Executive Summary

This study has made an attempt to understand the financial behaviour of Mutual Fund investors in connection with the Perception Mapping of Mutual funds among Net worth Individuals in Patna. Mutual Fund is a retail product designed to target retail investors, salaried people and others who are intimated by the mysteries of the stock market but, nevertheless, like to reap the benefits of the stock market investing. At the retail level, investors are unique and highly heterogeneous group. Hence their fund /scheme selection also widely differs. Investors demand inter-temporal wealth shifting as he or she progress through life cycle. This necessitates the Asset management companies (AMCs) to understand the fund/scheme selection/switching behaviour of the investors to design the suitable products to meet the changing financial needs of the investors.

With this background a survey was conducted among 200 mutual fund investors in Patna and sub-urban to study the “Perception Mapping of Mutual Funds among Net worth Individuals”.

Investor choices and preferences are a product of many complex and interactive factors. Relative rates of return and risk appetites, while important, are the tip of the iceberg only. Many other factors are also at play in individual financial decisions, such as savings capacities and income levels, an ability to evaluate product choices and performance, confidence in products, service providers and regulators, tax incentives, as well as ease of market access.

In India, research related to retail investor behavior has traditionally focused on the higher income customers in vertical financial market segments. Equal attention is needed regarding the cross market financial behavior of the millions of households at the middle and lower end of the income distribution.
The investors look for low cost of investment first in Mutual fund products, followed by diversification, transparency, risk and return, liquidity and flexibility, tax benefits.

The survey further revealed that product related factors (intrinsic product qualities and portfolio management) in the fund/scheme selection account for 39.188%. Where as product related factors (image and benefits) in the fund/scheme selection of the product contribute only 25.98% in the selection of scheme. Together intrinsic product qualities and portfolio management and image and benefits contribute 65.17%.

The survey reveals that the investors are basically influenced by the intrinsic qualities of the product followed by efficient fund management and general image of the fund/scheme in their selection of fund schemes. Hence, it is suggested that Asset Management Companies should design products consciously to meet the investors’ needs and should be alert to capture the changing market moods and be innovative. Continuous product development and introduction of innovative products, is a must to attract and retain this market segment.

Running a successful Mutual Fund requires complete understanding of the peculiarities of the Indian Stock Market and also the psyche of the small investor. It is hoped that the survey findings will have some useful managerial implication for the Asset Management Companies in their product designing and marketing.




Introduction
In financial markets, “expectations” of the investors play a vital role. They influence the price of the securities; the volumes traded and determine quite a lot of things in actual practices. These expectations of the investors are influenced by their “perception” and human generally relate perception to action. The belief and actions of many investors are influenced by the dissonance effect and endowment effect. The tendency to adjust beliefs to justify past action is a psychological phenomenon termed by Festinger (1957) as cognitive dissonance . We find ample proof for the wide prevalence of such a psychological state among Mutual Fund (MF) investors in India. For instance UTI had a glorious past and has always been perceived as a safe, high yield investment vehicle with the added tax benefit. Many UTI account holders had justified their beliefs by staying invested in UTI scheme even after the 1999 bail out and many have still not lost faith in UTI, even after July 2001 episode . “Endowment effect” is explained by Thaler Kahneman and Knetsch (1992) as “people are more likely to believe that something they own is better than something they do not own” . We have evidence for the influence of this effect among Indian MF investors, for, how else can we explain the reason for the existence of the many poor performing funds without investors staying invested with them.

However, in the financial literature, there are no models which explain the influence of these “perception” and “beliefs” on “expectation” and “Decision making”.
Because of our own abilities to understand the sources of motivations and the basis of these expectations we tend to ignore it. No doubt, reality is so complex that trying to fit an individual investor’s beliefs into a model is impossible.

But, to a certain extent, we can borrow concepts from social psychology where behavioural patterns rational or irrational, are developed and empirically tested. On the same lines, we can develop certain model to test 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.

























Background of the Study

It is widely believed that Mutual Fund is a retail product designed to target small investors, salaried people and others who are intimated by the mysteries of the stock market but, nevertheless, like to reap the benefits of the stock market investing. At the retail level, investors are unique and highly heterogeneous group.

Hence designing a general product and expecting a good response will be futile, though UTI could do this nearly for three decades (1964-1987) due to monopoly of this in the industry . In the second phase of oligopolistic competition (1987-92), the public sector bank and financial institution enter in the field, but with then existing boom condition, it was a smooth sailing for the industry. Further the globalization and liberalization measures announced by the Government led to a paradigm shift in the mind set of the investors and the capital market environment became more unfriendly to retail investors. They had no other choice but to turn to Mutual Funds to reap the benefits of the stock market investing. Hence, the need to be innovative in designing product was not felt and investors have to choose from among the limited scheme offered. During the third phase (hence 1992) the industry thrown open to the private sector and stage got set for competition.

Currently (as on 16/9/2007) there are more than 600 schemes with varied objectives and Asset Management Companies compete against one another by launching the new products or repositioning the old ones. In the future, mutual fund industry has to face competition not only from within the industry but also from other financial products that may provide many of the same economic function as Mutual Funds but not are strictly Mutual Funds.
For example, in USA one savings institution has patented a product that promise to deliver consumers a pay off indexed to a college tuition costs, thus attempting to meet a common consumer requirement [Ellen Schultz (1992)] . This product is structured as certificate of deposit but it could have been set up as a mutual fund. Such products will shortly appear in the Indian market also. All this, in aggregate, heighten the consumer confusion in his selection of product.

He is confused as to how to shift the grain from the chaff? Unless the mutual fund schemes are tailored to his changing needs, and unless the Asset Management Companies understand the fund selection /switching behaviour of the investors, survival of fund will be difficult in future. With this background an attempt is made in this Research to study the Perception Mapping of Mutual Funds among Net worth individuals

In India, Retail investor behavior has traditionally focused on the higher income customers in vertical financial market segments. Equal attention is needed regarding the cross market financial behavior of the millions of households at the middle and lower end of the income distribution. Keeping all these in mind the study was conducted in retail investors market in Patna.
















Research Methodology

Consumer understanding serves two purposes. Firstly, they provide information to the management to understand what triggers the consumer’s intent to invest in Mutual Funds and to make the necessary changes and improvements in their Products. Secondly, by surveying customers, the organization is trying to understand the financial behaviour of Mutual Fund investors in connection with the Perception Mapping of Mutual funds among Net worth Individuals (Retail investors).
For every research study, objectives should be stated to set the boundaries for specific research project as well as to indicate what will specifically be investigated. From the a foregoing problem statement namely, to what extent is there compliance with the expectations and influence of product qualities, fund sponsor qualities, investor services on selection of Mutual Fund/Scheme, the consumer understanding and theoretical background, the following specific objectives were set for this study.

Objectives of the study:

 To identify the savings avenue preference among Mutual Fund investors.
 To identify the features the investors look in Mutual Fund products.
 To identify the scheme preference of investors.
 To identify the factors that influence the investors fund/scheme selection.
 To identify the risk taking ability with reference Age group, Income Category and Occupation of the investors.
 To determine the opportunities available for individual investors in Mutual Fund.

Data collection:
The research was conducted through a questionnaire format. This survey was conducted during 25th July, 2007 to 3rd Oct., 2007 among 200 geographically dispersed present investors spread over Patna. This belongs to different background, age, Profession. Our definition of Net worth Individual (Retail Investor) is “An Individual who has currently (i.e., as on July, August or September 2007) invested in any Mutual fund scheme and it does not include High Net-worth Individuals (i.e., those who earn above Rs. 6,00,000 per annum) and institutions. This sort of diverse information was considered in order to get a clear picture about the Perception Mapping of Mutual Funds among net worth Individuals in the Market.

Data Analysis

After the questionnaire was filled by the respondents, a detailed analysis was performed on the information. This was done by considering different relationships between various variables. SPSS 7.5, Ms-Excel and Ms-Word has been used as a tool for obtaining for different relationship of various variables. The output of these relationships has been observed carefully and analysis is done for the same.

Framework of Analysis:
To understand the Influence of Product Qualities on Selection of Mutual Fund/Scheme, Influence of Fund Sponsor Qualities on Selection of Fund/Scheme, Influence of Investor Services on Selection of Fund/Scheme, and reason for investment in Mutual Fund, the respondents were asked to rank their preference on a ranking scale. The ranks were ascertained by obtaining the weighted mean value of the responses.
To identify the factors that influence the investors fund/scheme selection, 16 Variables were identified through a brainstorming and looking at the current scenario.

The factors that could influence the investors in their selection of Mutual Funds/scheme was grouped into 3 Major factors – Fund/ scheme qualities, Fund sponsor qualities and the expected investors services. Then the 16 identified variables were classified under appropriate group which has been shown in Questionnaire.

In the survey, Respondents were asked to rate the importance of the 16 specified variables on a 5 point scale ranging from most important (5) to not important at all (1).

The data for each of the three sub-groups were factor analyzed using the principal component analysis, with the objective of identifying the factor in the sub group which turns out to be significant in the fund/scheme selection.

To understand the reason for investing in Mutual Funds, the respondents were asked to rank their preference on a ranking scale. The ranks were ascertained by obtaining the weighted mean value of the responses. To identify the factors that influence the investment in Mutual Funds 9 variables were identified.

The data for investment in Mutual Fund were factor analyzed separately using the principal component analysis.

To understand the preference to invest in type of fund (open ended and closed end) and reasons for choosing it, Discriminant Analysis is performed and by taking the standardized canonical discriminant function coefficients and functions at group centroids in the spread sheet,
Perceptual mapping has been performed to Reveals how investors perceive the association between a type of fund and reason for investment.

To identify the savings avenue preference among mutual fund investors Bar charts has been performed by taking the summaries of separate variables.

To identify the risk taking ability with reference Age group, Income Category and Occupation of the investors, Bar charts and pie charts has been used to show the relationship between the variables.
Type of Research

Descriptive Research: The major objective of the descriptive research is to describe something usually market characteristics or functions. Descriptive research is conducted for the following reasons.
 To describe the characteristics of relevant groups, such as consumers and market areas.
 To estimate the percentage of units in a specified population exhibiting a certain behaviour.
 To determine the perceptions of product characteristics.
 To determine the degree to which marketing variables are associated.

Exploratory research: The data is obtained from a relatively small group of respondents. This differentiates it from quantitative research in which a large group of respondents provides data that is statistically analyzed. The primary objective of exploratory research is to provide insights into, and an understanding of, the problem confronting the researcher.
Exploratory research is used in cases when you must define the problem precisely, identify relevant course of action, or gain additional insights before an approach can be developed.

Sampling Procedures:
Target population: The target population for survey can be defined as follows:
Elements: Male and female
Sampling units: Net worth individuals (Retail Investors)
Extent: Patna and Sub-urban
Duration: 25th July, 2007 - 3rd Oct, 2007
Sampling Frame:
A representation of the elements of the target population.
Sampling Technique:
The technique used is non probability sampling technique as no chance selection procedure is used. Judgmental sampling which is a form of convenient sampling is used as the elements to be included are chosen upon judgment.
Method of Data Collection:

Questionnaire is being used for data collection and company & industry records are used.

Data Collection:
Data was collected from both primary and secondary sources.
Primary Data: Primary data is mainly through questionnaires and interviews with the retail investors and their financial advisors.
Secondary Data: Secondary data is mainly from the materials provided by the organization, Industry Records, Business Magazine, Related text and the websites.

Limitations of the study

 Sample size is limited to 200 Retail investors in Patna and Semi-Urban. The sample size may not adequately represent the whole market.
 This study has been conducted over an extended period of time having both market ups and downs. The market state has a significant influence on the buying patterns and preferences of investors. For example, the July 2001 UTI fall has sent violent shock waves across the Mutual Fund investor’s community and is bound to influence the scheme preference/selection of the investors. The study has not captured such situations.
 Quantitative research, by virtue of its questionnaires and rigid structure, is not the most flexible method of market research.
 The misuse of sampling and weighting can completely undermine the accuracy, validity, and project ability of a quantitative research study.












History of Indian Mutual Fund Industry

The 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. The history of mutual funds in India can be broadly divided into four distinct phases.

First Phase – 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700 cores of assets under management.

Second Phase – 1987-1993 (Entry of Public Sector Funds)

1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Can bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990.At the end of 1993, the mutual fund industry had assets under management of Rs.47, 004 cores.

Third Phase – 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kithara Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996.
The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1, 21, 805 cores. The Unit Trust of India with Rs.44, 541 crores of assets under management was way ahead of other mutual funds.

Fourth Phase – since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29, 835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations.

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76, 000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.

Figure: 3.1
Growth in Assets under Management

Source : http://www.amfiindia.com
The graph showing the Asset Under management of the Mutual Fund industry where in we can observe that the industry was having only Rs. 25 Crore but when the Government allowed the public and private sectors the industry has grown up, but still it has to long way to go. As we can observe that till September, 2007 it has Rs. 5.25 Lacs Crore Asset under Management.


About the Company
Kotak Mahindra Asset Management Company Limited (KMAMC), a wholly owned subsidiary of Kotak Mahindra Bank Limited, is the Asset Manager for Kotak Mahindra Mutual Fund (KMMF). Kotak Mahindra Asset Management Company started operations in December 1998 and has over 5.41 Lac investors in various schemes . Kotak Mahindra Mutual Fund offers schemes catering to investors with varying risk - return profiles and was the first fund house in the country to launch a dedicated gilt scheme investing only in government securities.
We are sponsored by Kotak Mahindra Bank Limited, one of India's fastest growing banks, with a pedigree of over twenty years in the Indian Financial Markets. Kotak Mahindra Asset Management Co. Ltd., a wholly owned subsidiary of the bank, is our Investment Manager. We made a humble beginning in the Mutual Fund space with the launch of our first scheme in December, 1998. Today we offer a complete bouquet of products and services suiting the diverse and varying needs and risk-return profiles of our investors. We are committed to offering innovative investment solutions and world-class services and conveniences to facilitate wealth creation for our investors. We aim to help customers take important financial decisions at every stage in life by offering them a wide range of innovative Mutual Funds products, to make them financially independent.
Figure: 3.2 Corporate Identity of Kotak Mahindra.

Source: http://www.kotak.com/Kotak_GroupSite/aboutus/our_corp.htm

The Kotak Mahindra Group
Kotak Mahindra is one of India's leading financial conglomerates, offering complete financial solutions that encompass every sphere of life. From commercial banking, to stock broking, to mutual funds, to life insurance, to investment banking, the group caters to the financial needs of individuals and corporate.

The group has a net worth of over Rs. 3,380 crores, employs around 12,300 people in its various businesses and has a distribution network of branches, franchisees, representative offices and satellite offices across 320 cities and towns in India and offices in New York, London, Dubai, Mauritius and Singapore. The Group services around 2.9 million customer accounts.
Kotak Mahindra one of India's leading financial institutions was born in 1985 as Kotak Capital Management Finance Limited. This company was promoted by Mr. Uday Kotak, Mr. Sidney A. A. Pinto and Kotak & Company. Industrialists Mr. Harish Mahindra and Mr. Anand Mahindra took a stake in 1986, and that's when the company changed its name to Kotak Mahindra Finance Limited. It’s been a steady and confident journey to growth and success.








Figure 3.3: Road to Success of Kotak Mahindra
THE JOURNEY SO FAR...

Source: http://www.kotak.com/Kotak_GroupSite/investor/overview.htm

In October 2005, Kotak Group acquired the 40% stake in Kotak Prime held by ford credit international (FCI) and FCI acquired the stake in Ford Credit Kotak Mahindra held by Kotak Group. In May 2006, Kotak Group bought 25% stake held by Goldman Sachs in Kotak Capital and Kotak Securities.

1986: Kotak Mahindra Finance Limited starts the activity of Bill discounting.
1987: Kotak Mahindra Finance Limited enters the lease and hire purchase
Market
1990: The auto finance division started.
1991: The investment banking division started. Takes over FICOM, one of
India’s largest financial retail marketing network.
1992: Enters the funds syndication sector.
1995: Brokerage and Distribution businesses incorporated into a separate
company - Kotak Securities. Investment Banking division incorporated
into a separate company - Kotak Mahindra Capital Company
1996: The auto finance business is hived off into a separate company – Kotak
Mahindra Prime Limited. Kotak Mahindra takes a significant stake in
Ford credit Kotak Mahindra Limited, for financing Ford vehicles. The
launch of Matrix information services Limited marks the groups into
Information distribution.
1998: Enters the mutual fund market with the launch of Kotak Mahindra Asset
Management Company. Kotak Mahindra ties up with Old Mutual plc. for
the Life Insurance business.
2000: Kotak Securities Limited launches its online broking site. Commencement
of private equity activity through setting up of Kotak Mahindra Venture
fund.
2001: Matrix sold to Friday Corporation launches insurance services.
2003: Kotak Mahindra Finance limited. Converts to a commercial bank – the
first Indian company to do so.
2004: Launches India growth fund, a private equity fund.
2005: Kotak group realigns joint venture in Ford credit; buys Kotak Mahindra
Prime and sells Ford credit Kotak Mahindra launches a real estate fund.
2006: Bought the 25% stake held by Goldman Sachs in Kotak Mahindra Capital
company and Kotak securities .









Concept of the Mutual Fund
A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. 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. 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. The flow chart below describes broadly the working of a mutual fund:
Figure: 3.4 Mutual Fund Operation Flow Chart



Source: http://www.amfiindia.com/showhtml.asp?page=mfconcept










Structure of Mutual Funds

There are many entities involved and the diagram below illustrates the organizational set up of a mutual fund:

Figure: 3.5 Structure of a Mutual Fund Organization.



Source: http://www.amfiindia.com/showhtml.asp?page=mfconcept











Types of Mutual Funds Schemes
Wide varieties of Mutual Fund Schemes exist to cater to the needs such as financial position, risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry.



















Funds / Scheme Profile
What are the different types of mutual fund schemes? Schemes according to Maturity Period.
A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period.
Open-ended Fund/ Scheme
An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity.
Close-ended Fund/ Scheme
A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.
Schemes according to Investment Objective
A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows:


Growth / Equity Oriented Scheme
The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form.
The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.
Income / Debt Oriented Scheme
The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.
Balanced Fund
The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.


Money Market or Liquid Fund
These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.
Gilt Fund
These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes.
Index Funds
Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc these schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme.
There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.
What are sector specific funds/schemes?
These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. E.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc.
The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds.
Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time. They may also seek advice of an expert.
What is Tax Saving Schemes?
These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act, 1961 as the Government offers tax incentives for investment in specified avenues. E.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits.
These schemes are growth oriented and invest pre-dominantly in equities. Their growth opportunities and risks associated are like any equity-oriented scheme.
What is a Load or no-load Fund?
A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time one buys or sells units in the fund, a charge will be payable. This charge is used by the mutual fund for marketing and distribution expenses. Suppose the NAV per unit is Rs.10. If the entry as well as exit load charged is 1%, then the investors who buy would be required to pay Rs.10.10 and those who offer their units for repurchase to the mutual fund will get only Rs.9.90 per unit. The investors should take the loads into consideration while making investment as these affect their yields/returns. However, the investors should also consider the performance track record and service standards of the mutual fund which are more important. Efficient funds may give higher returns in spite of loads.
A no-load fund is one that does not charge for entry or exit. It means the investors can enter the fund/scheme at NAV and no additional charges are payable on purchase or sale of units.










Introduction

For Analysis of data different tools has been used to understand the Perception Mapping of Mutual Funds among Net worth Individuals.

To understand the Influence of Product Qualities on Selection of Mutual Fund/Scheme, Influence of Fund Sponsor Qualities on Selection of Fund/Scheme, Influence of Investor Services on Selection of Fund/Scheme, and reason for investment in Mutual Fund Factor analysis has been used.

To understand the preference to invest in type of fund (open ended and closed end) and reasons for choosing it, Discriminant Analysis is performed and by taking the standardized canonical discriminant function coefficients and functions at group centroids in the spread sheet, Perceptual mapping has been performed to Reveals how investors perceive the association between a type of fund and reason for investment.

To identify the savings avenue preference among mutual fund investors Bar charts has been performed by taking the summaries of separate variables.

To identify the risk taking ability with reference Age group, Income Category and Occupation of the investors, Bar charts and pie charts has been used to show the relationship between the variables.














Figure -4.1
Safety of money in various investment Options




Analysis and Interpretation:

The various saving avenues has been cited above, and the respondents were asked to give their views on 5 point scale where (5=Most secure and 1 not secure at all). Banks are still able to keep the level of confidence of investors high as a most secure avenue for savings. As we can depict from the bar graph that bank is one of the safest avenues followed by post office where as safety of money and Asset, Gold, land is equally safest for the investors. We can also observe that Safety of money in IPO is very less.





Figure -4.2
Reason for investment in Mutual Fund

Analysis and Interpretation:

Mutual fund provides the various benefit associated with it besides the good return on investment. The various benefits has been cited and respondents were asked to give the importance of scale on 5 point scale where in 5 = Most important and 1 = not important at all as a reason for investment in Mutual Fund. Respondents given more importance to the low cost of investment while investment in Mutual Fund followed by the diversification. As we know that Mutual Fund in India run as a Trust and is Regulated by the SEBI and RBI. Transparency also plays very vital role and influence the investors to invest in Mutual Funds. Professional money management and tax benefit also influence the investors where as offer choice has got lesser importance among the respondents.



Figure -4.3
preference of investors in type of fund





Analysis and Interpretation:

Mutual fund basically offer two type of fund (open ended and closed end fund), in open ended fund sale and repurchase of units happen on a continuous basis, at NAV related prices, from the fund itself. Where as the closed end fund has lock-in period, it means it is invested for certain period of time, withdrawal before lock in period investor has to pay the unamortized expenses. From the above pie chart we can observe that 48% of the respondents opt for the open ended fund where as they are less interested in closed end fund and 27.5% of the respondents invest in both.






Figure – 4.4
Age Group and selection of type of Fund



Analysis and Interpretation:

The life cycle stages of the investor plays a vital role in selection of the scheme, the time horizon and the risk appetite of an investor depends on his life cycle. Everyone make their selection of the scheme based on their financial goals. Out of the respondents almost 50% of them prefer to invest in Open ended fund as we know that in open ended fund one can purchase and redeem his/her investment on a continuous basis. We can observe from the bar graph that 24% of the respondents prefer to invest in closed end fund. And rest of the 26% of the respondents prefers to invest in both type of fund.



Figure – 4.5
Age Group and Investment experience



Analysis and Interpretation:

Life cycle stages of investors play a vital role in financial market Younger investors have higher income and savings potential, take longer term view and may be willing to take risks. Older investors may have limited income and saving, shorter time horizon, and unwilling to risk their savings. From the bar graphs, Out of the total respondents, we can observe that the 36% of the respondents belongs to age group 20-30 Years with diverse investment experience. 49% of the respondents have more than 2 years of experience belonging to different age group. The age group of 20-30 years and 30-40 years can be identified as prospect and large potential investors because the investors are grooming with little investment experience in this category.



Figure -4.6
Age Group and Prefer channel to purchase Mutual Fund

Analysis and Interpretation:
Bank is easy and reliable channel for the investors to purchase mutual fund who is already customer of bank. Bank is also easy channel for salaried employee as they will provide the right investment strategies and advice to investors. Broking firm is convenient channel for retail investors as they have personal and good relation with customers as they visit at the house of the customers and provide right kind of investment advice. From the above bar graph, we can observe that 40% of the respondents use bank and broking firm as their preferred channel to purchase mutual fund. Only 3% of younger investors route their investment through mutual fun company.




Figure -4.7
Occupation and Source of information about Mutual Fund




Analysis and Interpretation:

Agent/brokers are considered to be the financial advisor to the investors and they always keep in touch with the investors and provide the updated information on the performance of the fund. Out of the respondents we can observe that almost half of the respondents get the information about Mutual Funds. Where as 22% of the respondents get the information about Mutual Fund from Financial publication. 16.5% of the respondents get the information about Mutual fund from Bank representatives where as very few respondents get the information about mutual fund from family and friends.




Figure -4.8
Occupation and safety of money in Bank




Analysis and Interpretation:

Bank provides safety of money and it is one the most secure saving avenue for the investors belonging to the category of Government employee, self employed, non government employee and retired employee. Bank is most secure saving avenue for almost all but some of the retired employee says that safety of money in bank is somewhat secure.





Figure -4.9
Occupation and safety of money in Mutual Fund



Analysis and Interpretation:

Mutual Funds investments are subject to market risks and there is no assurance or guarantee that the objectives of the Schemes will be achieved. But the average return of the industry has changed the mindset of the investors. From the above bar graph, we can observe that now mutual fund investment has become one of the secure vehicles for the investors because of the diversified nature of investment. We can depict that 70% of the respondents have said that safety of money in mutual fund is secure. Some of the retired employee perceived the safety of mutual fund is least secure.




Figure -4.10
Occupation and safety of money in Stock





Analysis and Interpretation:

Managing the money in the stock market for an individual requires expertise and keeps monitoring your investment on a regular basis. Almost 45% of the respondents are of the opinion that the investment in stock market is somewhat secure where as 21% of the respondents say that safety of money in stock market is not secure at all.






Figure – 4.11
Occupation and Low cost of investment in Mutual Fund

Analysis and Interpretation:

Low cost of investment in mutual fund depends upon how much Asset management companies charge as initial expenses (amortized and unamortized expenses) and load is charged to the investor when the investor buys or redeems units. From the above bar graph we can depict that low cost of investment play a vital role in the decision making of the investor as a reason for investment in mutual fund. For 38% of the respondents low cost of investment is important factor for investment in Mutual fund. So, Asset Management companies should try to minimize the marketing and management expenses.


Figure -4.12
Occupation and Transparency for investment in Mutual Fund


Analysis and Interpretation:

Mutual funds are regulated by the SEBI (mutual fund) regulations, 1996. And bank sponsored mutual funds are jointly regulated by SEBI and RBI. SEBI allows the Asset Management companies to offer single Equity linked saving scheme (Tax Saver) to the investor. From the above bar graph, we can observe that 46.5% of the respondent gives their views that they do investment in mutual funds for tax saving. 36.5 % of the non government employee wants to save tax through tax saving mutual fund scheme where as we can observe that retired employee is not concerned with tax saving scheme.




Figure -4.13
Occupation and Diversification for investment in Mutual Fund




Analysis and Interpretation:

Respondents are diversified in their views for reason for investment for better balance between risk and return. It shows that 17% of the respondents are high risk taking ability with regard to return where as 44% of the respondents are medium risk taker and relatively the want medium return from the investment.





Figure -4.14
Age group and Reason for investment in Open ended Fund



Analysis and Interpretation:

Open ended fund is on going fund in which sale and repurchase of units happen on a continuous basis it mean the investors have flexibility, liquidity and easy redemption. Out of the respondents 36% of them prefer to invest in open ended fund because of easy redemption.36% of the respondents also looks for flexibility in open ended fund. Most of the respondents above 60 years look for only easy redemption in open ended fund.








Figure -4.15
Age group and Reason for investment in Closed end Fund

Analysis and Interpretation:

Closed end fund has lock in period for certain period generally 3 years. Closed end fund is the best for the investors who want to make investment. From the bar graph we can observe that 71.5% of the respondents choose the closed end fund because they want return on investment, it means they want to keep their money in closed end fund without any interruption where as 23% of the respondents do the investment in closed end fund because they prefer the liquidity window, here liquidity window means the investors can withdraw their investment money on related NAV prices on a certain date of the each month or quarterly depending upon the policy of the Asset Management Companies.



Figure -4.16
Age group and Reason for investment in Systematic Investment Plan



Analysis and Interpretation:

SIP (systematic investment plan) is a mutual fund made basically for people to invest in equal monthly installment and encourage the small investors. SIP is made for catering the people who are able to invest in small amount and can’t afford huge amount at a time. From the above bar graph we can observe that 60.5% of the respondents opted SIP due to they are able to invest in small amount. We can depict from bar that 23% and 13.5% of the younger respondents belongs to 20-30Years of Age opted SIP because of they are able to invest in small amount and easy for monthly salaried person respectively.






Figure -4.17
Risk taking ability and Aim of investment

Analysis and Interpretation:

Risk arises when actual returns are different from expected returns. Standard deviation is important measures of risk. Financial planning comprises of client’s profile and goals. Out of the respondents who have very less risk taking ability, almost 40% of them would like to save their retirement income where as those who has aim to plans their children’s future and acquire assets want to take 50% risk to their capital appreciation. Almost 28% of the respondents are ready to take 20% chances to win Rs. 1Lac, it mean they are ready to bear 80% risk on their investment.



Figure -4.18
Feeling about risk and preference about type fund


Analysis and Interpretation:

Out of the respondents, 50% of them want Highest long term growth and comfortable with large variation in the Net Asset Value in the short term and 10% of them want the same belonging to Existing fund category and New Fund Offering respectively. Where as 24% of the respondents want minor variation in the Net Asset value in the short term to potentially earn more over the long run and 7% of them want the same belonging to the category of existing fund and new fund offerings respectively. Very few of the respondents want lower long term return than worry about losing my capital in the short term.






Figure -4.19
Distribution of summed up of feeling about risk





Analysis and Interpretation:

Out of the respondents , 60% want the highest long term growth and comfortable with large variations in the Net asset value in the short term and 31% of the respondents accept minor variations in the Net Asset Value in the short term to potentially earn more over the long term. Only 9% accept the lower long term than worry about losing the money in the short term.







Figure -4.20
Investment policy to achieve investment objectives and Aim of investment



Analysis and Interpretation:

Accumulation stage is when investors are earning and have limited need for investment income. They focus on saving and accumulating wealth for long term. Equity investments are preferred in this stage. Transition stage is when financial goals are approaching. Investors still earn incomes, but have also draw on their earnings. Investors choose balanced portfolios that have both equity and debt. Reaping stage in when investors need income from their investment, and can not save further. They reap the benefits of their savings. They prefer debt investment and preserving of capital at this stage. Out of the respondents 37% of them want capital appreciation plus some income where as 32% of the respondent want capital generating investment with low risk.



Figure -4.21
Age group and Selection of portfolio

Analysis and Interpretation:

Asset allocation varies from one investor to another depending on their situation, financial goals and risk appetite. A model portfolio creates an ideal approach for the investors’ situation and is a sensible way to invest. The asset allocation and portfolio choice for investors will depend on his life cycle and wealth cycle. Out of the respondents we can observe that 37% of the respondents belong to the age categories of 20-30 years and 30-40 years are ready to choose Portfolio A – return per annum between -18% to +27%. Where as respondents who are the 60 years and above take very less risk and select portfolio D – Return per annum between -4% to +10%.



Figure -4.22
Occupation and Selection of portfolio


Analysis and Interpretation:

Asset allocation varies from one investor to another depending on their situation, financial goals and risk appetite. A model portfolio creates an ideal approach for the investors’ situation and is a sensible way to invest. The asset allocation and portfolio choice for investors will depend on his life cycle, wealth cycle and occupation. Most of the self employed, government and non government employed choose portfolio A – Return per annum between – 18% to + 27%. Where as retired employee select portfolio D – Return per annum between – 4% to + 10%.





Figure -4.23
Aim of investment and Selection of portfolio





Analysis and Interpretation:

Out of the respondents, 60% of the respondents who want to acquire asset choose portfolio B – return per annum between -13% + 22%. Almost 50% of the respondents whose aim of investment is to acquire asset and plan children’s future select portfolio A – return per annum between -18% to +27% where as most of the respondents who want to save for future retirement take less risk and select portfolio D – return per annum between 4% to 10%.











Figure -4.24
Age group and Aim of investment





Analysis and interpretation:

Asset allocation varies from one investor to another depending on their situation, financial goals and risk appetite. The asset allocation and portfolio choice for investors will depend on his life cycle and wealth cycle. Age factor plays a very vital role with regard to aim of investment. Almost 50% of the respondents who want to acquire asset belong to categories 20-30 Years. The respondents who are 60 years and above have aim of investment to save for retirement.



Figure -4.25
Aim of investment and substantial saving in various avenues



Analysis and interpretation:

Out of the respondents, 56% of them whose aim of investment is to acquire asset has substantial saving in Mutual Fund and 31% of them has substantial savings in banks where as those whose aim of investment is to plans children’s future, 20% of them has substantial savings in insurance.







Factor Analysis

“Often among the many Variables you measure, a few more related to each other than they are to others. Factor analysis allows us to look at these groups of variables that tend to be related to each other and estimate what underlying reasons might cause these variables to be more highly correlated to each other”

Factor analysis is a statistical data reduction technique used to explain variability among observed random variables in terms of fewer unobserved random variables called factors. The observed variables are modeled as linear combinations of the factors, plus "error" terms. Factor analysis originated in psychometrics, and is used in behavioral sciences, social sciences, marketing, product management, operations research, and other applied sciences that deal with large quantities of data.
Advantages
 Reduction of number of variables, by combining two or more variables into a single factor.
 Identification of groups of inter-related variables, to see how they are related to each other.









1. Influence of Product Qualities related factors on
Selection of Mutual Fund/Scheme

The 7 fund related variables were analyzed for their importance. The analysis reveals that the investor considers all the 7 variables as important in his selection of the fund/scheme. The weighted mean value and scale importance is given in Table 4.1.

Table-4.1

S.No. Variable WMV Std.Dev. Scale Importance
1 Fund’s/Scheme’s performance records 4.52 1.07 Important
2 Scheme’s Expense ratio 3.70 1.08 Important
3 Withdrawal/Exit facility 3.055 0.99 Important
4 Products with tax benefits 3.57 1.02 Important
5 Favourable rating by a rating agency 3.05 1.13 Important
6 Entry and exit load 3.20 1.02 Important
7 Fund/Scheme’s reputation or brand name 4.32 1.09 Important


Hence, to identify the investor’s underlying fund/scheme selection criteria, so as to group them into specific market segment to enable the designing of the appropriate marketing strategy, Factor Analysis was done using Principal Component Analysis.





Bartlett’s test of sphericity and Kaiser-Meyer Olkin (KMO) measure of sampling adequacy were used to examine the appropriateness of factor analysis. The approximate chi-square statistic is 624.949 with 21 degrees of freedom which is significant at 0.00 levels. The KMO statistic (0.571) is also large (>0.5). Hence factor analysis is considered as an appropriate technique for further analysis of data.

Results of Principal Component Analysis for product related qualities are tabulated in Table 4.2.


Table-4.2

Results of Principal Component Analysis



















Table-4.3








Table-4.4


Table-4.5


Retaining only the variables with eigen values greater than one (Kaiser’s criterion), we can infer that 39.188% of variance is explained by factor 1; 25.982% of variance is explained by factor 2 and together, all two factors contributed to 65.170% of variance.

Table-4.6




Factor loadings are very high in case of factor 1 (4 out of 7 variables have factor loading >0.5). It reveals that 56% of the variables are clubbed into one factor. But on the basis of theory, we can infer that there must be more than one factor. Therefore, Varimax Rotation was done to obtain factors that can be named and interpreted. Under Varimax Rotation also 4 out of 7 variables have factor loadings >0.5 in case of factor 1.

On the basis of Varimax Rotation with Kaiser Normalization, 2 factors have emerged. Each factor is constituted of all those variables that have factor loadings greater than or equal to 0.5. Thus Withdrawal/Exit facility, Entry/exit load, Scheme expense ratio and performance record constituted the first factor. The researcher conceptualized this factor as “Intrinsic product Qualities and Portfolio Management”; product with tax benefits and reputation and brand name constituted the 2nd factor and was conceptualized as benefits and Image factor.


Thus, after rotation, factor 1 (Intrinsic product Qualities) accounts for 39.188% of the variance; factor 2 (Portfolio Management and Image) accounts for 25.98% of variance and all 2 factors together explain for 65.170% of variance. The identified factors with the associated variable and factor loadings are given in Table 4.7.

Table-4.7

Identification of product related factors in fund/scheme selection.

Factor Name Variables Loadings
Intrinsic Qualities of the Product and Portfolio Management Withdrawal/Exit Facility 0.737
Scheme’s performance record 0.818
Scheme expense Ratio 0.687
Entry and Exit Load 0.830
Image and benefits Product with tax benefits 0.753
Reputation and Brand name 0.802
























2. Influence of Fund Sponsor Qualities related factors on Selection of Fund/Scheme

The five sponsor related variables were analyzed for their importance. The analysis reveals that the investor considers all the five variables as important in his selection of the fund/scheme. The weighted mean value and scale importance is given in Table 4.8.

Table-4.8

Importance of Fund Sponsor related factors in Selection of Fund/Scheme

S.
No. Variable WMV Std.
Dev. Scale
Importance
1 Reputation of sponsor firm 4.175 0.9639 Important
2 Sponsor’s recognized brand name 4.235 0.708 Important
3 Sponsor relation with customers 3.365 1.174 Important
4 Sponsor expertise in managing money 4.165 0.754 Important
5 Sponsor has well developed agency network/
Infrastructure 4.231 0.812 Important



Hence, to identify the investor’s sponsor related qualities which influence his fund/scheme selection, so as to enable the sponsors to develop the identified qualities, Factor Analysis was done using Principal Component Analysis.












Results of principal component analysis for sponsor related qualities are tabulated in Table 4.9.
Table-4.9

Result of Principal component analysis


Table-4.10

Table-4.11



Table-4.12


Retaining only variables with Eigen Values greater than 1, we can infer that 39.92% of variance is explained by factor 1 and 33.498% of variance is explained by factor 2, both together contributing 70.418%.

A scrutiny of Factor Matrix reveals that factor loadings are very high in case of factor 1 (4 variables out of 5 have factor loading >0.5). It reveals that 80% of the variables are clubbed into one factor. But, on the basis of theory we can infer that there must be more than one factor. Therefore, Varimax Rotation was done to obtain factors that can be named and interpreted.

On the basis of Varimax Rotation with Kaiser Normalization, 2 factors emerged. Each factor is constituted of all those variables that have factor loadings greater than or equal to 0.5. Thus, Sponsor has recognized brand name, Sponsor has well developed agency/network and Sponsor expertise in managing money constituted the first factor. The researcher conceptualized this factor as “Infrastructure and Brand name” and Reputation of the sponsor firm, Sponsor relation with Customers Constituted the second factor and this was conceptualized as “Reputation and relation with customers”.

Thus, after rotation, factor 1 (Infrastructure and brand name) accounts for 36.92% of variance and factor 2 (Reputation and relation with customers) accounts for 33.498% of variance and together they explain for 56.428% variance. The identified factors with the associated variable and factor loadings are given in Table 4.13.










Table – 4.13

Identification of sponsor related factors in fund/scheme selection

Factor Name Variables Factor Loadings
Infrastructure and
Brand Name Sponsor has recognized brand name 0.679
Sponsor has well developed
Agency/Network 0.899
Sponsor expertise in managing money 0.584
Reputation and relation with customers Reputation of sponsor firm 0.771
Sponsor relation with customers 0.906




























3. Influence of Investor Services related factors on
Selection of Fund/Scheme

The four Investor Services related variables were analyzed for their importance. The analysis reveals that the investors consider all 4 variables as somewhat important in the selection of fund/scheme. The weighted mean values of the variables and scale importance are given in Table 4.14.
Table -4.14

Importance of Investor Service related factors in fund/scheme selection

S.
No. Variable WMV Std.
Dev. Scale
Importance
1 Disclosure of investment objectives, methods and periodicity of valuation in advertisements
3.46 1.021 Somewhat Important
2 Disclosure of NAV on every trading day
3.43 1.179 Somewhat Important
3 Disclosure of deviation of the investments from the original pattern
3.32 1.143 Somewhat Important
4 Mutual Fund Investors grievance redressal machinery
3.45 1.178 Somewhat Important


Hence, to identify the investor services related factor, which influences the investor’s fund selection, and to enable the Asset Management Companies to develop/maintain/improve the identified services, Factor Analysis was done using the Principal Component Analysis. Results of principal component analysis for investor services related factors are tabulated in Table 4.15.




Table –4.15
Results of Principal Component Analysis (Investor Services)


Table-4.16






Table-4.17



Table-4.18


Retaining only variables with eigen values greater than 1, we can infer from Table 8 that, 43.891% of variance is explained by factor 1, while 25.669% of variance is explained by factor 2 all two together explains 69.560% of variance.
A scrutiny of factor matrix reveals that factor loadings are very high in case of factor 1 (3 out of 4 variables have factor loadings >0.5).
It shows that all variables are clubbed into one factor. But on the basis of theory, we can infer that there must be more than one factor. Therefore, Varimax rotation was done to obtain factors that can be named and interpreted.
On the basis of Varimax Rotation with Kaiser Normalization, 2 factors have emerged. Each factor is constituted of all those variables that have factor loading greater than or equal to 0.5. Thus, Disclosure of NAV on every trading day, Mutual Fund investor’s grievance redressal machinery and Disclosure of investment objectives constituted the first factor. “Preliminary Disclosure and fringe benefits”; and Deviation of the investment from original pattern constituted the 2nd factor and was conceptualized as “Subsequent Disclosure”.
Thus, after rotation, factor 1 accounts for 43.891% of variance, factor 2 accounts for 25.669% of variance together they account for 69.56% of variance. The identified factors with the associated variable and factor loadings are given in Table 4.19.
Table – 4.19
Identification of Service related factors in Fund/Scheme Selection
Factor
Name Variables Factor Loadings
Preliminary Disclosure and fringe benefits Disclosure of NAV on every trading day 0.856
Mutual Fund Grievance redressal Machinery 0.619
Disclosure of investment objective method in Advertisement 0.800
Subsequent Disclosure Disclosure of deviation of the investment from original pattern 0.990
Factor Analysis of Reason for investment in Mutual Fund

Factor Analysis

9 Variables related to reason behind investment in Mutual fund were analyzed for their importance. The analysis reveals that the retail investors consider 8 variables in his investment in Mutual Fund /scheme. The weighted mean value and scale importance is given in Table.4.20.
Table-4.20
Importance of reason for investment in Mutual Fund



Hence, to identify the investor’s underlying fund / scheme investment criteria, so as to group them into specific market segment to enable the designing the appropriate marketing strategy, factor analysis is done using the principal component Analysis.

Bartlett’s test of sphericity and Kaiser-Meyer Olkin (KMO) measure of sampling adequacy were used to examine the appropriateness of factor analysis. The approximate chi-square statistic is 559.227 with 36 degrees of freedom which is significant at 0.00 levels. The KMO statistic (0.549) is also large (>0.5). Hence factor analysis is considered as an appropriate technique for further analysis of data.

Results of Principal Component Analysis for Reason behind investment in Mutual Funds are tabulated in Table 4.21.

Table-4.21
Result of principal Component Analysis


















Table-4.22








Table-4.23

Table-4.24



Scree plot-It shows the Eigen values of each component or factor.






Table-4.25






Table-4.26




Retaining only the variables with eigen values greater than one (Kaiser’s criterion), we can infer that 28.066% of variance is explained by factor 1; 18.537% of variance is explained by factor 2 and 17.661 of variance is explained by factor 3 and together, all three factors contributed to 64.265% of variance.

Table-4.27



Factor loadings are high in case of factor 1 (3 out of 9 variables have factor loading >0.5). It reveals that 33.33% of the variables are clubbed into one factor. But on the basis of theory, we can infer that there must be more than one factor. Therefore, Varimax Rotation was done to obtain factors that can be named and interpreted. Under Varimax Rotation also 3 out of 9 variables have factor loadings >0.5 in case of factor 1.

On the basis of Varimax Rotation with Kaiser Normalization, 3 factors have emerged. Each factor is constituted of all those variables that have factor loadings greater than or equal to 0.5. Thus Flexibility and convenience, Professional money Management and Diversification constituted the first factor. The researcher conceptualized this factor as “Flexible Portfolio Management”; Low cost of investment, Transparency constituted the 2nd factor and was conceptualized as Cost factor and Option for automatic investment, offer choice constituted as 3rd factor. The Researcher conceptualized this factor as Fringe benefits.

Thus, after rotation, factor 1 (Flexible Portfolio Management) accounts for 28.066% of the variance; factor 2 (Cost factor) accounts for 18.537% of variance and (Fringe benefits).

Accounts for 17.661% all 3 factors together explain for 64.265% of variance. The identified factors with the associated variable and factor loadings are given in Table 28.

Table-4.28
Identification of Reason behind investment in Mutual fund/scheme.

Factor Name Variables Loadings
Flexible Portfolio Management Flexibility and
Convenience 0.785
Professional Money management 0.853
Diversification 0.829
Cost factor Low cost of investment 0.776
Transparency 0.850
Fringe benefit Risk and return 0.627
Offer Choice 0.830




















Discriminant analysis

“Often we have measured different group of respondent on many metric variables. Discriminant analysis is a useful way to answer the questions, are the groups different, on what variables are they most different, Can one predict which group a person belong to using these variables.

Discriminant analysis is a technique for classifying a set of observations into predefined classes. The purpose is to determine the class of an observation based on a set of variables known as predictors or input variables. Discriminant function analysis is used to determine which variables discriminate between two or more naturally occurring groups.

Purpose of discriminant analysis
• To classify cases into groups using a discriminant prediction equation.
• To test theory by observing whether cases are classified as predicted.
• To investigate differences between or among groups.
• To determine the most parsimonious way to distinguish among groups.
Egenvalue: For each discriminant function, the Eigen value is the ratio of between-group to within-group sums of squares. Large eigen value imply superior function.

Summary of Canonical Discriminant Functions

Table-4.29

Eigen values-From this table we can see that the canonical correlation value is 0.937. Canonical correlation value can take value from 0 to 1 and as this value tends to 1, the within group variance tends to 0 that means the discriminant analysis is effective.
Wilk’s Lamda: Wilk Lamda for each predictor is the ratio of within group sum of squares to total sum of squares. Its values vary between 0 and 1. Large values of Lamda indicate that group means do not seem to be different. Small values of Lamda indicate that the group means seem to be different.
Table-4.30


Wilk’s Lambda - Wilk’s Lambda is (within group sum of squares/Total sum of squares) so as its value tends to 0, the Discriminant function is effective. Here the value of Wilk’s Lambda is 0.123.
Table-4.31



Standardized canonical Discriminant function coefficients- Here in this table Easy redemption has the maximum canonical coefficient (0.718) which means that easy redemption discriminates the two groups most.
Table-4.32


Functions at group centroids - From this table we can see that the group centroid for open ended is 3.096 and that for closed end is -2.228. This means that as the value of D for a particular investor tends to 3.096 that investor will invest in open ended fund and vice-versa.
Table-4.33



Classification results - From the above table we can see that 98% of the discrimination is explained by the D value. Separately, 96.5% of open ended fund and 99.1% of closed end fund have predicted correctly.
Perceptual Mapping
Perceptual mapping is a graphics technique used by marketers that attempts to visually display the perceptions of customers or potential customers.

Perceptual mapping reveals how investors perceive the association between a type of fund and reason for investment.

Figure: 4.26




1. Block in fund 2. Easy redemption
3. Flexibility 4. Less exit charge
5. Liquidity 6. Liquidity window
7. Return on investment


This figure showing the perceptual mapping of Mutual Funds (type of funds) where in two type (Open ended and closed end) of funds has been shown on the map and various variables has been has been identified which has influence on the decision making for the selection of type of funds. The variable which lies closest from type of funds has significant influence on that fund.

• Here we can observe that the two types of funds are perceived for different attributes by the investors as the funds (blue dots) lie from each other.
• We can observe that the attribute 7 i.e. ‘Return on investment’ lies farthest from the origin which means that it is the major discriminating factor. Whereas 1 which is ‘block in fund’ lies closest to the origin which means that it is the least discriminating factor.
• From the chart it is clear that investors invest in closed end fund because of block in fund and less exit charge and in open ended fund because of easy redemption and flexibility.
• From the chart we can also observe that the liquidity and liquidity window do not discriminate between open ended and closed end fund.











Summary and Findings

The survey reveals that the most preferred investment vehicle is Bank Deposits, with Post Office ranking 2nd in the order where as Mutual fund ranking 3rd in the order among 7 choices.

The investors look for Low cost of investment first in MF products, followed by Diversification, Transparency, Risk and Return, liquidity and flexibility, Tax Benefits.

Based on the preference of investment in type of fund, the 1st preference is for open-ended schemes (48.00%) and 24.50% of the respondents favour close-ended schemes where as 27.5% of the respondents favour for both type of scheme.

The survey further revealed that product related factors (Intrinsic Product Qualities and Portfolio Management) in the fund/scheme selection account for 39.188%.Where as product related factors (image and benefits) in the fund/scheme selection of the product contribute only 25.98% in the selection of scheme. Together contribute 65.17%.

It is further revealed that sponsor qualities related factors in (infrastructure and brand name) the selection of fund/scheme account for 36.92% and (Reputation and relation with customers) account for 33.498%. So investors are influenced by infrastructural facilities of the sponsor and Reputation and relation enjoyed with customers.

Further, it has been revealed that service related factors (Preliminary disclosures and fringe benefits) account for 43.891% in the selection of Mutual Fund where as Subsequent disclosure account for 25.669%.
Together they contribute 69.54%. So investors are influenced by the extent and quality of disclosure of information.
Further, the survey revealed that 52% of the respondents belong to age group 20-30 years prefer to invest in open ended fund where as only 15% of the respondents belong to Age group 50-60 years prefer to invest in closed end fund. 72.5% of the total respondents invest in closed end fund to get return on investment. Where as 71% of the total respondents invest in open ended fund due to easy redemption and liquidity features.

The survey further revealed that the 40% of the respondent who want to save for their retirement income want to be in familiar situation they are less risk takers where as 47% of respondents whose aim of investment is to acquire assets are willing to take 50% chance to get good return.

Further, the survey revealed that 50% of the respondents who want highest long term growth and are comfortable with large variations in the net asset value in the short term want to invest in existing fund. Where as 7% of the total respondents who accept minor variations in the net asset value to potentially earn more over long run want to invest in new fund offerings.

Further, 80% of the respondents whose aim of investment is to meet monthly income has the investment policy like income generating investment and capital appreciation is of less importance.

Further, the survey revealed that 52% of the respondents belong to age group of 20-30 years choose portfolio A – return per annum between -18% to +27% where as 66.66% of the respondents belong to age group of 60 years and above choose portfolio D – return per annum between -4% to +10%. 66% of the respondents belong to non government employee occupation category choose portfolio A – return per annum between -18% to +27% where as 66% of the retired employee choose portfolio D – return per annum between -4% to +10%.
Further, it has been revealed that Reason behind investment in Mutual Funds related factors (Flexible Portfolio Management) account for 28.006%, cost factor account for 18.537% and fringe benefit account for 17.661% and together contributes for 64.265%.

Further it has been revealed that how investors perceive the association between a type of fund and reason for investment. Return on investment is a major and block in fund is a least discriminating factor. And investors invest in closed end fund because of block in fund and less exit charge and in open ended fund because of easy redemption and flexibility and liquidity and liquidity window do not discriminate between open ended and closed end fund.

13% of the respondents belong to 30-40 years of age, 10% belong to 20-30 years, 7% of the 40-50years, 10% of the 50-60 years and above 60 years have more than 2 years of experience

45% of the total respondents prefer to buys the mutual fund through broking firm where as 40% of the respondents prefer to buy from bank. Only 3% of the respondents route their investment through Mutual Fund Company.















Suggestions and Recommendations

Based on the Study, followings are the suggestion and recommendation, which would help the Asset Management Companies in understanding of the need of the investors and their behaviour towards investment in Mutual Fund.

The suggestions and recommendations are as follows:

The survey reveals that the investors are basically influenced by the intrinsic qualities of the product followed by efficient fund management and general image of the fund/scheme in their selection of fund schemes. Hence, it is suggested that Asset Management Companies should design products consciously to meet the investors’ needs and should be alert to capture the changing market moods and be innovative. Continuous product development and introduction of innovative products, is a must to attract and retain this market segment.

Since insurance business has now become open, Mutual Funds can design products combining insurance and investment benefits to cater to the investor needs of safety and returns respectively. This will surely attract/retain low and moderate risk profile investors who often resist their desire to play directly in the capital market. (Note: Majority of the Indian middle income group population belong to this category). Consumer have currently schemes like GIC MF and LIC MF which provide life and accident coverage. More such schemes can attract and expand this segment of investors.

It is further revealed that the investors are influenced by the infrastructural facilities of the sponsor and the reputation enjoyed by the sponsor, in their selection of the schemes. Hence, Asset Management Companies should take steps to develop their infrastructural facilities.
Further, investors are influenced by the extent and quality of disclosure of information subsequent to their investment regarding disclosure of NAV, portfolio of investment and disclosure of deviation of investment from the stated objectives and the attached fringe benefits to the scheme in their selection of the scheme.

Hence, Asset Management Companies should take steps to be as transparent as possible and follow the disclosure norms spelt out by SEBI and AMFI in this connection. UTI’s unique place in the industry that allowed it to be non-transparent has led to the July 2001 UTI scam. The investors were kept in dark when its income schemes portfolio of debt to equity as 70:30 got slowly tilted to 20:80. We have to wait and see the impact of such non-disclosures on future fund mobilization by UTI.






























Conclusion

Running a successful Mutual Fund requires complete understanding of the peculiarities of the Indian Stock Market and also the psyche of the small investor. This study has made an attempt to understand the financial behaviour of Mutual Fund investors in connection with the scheme preference and selection. The post survey developments are likely to have an influence on the findings. Behavioural trends usually take time to stabilize and they get disturbed even by a slight change in any of the influencing variables. Hence, surveys similar to the present one need to be conducted at intervals to develop useful models. Nevertheless, it is hoped that the survey findings will have some useful managerial implication for the Asset Management Companies in their product designing and marketing.

























Bibliography

1. Anjan Chakrabarti and Harsh Rungta, 2000, “Mutual Fund Industry in India: An indepth look into the problems of credibility, risk and brand”, The ICFAI Journal of Applied Finance. Vol.6, No. 2, April, 27-45.
2. Ellen Schultz, 1992, “College costs look good to parents, but do they make the grades?” The wall street journal. March 29.
3. Festinger, L., 1957, A Theory of Cognitive Dissonance, Stanford University Press, Stanford.
4. Invest India Incomes and Savings Survey, 2007 “Invest India Economic Foundation – Invest India Market solution Pvt. Ltd.”
5. Kayezad, E. Adajania. “Fund forward: what’s the scheme for 2007?” Outlook Money. January.
6. Kotler, Philip and Gary Armstrong, 2006, Principles of Marketing. 11th ed. New Delhi, India: Pearson Education.
7. Malhotra, Naresh K, 2006, Marketing Research – An Applied Orientation. 4th ed. New Delhi, India: Pearson Education.
8. Adajania, Kayezad E. “PAN card a must for investing in Funds.” Outlook Money. July – August, 2007, 10.
9. Subramanyam, P.S. 1999, “The Changing Dynamics”, The Hindu Survey
of Indian Industry, 109-111.

10. Schiffman, Leon G. and Leslie Lazar Kanuk, 2004, Consumer Behavior. 8th ed. Delhi, India: Pearson Education.
11. Thaler, R.D., Kahneman, 1992, the endowment effect, the winner’s curse: Paradoxes and Anamolies of economic life, The free press, New York.
Websites:
12. http://www.amfiindia.com/showhtml.asp?page=mfindustry
13. http://www.kotak.com/Kotak_GroupSite/aboutus/our_corp.htm
14. http://www.kotak.com/Kotak_GroupSite/aboutus/our_story.htm
15. http://www.kotakmutual.com
16.http://www.indianexpress.com/res/web/pIe/ie/daily/1999016/ibu16033.html
Questionnaire

Name of the Respondent……………………………………………………..

Address………………………………………………………………………..

Dear Respondent
I am student of School of Communication & Management studies Cochin. I am currently carrying out a study on Mutual fund (Perception mapping of mutual fund among Net worth Individuals) in Patna City. I would appreciate if you spare some time and answer few questions. All your answer will be kept strictly confidential and meant for study and research purpose only and will not be disclosed to anyone. Thank you!
1. How long you have been investing in Mutual Fund.
(i) 0 - 6 Months (ii) 6Months – 1 Year

(iii) 1 – 2 Years (iv) More than 2 Years

2. Which is your preferred channel to purchase Mutual Fund?

(i) Bank (ii) Mutual Fund Co.

(iii) Mutual Fund Agency (iv) Broking Firm

3. How did you get to know about Mutual Fund Investment? Rank the
Various options.1 = Most effective and influencing. You can choose
multiple option.

(i) Financial Publication (ii) News papers

(iii) Family and Friends (iv) Agent / Brokers

(v) Internet and media (vi) Bank Representative

4. What are the reasons for investing in Kotak Mahindra AMC Fund scheme?

(i) Brand Name (ii) Additional benefit

(iii) Friend Reference (iv) Belief in the company

(v) Agent advice (vi) you invest on gut feel

(vii) You carefully evaluate the available option.
5. Reasons for investment in Mutual Fund. Rank these listed factors. Where 5 = Most Important, 4 = Important, 3 = Somewhat Important, 2 = Least Important, 1 = Not important at all, at the time of investment decision. Please assign unique number to each factor.

Low cost of investment
Tax benefit
Flexibility and convenience
Professional money management
Offer choice
Diversification
Better balance b / w risk and return
Transparency and Regulation
Option for automatic reinvestment

6. You prefer to invest in which type of fund?.

(i) Open ended (ii) Close ended

7. If open ended scheme, what are the reasons for choosing it?

(i) Flexibility (ii) Easy redemption

(iii) Liquidity (iv) others please specify

8. If closed end scheme, what are the reasons for choosing it?

(i) Return on investment (ii) less exit load charges

(iii) Block - in fund (iv) Liquidity window

9. Have you opted for SIP (systematic investment plan)?
If so why you have chosen SIP –

(i) Able to invest in small installment (ii) Agent advice

(iii) Easy for monthly salaried person (iv) others

10. If you want to invest, would you like to invest in……………

(i) Existing Fund (ii) NFO





11. Please tick the terminologies that you are aware of.

(i) NAV and AMC (ii) Offer document

(iii) SEBI (IV) close / open ended

(v) Market Risk (VI) Fund manager

(vii) Sponsor company (viii) trustee company

12. Rank the safety of your money in various investments option. Where 5 = most secure, 4 = Secure, 3 = Somewhat secure, 2 = Least secure, and 1 = Not secure at all, please assign an unique number to each investment option.

Bank deposit
Mutual fund
Stock investment
IPO
Post office
Pension fund
Asset, gold, land, machinery

13. How do you rate the return for Kotak Mahindra AMC fund products?

(i) Excellent (ii) good

(iii) Moderate (iv) Bad


16. I generally prefer to stay in a familiar situation, rather than take a chance on a new situation.

(i) Strongly agree (ii) somewhat agree

(iii) Somewhat disagree (IV) Strongly Disagree

(v) Neutral

17. You have won a prize. It comes in three options. Which options would you
Choose?

(i) Rs. 10,000 in cash (ii) A 50% chance to win Rs. 50,000

(iii) A 20% chance to win Rs. 2, 00,000


16. My income from my occupation is likely to increase substantially with
respect to my expenses.
(i) My income from my occupation is likely to meet my expenses comfortably in the coming years.
(ii) My income in coming years, will just meet my expenses.
(iii) In coming years, my income will not be sufficient to meet my expenses.


17. A substantial part of your savings is in..

(i) Shares. (ii) Mutual funds.

(iii) Bank deposits (iv) No savings

(v) Post office (vi) Insurance

18. You prefer to invest in stocks that....

(i) Rise slowly and steadily. (ii) Show a volatile behaviour, but give
high returns.

19. Describe your investment knowledge...

(i) Excellent (ii) Good

(iii) Average (iv) Poor

20. How much time do you spend monitoring your investments?

(i) Almost Never (ii) Regularly

(iii) Occasionally (iv) When I need to sell assets to raise
some money
21. How important is your income from investments, to pay your monthly
expenses?

(i) Essential (ii) Very Important

(iii) Somewhat Important (iv) Not Important




22. How much of your income do you save each month?

(i) None (ii) Under 5%

(iii) 5 to 15% (iv) Above 15%

23. How much of tax do you pay

(i) A large amount. (ii) A medium amount.

(iii) A small amount. (iv) Don't pay tax

24. Have you ever invested in mutual funds that invest in stocks and bonds?

(i) Yes, and I was comfortable with the risk.

(ii) Yes, and I was uncomfortable with the risk.

(iii) No, but I would feel uncomfortable with the risk if I did

(iv) No, but I would feel comfortable with the risk if I did.

25. How do you feel about the inflation and the effect it might have on your
retirement Income?

(i) I do not know how inflation would affect my retirement income.

(ii) I would like my investment earnings to earn the same as the rate of
inflation.

(iii) I would like my investment earnings to earn 3-5% more than the rate of
Inflation in the long run, even though there may be some risk that my
Investments may lose money in the short-term.

(iv) I would like my investment earnings to earn 5-10% more than the rate of
Inflation over the long run, even though there's a greater risk that my
Investments may lose money in the short-term.

26.. My feelings about the risks can be summed up as follows:
(I) I want the highest long-term growth and I am comfortable with large
variations in the NAV in the short-term

(ii) I can accept minor variations in the NAV in the short-term if it means
I can Potentially earn more over the long run
(iii) I'd rather accept lower long-term return than worry about losing my
capital in the short-term.

27. Monthly investible surplus

(i) Above Rs. 12000 (ii) Rs. 7000 – Rs. 12000

(iii) Rs. 3000 – Rs. 7000 (iv) Rs. 1000 – Rs. 3000

28. The aim of your investment is

(I) to acquire assets such as a car, a house etc.
(ii) to plan for your children’s Future.
(iii) to meet your monthly income needs
(iv) to save for your retirement
29.Select the portfolio, which you will like to invest. (The negative figures indicate possible loss and positive figures indicate maximum gains in any one year period)

(i) Portfolio A - Return p.a. between -18% to +27%

(ii) Portfolio B - Return p.a. between -13% to +22%

(iii) Portfolio C - Return p.a. between -7% to +13%

(iv) Portfolio D - Return p.a. between -4% to +10%

30. Which of the following statements best represents the investment policy that you would like to be followed to achieve your investment objectives.

(i) My primary goal is the capital protection therefore the portfolio should
only be Exposed in low risk investments.

(ii) The Investment should be low risk and income generating
(iii) My primary goal is an income generating investment. Capital
appreciation is of less Importance.
(iv) The investment objective should be capital appreciation plus some
income.







31. A. Please rank the importance of product related factors in Funds/Schemes selection. Where, 5 = Most Important, 4 = important, 3 = somewhat important, 2 = least important, 1 = not at all important. Please assign a number between 1 to 5 for each question.

Fund’s/scheme’s performance record
Scheme’s expense ratio
Withdrawal/exit facility
Products with tax benefits
Entry and exit load
Favourable rating by rating agency
Brand name

31.B. Please rank the importance of Fund’s sponsor related factors in Funds/Schemes selection. 5 = Most Important, 4 = important, 3 = somewhat important, 2 = least important, 1 = not at all important. Please assign a number between 1 to 5 for each question.

Reputation of the sponsoring firm
Sponsor has well developed Agency Net work/Infrastructure
Sponsor has a recognized brand name
Sponsor relation with customers
Sponsor’s expertise in managing money

31.C. Please rank the importance of investors services related factors in Funds/Schemes selection. 5 = Most Important, 4 = important, 3 = somewhat important, 2 = least important, 1 = not at all important. Please assign a number between 1 to 5 for each question.

Disclosure of NV on every trading day
Disclosure of investment objective, method in advertisement
Disclosure of deviation of the investment from the original pattern
Mutual fund investors’ grievance redressal machinery

Age
Gender
Educational Qualification
Income category
No. of dependents
Monthly income you invest up to
Occupation
Thank you for your kind co-operation