence that he wouldnt lose more money than he would gain. Hence, Professional Investors are those who demand intrinsic fund qualities as their primary requirement before investing in MF/scheme. Fund performance & reputation, expense ratio, portfolio of investment & load factors are their core concerns. Image Conscious Investors: They define those types of investors who attach importance to reputation and brand name. Reputation of fund

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manager, credibility & rating by agencies are fund qualities they would look forward to. Cautious Investors: These types of investors are generally risk averse and would prefer flexibility in investment patterns which would further reduce his risk profile. Factors like withdrawal facilities & minimum initial investment are their primary choice. Sometimes he may look for innovative schemes, which may appease his risk appetite. Factor analysis for Sponsor Related Qualities

Retaining only variables with Eigen Values greater than 0.5, we can infer that 26.052% of variance is explained by factor 1 and 23.221% of variance is explained by factor 2, Factor 3 contribute to 19.831% of variance, total together contributing 69.104%. Each factor is constituted of all those variables that have factor loadings greater than or equal to 0.5. Thus B4, B5 and B6 constituted the first factor. It is conceptualized as "Competent Performance" and B1, B2 and B3 constituted the second factor and this conceptualized as "Reputation". UTI, the oldest and the largest fund, known for its well-knit agency network, topped the 'Top of Mind Recall test. This supports the finding that sponsor's performance and reputation do largely influence Investor perception and behaviour. The factors thus extracted have enabled to identify types of investors who give importance to these factors in their fund selection techniques.
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Professional Investors: This category of investors identifies Sponsor's past performance, developed research and infrastructure & money management expertise as essential in Fund Sponsor Qualities. Image Conscious Investors: Reputation, brand name & developed agency and network of the Sponsoring firm are the major factors influencing fund selection behaviour of investors. Factor Analysis for Investor Related Services

Retaining only variables with Eigen values greater than 1, we can infer that 36.750% of variance is explained by factor 1, while 29.501% of variance is explained by factor 2 and cumulative % is 66.995. Thus C1, C2, C3, C4, C5 & C6 constituted the first factor. It is conceptualized as "Transparent Disclosure"(willingness to reveal necessary and important information), C7 & C8 constituted the 2nd factor, which is conceptualized as "Tangibles/Fringe Benefits"(facilities and physical features towards understanding needs of investors). Therefore, investors are prominently influenced, in the selection of schemes, by the extent and quality of disclosure of information subsequent to their investment, regarding disclosure of NAV, portfolio of investment and disclosure of deviation from the stated objectives and the attached fringe benefits to the schemes. Hence AMCs should take steps to be transparent and follow the disclosure norms spelt out by SEBI and AMFI in this connection. The factors thus extracted have enabled to identify types of
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investors who give importance to these factors in their fund selection techniques. Professional Investors: This category of investors identify Disclosure norms as prescribed by SEBI and AMFI as significant factors in investor services i.e. Disclosure of investment objectives, periodicity of valuation, method and periodicity of schemes sales & repurchases, disclosure of NAV on every trading day & disclosure of deviation of investments from the original pattern. The need for Investor's grievance redressal machinery is also felt significantly from the point of view of Individual Investors. Approachability to the right people who possess knowledge & skills and are responsive in solving problems of investors efficiently is the need of the hour. This calls for ' Investor Knowledge'; understanding needs personalized attention and effective communication to investors. Image Conscious Investors: These investors give importance to services i.e. investor's grievance redressal machinery or fringe benefits i.e. free insurance, credit cards, loans on collateral or tax benefits and prefer MFs to avoid bad deliveries & unnecessary follow-up with brokers and companies.

Recommendations
AMCs should continuously design suitable schemes to meet the triple needs of adequate returns, safety and liquidity in a balanced
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proportion and develop infrastructure to reach to the investors. They should also simplify the operational environment. AMCs should open more investor service branches or arrange with other banks to provide over-the-counter redemption facility across the country through their banking network.

Mutual fund companies should segment their target customers and position their various products based on the target segment they propose to address. The target segment can be broadly divided into institutional segment and individual investor segment. The institutional segment consisted of treasury departments of Corporate, Trusts etc and suitable products such as Institutional Income schemes and Money Market schemes can be targeted at them. The individual investor can be in turn divided into various segments such as Young Families with small or no children, Middle-aged People saving for retirement and Retired People looking for steady income. Suitable products such as Growth and Balanced schemes for young families and Income schemes with sure and steady returns for retired people can be marketed. By proper segmentation and by targeting the right product to the right customer, Mutual Fund companies can hope to win the confidence of their customers and 'own' them for a lifetime.

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The mutual fund industry in India is constrained by law from offering full-fledged pension plans on the lines of the 401 K plans, a popular MF product available in the United States. Funds like UTI and Kothari Pioneer are some of the mutual funds offering full-fledged Pension Plans with benefit under Section 88. While UTI offers Retirement Benefit Plan, Kothari Pioneer Mutual Fund offers KP Pension Plan. Retirement schemes similar to 401K plan will attract a large number of small investors who seek regular income after retirement.

The average projected life span of an Indian after retirement (that is, after 60) is expected to go up from 15 years to 20 years. And the number of the elderly (those over 60) is expected to increase significantly from 6.8 per cent of the population in 1991 to 8.9 per cent in 2016 and further to 13.3 per cent by 2026. One of the key recommendations of the expert committee of Project OASIS (Old Age Social and Income Security) constituted by the government on pension reforms in 1999 is the creation of a privately managed, individual choice based, voluntary Pension system. Pension funds are likely to be a big driver for the MF industry.

AMC/AMFI/SPONSORS should effectively convey the message that among the multitude of investment options available, MFs are better
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geared to offer the balanced mix of return, safety and liquidity to the investors. Negative perceptions about MFs require to be tackled through appropriate investor education measures. It is suggested that AMFI may set aside a percentage of membership fee that it collects from the AMCs and create a fund for Investor Education Programmes. AMC/AMFI/SPONSORS should develop investor education literature specially tailored to suit the regional needs to create/increase the awareness level of the investors.

Employers can influence the investment decision of the employees by providing financial education as a benefit to employees. Employers can be objective in hiring an independent financial advisor to conduct an education programme on long-term investment strategies. Employers have ready access to employees and the cost can be spread over many employees.

E-commerce is gradually showing signs of gaining acceptance and electronic sale of financial products is especially gaining volumes. There is a likelihood of the volumes reaching a significant size, thereby spawning a new distribution paradigm. Therefore AMCs should establish Systems. friendlier These and easily accessible not Automated Response convey
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systems

should

only

effectively

information on products and services but also efficiently redress investor grievances.

Funds should also induce technology that reduces the turnaround time for services like investments, redemptions and transfers and bring them on par with banks in turnaround time.

The MF operational environment is becoming more competitive. Hence, the impact of emerging competition on investor behaviour/behavioural changes needs to be studied further.

Developments in technology influence the behaviour of investors. Hence, the impact of technology on financial behaviour is another potential area for close study.

Since the industry is still struggling to win the investors confidence, an in-depth analysis into investor s expectations from MF products, its performance, management, service and other related areas could be done.

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A study is required to examine the trading behaviour of MF investors. Further research can be done to identify whether MF investors chase past returns or employ a current performance momentum to pick up their funds i.e. whether they are active or passive trend chasers.

This study reveals that MF investors feel that currently the two major benefits, which MFs purport to offer, namely, diversification benefits and professional management are not satisfactorily delivered. In spite of this, MF industry is growing 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 investors confidence on the other side.

Conclusion
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. An average Indian investor is a greenhorn when it comes to financial markets, the causes may be many:

The lack of opportunity Lack of conceptual understanding

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The influence of a fixed-income orientation in the Indian culture.

Salaried person's savings are most often deposited in mutual funds; the theory behind this is that by pooling together a huge aggregation of individual savings and investing them, using the professional judgment of the fund manager, one spreads risk, takes advantage of volume buying and scientific data analysis, expertise and so on. Therefore it is seen as the ideal option for an individual who does not have the time, knowledge or experience to make a succession of judgments involving his hard-earned savings. MF industry in India has a large untapped market in urban areas besides the virgin markets in semi-urban and rural areas. This market potential can be tapped by scrutinizing investor behaviour to identify their expectations and articulate investor's own situation and risk preference and then apply to an investment strategy that combines the usual four:

Cash and Equivalents Government-backed bonds Debt Equity

In addition, the availability of more savings instruments with varied riskreturn 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 investor.

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Under such a situation, the present exploratory study is an attempt to understand the financial behaviour of MF investors in connection with scheme preference and selection. Studies similar to this, if conducted on a large scale at regular intervals by organizations like AMFI/SEBI, will help capture the changing perceptions and responses of these groups, and thus provide early warning signals to enable implementation of timely corrective measures. It is hoped that the survey findings of the study will have some useful managerial implications for the AMCs in their product designing, marketing and management of the fund. Results of the study may help in making cost effective strategic decisions and hence would be of interest to both existing and new MFs; Fund managers; and individual investors. In the words of Morgan Stanley Dean Witter, "In the end, not all asset management (mutual fund) companies will survive, [but] for firms that have built a 'culture of excellence' over the years, have segmented their customers efficiently, built brand, and delivered performance, the ongoing opportunities to take market share have never been more significant."

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Appendix
Questionnaire to present investors in Mutual Funds

Survey Questionnaire We, students of IMT Ghaziabad, are conducting a survey on Investors attitude towards Mutual Funds as part of our course project in Consumer Behavior. We request you to kindly spare some of your valuable time and complete the survey. To ensure the best results, please complete the survey in its entirety. We ensure that the information furnished by you will be treated as strictly confidential and will be used only for our study purposes.

Regards, Students of PGDM (2nd year) IMT Ghaziabad

Section 1: Personal Data 1.1) Name (Optional):

1.2) Sex:

Male

Female

1.3) Age in completed years: Below 30 31 40 41 50 Above 50

1.4) Marital Status: Married Unmarried Widow Widower Divorced

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1.5) Occupation: Professional Business Salaried Retired

1.6) Annual Income in Rs: Below Rs 1, 00, 000 00,000 Above Rs 5, 00,000 Rs1, 00,001 3, 00,000 Rs 3, 00,0015,

1.7) How much do you save annually (in Rs. Approx) Less than Rs 50,000 Rs 50,001 to Rs 100000 Above Rs 100000

1.8) Objectives of your savings are: To provide for Retirement To meet contingencies education For purchase of assets For tax reduction For childrens

Section 2 Please read the following and give your views:

2.1) Do you prefer investment in Mutual funds to other savings avenue in future? Yes No Not Sure

2.2) generally you prefer (Please Rank from 1 - first preference to 6- last preference)

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Growth schemes Balanced Schemes Tax saving Schemes

Income Schemes Money Market Schemes Index Schemes

2.3) You prefer: Open ended Schemes Schemes Close Ended Schemes Interval

2.4) You prefer investment in Mutual funds due to (Rank from 1 to 8 down) Safety Flexibility Capital appreciation Tax Benefit Liquidity Good Return Professional Management Diversification Benefit

2.5) There are many qualities that could affect your selection of Mutual funds and Specific Schemes. Please indicate importance of the following in your decision. Highly Important 5 1. a. b. c. d. e. f. g. h. i. j. k. Fund Related Qualities Fund Performance Record Funds Reputation or Brand Name Schemes Expense Ratio Schemes portfolio of investment Reputation of the fund manager Withdrawal Facilities Favourable Rating by an agency Innovativeness of the scheme Products with Tax benefits Entry & Exit Load Minimum Initial Investment Importan t 4 Some What Important 3 Not Very Importa nt 2 Not at all Importa nt 1

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Highly Important 5 2. a. b. c. d. e. f. Fund Sponsor Qualities Reputation of sponsoring firm Sponsor has a recognized brand name Sponsor has a well developed agency & network Sponsors expertise in managing money Sponsor has a well developed research & infrastructure Sponsors past performance in terms of risk and return Highly Important 5 3. a. b. c. Investor Related Services Disclosure of investment objective in the advertisement Disclosure of periodicity of valuation in the advertisement Disclosure of the method and the periodicity of the schemes sales and repurchases in the offer documents Disclosure of NAV on every trading day Disclosure of deviation of investments from the original pattern MF s Investor s grievance redressal machinery Fringe benefits i.e., free insurance, credit cards, loans on collateral, tax benefits etc. Preferred MF to avoid problems, i.e., bad deliveries, and unnecessary follow up with brokers and companies.

Import ant 4

Some What Important 3

Not Very Important 2

Not at all Importa nt 1

Importa nt 4

Some What Important 3

Not Very Important 2

Not at all Important 1

d. e. f. g. h.

2.6) How did you come to know about Mutual fund investment schemes? (rank top 4 only)

Reference groups _________

_________

Newspapers

(general)

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Newspapers (business) _________ Television _________ Mail _________

_________

Financial

Magazines

_________

Brokers / Agents

_________

Stores Display

Thank you very much for your kind co-operation and for taking time to complete this Questionnaire.

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Findings of our Study

Marital Status
Marital Status Cumulative Percent 49.4 100.0

Valid

M S Total

Frequency 41 42 83

Percent 49.4 50.6 100.0

Valid Percent 49.4 50.6 100.0

Occupation
Annual Income Cumulative Percent 19.3 30.1 69.9 100.0

Valid

1 2 3 4 Total

Frequency 16 9 33 25 83

Percent 19.3 10.8 39.8 30.1 100.0

Valid Percent 19.3 10.8 39.8 30.1 100.0

Annual Saving
Annual saving Cumulative Percent 26.5 60.2 100.0

Valid

1 2 3 Total

Frequency 22 28 33 83

Percent 26.5 33.7 39.8 100.0

Valid Percent 26.5 33.7 39.8 100.0

Mutual Fund Preference

MF Preference Cumulative Percent 26.5 100.0

Valid

N Y Total

Frequency 22 61 83

Percent 26.5 73.5 100.0

Valid Percent 26.5 73.5 100.0

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Objective of Mutual Fund Saving

Objective_Saving_1 Cumulative Percent 8.4 47.0 49.4 79.5 100.0

Valid

1 2 3 4 5 Total

Frequency 7 32 2 25 17 83

Percent 8.4 38.6 2.4 30.1 20.5 100.0

Valid Percent 8.4 38.6 2.4 30.1 20.5 100.0

Objective_Saving_2 Cumulative Percent 6.0 20.5 32.5 89.2 100.0

Valid

1 2 3 4 5 Total

Frequency 5 12 10 47 9 83

Percent 6.0 14.5 12.0 56.6 10.8 100.0

Valid Percent 6.0 14.5 12.0 56.6 10.8 100.0

1. 2. 3. 4. 5.

To provide for Retirement To meet contingencies For purchase of assets For tax reduction For childrens education

MF Scheme Preference
MF_Scheme_1 Frequency 34 41 8 83 Percent 41.0 49.4 9.6 100.0 MF_Scheme_2 Frequency 29 27 14 13 83 Percent 34.9 32.5 16.9 15.7 100.0 Valid Percent 34.9 32.5 16.9 15.7 100.0 Cumulative Percent 34.9 67.5 84.3 100.0 Valid Percent 41.0 49.4 9.6 100.0 Cumulative Percent 41.0 90.4 100.0

Valid

1 2 3 Total

Valid

3 4 5 6 Total

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MF_Scheme_3 Cumulative Percent 51.8 69.9 92.8 100.0

Valid

1 2 3 4 Total

Frequency 43 15 19 6 83

Percent 51.8 18.1 22.9 7.2 100.0

Valid Percent 51.8 18.1 22.9 7.2 100.0

MF_Scheme_4 Cumulative Percent 4.8 48.2 80.7 100.0

Valid

3 4 5 6 Total

Frequency 4 36 27 16 83

Percent 4.8 43.4 32.5 19.3 100.0

Valid Percent 4.8 43.4 32.5 19.3 100.0

MF_Scheme_5 Cumulative Percent 7.2 30.1 57.8 69.9 89.2 100.0

Valid

1 2 3 4 5 6 Total

Frequency 6 19 23 10 16 9 83

Percent 7.2 22.9 27.7 12.0 19.3 10.8 100.0

Valid Percent 7.2 22.9 27.7 12.0 19.3 10.8 100.0

MF_Scheme_6 Cumulative Percent 9.6 14.5 45.8 100.0

Valid

2 4 5 6 Total

Frequency 8 4 26 45 83

Percent 9.6 4.8 31.3 54.2 100.0

Valid Percent 9.6 4.8 31.3 54.2 100.0

1. 2. 3. 4. 5. 6.

Growth schemes Balanced Schemes Tax saving Schemes Income Schemes Money Market Schemes Index Schemes

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MF Scheme type
Scheme type Frequency 20 17 46 83 Percent 24.1 20.5 55.4 100.0 Valid Percent 24.1 20.5 55.4 100.0 Cumulative Percent 24.1 44.6 100.0

Valid

C I O Total

MF investment reason
MF_Reason_1 Frequency 13 9 3 32 16 6 4 83 Percent 15.7 10.8 3.6 38.6 19.3 7.2 4.8 100.0 Valid Percent 15.7 10.8 3.6 38.6 19.3 7.2 4.8 100.0 Cumulative Percent 15.7 26.5 30.1 68.7 88.0 95.2 100.0

Valid

1 2 3 4 6 7 8 Total

MF_Reason_2 Frequency 23 10 4 11 32 3 83 Percent 27.7 12.0 4.8 13.3 38.6 3.6 100.0 Valid Percent 27.7 12.0 4.8 13.3 38.6 3.6 100.0 Cumulative Percent 27.7 39.8 44.6 57.8 96.4 100.0

Valid

1 2 3 4 6 7 Total

MF_Reason_3 Frequency 19 6 8 11 1 12 24 2 83 Percent 22.9 7.2 9.6 13.3 1.2 14.5 28.9 2.4 100.0 MF_Reason_4 Valid Percent 22.9 7.2 9.6 13.3 1.2 14.5 28.9 2.4 100.0 Cumulative Percent 22.9 30.1 39.8 53.0 54.2 68.7 97.6 100.0

Valid

1 2 3 4 5 6 7 8 Total

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Valid

1 3 4 5 6 7 8 Total

Frequency 22 15 5 4 6 30 1 83

Percent 26.5 18.1 6.0 4.8 7.2 36.1 1.2 100.0

Valid Percent 26.5 18.1 6.0 4.8 7.2 36.1 1.2 100.0

Cumulative Percent 26.5 44.6 50.6 55.4 62.7 98.8 100.0

MF_Reason_5 Frequency 2 17 14 2 8 18 16 6 83 Percent 2.4 20.5 16.9 2.4 9.6 21.7 19.3 7.2 100.0 MF_Reason_6 Frequency 2 6 15 6 38 2 14 83 Percent 2.4 7.2 18.1 7.2 45.8 2.4 16.9 100.0 MF_Reason_7 Cumulative Percent 1.2 6.0 20.5 37.3 39.8 100.0 Valid Percent 2.4 7.2 18.1 7.2 45.8 2.4 16.9 100.0 Cumulative Percent 2.4 9.6 27.7 34.9 80.7 83.1 100.0 Valid Percent 2.4 20.5 16.9 2.4 9.6 21.7 19.3 7.2 100.0 Cumulative Percent 2.4 22.9 39.8 42.2 51.8 73.5 92.8 100.0

Valid

1 2 3 4 5 6 7 8 Total

Valid

1 2 3 4 5 6 8 Total

Valid

1 2 3 5 7 8 Total

Frequency 1 4 12 14 2 50 83

Percent 1.2 4.8 14.5 16.9 2.4 60.2 100.0

Valid Percent 1.2 4.8 14.5 16.9 2.4 60.2 100.0

MF_Reason_8

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Valid

2 3 4 5 6 7 8 Total

Frequency 33 9 10 18 4 2 7 83

Percent 39.8 10.8 12.0 21.7 4.8 2.4 8.4 100.0

Valid Percent 39.8 10.8 12.0 21.7 4.8 2.4 8.4 100.0

Cumulative Percent 39.8 50.6 62.7 84.3 89.2 91.6 100.0

1. 2. 3. 4. 5. 6. 7. 8.

Safety Flexibility Capital appreciation Tax Benefit Liquidity Good Return Professional Management Diversification Benefit

Advertisement Preference
Ad_1 Cumulative Percent 36.1 72.3 84.3 88.0 91.6 100.0

Valid

1 2 3 5 6 7 Total

Frequency 30 30 10 3 3 7 83

Percent 36.1 36.1 12.0 3.6 3.6 8.4 100.0 Ad_2

Valid Percent 36.1 36.1 12.0 3.6 3.6 8.4 100.0

Valid

1 2 3 4 5 6 7 8 Total

Frequency 14 20 25 4 2 8 4 6 83

Percent 16.9 24.1 30.1 4.8 2.4 9.6 4.8 7.2 100.0 Ad_3

Valid Percent 16.9 24.1 30.1 4.8 2.4 9.6 4.8 7.2 100.0

Cumulative Percent 16.9 41.0 71.1 75.9 78.3 88.0 92.8 100.0

Page | 37

Valid

1 2 4 5 6 7 Total

Frequency 3 10 33 21 11 5 83

Percent 3.6 12.0 39.8 25.3 13.3 6.0 100.0 Ad_4

Valid Percent 3.6 12.0 39.8 25.3 13.3 6.0 100.0

Cumulative Percent 3.6 15.7 55.4 80.7 94.0 100.0

Valid

1 2 3 5 6 7 8 Total

Frequency 13 1 3 8 28 27 3 83

Percent 15.7 1.2 3.6 9.6 33.7 32.5 3.6 100.0

Valid Percent 15.7 1.2 3.6 9.6 33.7 32.5 3.6 100.0

Cumulative Percent 15.7 16.9 20.5 30.1 63.9 96.4 100.0

Factor Analysis
Results of Principal Component Analysis Identification of Factors that affect Mutual Fund/Scheme Selection I Fund Related Qualities
Total Variance Explained Component Initial Eigenvalues % of Cumulative Total Variance % 2.513 22.843 22.843 2.438 22.165 45.008 1.404 1.201 .923 .754 .572 .465 .386 .187 12.761 10.919 8.393 6.850 5.196 4.225 3.507 1.703 57.769 68.689 77.082 83.932 89.129 93.354 96.861 98.564 Extraction Sums of Squared Loadings % of Cumulative Total Variance % 2.513 22.843 22.843 2.438 22.165 45.008 1.404 1.201 12.761 10.919 57.769 68.689 Rotation Sums of Squared Loadings % of Cumulative Total Variance % 2.430 22.093 22.093 2.245 20.409 42.503 1.474 1.406 13.404 12.782 55.907 68.689

1 2 3 4 5 6 7 8 9 10 11

.158 1.436 100.000 Extraction Method: Principal Component Analysis. Communalities Initial Extraction

Page | 38

FQ_a FRQ_b FRQ_c FRQ_d FRQ_e FRQ_f FRQ_g FRQ_h FRQ_i FRQ_j FRQ_k

1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000

.315 .772 .818 .767 .658 .803 .599 .715 .743 .652

1.000 .713 Extraction Method: Principal Component Analysis. Component Matrix(a) Component 1 FRQ_a FRQ_b FRQ_c FRQ_d FRQ_e FRQ_f FRQ_g FRQ_h FRQ_i FRQ_j FRQ_k .414 .778 .660 .619 .742 .583 .634 .689 .688 .736 2 3 4

-.601 Extraction Method: Principal Component Analysis. a 4 components extracted. Rotated Component Matrix(a) Component 1 FQ_a FRQ_b FRQ_c FRQ_d FRQ_e FRQ_f FRQ_g FRQ_h FRQ_i FRQ_j FRQ_k .723 -.694 Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. A Rotation converged in 6 iterations. .799 .722 .494 -.692 .615 .674 2 -.737 3 4

II Fund Sponsor Qualities

Communalities Initial Extraction

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FSQ_a FSQ_b FSQ_c FSQ_d FSQ_e FSQ_f

1.000 1.000 1.000 1.000 1.000

.757 .596 .863 .603 .564

1.000 .763 Extraction Method: Principal Component Analysis. Total Variance Explained Extraction Sums of Squared Loadings Rotation Sums of Squared Loadings % of Cumulative % of Cumulative Total Variance % Total Variance % 1.755 29.258 29.258 1.563 26.052 26.052 1.333 22.225 51.482 1.393 23.221 49.273 1.057 17.622 69.104 1.190 19.831 69.104

Component

1 2 3 4 5 6

Initial Eigenvalues % of Cumulative Total Variance % 1.755 29.258 29.258 1.333 22.225 51.482 1.057 .854 .637 17.622 14.231 10.619 69.104 83.335 93.954

.363 6.046 100.000 Extraction Method: Principal Component Analysis. Component Matrix(a) Component 1 FSQ_a FSQ_b FSQ_c FSQ_d FSQ_e FSQ_f .731 .807 .748 .706 .876 .863 2 3

.739 Extraction Method: Principal Component Analysis. a 3 components extracted.

III Investor Related Services

Communalities IRS_a IRS_b IRS_c IRS_d IRS_e IRS_f IRS_g IRS_h Initial 1.000 1.000 1.000 1.000 1.000 1.000 1.000 Extraction .800 .750 .692 .301 .876 .377 .818

1.000 .745 Extraction Method: Principal Component Analysis. Total Variance Explained Component Total Initial Eigenvalues % of Cumulative Variance % Extraction Sums of Squared Loadings % of Cumulative Total Variance % Rotation Sums of Squared Loadings % of Cumulative Total Variance %

Page | 40

1 2 3 4 5 6 7

3.163 1.946 .459 .413 .339 .207

37.038 29.320 8.989 7.791 5.486 3.843

37.038 66.995 78.984 88.775 94.261 98.104

2.163 1.546

27.038 19.320

27.038 66.995

2.140 1.560

36.750 29.501

36.750 66.995

.152 1.896 100.000 Extraction Method: Principal Component Analysis. Component Matrix(a) Component 1 IRS_a IRS_b IRS_c IRS_d IRS_e IRS_f IRS_g IRS_h .799 .812 .719 .724 .732 .571 .855 .719 2 3

.893 Extraction Method: Principal Component Analysis. a 3 components extracted.

Reliability Analysis
Case Processing Summary N Cases Valid Excluded( a) Total 83 0 % 100.0 .0

83 100.0 a Listwise deletion based on all variables in the procedure. Reliability Statistics Cronbach's Alpha(a) .761

N of Items 39

References

www.economictimes.com

Page | 41

www.money.rediff.com www.mutualfundsindia.com An Empirical Study on Factors Influencing the Mutual Fund/Scheme Selection by Retail investors, by Ms. T.R. Rajeshwari

Content Analysis of Consumer Behaviour, by H.H. Kassarjian Consumer Involvement in Financial Services, by A.H. Aldlaigan & F.A. Buttle

Cognitive Dissonance and Mutual Fund Investors, by W.N. Goetzmann & N. Peles Journal of Financial Research, Vol 20, No. 2, pp 145-58

Behavioural Factors in Mutual Fund Flows, W.N. Goetzmann, M. Massa & K.G. Rouwenhorst

"Understanding the behaviour of financial services consumers: a research agenda", by T. Harrison Journal of Financial Services Marketing, Vol.8, No. 1, pp 6-9

www.google.com

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