CHAPTER – I
INTRODUCTION AND RESEARCH DESIGN
1.1 INTRODUCTION:
Indian financial system is one of the largest financial systems in
the world with a broad variety of banking, financial and capital market
institutions and instruments. Indian financial system analyses the
initiatives aimed at developing a healthy, efficient and market-oriented
system by deregulating interest rates, development of market
instruments for pricing of public debt and bank loans, upgrading of
India‟s regulatory and accounting standards to international norms,
adjustments in monetary and financial policies, exchange rate
management for an increasingly liberalized open economic and
financial environment.
The investor is a person who invests money in order to make a
profit. Investors who do not want to take the risk of capital market
volatility, prefer mutual fund as an investment avenue. In India, the
mutual fund industry has been in existence since 1963. Mutual fund
raises money by selling stakes of the fund to the public, much like any
other type of company that can sell stock itself to the public. It then
takes the money which receives from the sale of its stakes (along with
any money made from previous investments) and uses it to purchase
various investment vehicles, such as stocks, bonds and money market
instruments. In turn, the public had given money to the mutual fund
when purchasing stakes in its underlying schemes. Each unit of these
schemes reflects the share of an investor in the respective fund and its
appreciation, is judged by the Net Asset Value (NAV) of the scheme.
The NAV is directly linked to the bullish and bearish trends of the
markets as the pooled money is invested either in equity shares or in
debentures or treasury bills1.
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Today there are many investment options available to investors.
Some of them include bank deposits, bonds, stocks, mutual fund
investment and corporate debentures. Investors invest money in
banks, bonds and corporate debentures where the risk is low. On the
contrary, stocks of companies have high risk but the returns are also
proportionately high. The recent trends since last year clearly suggest
that the average investors have lost money in equities. People have
now started opting for portfolio managers who have the expertise in
stock markets. There are many institutions in India which provide
wealth management services. An average investor has found a safe
place with the mutual funds.
Mutual funds play a vital role in resource mobilization and its
efficient allocation to the productive sources of the economic system.
These funds have financial Intermediation, development of capital
markets and growth of the corporate sector throughout the world.
The process of liberalization, deregulation and restructuring of the
Indian economy has created the necessity for efficient allocation of
scarce financial resources. In this process of development, mutual
funds have emerged as strong financial intermediaries and are playing
an important role in bringing stability to the financial system and
efficiency to the resource allocation process.
The mutual fund industry is a fast growing sector of the Indian
financial markets. They have become a major vehicle for mobilization
of savings, especially from the small and household savers for
investment in the capital market. Mutual Funds entered the Indian
Capital Market in 1964 with a view to providing the retail investors,
the benefit of diversification of risk, assured returns and professional
management. Since then, they have grown phenomenally in terms of
number, the size of operation, investor base and scope. Being a part
of financial markets although mutual funds industry is responding
very fast by understanding the dynamics of investor‟s perceptions
towards rewards, still they are continuously following the race in their
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endeavor to differentiate their products responding to sudden changes
in the economy. Every type of investment, including mutual funds,
involves risk. Risk refers to the possibility that investors will lose
money (both principal and any earnings) or fail to make money on an
investment. A fund's investment objective and its holdings are
influential factors in determining how risky a fund is. Reading the
prospectus will help the investors to understand the risks associated
with that particular fund. Thus, it is time to understand and analyze
investors perceptions of such risks and expectations, and unveil some
extremely valuable information to support financial decision making of
mutual funds2.
A mutual fund pools the money of people with certain
investment goals. The money invested in various securities depending
on the objectives of the mutual fund scheme and the profits (or loss)
are shared among investors in proportion to their investment.
Investments in securities are spread across a wide cross-section of
industries and sectors. Diversification reduces the risk because all
stocks may not move in the same direction in the same proportion at
the same time. Mutual fund issues units to the investors in
accordance with quantum of money invested by them. Investors of
mutual funds are known as unit holders. The profits or losses are
shared by the investors in proportion to their investment. The mutual
funds normally come out with a number of schemes with different
investment objectives which are launched from time to time. A mutual
fund is required to be registered with Securities and Exchange Board
of India (SEBI) which regulates securities markets before it can collect
funds from the public3.
A mutual fund is a collective savings scheme. Mutual funds play
an important role in mobilizing the savings of small investors and
channelizing the same for productive ventures in the Indian economy.
A mutual fund in India can raise resources through the sale of units
to the public. It can be set up in the form of a trust under the Indian
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Trust Act. The mutual fund serves as a link between the investors and
the securities market by mobilizing savings from the investors and
investing them in the securities market to generate returns. Thus, a
mutual fund is akin to portfolio management services. Although, both
are conceptually same, they are different from each other. Portfolio
management services are offered to high net worth individuals; taking
into account of risk profile, their investment is managed separately. In
the case of mutual funds, savings of small investors are pooled under
a scheme and the returns are distributed in the same proportion in
which the investments are made by the investors/unit holders.
1.2 STATEMENT OF THE PROBLEM:
A mutual fund is deemed to be an institutional entity that
encompasses the commonly desired and schematically accumulated
financial goals of the community for investors. The money collected
from a plethora of source is invested by the fund manager in various
types of securities depending on their duly specified objectives. The
mutual fund in its rudimentary conceptualization is a collection of
stocks or bonds, where an investor holds a share, which represents a
part of the fund holding. A proportionate sharing of income earned
through such investors and capital appreciation witnessed by the
schemes is duly carried out. It must, however, be mentioned that this
proportional sharing by the unit holders is governed by the number of
units owned by them. A mutual fund is, therefore, the most suitable
investment option available for a common man as it provides an
opportunity to invest in a diversified, yet professionally managed the
portfolio. Mutual funds act as a gateway to enter into big companies
hitherto to an ordinary investor with his small investment4.
It is evident from the existing literature (Chapter II Review of
Literature) that mutual fund companies have offered a number of
schemes. The investors decision making, perception, investment
strategy, expectations etc are closely related to the behaviour of
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investors. Mutual fund market is highly influenced by the behaviour
and attitude of investors. In India, though the mutual fund industry
has been in existence since 1964, (with the establishment of UTI), no
major study has been done regarding the investors perceptions related
aspect with special reference to mutual funds in the study area. In
Karnataka the awareness and knowledge regarding mutual funds are
good. Hence, this study has made an attempt to examine the
“Investors Perceptions towards Mutual Funds in Hyderabad
Karnataka Area: A Study with reference to Selected Mutual
Funds” to fill this research gap.
It should be noted that the “expectations” of investors play a
vital role in the financial markets. They influence the price of the
securities, the volume traded and various other financial operations in
actual practice. These „expectations‟ of investors are influenced by
their “perception” and humans generally relate perception to action.
The beliefs and actions of many investors are influenced by the
dissonance effect and endowment effect5. A study on the investors
perception towards investment in mutual funds is an attempt to
evaluate the behavioural aspects of fund selection techniques of
individual investors and also to assess the conceptual awareness of
MFs during the period.
1.3 SIGNIFICANCE OF THE STUDY:
Many studies have been done previously on the mutual fund in
India. The present study, not only covered the perception but also it
covered the attitude of the mutual fund investors. This helps to know
in detail about mutual fund industry and its business growth and
future prospects. The present study would be much helpful to the
policy makers and administrators of the mutual fund companies to
draw appropriate policies to enhance the satisfaction of the mutual
fund investors and for the betterment of the mutual fund companies.
This study would also help the future researchers in carrying out their
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research in the field of mutual fund and investor attitude in some
other areas with multi-dimensional aspects. The present study helps
the people to save and invest their surplus money for various
productive purposes. It leads to capital accumulation for the nation
and better returns to the investors.
1.4 SCOPE OF THE STUDY:
The present study is an attempt that has been made to know
the investors perception towards mutual funds covering six districts of
Hyderabad Karnataka area namely Bidar, Kalaburagi (Gulbarga),
Yadgir, Raichur, Koppal and Bellary. It involves the understanding of
the basic concept of mutual funds, various schemes of mutual funds,
investment alternatives, factors influencing investment, investors
expectation regarding the mutual funds and investors preference of
different mutual funds schemes etc.
1.5 OBJECTIVES OF THE STUDY:
The following are the specific objectives set for the present
study.
1. To study the various aspects relating to mutual funds industry
in India.
2. To study the growth of mutual funds industry in India in terms
of resource mobilisation and asset under management.
3. To examine the investment pattern of mutual funds investors.
4. To study the satisfaction level of investors towards investment
in mutual funds.
5. To know the investors perception towards mutual funds.
6. To offer suggestions in the light findings of the study.
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1.6 HYPOTHESES OF THE STUDY:
Keeping in view of the objectives of the study the following
hypotheses have been formulated:
1. HO: There is no significant relationship between gender of the
respondents and their level of satisfaction towards investment
in mutual fund.
H1: There is a significant relationship between gender of the
respondents and their level of satisfaction towards investment
in mutual fund.
2. HO: There is no significant relationship between age of the
respondents and their level of satisfaction towards investment
in mutual fund.
H1: There is a significant relationship between age of the
respondents and their level of satisfaction towards investment
in mutual fund.
3. HO: There is no significant relationship between the marital
status of the respondents and their level of satisfaction towards
investment in mutual fund.
H1: There is a significant relationship between the marital
status of the respondents and their level of satisfaction towards
investment in mutual fund.
4. HO: There is no significant relationship between educational
qualification of the respondents and their level of satisfaction
towards investment in mutual fund.
H1: There is a significant relationship between educational
qualification of the respondents and their level of satisfaction
towards investment in mutual fund.
5. HO: There is no significant relationship between the
occupational status of the respondents and their level of
satisfaction towards investment in mutual fund.
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H1: There is a significant relationship between the occupational
status of the respondents and their level of satisfaction towards
investment in mutual fund.
1.7 PERIOD OF THE STUDY:
The necessary secondary data for analyzing the mutual funds
industry were collected from official records of Securities Exchange
Board of India (SEBI) and mutual funds companies for a period of past
ten financial years from 2004-05 to 2013-14. (i.e.1st April - 2004 to
31st March - 2014).
The primary data was collected from the respondents for six
months i.e. June 2013 to December 2014.
1.8 RESEARCH METHODOLOGY:
This is an empirical research based on the survey method. To
get a proper insight into the problems of this study, the researcher
interacted with the investors who invest in various mutual funds
schemes, having a specialized knowledge in the field of mutual funds.
1.8.1 SOURCES OF DATA:
The present study is conducted with the help of both primary
and secondary data.
1.8.1. I. Primary Data:
Primary data has been collected from the individual investors
through a sample survey. Samples of 300 individual investors have
been selected for this study. A structured questionnaire has been
used. The content of the questionnaire have been developed with the
help of reviews, experts in the relevant field of a mutual fund,
financial advisors, discussions with agents, mutual fund distributors,
officials of various asset management companies etc.
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1.8.1. II. Secondary Data:
The secondary data has been collected with the help of books,
magazines, articles, thesis, dissertations, newspapers, websites,
official publications by Government of India, Government of
Karnataka, reports from Securities Exchange Board of India (SEBI),
Bulletin, Handbook of statistics on Indian securities market,
Association of Mutual Funds in India (AMFI), RBI publications and
reports, mutual fund companies related websites etc.
1.8.2 PILOT STUDY:
In order to collect primary data in the study area from the
mutual fund investors a pre-test survey was conducted with a sample
of 30 investors. After pre-testing, necessary modifications were made
in the questionnaire. The data were collected from the mutual fund
investors in Hyderabad Karnataka area covering of six districts i.e.
Bidar, Kalaburagi(Gulbarga), Yadgir, Raichur, Koppal and Bellary.
1.8.3 SAMPLING DESIGN:
According to the Association of Mutual Funds in India (AMFI),
there are 44 Assets Management Companies (AMCs) are in existence
during the study period. Out of 44 Assets Management Companies, 35
Assets Management Companies are in private sector and 09 are in
public sector. During the pilot study, it was found that more number
of investors have preferred and invested their money in public sector
mutual fund companies namely UTI Mutual fund, SBI Mutual Fund
and LIC Nomura Mutual Fund. The researcher has collected names
and address of the unit holders (investors) of various districts of
Hyderabad Karnataka area from the respective mutual fund
headquarters and applied convenient sampling method for the
analysis purpose. However utmost care was taken to have a
representative sample and it was restricted to 300 respondents. One
hundred each from UTI mutual fund, SBI mutual fund and LIC
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Nomura mutual fund are selected from public sector mutual fund
companies for the present study purpose.
Table-1.1
Districts-Wise Sample Respondents
Mutual Fund Companies
LIC
Sl. UTI SBI
Districts Mutual Total
No
Mutual Mutual
Fund Fund Nomura
Fund
1. Bidar 12 15 16 43
Kalaburagi
2. 38 40 39 117
(Gulbarga)
3. Yadgir 04 02 03 09
4. Raichur 17 18 15 50
5. Bellary 21 19 22 62
6. Koppal 08 06 05 19
Total 100 100 100 300
Source: Primary Data
1.9 TOOLS AND TECHNIQUES USED FOR ANALYSIS:
The research data has been analyzed by using Statistical
Package for Social Sciences (SPSS) and with the help of various
statistical tools and techniques such as percentages, ratios, averages,
annual growth rate, Chi-square(x2) test and Garrett‟s ranking has
been computed. The Chi-square(x2) test has been used to test the
association between the investors socio-economic characteristics and
their opinions.
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1.10 LIMITATIONS OF THE STUDY:
The present study is not free from certain limitations. They are
as follows;
1. The study is limited to 300 respondents of the Hyderabad
Karnataka area only.
2. Due to cost and time constraints, the investigation is restricted to
Hyderabad Karnataka area only.
3. Due to the time lag between collection and publication of official
data, it became difficult to give very recent data.
4. The reluctance of some respondents to disclose their full
investment particulars has an adverse impact on the study.
1.11 CHAPTER SCHEME:
Keeping in view the objectives, the present study is organized
into seven chapters. The contents of these chapters are briefly
presented below:
Chapter-I: Introduction and Research Design:
This chapter presents the introductory part of research. It
covers the introduction, statement of the problem, significance of the
study, scope of the study, objectives of the study, hypotheses of the
study, period of the study and research methodology covering sources
of data collection, tools and techniques used for analysis, limitations
of the study.
Chapter-II: Review of Literature:
This chapter deals with the review of literature pertaining to the
domain area of the present study. Review of literature includes a
review of research articles, dissertations, books and Ph.D. thesis
pertaining to the mutual funds.
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Chapter-III: Mutual Funds Industry in India- An Overview
This chapter is divided into two parts. Part-A covers various
aspects relating to mutual funds industry in India such as
introduction, origin of mutual fund, concept of mutual fund,
definitions, characteristics, history of mutual fund, organisation of
mutual fund, sponsors of association of mutual funds in India,
benefits of mutual fund, limitations of mutual fund, classifications of
mutual fund companies in India, growth of mutual fund industry in
terms of resource mobilizations, assets under management,
investment pattern, unit holding pattern of mutual fund industry in
India. Part-B relates to detailed aspects concerned with the profile of
selected mutual fund companies viz., UTI mutual fund, SBI mutual
fund and LIC Nomura mutual fund.
Chapter-IV: Profile of the Hyderabad Karnataka Area:
This chapter deals with the profile of the Hyderabad Karnataka
area. The study is confined to Hyderabad Karnataka area containing
introduction, general profile, historical background of the Hyderabad
Karnataka districts, location and boundaries, districts of Hyderabad
Karnataka region, physiographic, demographic features, agriculture,
industrial development, educational development, banking
development, human development index, infrastructure facilities, per
capita income, transportation etc.
Chapter-V: Investment Pattern of Mutual Funds Investors:
This chapter focuses on the individual investment pattern of
mutual funds and cross tabulation has been made on the basis of
various socio-economic factors of the investors.
Chapter-VI: Investors Perceptions Towards Mutual Funds:
The six chapter is drafted on the basis of field survey to know
the perception of the respondents towards mutual funds. Tables have
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been drawn wherever possible and analysis of data with the help of
statistical tools has been carried out.
Chapter-VII: Findings, Suggestions and Conclusion:
In this chapter, the analysis of survey results is presented in the
form of meaningful findings and suggestions. The conclusion emerged
from the study and the scope for further research has also been
presented in this chapter.
REFERENCES:
1. Cecily.S and Rangarajan.R (2012),“Investors Preference Towards
Mutual Funds in Chennai”, Southern Economist, Vol.50, No.19,
February 1, p.9.
2. Thulasi Krishan, Amarnath and Raghunatha (2011),“Investors
Perceptions of Mutual Fund Risks an Empirical Study”,
Changing Perspective Management, Vol.8, pp.170-113.
3. Binod Kumar Singh (2012),“A study on investors attitude
towards mutual funds as an investment option”, International
Journal of Research in Management, Issue2, Vol. 2 March, p.62.
4. Gordon and Natarajan (2013) “Financial Markets and Services”
Himalaya Publishing House, Mumbai, pp.338-374.
5. Rajeswari.T.R., and Ramamoorthy V.E.(2001),“An Empirical
Study on Factors Influencing the Mutual Fund/Scheme
Selection by the retail Investors”. Retrieved from:
http://www.utiicm.com.
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