Identification of Factors Influencing Investors' Perception Towards Investment in Mutual Funds PDF

Journal of Commerce & Accounting Research 8 (3) 2019, 18-24 http://publishingindia.com/jcar/ IDENTIFICATION OF FACTORS INFLUENCING INVESTORS’ PERCEPTION TOWARDS INVESTMENT IN MUTUAL FUND Pooja Chaturvedi Sharma* Abstract...

Journal of Commerce & Accounting Research 8 (3) 2019, 18-24 http://publishingindia.com/jcar/ IDENTIFICATION OF FACTORS INFLUENCING INVESTORS’ PERCEPTION TOWARDS INVESTMENT IN MUTUAL FUND Pooja Chaturvedi Sharma* Abstract Mutual funds have opened new vistas to millions of investors by virtually taking investment to their doorstep. In India, retail investors in general rely on the information which neither provides hedge against inflation nor have positive real returns. He finds himself to be an odd man out in the investment game. Mutual funds have come, as a much needed help to these investors. Thus, the success of mutual funds is in essence the outcome of the collective endeavors of proficient fund managers and vigilant investors. Therefore, in the present circumstances, it is imperative to recognize the requirements of mutual funds investors along with their inclination for mutual funds schemes and their performance evaluation. This research study has an objective to analyze the perception of investors towards mutual funds as an investment avenue. The survey is undertaken on 100 educated investors of Delhi/NCR and the findings revealed that the major factors that influence buying behavior of mutual funds investors are fund characteristics, creditability, convenience, success factors, and fund family. The study will be enormously valuable for academicians, AMC's, brokers, distributors and other potential investors. Keywords: Investor Buying Behavior, Investment, Investors Perception, Mutual Funds But, the growth of mutual funds has not stopped. It is enduring INTRODUCTION to evolve to a superior future offering newer opportunities Since its inception in emerging economies like India, the to investors. In this era of globalization and competition, growth of mutual funds has been exceptionally sluggish and the accomplishment of an industry is ascertained by the it took really long years to progress up to the modern day market performance of its stocks. The investors too like mutual funds. Mutual funds as an investment avenue came to invest only in the stock of those companies from which forward initially in Netherlands in the18th century followed they can get maximum gains. In initial years of growth of by Switzerland, Scotland and then in the United States in 19th mutual fund industry, investors had only few investment century. The central idea following mutual fund investments avenues for investment. But the growth of modern stock is to provide a form of diversified investment solution. market has presented numerous prospects for investors for This idea was developed over the years and investors investing their funds according to their requirements. One received increasingly large number of choices of investment such channel is to invest in mutual funds. Mutual funds have through the mutual funds. In India, the mutual fund concept seen a tremendous growth in the last few years. This is the emerged in 1960. The pioneer in the area of Indian mutual outcome of pooled efforts of the brokerage houses and the funds is UTI. Monetary funds benefited a lot from the fund managers through different approaches of promotion. mutual funds. Previously, investors were investing funds directly in the stock market and due to lack of awareness NEED OF STUDY and market exposure they suffered severe losses. But with the introduction of mutual funds which were managed by This research work has been proposed to study and identify efficient fund managers, the associated risks were slashed the decisive investor behavior factors in selection of by a great extent. Two crucial features which contributed Mutual funds. As previous studies gave a mixed outcome enormously in the intensification of mutual funds are its regarding investor’s perception towards mutual funds so, diversified investment structure and diversified risk. With there are abundant possibilities to study and analyze latest the passage of time many new mutual funds emerged. Not transformations in investor’s behavior and perception only this, the methods and ways of selling these funds also regarding demographics, investment objectives, initial changed with time. * Assistant Professor, Management Department, Gitarattan International Business School, (Affiliated to GGSIPU), Delhi, India. Email: pooja chaturvedi [email protected] Electronic copy available at: https://ssrn.com/abstract=3724235  Identification of Factors Influencing Investors’ Perception Towards Investment in Mutual Fund 19 investment amount, etc. The disclosures from existing been identified as per the available literature as performance literature make it apparent that investors are upgrading their persistence, turnover, expense ratio, asset size, load fee, awareness and are seeking more and more information for investment style, mutual fund managers and the ownership rational decision making. A study on this aspect is necessary style of the mutual funds. This paper elaborates the impact to update the knowledge. of these performance indicators. It has been found that each performance indicator affect the return of the mutual fund SCOPE independently. Another aspect to this has been explored by Radhnamani (2013) and Pandey and Kishore (2013). They The purpose of the study is to find out the perception of have researched to understand the attitude, awareness and investors towards mutual funds as an investment avenue. preferences of mutual fund investors. Most of the respondents Data has been collected from 100 investors only from Delhi/ prefer systematic investment plans and got their source of NCR region. information primarily from banks and financial advisors. Investors preferred mutual funds mainly for professional LITERATURE REVIEW fund management and better returns and assessed funds mainly through Net Asset Values and past performance. The accessible behavioral finance research studies are quite Investor perception has also been worked upon by various a few but still only little information is accessible about researchers. As Kaur, Batra, and Anjum (2013) attempted to investor perceptions, preferences, attitudes and behavior. All know the investors perception towards selection of mutual efforts in this direction are fragmented. In this context, the funds. 200 investors have been taken for survey. The findings selection criteria that is relatively untouched in vast amount of the study revealed that investor consider mutual funds as of mutual fund literature is the role played by fund sponsor, flexible investment option; they considered asset management fund qualities, factors influencing in selecting mutual fund companies as efficient and they think investment in stock and specific scheme etc. Although research is limited, there market is risky and complex. The study has suggested that are few evidences on the relative importance of the various investors should consider long historical data, size and age of perception affecting factors. Some related evidences have the fund, fund charges and some measure to analysis the funds been summarized below. for investments. Working on the parallel outline Agrawal Saini, Anjum, and Saini (2011) in their research study and Jain (2013) attempted to examine principally the most analyzed the mutual fund investments in relation to investor’s preferred investment avenue by the investors of Mathura, and behavior. Investors’ opinion and perception has been have investigated the comparative preference of investors examined pertaining to diverse issues like type of mutual fund towards mutual funds in the presence of other investment scheme, objective of investing, role of financial advisors and avenues in the market. The present research work scrutinizes brokers, sources of information, deficiencies in the services the mutual fund investments in context of investor’s behavior. provided by the mutual fund managers, challenges before Investors’ opinion and perception has been studied in relation the Indian mutual fund industry, etc. Another study related to to several imperative concerns like type of mutual fund this but with different dimension has been done by Sharma scheme, main objective of investing, role of financial advisors (2012). In this study, researcher attempted to investigate the and brokers, sources of information and deficiencies in the causes responsible for under identification of mutual fund as a services provided by the mutual fund managers. Reddy and primary investment option. It inspects the investor’s perception Sudhakar (2016) also analyzed the perception of individual pertaining to different features of mutual fund schemes to investors towards the performance of mutual funds. The study attract them for investing in particular funds. The paper aims at finding out the perception of the small and household investigated three factors named as fund attributes, sponsor investors towards investment in mutual funds in twin cities of attributes and monetary benefits which should be offered to Hyderabad and Secunderabad. The necessary data are collected investors for securing their long-term association in the form by administering a structured questionnaire to 200 randomly of building investor loyalty. The findings are anticipated to selected investors based on simple random sampling method. offer prolific insight to mutual fund companies for molding Mane (2016) also explored the area of investor perception in their offers according to the requirements and expectations context of mutual fund schemes they prefer the reasons behind of Indian investors. In this regard, an extensive study by such selections and also this research dealt with different Goel, Sharma, and Mani (2012) needs special mention. As in investment options, etc. The findings of this study disclosed this, researcher has identified the performance indicators of that majority of respondents are doubtful and cautious about mutual funds and to analyze the impact of these performance investing in new age investments like mutual funds and prefer indicators on mutual fund’s performance. The study also to avert risks by investing in less riskier investment options. draws attention to the contradictions in the literature in the Sharma and Agrawal (2015) examined the preferential factors area of examining these performance indicators which have for investing in mutual funds by the investors. The survey Electronic copy available at: https://ssrn.com/abstract=3724235 20 Journal of Commerce & Accounting Research Volume 8 Issue 3 July 2019 was undertaken in the city of Udaipur city and the major obtaining the proportion of systematic variation in a scale, findings revealed that the major buying behavior influencing which has been done by determining the association between factors are capital appreciation, brand image, quick service the scores obtained from different administrations of the and transparency. Similar work was carried on by Goel and scale. Cronbach’s alpha is the most common measure of Khatik (2017) regarding investors’ awareness and preference internal consistency (“reliability”). Cronbach alpha of total towards mutual funds as an investment option. The findings of scale came out to be 0.798. This value of reliability statistics the study revealed that investors are well aware about mutual shows that all the items of the scale are reliable and can be funds but in spite of this, they have not made the first move to tested in different settings. invest due to insecurities about the stock market and mutual fund but on contradictory respondents have shown signals DATA ANALYSIS AND that they are inclined towards investing in mutual funds in near future to get superior returns. The study recommends that INTERPRETATION companies and government should come forward in making Demographic analysis allows measuring the dimensions investors more financially literate and also to train financial and dynamics of sample respondents. These estimates advisors to create more confidence amongst investors for are often considered reliable standards for judging the taking initiative to invest in mutual funds. Studies related to accuracy of the population information gathered during the different demographic dimensions have also been conducted period of research. Population composition is also a very by various authors. Murugan (2012) in his study analyzed the important part of research, especially in context of factor impact of different demographic variables on the perception of analysis. Information ranging back hundreds of years is investors towards mutual funds. To this end, 300 respondents not always worthwhile, because the numbers of people for of Chittoor region, having different demographic profiles which data are available may not provide the information were surveyed. The results of the study revealed that one-third that is important. Lack of information on the original data- of respondents have yet not structured any attitude towards collection procedures may prevent accurate evaluation mutual fund investments. The main reason behind this has been of data quality. To avoid any data analysis problems a observed to be the lack of awareness of investors about the detailed demographic analysis has been done. Data has concept and working of the mutual funds. Singh (2012) in his been collected for 100 respondents. Table 1 shows the study worked on finding the impact of different demographic classification on various basis on the basis of age, there were factors on investors’ attitude in context of mutual funds. For 50 respondents who belong to age group of 20-30 where as measuring diverse phenomenon and analyzing the gathered 35 respondents belongs to the age group of 40 to 60 and data effectively and proficiently, Chi-square test has been 15 respondents were in the age category of above 60 years. applied and for analyzing the effective factors for investment On the basis of gender there were 58 males and 42 females. in mutual funds, ranking was done on the basis of weighted Classification of educational background shows that there scores. were 15 professionals where as 45 and 40 respondents were graduates and post graduates respectively. On the basis of OBJECTIVES occupation 21 respondents were government employees, 43 were private sector employees, 19 were professionals ∑∑ To analyze the investors awareness and perception and 12 respondents run their business. On the basis of regarding investment in mutual funds. monthly income 22 respondents had income below 20,000, ∑∑ To identify the factors influencing investor perception 50 respondents had income between 20,000 and 40,000 about mutual funds. whereas 28 respondents had income between 40,000 and above. On the basis of type of investor 27 respondents were hereditary investors and 73 were new generation investors. RESEARCH METHODOLOGY Classification on the basis of category of investors shows The methodology includes data and sources of data, sample that 80 respondents were long-term investors whereas 11 size, area of framework of analysis. Primary data have and 9 respondents were day trader and both respectively. been collected from 100 respondents through a structured On the basis of experience in investing 33 respondents had questionnaire covering different groups of investors experience less than 3 years, 42 respondents had 3 to 5 years geographically, demographic basis, etc. in Delhi/NCR. As the of investing experience and rest 25 respondents had 5 years sample was selected on the basis of prefixed characteristics & above experience in investing. On the basis of approximate like only mutual funds investors have been selected for size of investment 40 respondents have invested below Rs data collection purpose and considering the objectives of 1 lakh, 37 respondents have invested between Rs 1 lakh the study, purposive sampling technique has been applied and 2 lakhs and 25 respondents have invested in between 2 for sample selection. Reliability analysis is determined by lakhs and above. On the basis of source of investment, 92 Electronic copy available at: https://ssrn.com/abstract=3724235  Identification of Factors Influencing Investors’ Perception Towards Investment in Mutual Fund 21 respondents had invested their own savings, 5 respondents Basis Category No. of had invested borrowed funds and 3 respondents were in Respondents the category of both. Classification on the basis of money Occupation Government employees 21 ever invested in mutual fund shows that 83 respondents Private Sector employees 43 have invested in mutual funds where as 17 respondents Professional 19 have not invested ever in mutual funds. On the basis of Business 17 recommend investing in mutual funds, 73 respondents Monthly Income Below Rs 20,000 22 have recommended whereas and 27 respondents have not Rs 20,000 – Rs 40,000 50 recommended. Exploratory factor analysis is a statistical Rs 40,000 & above 28 method used to uncover the underlying structure of a Type of investor Hereditary Investor 27 relatively large set of variables. This technique has been used New Generation Investor 73 as the researcher had no a priori hypothesis about factors or Category of Investor Long - Term Investor 80 patterns of measured variables. Measured variables are any one of several attributes of people that may be observed and Day Trader 11 measured. Exploratory factor analysis comprises of several Both 9 techniques. Data analysis for this research work has been Experience in Invest- Less than 3 years 33 done on the basis of all the included techniques. Primarily, ing 3-5 years 42 Kaiser-Meyer-Olkin (KMO) Test has been applied. It is a 5 years & above 25 measure to test suitability of factor analysis technique on the Approximate size of Below Rs. 1 lakh 40 basis of sample data. KMO values less than 0.6 indicates investment as on date Rs. 1 lakh - Rs. 2 lakhs 37 that the sampling is not adequate and remedial action should Rs. 2 lakhs & above 25 be taken. Next is communality. The sum of the squared Source of investment Own savings 92 factor loadings for all factors for a given variable (row) is Borrowings 5 the variance in that variable accounted for by all the factors, Both 3 and this is called communality. This indicates the amount of Money invested in Yes 63 variance in each variable that is accounted for. Third step is mutual fund ever No 37 rotation. Rotation methods are either orthogonal or oblique. Recommend investing Yes 73 Simply put, orthogonal rotation methods assume that the in mutual funds No 27 factors in the analysis are uncorrelated. In statistics, varimax rotation is used to simplify the expression of a particular sub- space in terms of just a few major items each. Total variance Table 2: KMO and Bartlett’s Test explained gives the ratio, expressed as a percentage, of Kaiser-Meyer-Olkin Measure of Sampling Adequacy..693 the variance accounted for by each component to the total variance in all of the variables. The rotated component Approx. Chi-Square 736.121 matrix sometimes referred to as the loadings, which is the Bartlett's Test of Sphericity df 378 key output of principal components analysis. It contains Sig..000 estimates of the correlations between each of the variables Table 2 shows the value of KMO is 0.693 which shows and the estimated components. sample is adequate to run factor analysis technique. The data yields a value for the chi squared statistic of 736.121 Table 1: Demographic Description and significance value of 0.00 which shows that the values are independent and there is multicollinearity between the Basis Category No. of Respondents values. Higher communalities are better. The values of Age 20-30 50 communality are all more than 0.5. If communality for a particular variable is low (between 0.0-0.4) then that variable 40-60 35 struggled to load significantly on any factor. Thus, in this Above 60 15 study all the variables are significantly loaded on factors. Gender Male 58 Female 42 Varimax rotation method has been used. It redistributes the Educational Back- Professional 15 variance so that the factor loading pattern and percentage of ground Graduation 45 variance of the factors are different. Eigen values are used to Post Graduation 40 select the number of factors. In Table 3 out of eleven factors five factors have shown Eigen value more than 1. Value greater than 1 can be extracted from the principle component to Electronic copy available at: https://ssrn.com/abstract=3724235 22 Journal of Commerce & Accounting Research Volume 8 Issue 3 July 2019 extract solution. Total variance explained by these five factors should be more than 50 and also only 23.672% information is 76.328 which is reasonably a good variance explained as it has been lost during the process of rotation. Table 3: Total Variance Explained Component Initial Eigenvalues Extraction Sums of Squared Rotation Sums of Squared Loadings Loadings Total % of Cumulative Total % of Cumulative Total % of Cumulative % Variance % Variance % Variance 1 3.564 36.972 36.972 3.564 36.972 36.972 3.236 35.410 35.410 2 1.929 16.186 52.158 1.929 16.186 52.158 1.835 16.736 51.146 3 1.774 10.446 62.604 1.774 10.446 62.604 1.659 10.902 61.048 4 1.584 8.544 70.148 1.584 8.544 70.148 1.659 8.544 70.950 5 1.370 6.525 76.672 1.370 6.525 76.672 1.549 7.379 76.328 6.989 5.974 81.046 7.975 5.956 86.403 8.948 4.751 90.154 9.911 4.337 94.491 10.879 3.188 97.679 11.805 3.835 100.000 Extraction Method: Principal Component 1 2 3 4 5 Analysis Price.662 Capital appreciation.633 From Table 4 rotated component matrix it can be seen that Liquidity.571 the first factor has 5 variables with a factor loading of more Minimum initial investment.528 than 0.5, where as the second and the third there are 4 and 3 Brand image.738 variables respectively with a factor loading is also more than 0.5. The fourth and fifth factor has 3 variables each with a Information source.735 factor loading of more than 0.5. Past performance.602 Transparency.569 A collection of total 19 variables have been clubbed into five factors on the basis of their inter-item correlation. Table 5 Switching option.744 shows all the identified factors and its underlying variables. Quick grievance mechanism.630 This also shows that within the factor all the variables are Quick service.612 homogeneous and all the factors are heterogeneous. Quality of service.762 Research.665 Table 4: Rotated Component Matrix Simplicity of the offer document.597 Management structure.761 1 2 3 4 5 Large fund.699 Tax benefits.758 Outsourcing High returns.694.621 Electronic copy available at: https://ssrn.com/abstract=3724235  Identification of Factors Influencing Investors’ Perception Towards Investment in Mutual Fund 23 Table 5: Factor Analysis Results Factor1:Fund Factor2: Creditability Factor3:Convenience Factor4:Success Factors Factor5:Fund Characteristics (35.410)* (16.736)* (10.902)* (8.544)* Family (7.379)* Tax Benefit Brand Image Switching Option Quality of service Management struc- High Returns Information Source- credit Quick grievance mecha- Research ture Price rating agency nism Simplicity of the offer Large fund Capital Appreciation Past Performance Quick Service document Outsourcing Liquidity Transparency Minimum Initial Investment Note: * Variance Explained FINDINGS CONCLUSION This research concludes that Indian mutual fund industry Findings of the study are: is in a nascent stage but the good news is that it has lot ∑∑ 73% of respondents recommended investing in mutual of opportunities to grow. The success depends upon high funds to their peer group as they consider it as a returns, professional competence of Fund managers. The MF profitable source of investment. should be easy to buy and sell through broker or directly in ∑∑ 40% of respondents have investment valuing less the market. Mutual Funds have come out as a vital fragment than Rs 1 lakh, which shows that investors with less of financial markets and hitherto have offered sustainable investing capacity opt for mutual funds. and stable returns to investors. The study reveals that the ∑∑ Major finding of this research is that perception of investors’ perception is depends on various demographic investors regarding non conventional investment factors like gender as the demographic composition reveals avenues have changed and that too in positive and that female segment is not fully tapped and also there is progressive direction. low target on higher income group people. Therefore, fund managers should gauge the opportunities in investments ∑∑ Major factors considered by investors while investing related to female segment and higher income group segment in mutual funds are the characteristics of fund, its to augment investment levels in mutual funds. creditability, convenience of the process, various success rates. Further, the findings of the research were on the factors ∑∑ First identified factor is fund characteristics which has influencing investor’s perception. It reveals that fund a variance explained of 35.410%. This factor includes characteristics, creditability, convenience, success factors, variables like tax benefits, high returns, price, capital and fund family are the factors which have a higher impact appreciation, liquidity and minimum initial investment. on perception of investors. These factors give them the required boosting in the investment process. Consequently, it ∑∑ Second identified factor is credibility which has a is essential for fund managers to improve on these features in variance explained of 16.736%. This factor includes their securities to draw more investors. The present study has variables like brand image, information source only 100 respondents for studying investing behavior. This preferred, past performance and transparency. research can be further extended by incorporating a larger ∑∑ Third identified factor is convenience which has a sample size and more attributes which may be considered variance explained of 10.902%. This factor includes relevant in the Indian mutual fund industry. The primary variables like switching option, quick grievance data collection for studying the attitude and perception of mechanism and quick service. investor’s towards mutual funds as an investment option ∑∑ Fourth identified factor is success factors which has is limited to Delhi-NCR, which can be further extended to a variance explained of 8.544%. This factor includes other parts of the country so that the investing attitude of variables like quality of service, research and simplicity more investors can be studied. of offer document. ∑∑ Fifth identified factor is fund family which has a REFERENCES variance explained of 7.379%. This factor includes variables like management structure, large fund and Agrawal, G., & Jain, M. (2013). Investor’s preference to- outsourcing. wards mutual funds in comparison to other investment avenues. Journal of Indian Research, 1(4), 115–131. 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