CHAPTER - II

REVIEW OF LITERATURE

Review of earlier studies helps a researcher to get a research idea. A

critical and systematic review of existing studies on same area or in some other

areas helps the researcher to develop an in-depth understanding and insight into

the relevant previous studies and have an understanding on current state of

knowledge on the topic and also to explore the research gap.

The literature review consists of dependent and independent variables that

related to the research topic and research objectives. Following by reviewing of

theoretical models that been studied previously as the foundation to develop new

ideas for the conceptual framework. The conceptual framework is then formed

based on the research objectives and research questions. In this section, it

explains the nature and directions of the relationship between dependent variable

and independent variable.

Review of literature in Mutual Fund

Kaur. K (2015) aimed to broaden the investor base for mutual funds in

India; it remained imperative to understand the determinants of investment

behaviour of investors towards mutual funds. It was found that the investment

behaviour could be explained with awareness, perception and Emerging Trends

and Innovations in Modern Management socioeconomic characteristics of

individual investors. Better awareness related to various aspects of mutual funds

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would have a positive effect on investment in mutual funds. Contrary to belief,

risk perception for mutual funds had no effect on the investment decision. It was

also found that, the socioeconomic characteristics such as age, gender,

occupation, income and education of investors had an impact on the awareness

of mutual funds.

Nair and Sai. N, (2015) found out many factors affecting investment

decision on mutual funds and its preference over retail investors. It also aimed at

finding the factors that prevent the people from investing in mutual funds. It was

found that the mutual funds emerged as one of the important class of financial

intermediaries which cater to the needs of the retail investors. The major factors

influencing the investment decision of retail investors were tax benefits, high

return, price and capital appreciation. Equity-based schemes were the most

preferred. Further, it was found that the bitter past-experience was the major

preventing factor while considering investment decisions. Investors satisfaction

regarding mutual fund was rated as average.

Jyothi ( 2015) found that the investors considered the variables, viz.,

Fund or Scheme’s performance record, favourable rating by a rating agency,

scheme’s portfolio of investments, reputation of the fund manager or scheme,

minimum initial investment and product with tax benefits, the first six factors

which were more important in their selection of fund/scheme followed by others.

It was also found that the factors thus extracted have enabled to identify the

types of investors who had given importance to these factors in their fund

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selection techniques, viz., professional investors and image-conscious investors.

The first category of investors identified reputation of sponsoring firm, sponsor’s

ability to offer a wide range of schemes and recognized the brand name as

essential in fund sponsor qualities. On the other hand, the second category of

investors preferred expertise of the fund manager in managing money, well-

developed research wing and other infrastructure and a well-developed agency

and network of the sponsoring firm were the major factors influencing fund

selection behaviour of investors.

Sindhu, Kalidas and Anil Chandran (2014) analysed the various factors

influencing investor sentiments in the Indian stock market. They use both

secondary and primary data for the study. They collect secondary data for the

study from books, journals, periodicals, various websites, and government

publications and primary data from 60 staffs in the SS College, Nemmara who

are selected by convenience sampling method and Multi-stage sampling method.

Using percentage, mean, standard deviation, cronbatch alpha and ANOVA with

the help of SPSS, they concluded that there exists significant relationship

between gender of the investors and the factors like herd behaviour, risk factors

and confidence and performance factors.

Ngoc (2014) investigated the behavioural factors influencing the

decisions of individual investors at the Securities Companies in Ho Chi Minh

City, Vietnam. He collects data from 188 individual investors with a response

rate of 63%. There are five behavioural factors of individual investors at the Ho

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Chi Minh Stock Exchange: Herding, Market, Prospect, over confidence

gamble’s fallacy, and Anchoring-ability bias. The herding factor includes

behavioural dimensions: following the decisions of the other investors (buying

and selling, choice of trading stocks, volume of trading stocks). The market

factor consists of dimensions: price changes, market information. The prospect

factor consists of dimensions: loss aversion, regret aversion, and mental

accounting. The heuristic dimensions are grouped into two factors:

overconfidence-gamble’s fallacy and anchoring-ability bias. He recommends

that investors should consider carefully before investment but should not care

too much about the prior loss for later investment. Besides, the investors should

not reduce their regret in investment by avoiding selling decreasing stocks and

selling increasing ones.

Kengatharan and Kengatharan (2014) explored the behavioural factors

influencing individual investors decisions at the Colombo Stock Exchange and

the relations between these factors and investment performance. They collect

data through the questionnaires distributed to individual investors at the

Colombo Stock Exchange. After analysis of the collected data using SPSS, they

showed that there are four behavioural factors affecting the investment decisions

of individual investors at the Colombo Stock Exchange which are Herding,

Heuristics, Prospect and Market and among the behavioural factors mentioned

above, only three variables are found to influence the investment performance:

choice of stock has negative influence which is from herding factor. Over

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confidence from heuristics factor had a negative influence on investment

performance. Anchoring from heuristics factor had a positive influence on

investment performance. All other variables which are volume of stock, buying

and selling and speed of herding variables of herding factor, loss aversion and

regret aversion variables of prospect factor and market information and customer

preference variables of market factor do not have influence on investment

performance.

Jay R. Joshi, (2013), Mutual Funds: An Investment Option from

Investors’ Point of View. This study is of descriptive type research. The target

population will be individual investor in Anand – Vidyanagar area of relatively

affluent western State of Gujarat. The survey will be based on convenience

sampling having 100 investors as sample size. The study will try to identify the

consumers’ preference for various mutual funds and the main reasons for

investment in mutual fund schemes. The study will also try to investigate various

factors that investor is thinking before selecting a mutual fund company.

Overall, the study is focusing on the behaviour of individual investors and hence

form a part of behavioural finance area.

Hema Divya (2012), had done a comparative study on evaluation of

selected Mutual Funds in India. Mutual Funds industry had grown up by leaps &

bounds, particularly during the last 2 decades of the 20th century. Proper

assessment of fund performance would facilitate the peer comparison among

investment managers, help average investors successfully identify skilled

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managers. Further the growing competition in the market forces the fund

managers to work hard to satisfy investors & management. Therefore, regular

performance evaluation of mutual funds is essential for investors and fund

managers also. The present study is confined to evaluate the performance of

mutual funds based on yearly returns compared with BSE Indices.

Kadariya (2012) analysed the market reactions to tangible information

and intangible information in Nepalese stock market to examine the investor’s

opinions in Nepalese stock market issues. After analysis of a sample of 185

stock investors he finds that the capital structure and average pricing method is

one factor that influence the investment decisions, the next is political and media

coverage, the third factor is belief on luck and the financial education and finally

the forth component for stock market movement is trend analysis. Thus, he

concludes that both the tangible and intangible information are essential to

succeed in Nepalese capital market.

Hon (2012) attempted to identify and analyse the key factors that capture

small investor’s behaviour in derivatives markets in Hong Kong. He collected

data from 524 respondents through a questionnaire survey. Exploratory factor

analysis rotated principal component loadings, screening test, KMO and

Bartlett’s test, and a reliability test show that the behaviour of small investors in

derivatives markets in Hong Kong consistently indicates the ascending order of

importance of return performance, reference group and personal background.

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 Varadharajan and Vikkraman (2011) identified the investor’s

perceptions towards investment decision in equity market. Using ANOVA on a

sample size of 50 investors in Coimbatore they study their attitude towards

selection of stock, company, risk, equity portfolio, financial affairs and their

expected return. They find that there exists an independency between the

demographics, majority of the factors and the returns obtained.

Nayak (2010) examined the nature of investor’s grievances and evaluated

the role of grievance redressed agencies. Using convenient random sampling

techniques, he collects primary data on the investor’s demographic profile,

knowledge about various grievances, awareness about the functions of various

grievances redressal agencies, loading of complain and their satisfaction level in

Cuddalore district of Tamilnadu State. By using chi square analysis, he showed

that there is significant difference between the various demographic variables

and investor’s knowledge of grievances, awareness of functions of redressal

agencies, loading of complain and their satisfaction level.

Agarwal Deepak and Patidar Deepak (2009) studied the empirically

testing based on fund manager performance and analysing data at the fund-

manager and fund-investor levels. The study revealed that the performance was

affected by the savings and investment habits of the people and at the second

side the confidence and loyalty of the fund manager and rewards affects the

performance of MF industry in India

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 Divya (2006) identified that there has been a tremendous growth in the

mutual fund industry in India, attracting huge investments from investors within

the country and abroad, however, there is still a long way to go. With the

growing middle-class, projected to be around 200 million, there was an immense

potential for growth in the country. India's young generation, accompanied by a

high rate of savings and a rapidly-liberalizing economy, was expected to elevate

the mutual fund sector to new heights.

Muthappan (2006) in his study entitled “ Factors Influencing Mutual

Fund Investment Decision Making”, revealed that tax exemption given to the

investments made in mutual funds was the most influencing factor in mutual

fund investment decision making. Investors preferred to invest in private sector

mutual funds than others and they preferred to invest in income schemes of

open-ended nature. The track record of the mutual fund was the most influential

factor in the selection of mutual funds. More than half of the respondents

expressed that their objective was reasonably fulfilled through investment in

mutual funds. An important factor which discouraged investment in mutual

funds was fear of fraud ie., security perception in the minds of the investors.

Mehru (2004) analysed the problems of mutual funds in India. The study

highlighted several problems such as lack of awareness among investors, poor

after sale services, non -disclosure of portfolio by mutual funds, inter scheme

transfer of funds and lack of professional fund managers. The author suggested

that greater transparency, increased innovations, better services to the investors,

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liquidity and higher returns could make mutual fund schemes more popular and

investor friendly in India.

Sapar and Narayan (2003) examined the performance of Indian mutual

funds in a bear market through relative performance index, risk return analysis,

Treynor’s ratio, Sharp’s ratio, Sharp’s measure, Jensen’s measure and Fama’s

measure with a sample of 268 open ended schemes (out of total schemes of 430).

The results of performance measures suggested that most of the mutual fund

schemes in the sample of 58 were able to satisfy investors’ expectations by

giving excess returns over expected returns based on both premium for

systematic risk and total risk.

Investment Behaviour

Definition of investment behaviour. Investment behaviours are defined as

how the investors judge, predict, analyse and review the procedures for decision

making, which includes investment psychology, information gathering, defining

and understanding, research and analysis (Alfredo and Vicente, 2010).

Behavioural finance attempts to explain and increase the understanding of

reasoning patterns of investors, including the emotional processes involved and

the degree to which they influence the decision-making process. Essentially, the

behavioural finance attempts to explain what, why and how financial investment

from a human perspective.

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 Vijendra and D. Sakriya, (2013) had done a Study of Investor

Behaviour regarding Investment Decisions in Mutual Funds. A survey was

conducted among 384 mutual funds investors from the twin cities of Hyderabad

and Secundrabad to study the factors influencing the fund/scheme selection

behaviour of these investors. It was hoped that this survey would underpin the

AMCs with regards to planning and implementation of designing, marketing and

selling of innovative products.

Chaudhary (2013) in his study entitled “Investment Behaviour of

Engineers towards Mutual Funds: An Analysis of Gender Differences” the study

favours Asset Management Companies for designing suitable products to meet

the changing financial needs of the investors. Thus, examination of a sample of

200 (83 females and 117 males) investor engineer respondents discerned the

differences in the choice of mutual funds and its likely implications on future

investment for male and female engineer investors. Research hypotheses have

been tested by invoking One-way analysis of variance (ANOVA). A higher level

of awareness and satisfaction among the male respondents was observed in the

study. The study also acknowledged that the female respondents invested on

based their choice of investment largely and on the factors like previous

experiences and publicity.

Archana Patro and Prof. A. Kanagaraj (2012) explored the Herding

Behaviour in Indian Mutual Fund Industry. The study analysed the trading

activity of Indian mutual funds and investigated whether Indian mutual fund

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managers were engaged in herding behaviour. Results are compared with

previous studies in mature as well as developing markets to determine the level

of maturity of the Indian capital market. Measure of herding developed by

Lakonishok et al. (1992) had been used.

Shanmugasundaram.V, et.al (2012) found the Influential Factors in

Investment Decision Making. Their study reveals that the technological factors

had an impact on investor decision making process. Investor behaviour is

characterised by over excitement and over reaction in a volatile market. The

investor behaviour was analysed whether they behave rationally or irrationally

towards various capital market information like bonus issue, rights issue,

dividend declaration etc., and the results showed that investors behave rationally

towards specific capital market information.

Don Bredin and Ningyue Liu (2011) studied the investment behaviour

of foreign institutional investors operating in China. A detailed analysis of

foreign institutional investors was examined, along with a comparison of

domestic Chinese investors. They adopted annual Chinese stock market data for

the period 2003–2009 for both foreign and domestic funds to analyse the

industrial preference of foreign funds and compared the different preferences

between foreign funds and domestic Chinese funds in relation to financial

characteristic and corporate governance indicators. The analysis revealed that

foreign funds had a preference for a range of sectors such as transportation,

metals and non-metals and machinery, as opposed to industries with a

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requirement for local knowledge. The portfolios of domestic Chinese funds are

distributed more evenly across sectors, compared to foreign funds. The

comparative analysis revealed that the companies foreign funds investment were

significantly different from those firms favoured by domestic funds in terms of

size, profit and management compensation. These empirical findings highlight

the differences between foreign and domestic funds investment preferences and

have implications for policy makers aiming to attract foreign investors to

emerging markets.

Syed Tabassum Sultana (2010) mentioned that, age accounts for the

major differences in risk taking decisions by the investors. The older an investor,

the better seemed his/her performance in comparison to the younger ones.

Overconfidence in their own investment ability among the youngsters largely

accounts for the excessive trading among younger investors leading to lower

returns and this directed to decline the risk tolerance level.

Reddy and Krishnudu (2009) examined the investment behaviour of the

rural investors in one of the backward regions i.e. Rayalaseema region of the

state of Andhra Pradesh. The authors studied the socio- economic profile of the

investors to assess its impact on their investment habits, analysed the awareness,

preferences and experiences of investors in respect of various investment

avenues. The data and the information were collected by conducting a primary

survey with the help of a questionnaire and the data was analysed using

descriptive statistics. It was observed that majority of respondents were male

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investors. The analysis of data showed that majority of respondents were

graduates and the earning capacity of the households was another factor to be

considered while analysing the influence of various economic factors on investor

preferences and behaviour. It was found that most of the households had one or

two earning adults. It was found that many investors were quite unaware of

corporate investment avenues like equity and preference shares, mutual funds,

corporate debt securities and deposits. While they were found highly aware of

traditional investment avenues like real estate, bullion, bank deposits, life

insurance schemes and small saving schemes.

Natalie Y., Oh, Jerry T., Parwada and Terry S., Walter (2008)

investigated the trading behaviour and performance of online equity investors in

comparison to non-online equity investors in Korea. While online trading had

become more prevalent in financial markets, the role of online investors and

their impact on prices had attracted little empirical scrutiny. They studied the

trading activity of foreign investors, local institutions and individual traders

between 2001 and 2005 and compare their performance based on whether or not

trading is performed online. Their main finding is that in an aggregate, online

investors perform poorly in comparison to non-online investors. Between

investor-types, foreigners show the best returns, followed by local institutions.

Individual investors provide liquidity to other investor-types, particularly when

trading online. On balance, the main implication of their findings is that the

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disadvantage suffered by individual investors is mainly explained by their online

trades.

Fischer and Gerhardt (2007) conducted extensive research on

individual investor investment decision making. They found that

individual investor investment decisions deviated from recommendations

of financial theory. They show that these deviations led to considerable welfare

losses. Therefore, they concluded that financial advice is potentially

correcting factor in investment decision making process and construct a

simple model to capture its very impact on individual investors’ investment

success, measured in risk-adjusted return and wealth.

Srivastava (2007) in his study entitled “An Analysis of Behaviour of

Investors in India” investigated and found that the Indian investors had not been

logical and rational in their investment behaviour and their investment decisions

were always affected by definite behavioural factors. In this research 80% of the

sample investors agreed at least somewhat that the stock market was the best

investment for long-term holders. The responses in the research suggested that

the investors feel they can make money in the stock market and feel confident

that the stock market was neither over valued nor highly priced. He concluded

that the Indian investors don’t believe in the stock market’s efficiency”.

Additionally, he explored about the investing traditions in India. The responses

examined that investors had acquaintances with respect to the past performance

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of the stocks over the other universal investing instruments. Results advocated a

public belief in the Indian Stock market that underlies stock valuation.

Surjit (2006) analysed the relationship between investors and mutual

funds. Investors have started believing in mutual funds to manage their hard-

earned money. Mutual funds are those institutions that can give maximum

satisfaction to their investors by diversifying the portfolio. The mutual funds are

becoming popular among the people who are more risk-average than pure equity

investors. Carefully managed mutual funds can ensure optimum returns even

during turbulent times in the market and that makes the mutual fund a good

choice among the retail investors. Due to the reduction in the bank interest rates

and high degree of volatility in the Indian stock market, investors are looking for

an alternative for their small-time investors which will provide them a higher

return and also safety to their investments.

Ranganathan (2006) in her study entitled “A Study of Fund Selection

Behaviour of Individual Investors towards Mutual Finds with reference to

Mumbai City” attempted to examine the related aspects of the fund selection

behaviour of individual investors towards mutual funds in the city of Mumbai.

The results of Chi-Square test showed the awareness level was dependent on

academic qualifications. Fund related qualities were analysed, and the results

revealed three different factors which could further be associated to different

types of investors, i.e., professional investors, image conscious investors and

cautious investors.

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 Kadiyala and Rau (2004) investigated investor reaction to

corporate event announcements. They concluded that investors appear to

under-react to prior information as well as to information conveyed by the

event, leading to different patterns: return continuations and return reveals,

both documented in long horizon return. They found no support for the

overreaction hypothesis.

Lim (2004) tried to test the trading decisions of investors. Using trading

records of individual investors, the study tested whether investors’ trading

decisions are influenced by their preferences for framing gains and losses. The

study found that investors are more likely to bundle sales of losers on the same

day than sale of winners. This result is consistent with the hedonic editing

hypothesis, according to which individuals prefer integrating losses and

segregating gains. Alternative explanations based on tax-loss selling, margin

calls, the number of stocks in the portfolio revealed that the difference in

the potential proceeds from selling winners and losers and correlations among

winners and losers . The delay in sales order execution do not fully account for

the observed behaviour. In addition, the extent to which mixed sales of winners

and losers are consistent with the hedonic editing hypothesis was greater than

what we could expect under random realizations. This evidence suggested

that a psychological error called mental accounting is likely to play a significant

role in investors’ trading decisions.

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 Brown and Cliff (2004) investigated investor sentiment and its

relation to near-term stock market returns. They found that many commonly

cited indirect measures of sentiments were related to direct measures

(surveys) of investor sentiment. However, past market returns are also an

important determinant of sentiment. Although sentiment levels and changes

were strongly correlated with contemporaneous market returns. The tests

used in the study showed that sentiment has little predictive power for near-

term future stock returns. Finally, the evidence does not support the

conventional wisdom that sentiment primarily affects individual investors

and small stocks.

Kim and Nofsinger (2003) studied about the individual investors in

the Japanese markets and examined their behaviour and performance. They

used the market level data and found that Japanese investors own their

risks and involve in high book-to-market stocks, trade frequently, make poor

trading decisions, and buy recent winners. Further, these behaviours and

characteristics appear to vary depending on the bull or bear market conditions.

They observe that it is primarily during a bull market where individuals tend to

hold high book-to-market stocks, as opposed to a bear market where they

exhibit an inclination towards high beta stocks. Overall, the poor

performance by individual investors can largely be explained by this

tendency to hold value stocks during advancing markets and high risk

stocks during declining market. They concluded that these behaviours

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reveal at the market level also represents important findings and hence,

become one of the important bases of our study of individual investors in India.

Krishnan and Brooker (2002) analysed the factors influencing the

decisions of investor who use analysts’ recommendations to arrive at a short-

term decision to hold or sell a stock. The results indicate that a strong form of

the analyst summary recommendation report, i.e. one with additional

information supporting the analysts’ position further, reduces the disposition

error for gains and reduces the disposition error for losses as well.

Nagy and Obenberger (1994) examined the factors influencing investor

behaviour. They developed a questionnaire that included 34 factors such as

expected corporate earnings, diversification needs, feelings for firm’s products

and services, past performance of stocks, past performance of their own

portfolio, stock broker recommendations to name a few. Their findings

suggested that classical wealth-maximization criteria are important to investors,

even though they employ diverse criteria when choosing stocks for investment.

Contemporary concerns such as local and international operations,

environmental track record and the firm’s ethical posture appear to be given only

cursory consideration. The recommendations of brokerage houses, individual

stock brokers, family members and co-workers go largely unheeded. Many

individual investors discount the benefits of valuation models when evaluating

stocks.

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Attitude of investors towards investments

Attitude is a hypothetical construct that represents an individual's like or

dislike for an item. Attitudes are positive, negative or neutral views of an

"attitude object": i.e. a person, behaviour or event. People can also be

"ambivalent" towards a target, meaning that they simultaneously possess a

positive and a negative bias towards the attitude in question. Attitudes are

composed from various forms of judgments. Attitudes develop on the ABC

model (affect, behavioural change and cognition).

Behavioural Finance experts must use a range of concepts while

understanding investors and markets. One among such concept is “Attitude” of

investor. Behavioural investors consider building portfolios as pyramids of

assets, layer by layer. The layers are associated with particular goals and

particular attitudes toward risk. Behavioural portfolio theory answers some

portfolio questions and asks others (Hoje Jo 2008).

Kothari and Mindargi (2013) in their study entitled “A Study of

Investor’s Attitude towards Mutual Fund with Special Reference to Investors in

Solapur City” This study analysed the impact of different demographic variables

on the attitude of investors towards mutual funds. Apart from this, it also focuses

on the benefits delivered by mutual funds to investors. To this end, 200

respondents of Solapur City, having different demographic profiles were

surveyed. The study employed percentage analysis. Only a small segment of the

investors were still in Mutual Funds and the main source sources of information

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still are the financial advisors followed by advertisements in different media.

The Indian investors generally invest over period of 2-3 years. Also, there is a

tendency to invest in fixed deposits due to the security attached to it. In order to

excel and make mutual funds a success, companies still need to create awareness

and understand the psyche of the Indian customer. The study revealed that the

majority of investors have still not formed any attitude towards mutual fund

investments.

Binod Kumar Singh, (2012) has done a study on Investors’ Attitude

towards Mutual Funds as an Investment Option. In this paper, structure of

mutual fund, operations of mutual fund, comparison between investment in

mutual fund and bank and calculation of NAV etc. had been considered. In this

paper the impacts of various demographic factors on investors’ attitude towards

mutual fund had been studied. For measuring various phenomena and analysing

the collected data effectively and efficiently for drawing sound conclusions.

Binod Kumar Singh (2012) observed that most of respondents were still

confused about the mutual funds and have not formed any attitude towards the

mutual fund for investment purpose. It was also observed that most of the

respondents having lack of awareness about the various function of mutual

funds. Moreover, as far as the demographic factors are concerned, gender,

income and level of education have significantly influence the investors’ attitude

towards mutual funds. On the other hand, the other two demographic factors like

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age and occupation have not been found influencing the attitude of investors’

towards mutual funds.

Kumari (2012) in her study entitled “Investment Attitude of Rural

Investors”, studied the five factors i.e. risk, return, peers influence, advisor’s

influence and friend’s influence, were taken into account with the combination

of finance theory and psychological theory, to determine the rural investor’s

decision process regarding their investment. Data has been analysed using

correlation and regression coefficients. It has been found that all rural investors

consider the risk and return on investment and most of them were also dependent

on financial advisor’s opinion because of lack of depth of knowledge about

market.

Parihar, B.B.S, et.al (2009) analysed the attitude towards mutual fund

investments. They also found the main reason behind lack of awareness of

investors about the concept and working of the mutual funds. Further, they

concluded those demographic variables like age, gender and income that

influences the attitude of investors towards mutual funds significantly. Whereas,

amazingly, the other two demographic variables education and occupation have

not been found to be influencing the attitude of investors towards mutual funds.

They also analysed that benefits delivered by the mutual funds, return potential

and liquidity most attractive to the investors, followed by flexibility,

affordability and transparency.

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 Parihar B. B. S, Rajeev Sharma and Deepika Singh Parihar, (2009)

‘Analysing Investors’ Attitude towards Mutual Funds as an Investment Option

analysed the impact of different demographic variables on the attitude of

investors towards mutual funds. Apart from this, the study also focuses on the

benefits delivered by mutual funds to investors. To this end, 200 respondents of

Agra region, having different demographic profiles were surveyed. The study

revealed that the majority of investors have still not formed any attitude towards

mutual fund investments. The main reason behind this has been observed to be

the lack of awareness of investors about the concept and working of the mutual

funds.

Janice Burns and Maire Dwyer (2007) examined New Zealand

household’s attitudes to various forms of saving and investment. From this

study, Investment and savings attitudes and behaviour were influenced by the

structure, complexity, transparency and perceived past and future performance

of different kinds of investment options the general lack of independent financial

advice; the recent superior performance of property investment, perceptions and

personal tolerance of risk the often low level of financial literacy about products

other than property; the nature of the information people use when making

financial decisions; the personal or family experience people have with

investment; a general wish to have personal control over the investment and trust

in the advice of friends and family over unknown professional advisors.

Consumer decisions on saving are likely to be influenced by new or proposed

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changes in the investment. Overall, the findings suggest that consumers’ current

preference for investment in property has been a considered as a response, made

in the light of a variety of factors and experiences.

Wurgler, J. and K. Zhuravskaya. (2002) had made a similar

observation. They stated that, people those who invest on stock market will not

earn profits every time. Those who are not having positive attitude are not able

to be patient even when there is a minor correction in stock markets. They

immediately liquidate their holdings. On the other hand, investors who are

having positive attitude towards their investment decision are making use of any

correction in the stock market by investing some more amounts by capturing

whenever the prices are falling and are able to earn additional profit.

Financial Needs and Dependence of Investors on Investments

If you want to get serious about financial planning then you are going to

need a financial needs analysis. Never fear – it is not as complicated as it sounds.

Here is a beginner’s guide to a financial need analysis.

Financial management is the activity concerned with planning, raising,

controlling and administering of funds used in the business, (Guthman and

Dougal,1971)

A needs analysis is carried out by a qualified financial planner to

ascertain the current state of your finances and your future financial needs. It

also ensures that you are not sold any financial product without an overall

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assessment of your finances and existing financial portfolio. For example, 20

years ago, a salesman would have been able to sell you a life insurance policy

without any idea of what your expenses were or how many other life insurance

policies you already had. He would walk away with a hefty commission and you

would be none the wiser, zoom forward 20 years to the present and the financial

services industry has changed dramatically. The following factors now have to

be taken into account when you consult a financial planner and these are

incorporated into your financial needs analysis:

• Your income and expenses or your budget.

• Your current assets and liabilities - this would include assets such as

property and liabilities such as your debts.

• A list of all the current financial products you own such as life insurance

policies, funeral policies and investments.

• Your current and future financial needs depending on your life stage. For

example, your marital status and whether you have dependants or not.

• Your planner or financial adviser will also consider any employment

benefits you enjoy, such as group life assurance and medical aid benefits.

Sita L.Y. (2011) found that, income played a peculiar role in influencing

Indian equity investor. He stated that, contrary to many earlier researchers’

opinion, a good number of low-income group investors have also invested along

with other income classes on equity-oriented securities. He further stated that,

investors from equity investors usually are motivated by “get rich quickly”

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phenomena of equity investment and with the introduction of equity derivatives

in India, some of them are even speculating in that segment.

Rajeshwari T.R and Rama Moorthy V.E (2002) studied the financial

behaviour and factors influencing fund/scheme selection of retail investors by

conducting Factor Analysis using Principal Component Analysis, to identify the

investor’ s underlying fund/scheme selection criteria, so as to group them into

specific market segment for designing of the appropriate marketing strategy.

Investment Objectives of Investors

Jyotishna Jairath (2013) reviles that investors preference for various

investment options were Life Insurance, Bank Deposits and valuable metals like

Gold, Silver were ranked first for the investment followed by Post Office Saving

Schemes third rank. Mutual Funds has forth rank, Stock Market Products has

sixth rank, Debentures has seventh rank, but Shares and art objects were least

preferred with rank nine. Reasons for making investment by the respondents

were 38% of respondents make investment for the safety of their money, 24% of

respondents to get return, 21% of respondents for capital appreciation, 9% of

respondents for future requirements and others for unexplained reasons.

Saloni Raheja, et.al (2013) analyzed dividend and their invested funds

should be secure and safety. Then the investors should prefer those investments,

which are liquid in nature and tax considerations. The investor who wants to

earn more return should be ready to take more risk. The study concluded the

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different people prefer to invest in different avenues according to their choice

and the life cycle stages and investment objectives are dependent on each other.

Sanjay Kanti Das (2012) determined that the investment behaviour of

middle class household investors and investment. The researcher observed that

all age groups marked highest preference towards bank deposits and insurance

investment to provide the benefit of safety and security of their life and

investment. All the respondents with different income slabs also observe similar

feeling of preference towards the investment in Bank deposits and insurance.

Ravi Vyas, (2012) reviled that respondents4 preference in different

investment windows on the basis of Safety, Liquidity, Reliability, Tax benefit

and high return. It is found that the mutual fund has got average in all parameters

like safety, liquidity, reliability, tax benefits and high returns, amongst all

popular investment avenues. Huge number of investors thinks that mutual fund

is a safe medium to invest in share market as compared to direct investment and

mutual fund investment is a profitable mode of investment.

Sanjay Das (2011) findings of the research is the factors influencing

reveals that liquidity, flexibility, tax savings, service quality and transparency

are higher impact factors on perception of investors. These factors give them the

required boosting to the investment process. Therefore, it becomes imperative on

part of the fund managers to enhance these features for attracting more investors

and to retain the trust.

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 Ganapathi, R (2010) focused various Small Saving Schemes were

mainly meant to help the small investors. The study concluded that proper

advertisements must be made for Post office savings schemes, so that even a

layman could know about these Schemes and deposits can be increased. The

investors stated that investing their amount in Post office deposits its, provides

safety and security for the amount and tax benefit.

Chandra and Sharma (2010) in their study entitled “Investment Management

by Individual Investors: A Behavioural Approach” focused on how to identify

the psychological biases that may drive the momentum effect in the Indian stock

market. The authors mentioned that five main cognitive biases namely, over

confidence, conservatism, representativeness, under/over opportunities and

excess sensitivity to rumours were associated with stock market investments.

The results revealed that two of the five listed psychological biases were not

found to be influential in case of the Indian investors. At the same time, some

cognitive errors such as excess sensitivity to rumours, conservatism bias and

representativeness bias are those contextual psychological biases which are

pertinent in influencing the investors‟ behaviour in the Indian stock market.

Investor's Willingness to take Risk

Rathnamani, V. (2013) found that the mutual fund. The study concluded

willing to take risk for invests in mutual fund, less than 30 years age Investors,

7% of Investors are extremely high risk and 2 % of Investors are high risk. 31 to

40 years age Investors, 13% of Investors are high-level risk and 26% of

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Investors are moderate level risk. 41 to 54 years age Investors, only 22% of

Investors are moderate level risk. Investors above 55 years age Investors, 1% of

Investors are moderate risk, 16% of Investors are low risk and 13% of Investors

are extremely low risk. Out of 90 respondents, 22% of respondents belong to

urban area have full knowledge about mutual fund, and 10% of respondents are

rural that respondents have full knowledge.

Dr. Kapil Sharma (2012) on a comparison of Investment risk perception

between lay investors and experts in Indian market (May-Aug 2012) assessed in

their research about experts and non-experts have different perceptions and

understandings about risk communication programmes designed to re-educate

consumers. However, this approach was likely to be successful in an

environment where individual consumers distrust regulations and other experts.

The ultimate objective of risk communication in personal financial services

should therefore be able to establish a procedure whereby lay investors become

involved in the two-way process of the management and communication or risk.

Harikanth, D., et.al (2012) examined the Role of Behavioural Finance In

Investment Decision Making - A Study on Select Districts of Andhra their study

explores the savings and risk attitude towards different investment avenues. The

study found that males are more interested than female investors to invest in

risky avenues like share market. Female investors not more exposed with shares

and mutual funds. The age group of 31-40 educated male investors fall under the

risky avenue. Having more income employee and business, persons are more

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interested with the risky avenues like share and mutual fund and their objective

of investment get high capital gain. Male urban investors are more participative

to select the investment avenues as against their female counterparts, as they are

more exposure with the Investment environment and market knowledge.

Selvam (2011) studied the risk and return relationship of Indian mutual

fund schemes. The study found out that out of thirty-five sample schemes,

eleven showed significant t-values and all other twenty- four sample schemes

did not prove significant relationship between the risk and return. According to

t-alpha values, majority (thirty- two) of the sample schemes’ returns were not

significantly different from their market returns and very few numbers of sample

schemes’ returns were significantly different from their market returns during

the study period.

Walia and Kiran (2009) studied investor’s risk and return perception

towards mutual funds. The study examined investor's perception towards risk

involved in mutual funds, return from mutual funds in comparison to other

financial avenues, transparency and disclosure practices. The study investigated

problems of investors encountered with due to unprofessional services of mutual

funds. The study found that majority of individual investors doesn’t consider

mutual funds as highly risky investment. In fact on a ranking scale it is on higher

side when compared with other financial avenues. The study also reported that

significant relationship of interdependence exists between income level of

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investors and their perception for investment returns from mutual funds

investment.

Walia and Kiran (2009) studied an analysis of investors’ risk perception

towards mutual funds services. The investors’ purchase decision for mutual

funds is influenced by chain of factors. Investor should opt for Investment

Avenue are determined by the risk and expected return. Structured questionnaire

was designed with 5-point Likert scale used to measure the risk perception

towards various financial avenues. Respondents were investors who had

experience of mutual fund investment. Ranking and raking methodology was

also followed to prioritize the investor’s preferences.

Veld and Merkoulova (2008) studied the risk perceptions of individual

investors. The purpose of the study was to test the risk measures that influence

the individual investors’ decision making. Experimental questionnaire was tested

based on 226 members of a consumer panel. Questionnaire contains

experimental questions in the form of pairwise comparisons and tested whether

the answer to the experimental questions related to demographic data of the

respondents. The results showed a comparison of stock and bond investments,

since these two categories not only have a different amount of risk associated

with them, but also differ in their risk profile; respondents with a preference for

the semi-variance as a risk measure were more likely to hold individual stocks.

Overall, results of these regressions show that the different types of risk attitudes

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among individual investors, found in the previous parts of the paper, directly

translate into their investment behaviour.

Kathleen Byrne (2005) showed that the risk and investment experience

tend to indicate a positive correlation and past experience of successful

investment increases investor tolerance of risk. Inversely, unsuccessful

experience of the past leads to reduced tolerance to risk. Therefore, past

investment behaviour affects future investment behaviour.

Singh Jespal (2004) concluded that most of the growth oriented mutual

funds performed poorly as compared to the benchmark. They have also

examined the growth of mutual funds in India in terms of resource mobilization,

promotion of various types of schemes and NAV based risk and return. The

cumulative resources of mutual funds underwent a four-fold rise and found a

threefold increase in the number of schemes during the period 1990-91 to

1997- 98.

Peggy D. Dwyer., et.al (2002) found out the gender differences in

revealed risk taking: evidence from, study reveals that using data from a national

survey of nearly 2000 mutual fund investors, they investigate whether investor

gender is related to risk taking as revealed in mutual fund investment decisions.

Consistent with the received literature, they found that the women investors

comparatively exhibit less risk-taking measure than men investors in their most

recent, largest, and riskiest mutual fund investment decisions. More importantly,

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they found that the impact of gender on risk taking is significantly weakened

when investor knowledge of financial markets and investments. The result

suggested that the greater level of risk aversion was observed among women,

which frequently documented.

Ranjith V.K (2002) attempted to understand investors' perception of risk,

by classifying them into three groups-low risk takers, medium risk-takers and

high-risk takers. The influence of age, income, educational background and

profession on risk preference was studied. The study revealed that a majority of

the investors prefer to take moderate amount of risk while making investment

decision and as age increases the tendency to take risk declines. Financial

performance is the primary parameter by which investors make investment

decisions.

Investors Opinion on Objective of Selecting Mutual Fund Schemes

Nishi Sharma (2012), investigated the reasons responsible for lesser

recognition of mutual fund as a prime investment option. It examines the

investor’s perception with reference to distinct features provided by mutual fund

companies to attract them for investing in specific funds/schemes. The study

used principal component analysis as a tool for factor reduction. The paper

explored three factors named as fund/scheme related attributes, monetary

benefits and sponsor’s related attributes (having respectively six, four and four

variables) which may be offered to investors for securing their patronage. The

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results provided a fruitful insight to mutual fund companies for tailoring their

offers suitable to cater the needs and expectations of Indian investors.

Geetha and M. Ramesh, (2011) studied Investors’ Perception on Mutual

Funds With Reference To Chidambaram Town. The main objective of the study

was to elucidate the perceptions and behaviours of the small investors located in

the town of Chidambaram, Tamil Nadu, South India towards the mutual funds

and also suggest some measures to increase the quantum of investors and

investments as well.

Gayathri, S., Karthika, S. and Kumar, Gajendran L. (2010) reviewed

on Mutual Funds in India are financial instruments. A mutual fund is not an

alternative investment option to stocks and bonds; rather it pools the money of

several investors and invests this in stocks, bonds, money market instruments

and other types of securities. The owner of a mutual fund unit gets a proportional

share of the fund’s gains, losses, income and expenses. Mutual Fund is vehicle

for investment in stocks and Bonds. Each mutual fund has a specific stated

objective. The fund’s objective is laid out in the fund's prospectus, which is the

legal document that contains information about the fund, its history, its officers

and its performance. Some popular objectives of a mutual fund are: Fund

Objective - What fund will they invest in, Equity (Growth) - Only in stocks;

Debt (Income); Only in fixed-income securities; Money Market (including Gilt)

– In short-term money market instruments (including government securities)

Balanced - Partly in stocks and partly in fixed-income securities, in order to

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maintain a 'balance' in returns and risk. The share value of the Mutual Funds in

India is known as net asset value per share (NAV). The NAV is calculated on the

total amount of the Mutual Funds in India, by dividing it with the number of

shares issued and outstanding shares on daily basis. The company that puts

together a mutual fund is called an AMC. An AMC may have several mutual

fund schemes with similar or varied investment objectives. The AMC hires a

professional money manager, who buys and sells securities in line with the

fund's stated objective. The Securities and Exchange Board of India (SEBI)

mutual fund regulations require that the fund’s objectives are clearly spelt out in

the prospectus. In addition, every mutual fund has a board of directors that is

supposed to represent the shareholders' interests, rather than the AMC’s.

V.M.Selva and A.Bala Murugan (2010) studied profile of investors,

scheme preference of investors and their perception towards mutual fund

investment. The study indicated that the MF investment was widely prevalent

among men than female. The investors gave first preference to growth scheme

and then to income funds. The study revealed that the majority of investors were

falling into the income group of two lakhs to three lakhs.

Kaboor A (2010) examined the individual investor’s Financial Literacy

of the investment options. The results of the study have brought out the investors

attributes that determine investor financial literacy. The expanding and

examining investor financial literacy would enable a researcher to understand the

spread of financial literacy among investors of different cities. Inter-regional

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disparities in financial literacy could be discerned and methods could be

suggested to attain equal distribution of financial literacy among investors.

Further grievance redressal mechanism operating at different levels may be

studied for its efficiency.

Donnor and Oxenstierna (2007) found that company related factors i.e.

reputation and availability was more valued by inexperienced investors because

they lack necessary knowledge about complex financial products. But

experienced investors value fund specific attributes and demands good presence

of company in market in order to recognize it.

Desigan et al. (2006) conducted a study on women investor’s perception

towards investment and found that women investor’s basically were indecisive

in investing in mutual funds due to various reasons like lack of knowledge about

the investment protection and their various investment procedures, market

fluctuations, various risks associated with investment, assessment of investment

and redressal of grievances regarding their various investment related problems.

Kaul and Gupta (2006) analysed the investor’s perception on various

reasons to select the mutual fund scheme. These are risk capacity and tolerance,

liquidity needs, specific objectives, credibility of the sponsors, investment

philosophy of the fund, performance of the scheme, dividends, entry and exit

loads, expenses charged to the fund and services offered by the fund.

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 Bruce A. Huhmann and Nalinaksha Bhattacharyya (2005) in their

study examined how information in mutual fund advertisements aimed at

consumers, conforms to theories from the discipline of finance regarding the

information consumers require when making investment decisions. The findings

of the study showed that mutual fund advertisements were not providing the

information necessary for optimal investment decisions. Most (88.8 percent) of

mutual fund advertisements do not contain all the requisite information on the

risk-return trade-off, principal-agent conflict, and transaction costs that

consumers need to optimize their investment decisions.

Paul Gerrans (2004) examined the use and understanding of managed

fund ratings in Australia. The analysis presented in this paper suggested that

managed fund ratings have become an important and relied-upon feature of the

Australia managed fund industry for individual retail investors. A sample of

individual investors from the Australian Shareholder Association suggested that

75% of respondents used either fund ratings alone, or ratings in conjunction with

performance-based rankings. Despite the disclaimers issued by investment funds

and regulators about past performance not being an indicator of future

performance, investors do use past performance as one of their most important

guides. Empirical research provided conclusive evidence that investors

continually direct investments into funds that have had recent superior

performance and out of those that have had recent poor performance.

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 Wilcox and Ronald (2003) are of the opinion that investors who wish to

purchase shares in mutual funds, balance many types of information, from a

variety of sources when making their fund selection. This research examined

how investors choose a mutual fund within a given class of funds. They provide

experimental evidence, which indicates that consumers pay close attention to

fees when selecting mutual funds. Among the major findings, the finding that the

investors paid great deal of attention to past performance and vastly overweight

loads relative to expense ratios when evaluating a fund's overall fee structure.

They also found evidence that investors with a greater knowledge of basic

finance and highly educated consumers, made poorer not better fund decisions,

than not so financially saving counterparts, suggesting the direction in which

investor education should be targeted.

Lynch and Musto (2003) were of opinion that this decade will belong to

mutual funds because the ordinary investor does not have the time, experience

and patience to take independent investment decisions on his own.

Wilcox (2002) conducted research on investor’s preferences for stock

mutual funds in which they conducted a conjoint study on 50 investors. Analysis

showed that investors weighted past performance more than fee structure. The

wealthier and the knowledgeable investors were more biased towards load while

selecting the mutual funds. But the authors are of the point of view that past

performance was not only the guarantee of future return. There are other factors

96
that affect the decision making, but investors make cognitive errors while

selecting funds.

Performance of such mutual funds chosen by investors

Performance in terms of rate of return: absolute measure of performance.

Financial performance of the portfolio depends on the aggregate performance of

the individual stocks held in the portfolio. Rate of return is one of the measures

to determine the performance of the portfolio. Rate of return has two

components, cash inflows (dividend, interest etc.) and capital appreciation or

depreciation, perception about financial advisors/brokers of mutual funds

Investors choice.

Lensen's Alpha (2012) Jensen's Alpha is also a reward to risk measure.

However, it uses a different concept of risk. This measure's framework was

taken from the capital asset pricing model (CAPM). In this model, among the

assumptions, it was taken that every investor holds a diversified portfolio. This

allows investors to diversify away some of their investment risk, leaving them

exposed only to 'systematic' or non-diversifiable market-related risk. Jensen's

Alpha uses only systematic risk for scaling a portfolio's return. Alpha measures

the deviation of a portfolio's return from its equilibrium level, defined as the

deviation of return from the risk, adjusted expectation for that portfolio's return.

For ranking purposes, the higher the alpha, the better is the performance. The

fund beats the market, on a systematic risk adjusted basis, if Jensen's Alpha is

greater than zero, and vice versa.

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 Treynor Index (2012) performance measure is the Treynor index. This is

calculated in the same manner as the Sharpe index, using excess returns on the

fund, but the excess return on the fund is scaled by the beta of the fund, as

opposed to the funds' standard deviation of returns. Of these three traditional

measures, the regression-based Jensen's Alpha is most commonly used in

academic research. It provides a measure of whether a manager beats the market,

as well as suggesting the magnitude of over/under performance (cited in FMRC

Report, 2003 prepared for the Australian Securities & Investment Commission,

Sydney).

Smith and Tito (2011) reviewed three widely used composite measures

of investment performance and examined their inter-relationships and put

forward another alternative measure which was then compared empirically.

While ranking the funds on the basis of ex-post performance, the alternative

measure produced little difference in performance. In contrast, when

performance comparisons were made with the market, their conclusions differed

significantly. In view of this, the alternative measure suggested by them was

referred to as the modified Jensen measure.

Noronha (2007) evaluated the performance of 11 equity schemes of three

asset management companies with the help of Sharpe and Treynor measure for a

period April 2002 - March 2005. The study found that equity, tax plan and index

funds offer diversification and are able to earn better returns as compared to

sector specific funds. The study is a commendable work on performance of

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mutual funds highlighting the better earning capacity of equity, tax plans and

index funds.

Bodla and Garg (2007) evaluate the performance of 24 growth schemes

of mutual funds. They reveal that most of the schemes have outperformed the

market during the study period in terms of return. However, the difference in

market return and funds return is found insignificant. There exists a moderate

positive correlation between risk and return of the sample schemes. A large

majority of the schemes have succeeded in earning a risk premium irrespective

of the performance measurement model concerned. Most of the schemes have

performed better than the market on the basis of risk adjusted return also.

Selvaraj, V and Marammal Devi,V, (2007) examined the performance

of mutual funds, they had an opinion that, the performance of an actively

managed fund largely depends on the investment decisions of its manager.

Statistically, for every investor who outperforms the market, there is one who

underperforms. Among those who outperform their index before expenses, many

end up underperforming after expenses. Before expenses, a well run index fund

should have average performance. By minimizing the impact of expenses, index

funds should be able to perform better than average.

Narayan Sapar R and Madava R. (2003) conducted a research on the

performance evaluation of Indian mutual funds in a bear market through relative

performance index, risk-return analysis, Treynor's ratio, Sharpe's ratio, Jensen's

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measure, and Fama's measure during the period September 1998-April 2002

(bear period). They started with a sample of 269 open ended schemes (out of

total schemes of 433) for computing relative performance index. Then after

excluding the funds whose returns are less than risk-free returns, 58 schemes

were used for further analysis. The results of performance measures suggest that

most of the mutual fund schemes in the sample of 58 were able to satisfy

investor's expectations by giving excess returns over expected returns based on

both premium for systematic risk and total risk.

Gupta and Amitabh (2004) evaluated investment performance of 80

mutual funds schemes of the Indian market. They have examined performance in

terms of fund diversification and consistency. It indicated that there has been

lack of adequate portfolio diversification. But, it supported the consistency of

performance.

Ravindran and Rao (2003) made the performance analysis of 269 open

ended Indian mutual funds in a bear market. This evaluation was carried out

through Treynor ratio, Sharpe's ratio, Jensen measure and Fama measure, the

study period being September 1998 to April 2002. The study offered that 58

schemes were able to satisfy investor's expectations based on both premium for

systematic risk and total risk.

Ang, Chen and Lin (1998) explored equity mutual fund management

reaction to poor performance using data beginning in 1994. They observed that

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management had good reason to be concerned about poor performance, as

management compensation is based upon the amount of money under

management and performance of the fund. Their analysis explored possible

management reactions to poor performance. Management could trade more

often, reduce costs, take more risks, or adopt a more aggressive marketing

strategy. They found that the management of lower performing funds did more

trading and had greater expense ratios than the management of funds that had

good performance. They examined the issues that contribute to the

understanding of mutual fund performance by studying a later time period with a

larger sample and by including fixed-income as well as equity funds. We also

contribute by considering the role of economies of scale both at the level of the

individual fund and the level of the fund family.

Grinblatt and Titman (1994) reported that mutual fund performance

evaluation measures generally yielded similar inferences with the same

benchmark. However, inferences vary even from the same measure with

different benchmarks. The analysis of determinants of fund performance

revealed that tests employing fund characteristics such as net asset value, load,

expenses, portfolio turnover and management fee reported better performance

results. It was interesting to find significant positive relationship between

turnover and ability of fund managers to earn abnormal returns.

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Perception about financial advisors/brokers of mutual funds

Mutual fund advisors are qualified professionals who can understand the

purpose and nuances of a fund. Their job includes figuring out which fund

matches the investor’s interest. Thus, the person should have a valid certification

from the National Institute of Securities Market (NISM). The qualifying

examination is ‘NISM Series V-A: Mutual Fund Distributors Certification

Examination’. After clearing this exam, AMFI issues an ARN Number.

An advisor should, therefore, give a patient ear to understand the client’s

investment goals and needs. If you are apprehensive that a fund advisor may take

advantage of you, don’t worry. There are laws in place to ensure ethical

compliance – ‘Fiduciary Duty’. It is the moral responsibility of the advisor to

disclose all details about an investment. They should also avoid conflict of

interests and recognize any compensation they receive for recommending certain

investments.

Survey published by the US Securities and Exchange Commission

((SEC),2008) found that retail investors rely heavily on financial advisors for

their investment decisions and rarely use the SEC's website or blogs for

investment information. The survey found that while 51 % of investors said their

financial advisors or brokers were their "main source" of information, only 16%

rated the Internet as their main source. And while 90% of investors have Internet

access, just 56% use the Internet in their investment decisions. Fully 44% said

they did not use it at all. Among those who do use the web for their investing,

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only 1 % cited the SEC's website as a source while 13% said they use blogs. The

survey revealed that ownership of mutual funds is positively associated with the

respondent's income.

Bala Ramasamy, Matthew C.H. Yeung (2003) the paper surveys the

relative importance of factors considered important in the selection of mutual

funds by financial advisors in emerging markets. Our survey focuses on

Malaysia where the mutual industry started in the 1950s but only gained

importance in the 1980s with the establishment of a government initiated

programme. The results of our survey pointed out three important factors which

dominate the choice of mutual funds. These are consistent past performance, size

of funds and costs of transaction. Factors which relate to fund managers and

investment style are not considered to be relatively important. With the

impending liberalization of the financial markets in the developing world, our

findings would assist those international funds that are considering expanding

their operations into these emerging markets.

Investor decision making

Murty, P. V. S. H Sastry (2014) Investor’s choice with the objective of

return optimization is investment in the stock market instruments or securities.

Stock market securities are affected by various internal and external factors.

Study examines the perception of small investment investors towards returns on

investment.

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 Sudalaimuthu and Kumar (2008) in their study entitled “A study on

investors‟ perception towards Mutual Fund Investments” made an attempt to

understand the financial behaviour of mutual fund investors in connection with

the scheme preference and selection. Simple percentage analysis, Chi Square test

and ANOVA were the tools employed and found mutual fund intermediaries

play an important role in making markets. So, it improves the quality and

efficiency of market intermediaries and promote new intermediaries as well as

new products. It has been noted that for about 37.6% of the investor’s feedback

from increase in capital appreciation is dissatisfied. Steps should be taken for

funds to make pair and truthful disclosure of information to the investors.

Mutual funds need to take advantage of modern technology like computer and

telecommunications to render service to the investors.

Donner and Oxenstierna (2007) in their thesis entitled “The Factors that

Investors Value when Choosing Mutual Funds: Implications from a Market

Dominated by Four Banks” investigated the relationship between fund flows and

fund company/fund specific attributes and analyses what underlying factors

investors value when making investment decisions on the Swedish market for

mutual funds. By conducting a study comprising both an analysis of fund data

and an investor survey, they have been able to analyse investor behaviour from

two viewpoints. The results showed that fund companies should focus on

improving the performance of mixed and fixed income funds as this increases

future flows of capital to the fund. Despite the fact that the Swedish market is

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dominated by four banks, they do not receive proportionally larger fund flows

than other fund companies. Inexperienced investors place a greater deal of

importance on company specific variables in relation to fund specific variables.

For experienced investors, the relationship is the opposite. Search and

information costs, measured as visibility and company specific variables, are

found to be important in the data analysis, but not significantly favoured by

either group in the survey.

Singh and Chander (2006) in their study “Investors Preference of

Investment in Mutual Funds: An Empirical Evidence” the simple techniques like

weighted average score, chi-Square, mean, median have been applied for the

purpose of analysis of data and found that the investors consider gold to be the

most preferred form of investment, followed by NSC and Post Office schemes.

Hence, the basic psyche of an Indian investor, who still prefers to keep his

savings in the form of yellow metal, was indicated. Investors belonging to the

salaried category and in the age group of 20-35 years showed inclination towards

close-ended growth (equity-oriented) schemes over the other scheme types. A

majority of the investors based their investment decision on the advice of

brokers, professionals and financial advisors.

Satish D (2004) found that investors from seven major cities in India had

a preference for mutual funds compared to banking and insurance products.

Investors expected moderate return and accepted moderate risk 60 percent of

investors preferred growth schemes. The image of AMC acted as a major factor

105
in the choice of schemes. Investors had the same level of confidence towards

shares and mutual funds.

Singh and Chander (2004) in their study entitled “An Empirical

Analysis of Perception of Investors Towards Mutual Funds” studied the

perception of investors towards mutual funds and analysing the reasons for

withdrawal and/or not investing any more in mutual funds. The study revealed

that investor’s perceptions regarding day-to-day disclosure of net asset value by

the funds and provision for more tax rebates on investment in mutual funds by

the government have emerged as an important requirements for the investors and

the reason of ineffectiveness of controlling bodies like SEBI and others that

resulted in investors’ disillusionment as regards mutual fund investment has

emerged as one of the major reason of withdrawal from mutual funds. The funds

have under-performed as against expectation and management has been

inefficient thereby discouraging investors to keep their funds parked in mutual

funds.

Jaspal Singh and Subhash Chander (2003) identified that past record

and growth prospects influenced the choice of scheme. Investors in mutual funds

expected repurchase facility, prompt service and adequate information. Return,

portfolio selection and NAV were important criteria's for mutual fund appraisal

The ANOVA results indicated that, occupational status; age had insignificant

influence on the choice of scheme. Salaried and retired categories had priority

for past record and safety in their mutual fund investment decisions.

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 Wilcox (2003) entitled “Bargain Hunting or Star Gazing, Investors”

Preferences for Stock Mutual Funds “studied investors” preferences for stock

mutual fund in which they conducted a conjoint study on 50 investors. Analysis

showed that investors weighted past performance more than fee structure. The

wealthier and the knowledgeable investors were more biased towards load while

selecting the mutual funds. There were other factors that effect on decision

making, but investors make cognitive errors while selecting funds.

Singh and Vanita (2002) conducted a study on mutual fund investors'

perception and 'Preferences. The results showed that, as against UTI and other

public sector mutual funds, the investors were increasingly moving towards

private sector mutual funds. Absolute returns from mutual funds and name of

promoters has been the basic criteria used for selecting mutual fund scheme.

Public sector mutual fund investors are not satisfied with the performance of

their mutual funds. A majority of the investors are not aware of the inherent risk

in mutual fund investment. National Savings Certificates and Public Provident

Funds were the most preferred financial assets. The investors preferred to invest

in private sector funds which were in the nature of open -ended balanced

schemes.

Singh and Vanitha (2002) Mutual Fund Investors, Perceptions and

Preferences- A Survey, the results showed that as against UTI and other public

sector mutual funds, the investors were increasingly moving towards private

sector mutual funds. Absolute returns from mutual funds and name of promoters

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had been the basic criteria used for selecting mutual fund schemes. Public sector

mutual fund investors were not satisfied with the performance of their mutual

funds. A majority of the investors were not aware of the inherent risk in mutual

fund investment. NSCs and PPFs were the most preferred financial assets.

Lastly, the investors preferred to invest in the private sector, open- ended and

balanced schemes of mutual funds.

Rajeswari and Ramamoorthy (2001) 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. the results

of the study revealed that among product qualities the most important factor was

performance of the fund followed by brand name of scheme, among sponsor

related factor the most important factor was expertise by the sponsor in

managing money and in customer services the most important factor was

disclosure of investment objective the second important was methods and

periodicity of valuation in advertisement.

Awareness of SIP among Investors.

In most of the history of marketing research there has been a continuing

controversy about the relative merits of the two types of measures of awareness

called: recall and recognition (Copland, 1958). Recall is the mental reproduction

of some target item experienced or learned earlier, while recognition is the

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awareness of having previously experienced those stimuli. Operationally, in

recall some contextual cue is provided and the respondent must retrieve the

target item from memory. In recognition, the target item is provided and the

contextual circumstances of the earlier event or experience must be retrieved.

So, present research defines awareness as a recognition capability of retail

investors with reference to mutual funds investment.

Nalini J, (2015) in her thesis entitled “Impact of Mutual Fund schemes in

the deposit mobilization of Commercial banks in Kerala” aimed at analysing the

factors that influenced investors in adopting mutual fund schemes as well as

their perception compared with other investment schemes. The study adopted

multistage random sampling for primary data mining. It reveals that the impact

of mutual funds on bank deposits is not significant. Also, Mutual funds are

considered as a better investment option than bank deposits due to its high yields

(in the form of capital appreciation and high dividend/interest).

Umamaheshwari, M. Ashok Kumar (2014) Awareness, environment

level of exposure intensions, beliefs and responsibilities are the factors

responsible for deciding investment policies. Behavioural pattern helps in

preparing various schemes for investments. Investment temperament of salaried

strata based on investment awareness and expected rate of investment return.

Prathap and Rajamohan (2013) have done A Study on Status of

Awareness among Mutual Fund Investors in Tamilnadu. Mutual funds have

become an important intermediary between households and financial markets,

of households to enter financial markets and the diversified investment structure

of mutual funds and diversified risk contributed tremendously in the growth of

mutual funds. It is important to study the awareness of mutual fund among the

investors.

Sidharthul Munthaga, M. Nazer (2013) Employment of funds with

intension of getting returns on it is called as investment. The Study examined the

impact of factors on investment behaviour of people, and to understand the

attitude of investors towards various investment options. Data analyses revealed

that 56 percent private employees, 30 percent Self-employed and 14 percent

public sector employees adopted professional services for investment. Graduate

respondents are more attentive towards investments.

Verma.P. (2012) found that awareness of various equity-oriented

securities among Indian investors is increasing due to various investor education

programmes conducted by Securities and Exchange Board of India (SEBI) and

Association of Mutual Funds in India (AMFI). He stated that, due to the

increased awareness about equity-oriented securities, the number of new

investors is growing at a healthy rate in India. He further stated that, increased

awareness is also motivating the equity investors to acquire knowledge on

various investment strategies and risk minimisation techniques.

Singh (2012) conducted an empirical study of Indian investors and

observed that most of the respondents do not have much awareness about the

various function of mutual funds and they are bit confused regarding investment
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in mutual funds. The study found that some demographic factors like gender,

income and level of education have their significant impact over the attitude

towards mutual funds. On the contrary age and occupation have not been found

influencing the investor’s attitude. The study noticed that return potential and

liquidity have been perceived to be most lucrative benefits of investment in

mutual funds and the same are followed by flexibility, transparency and

affordability.

Ravi Vyas (2012) found the form of investments preferred by investors.

Mutual fund investment is a secured investment with good returns on

investments. Data analyses shows that maximum respondent invest in Gold

followed by bank deposits and Insurance schemes. Mutual fund investments are

very limited. For Safety, Liquidity, Reliability, Tax benefits and high returns

Mutual fund has average score among investors.

Kandavel (2011) in his study titled “Perception of the Retail Investors

towards Investment in Mutual Funds in Puducherry: An Empirical Study”

looked at the perception level of the retail investors towards investment in

mutual funds. The small investors purchase behaviour does not have a high level

of coherence due to the influence of different purchase factors. The buying intent

of a mutual fund product by a small investor can be due to multiple reasons

depending upon customers risk return trade off. Presently, more and more funds

are entering the industry and their survival depends on strategic marketing

choices of mutual fund companies, to survive and thrive in this highly promising

industry, in the face of such cutthroat competition. Therefore, the mutual fund

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industry today needs to develop products to fulfil customer needs and help

customers understand how its products cater to their needs.

Lakshmana Rao.K., (2011) in his study deals with mutual fund investors

awareness educational level is an important factor that influences the behaviour

of investment decisions. Increasing educational level attainment is associated

with decreased levels of risk tolerance. An investor’s level of formal education

has found to influence risk tolerance. Three hundred and fifty respondents have

been selected for this study, for three districts and five schemes in the Andhra

Pradesh. The chi-square test has been adopted to examine the association

between the formal and technical education factors with the awareness and

adoption of the mutual fund schemes.

Ranjani Komal Srinivasan, Anjali Vivek Chopra (2011) concluded

that the respondents showed significant awareness in matters concerning

investment and personal financial planning. Contrary to popular perception, the

sample population showed awareness about financial planning and willingness

to take investment decisions relating to personal finance. However, in the area of

retirement planning, majority of the respondents felt that they had not adequately

planned for their retirement.

Yamal Vyas (2010) examined the retail investors, he says that, the retail

investors have taken great fancy to the systematic Investment Plan and it seems

that every middle class household has a SIP investment. He also taught the

mutual fund investment cannot be different from equity investments.

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 Singh and Jha (2009) conducted a study on awareness and acceptability

of mutual funds and found that consumers basically prefer MFs due to return

potential, liquidity and safety and they were not totally aware about the

systematic investment plan. The invertors’ will also consider various factors

before investing in mutual funds.

Kainth, singh Gursharan and Kaur Manpinder., (2009) in this study

an attempt towards the perception of investors in Jalandhar city has been

undertaken to examine the confidence level of the investors in mutual funds.

Analysis of micro factors influencing mutual funds reveals that one-third

(highest) of the investors depends upon the recommendation of their friends and

relatives, macro factors safety of investment is the major factor (27%) which

influence their investment. Results concluded that awareness of the industry is

the major factor for pushing the growth of industry.

Mittal and Gupta (2008) examined the awareness of the investors about

mutual funds and various factors affecting the investment decision to invest in

mutual funds. The study revealed that 85 percent of the respondents were aware

of the mutual fund products and associated risks. Further, most of the investors

were satisfied with the services provided by the mutual funds.

Madhusudhan V Jambodekar., (2006) conducted a study to assess the

awareness of Mutual funds among investors to identify the information sources

influencing the buying decision and the factors influencing the choice of a

particular fund. The study revealed that among other things , income schemes

and open ended schemes are more preferred than Growth Schemes and Close
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Ended Schemes during the then prevalent Market conditions investors look for

safety of Principal, Liquidity and Capital appreciation in the order of

importance; News articles and Magazines are the first source of information

through which investors get to know about Mutual Funds/Schemes and Investor

Service is a major differentiating factor in the selection of Mutual Fund schemes.

Bryant and Chen Liu (2004) in their study “Management Structure and

the Risk of Mutual Fund Managers” provide a detailed discussion of the

relationship between mutual fund management structures fund risk and

performance. T-test and Wilcoxon signed-ranked test were used to test the mean

and the median differences between the multi-risk funds and the matched funds,

respectively. Both tests show no significant differences between the means and

medians of the sample and match funds. They found that the management

structures that mutual fund complexes employee have a significant effect on the

risk exposure of the individual fund managed. On an average, a multiple fund

management structure, where a fund manager operates, multiple funds has a 7%

increase in objective style drift risk exposure than the unitary fund management

structure. However, this increase in risk exposure was not accompanied by an

increase in fund performance.

Jambodekar (1996) conducted a study to assess the awareness of mutual

funds among investors, to identify the information sources influencing the

buying decision and the factors influencing the choice of a particular fund. The

study revealed that among other things, Income Schemes and Open Ended

Schemes were more preferred than Growth Schemes and Close Ended Schemes

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during the then prevalent market conditions. Investors look for safety of

Principal, Liquidity and Capital appreciation in the order of importance;

Newspapers and Magazines are the first source of information through which

investors get to know about mutual funds/ SIP Schemes and investor service is a

major differentiating factor in the selection of mutual fund SIP Schemes.

Madhusudhan V. Jambodekar (1996) conducted a study to assess the

awareness of Mutual Funds among investors, to identify the information sources

influencing the buyer decision and the factors influencing the choice of a

particular fund. The study revealed 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 Mutual

Funds Schemes and the investor service is the major differentiating factor in the

selection of Mutual Funds.

Jambodekar (1996) conducted a study to assess the awareness of mutual

funds among investors, to identify the information sources influencing the buyer

decision and the factors influencing the choice of a particular fund. The study

revealed 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 mutual funds

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schemes and investor service is the major differentiating factor in the selection

of mutual funds.

Research Gap

The relevant studies in literature review provided the detailed knowledge

about Investor behaviours towards systematic investment plan (SIP) schemes

and the factors, which affect the investor behaviour and which de-motivates the

investor from change behaviour intentions. The literature review covers the

positive arguments and negative arguments about investor behaviour of

consumers. Although, there have been found many gaps in literature review such

as, the most of literature is about the impact of behaviour, financial needs,

attitude, risk, mutual fund performance, awareness, etc.,

But, there is less literature about the scheme related factors and

performance, awareness, return factors have been addressed less in the literature

review. In this research, the focus has been developed towards examining the

impact of SIP related factors towards investor behaviour.

The research was carried out in Tamilnadu because the awareness and

behaviour of investor vary in different groups. If the study was done in Mumbai,

we would have observed that they had a higher awareness of investing in SIP

schemes and the investor’s behaviour have high preference for SIP where their

primary objective to preserve their capital and generate income.

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