Chapter -1

INTRODUCTION
 Chapter 1

INTRODUCTION
1.1 Concept
A strong financial system is the root cause of economic growth and development.
The financial market is that part of the financial system which trades savings of
individuals and firms for the capital formation of the economy. The financial market must
have such incentives to attract investments from fund suppliers. The larger the flow of
fund and its allocation efficiency, the better the economic output and welfare. A
significant boom has been witnessed in the Indian financial system after 1991 economic
policy. With the liberalization, globalization, and privatization, the demand for money in
industrial sector increased manifold. The various stratification, rapid developments, and
productive reforms have created a high time opportunity for the investors to get a lucrative
return. Mutual fund industry acts as a bridge between the demand and supply of funds in
the financial market.

The Indian mutual fund industry has gone a long way since the inception of UTI in
1963. A mutual fund is an investment vehicle which is professionally managed and run by
fund houses, called Asset Management Company (AMC). The AMC collects the savings
of a group of people to invest in stocks, bonds and other securities with the prime
objective of maximum yield and capital appreciation along with safety and liquidity of
funds. Collection of savings from small investors is the unique feature of the mutual fund
concept. The investors get units of the mutual fund according to the amount of investment.
The AMCs are responsible for managing the investment for various schemes operated by
the mutual fund. Unitholders share the profit and losses in the proportion of their
investment. A mutual fund is required to be registered with the Securities and Exchange
Board of India (SEBI) before collecting funds from the public. After the SEBI Act passed
in 1992, SEBI Mutual Fund regulations came into existence in 1996 which infused mutual
fund companies to grow exponentially. As the industry expanded, The Association of
Mutual Funds in India (AMFI) was established in 1995 as a non -profit organization with
the prior objective of promoting healthy and fair market practices in mutual fund sector. A
mutual fund is found to be an ideal investment vehicle in present sophisticated and modern
financial scenario. A general individual is unlikely to have the knowledge, skills,
Chapter-1 Introduction
inclination and time to keep track of events, understand their implication and act speedily.
A mutual fund is an answer to the situations in regards to low-risk investment.

The mutual fund, like any other investment, involves financial risk and cannot be
eliminated altogether. Financial risk is intrinsic to financial investment/market. The
professional feature of diversified investment vehicle cannot exclude the risk entirely, due
to the presence of risk intrinsic itself in the financial market. Whether it is debt market or
equity market, money market or capital market, mutual fund investment is subject to
market risk. Risk implies to the possibility of investors to lose their money, both principal
and earnings, or non- compliance of expected return from the investment. Though
regulations ensure disciplined investments and ceilings on expenses of investment charged
to unitholders, it assumes investment risk. Unlike bank deposits, mutual funds are not
insured under Deposit Insurance and Credit Guarantee Corporation Act, 1961. In general
sense, mutual fund purely follows the universal principle of risk return. The higher the
investment risk, the higher is the potential return. To reduce the risk, fund managers
compactly provide diversification benefits. However, by effective diversification, the
unsystematic risk can be controlled. Unsystematic risk emerges out of controlled and
known variables of industry or company security specific. On the contrary, systematic risk
is the external and uncontrollable variables that affect the entire market and economy
leading to fluctuation in prices of all the securities. The investment objective and its
holding pattern of fund determine the extent of risk involved in the fund. Thus
understanding market risks is essential for the investors. Risks can be reduced by reading
prospectus, close observation over the market trend, and having adequate financial
information.

1.2 Problem Statement

India has been developing over the years to be an emerging worldwide attractive
financial market from investment dimension. Along with, Indian mutual industry is
making a mark on the global stage. ‘The industry has shown outstanding growth of 113%
in assets since 2013 driving by strong inflows (62%) and market performance (50%).
(Financial Express Bureau, Dec. 2013). At present, there are 44 active AUMs in Indian
mutual fund sector with having total schemes of more than 2599 from all varieties of the
fund like small-cap, mid-cap, large-cap, debt, equity, hybrid, etc. So many baskets to put

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eggs create confusion in the mind of general investors regarding the selection of fund
house and collection of schemes. Also, despite the presence of so many AMCs, 80% of the
inflows are in top 10 asset management companies in India. Thus, the correct decision
making regarding selection becomes the chief and core problem for the investors.

‘The number of new mutual fund folios or investor accounts has risen to 60000 per
day, which is about thrice the monthly average of the past three years' (Economic Times
Bureau, Oct. 2017). With the inclusion of so many investors, it is imperative for the
industry to judge investor's behavior and to think towards the mutual fund. The growth
and success of the sector totally depend on the satisfaction and perception of the investors.

1.3. Need for the Study

The due address to the complications in mutual fund industry has shown significant
growth with its expansion. The study was conducted for the comparative analysis of
selected mutual fund from the private sector and public sector. This study will help the
common investors to understand the operation and performance of those fund houses
which will guide them in their selection process. The paper includes a study of investor's
perception and behavior towards mutual fund investment and will help the fund houses to
know about their investors' feedback and opinion. Further, it will help them to operate
with required adjustments and modifications for more investor satisfaction.

1.4 Scope of the Study

The present research tries to study the investors' perception of the selected mutual
fund with the coverage of Khordha, Puri, and Cuttack district of Odisha. The economy of
Odisha is one of the fastest growing state economies in India with having gross state
domestic product (GSDP) of 7.94% in 2016-17, overshooting the average national rate of
7.1%. (Business Standard, Feb 2017). But drastically, the state is fourth from the bottom in
per capita income (PCI) in all India rankings. (Economic Survey Report, 2014-15). Thus, it
has become an issue to study the role of a mutual fund sector and its investor's perception
towards state financial system.

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1.5 Research Objective

The objectives of the research are broadly as stated below. It is aimed at to study:
1. The investors’ perception on selected mutual funds.
2. The effect of investors’ demographic factors on investment behavior.
3. The investors’ preference towards various alternatives for investment.
4. The attitude of investors’ towards various benefits offered by mutual fund sector.
5. The satisfaction level of investors in different demographic characters.

1.6 Hypothesis of the Study

Based on research objectives, the following hypotheses have been framed:

1. H0: There is no significant relationship between age of respondents and their

investment amount.
2. H0: There is no significant relationship between gender of respondents and their
investment amount.
3. H0: There is no significant relationship between income level of respondents and
their investment amount.
4. H0: There is no significant relationship between age of respondents and their
investment duration.
5. H0: There is no significant relationship between gender of respondents and their
investment duration.
6. H0: There is no significant relationship between income level of respondents and
their investment duration.
7. H0: There is no significant relationship between age of respondents and their
investment purpose.
8. H0: There is no significant relationship between gender of respondents and their
investment purpose.
9. H0: There is no significant relationship between income level of respondents and
their investment purpose.
10. H0: There is no significant relationship between age of respondents and return
expectation of their investment.

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11. H0: There is no significant relationship between gender of respondents and return
expectation of their investment.
12. H0: There is no significant relationship between income level of respondents and
return expectation of their investment.
13. H01 = There is no significant difference in satisfaction level of investors in different
age group.
H02 = There is no significant difference in satisfaction level of investors in different
investment purposes.
14. H01 = There is no significant difference between satisfaction level of investors in
different gender group.

H02 = There is no significant difference between satisfaction level of investors in

different Investment purposes.

15. H01 = There is no significant difference in satisfaction level of investors in different

income group investors.

H02 = There is no significant difference in satisfaction level of investors in different

investment purposes.

16. H01 = There is no significant difference in satisfaction level of investors in different

age group investors.

H02 = There is no significant difference in satisfaction level of investors in different

return expectation level.

17. H01 = There is no significant difference between satisfaction level of male and
female.

H02 = There is no significant difference between satisfaction level in different return

expectation level.

18. H01 = There is no significant difference in satisfaction level of different income

level investors.
H02 = There is no significant difference in satisfaction level in different return
expectation level.

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1.7 Study Period

The research covered the perception of the investors invested within 1st April 2007
to 31st March 2017 on different mutual funds for the comparative analysis. The source of
secondary data is obtained from the official records of various mutual fund houses for
selecting the respondents.

1.8 Limitation of Study

The study has been conducted on limited areas of Khordha, Puri, and Cuttack
districts of Odisha. The study is surrounded by only three demographic characteristics such
as age, gender and income level of investors. For comparative analysis, the researcher has
taken only two fund houses from both public sector and private sector asset management
companies. Many schemes are available by fund houses for the convenience of investors.
But the study is limited with the comparison of debt funds, balanced funds, and equity
funds.

1.9 Research Methodology

Research methodology is the way to systematically and scientifically solve a research

problem. The researcher investigates and examines the hypothesis, describes the result,
predicts the research phenomena and presents the findings for future research in support of
the research methodologies.

Both secondary and primary data were collected for testing of the hypothesis. For
secondary information on investors, the official records from the Mutual fund
Agencies/Agents were obtained and verified. A purposive stratified random sampling
method was adopted to select the investors/respondents invested in mutual funds between
the periods April 2007 to March 2017.

The primary information was collected, from 1st October 2016 to 31st March 2017,
from the investors by using a systematic questionnaire. Total 360 investors were selected
from two public and two private sector asset management companies/ fund houses.

The data were computed for interpretation and analysis. Statistical methods such as
Frequency table, Cumulative percentage, Chi-square test, Garrett ranking table, Likert

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Chapter-1 Introduction
ranking table, Two way ANOVA table, Standard deviation, Jensen ratio, Sharpe ratio,
Treynor ratio, Fama measures were used for comparative analysis.

1.9.1 Type of Research

The researcher has conducted analytical research for comparative analytics of mutual
funds and empirical research for investors' perception.

1.9.2 Sources of Data

Secondary data has been collected by official websites of AMFI, SEBI, and BSE.
Primary data has been collected from the respondents by interacting with them and by
providing questionnaires.

1.9.3 Sample Size

The research has the sample size of 360 respondents of the study area having an
investment in selected mutual fund companies.

1.9.4 Research Design

A. Three basic characteristics have been used to find the effect of demographic and
socio-economic characteristics on investment pattern and satisfaction level viz.

• Age
• Gender
• Income
B. Investment pattern has been categorized into:
• Amount of investment
• Duration of investment
• Purpose of investment
• Return expected on the investment
C. Investors’ preference has been analyzed on three areas:
• Various investment avenues available
• Various mutual fund schemes available
• Various benefits provided by mutual fund

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D. The difference in investors satisfaction level of different demography with respect
to:
• Purpose of investment
• Return expectation of investment
E. Comparison of fund return made with a market return to analyze the fund’s
performance. Four fund houses have been selected for study purpose (two private
and two public). From the private sector, ICICI and FRANKLIN TEMPLETON
and from the public sector, SBI and LIC have been selected for study purpose. Debt
and equity schemes have been judged for risk-return analysis. BSE Sensex has been
taken as benchmark index and SBI fixed deposit average interest rates of the study
period have been taken as a risk-free return.

1.9.5 Analytical Tools and Techniques

A. The demographic profile of respondents

• Frequency table
• Cumulative percentage
B. Investment pattern
• Chi-square test
C. Investment preference
• Garrett ranking table
• Likert ranking table
D. Investment Satisfaction
• Two way ANOVA table
E. Comparative analysis of selected mutual funds
• Standard deviation
• Jensen ratio
• Sharpe ratio
• Treynor ratio
• Fama measures

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Chapter-1 Introduction

1.10 Chapter Theme

CHAPTER 1: Introduction

The first chapter presents the introduction of the research. It includes the research
objectives, research problem, research hypothesis, research significance, research
limitations, research area, research time frame and various statistical and non-statistical
tools used in research.

CHAPTER 2: Review of Literature

It is the study of past findings of investor’s perception on mutual fund. For the review of
the literature, the researcher has focused on areas:
 Investors’ general perception regarding mutual fund investment.
 Comparative analysis of selected mutual fund in Indian scenario.
 Market timing ability of fund managers.
 Recent trend in Indian mutual fund.

CHAPTER 3: Conceptual framework of mutual fund

This chapter throws light on the fundamentals of the mutual fund. It covers the area like
mutual fund operation, structure, types of mutual fund schemes, regulatory authorities and
various legal formalities for mutual fund investment.

CHAPTER 4: Comparative analysis of selected mutual funds

This chapter drafts a comparison between debt and equity funds of two four asset
management companies. From the private sector, ICICI, and FRANKLIN TEMPLETON
and from the public sector, SBI and LIC have been selected for study purpose. The
comparison is based on the various information of the fund performance collected from
secondary sources.

CHAPTER 5: Data analysis

This chapter analyses all the data collected from primary sources for the study of investors'
perception and behavior. Investment pattern, investment preference and investment
satisfaction are taken as the basis for study purpose. Age, gender and income level of

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investors have been considered as the major demographic constraints for mutual fund
investment decision making.

CHAPTER 6: Findings and Conclusions

This chapter is a conclusion of different tests conducted in the study of the various
hypotheses. Along with it, the researcher suggests some areas which can be considered
helpful for the fund houses.

Bibliography

This portion of the research mentions the list of the referred books, journals, and articles
used as study material.

Annexure

This chapter includes other miscellaneous information related to the research study. It
includes the statistical tables used, calculative tables plotted, list of figures, and the
questionnaire format.

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