CHAPTER – VII
SUMMARY OF CONCLUSIONS
AND SUGGESTIONS
CHAPTER –VII
SUMMARY OF CONCLUSIONS AND SUGGESTIONS
The Indian mutual fund industry has come a long way since its inception in
1964. The period 2000-2010 is an important decade for the Indian Mutual Fund
Industry. While the Industry got opened up for private and international fund houses
in the 1990's, it is was during the last decade that the Industry actually saw the
emergence of the Mutual Funds, as an industry to reckon with in the financial services
space. Unfortunately the growth in mutual fund assets has not been paralleled by a
corresponding focus on mutual fund individual investor, and the process by which he
makes investment decisions. At the retail level, investors are a unique and
heterogeneous group. The mutual fund industry has seen a remarkable growth in its
various dimensions. In the light of the fast growth and increasing importance of the
mutual fund industry, understanding of investor behaviour is critical to policymakers
and asset managers to successfully meet the many challenges and opportunities. For
both academia and the Mutual Fund Industry this study provides useful knowledge.
The study first focuses on the growth of the mutual fund industry and the performance
of select equity oriented mutual fund schemes. More importantly it analyses the
investment behaviour and fund ownership characteristics of mutual fund investor.
Based on the information sources used and the selection criteria employed by the
investors, the study identifies different investor groups. The understanding of
individual investor behaviour holds practical importance for developing appropriate
marketing strategies within the mutual fund industry.
The research probes key questions in mutual funds
1. What is the pattern of growth and development of mutual funds in India?
2. How is the performance of equity mutual fund schemes in terms of returns
generated for investors?
3. What are the characteristics of the mutual fund investor?
4. Can we identify Investor groups on the basis of information sources used and
selection criteria employed while selecting a mutual fund scheme and is there a
significant difference among these groups with respect to demographics and fund
ownership characteristics?
5. What is the response to investor education programs?
Answers to these key questions will provide noteworthy contributions to
policy makers, the Asset Management Companies and will also add-on to the existing
knowledge on individual investors investing in mutual funds.
OBJECTIVES OF THE STUDY
In order to examine the issues raised above, the following objectives have been set:
1. to examine the background of mutual funds in India;
2. to map the perceptual difference among investors relating to investment
objectives;
3. to analyze the financial asset preferences and fund ownership characteristics
and determine the effect of demographic factors on the fund ownership
characteristics;
4. to identify the mutual fund distribution channel preferred by the investors;
5. to study investor groups on the basis of information sources used and
selection criteria employed, to determine the relationship between these
groups and the fund ownership characteristics and investor demographics;
6. to find out the impact of investor education programs on investor
responsibility levels, future intensions to invest in mutual funds and use of
unbiased information sources; and
7. to forward certain suggestions for the consideration of the policy-makers.
KEY FINDINGS
During the period 2000-2001 to 2010-2012 it was found that:
• Assets under Management grew at a CAGR of 24 percent. Inter sector analysis
reveals that AUM of private sector mutual funds registered a CAGR of 38
percent while public sector mutual funds registered a CAGR of 9 percent.
Inter product AUM analysis reveals that Income/ Debt products have grown at
a CAGR of 24 percent, Equity products at a CAGR of 32 percent while the
balanced product registered a negative growth rate of 1 percent. Though the
CAGR of income products is lesser than that of equity products, income
products contribute to a much larger share of industry AUM.
The gross resources mobilized registered a CAGR of 68 percent'. The inter
sector analysis reveals that while the gross resources mobilized by the private sector
mutual funds witnessed a CAGR of 67 percent, the public sector mutual funds
registered a CAGR of 72 percent but this has to be looked at from the point of the
market share captured. An analysis of the market share of the two sectors reveals
that the private sector dominates the gross resource mobilization with their market
share ranging between 77 percent and 91 percent, it being above 80 percent in 8 out
of the 10 years. The gross amount of funds mobilized by income oriented schemes
grew at a CAGR of 74 percent. Against this, the gross amount mobilized by equity
oriented schemes grew at a relatively low 15 percent CAGR. The resources mobilized
for balanced scheme showed a negative CAGR of 5.4 percent. The percentage share
of scheme wise resource mobilization reveals the total dominance of income/debt
oriented schemes in total resources mobilization. It was found that individual
investor participation is skewed towards equity oriented schemes and balanced
schemes while institutional investor participation is skewed toward income/ debt
oriented schemes.
• The number of Fund houses has increased only marginally from 35 A1\1Cs to
38 AMCs over the 10 year period which accounts for a CAGR of only 1
percent. It is observed that the number of fund houses in the private sector has
increased from 24 to 33 with a CAGR of 4 percent while the number of fund
houses in the public sector has decreased from 11 to 5 registering a negative
growth rate of 8 percent. The decrease in public sector AMCs has offset the
increase in private sector AMCs resulting in an overall increase of just 1
percent CAGR. The number of fund houses in the public sector has been
static at 5 since the year 2005-2006. The public sector mutual funds have
gradually ceded market share to the private sector. Public sector mutual funds
comprised 22 percent of Industry AUM as on March 2010 against 71 percent
in March 2001.
There is a high degree of concentration with the top 5 AMCs having a more
than 50 percent market share of the total assets under management, the market
share ranging between 50 and 58 percent during the financial years ending 2003 to
2010. The top 10 AMCs have a market share ranging between 73 percent and 80
percent during the above mentioned period. This is evidence of increasing
concentration. More than one-third of the AMCs have been having a market share of
less than 1 percent during the period 2003-2010. As on March 2010, 50 percent of
the AMCs have less than 1 percent market share. This suggests the possibility of a
consolidation of asset management companies within India's mutual ~und industry
in the future.
• The total number of schemes has risen from 393 in March 2001 to 882 in
March 2010 registering a Compounded Annual Growth Rate (CAGR) of 9
percent on the whole. CAGR of open-end schemes over the 10 year period is
12 percent while that of close-end schemes is just half of it at 6 percent. In
terms of the number of schemes the market share of open end schemes ranged
between 59 percent and 90 percent and those of close-end schemes between 10
and 38 percent
• Inter product scheme analysis reveals that Income/ Debt schemes have grown
at a CAGR of 12 percent with the number of income schemes increasing from
171 to 458 over the 10 year period 2001 to 2010. The Equity schemes have
grown from 190 in number to 355 registering a CAGR of 7 percent while the
Balanced Hybrid schemes has not registered any growth as revealed in a zero
percent CAGR. In terms of market share of schemes, Income schemes had a
market share ranging between 44 percent and 62 percent while for equity
schemes the range was between 33 percent and 48 percent and for balanced
schemes between 3 percent and 9 percent. As of March 2010 the market share
of income schemes, equity schemes and debt schemes was 52 percent, 40
percent and 4 percent respectively.
The significant contributors to the ADM are the Corporate/Institutions and.
individual investors. Corporate investors have been the major contributors to Industry
net assets except in the year 2001-2002 when they where superseded by individual
investors. Corporates and Institutions, who form only less than 2 percent of the total
number of investors in the mutual fund industry, contribute a sizable percentage of
around 50 percent of the total net assets of the mutual funds industry on an average.
Individual investor participation is higher in equity schemes and balanced schemes
and institutional investor participation is greater in income debt schemes.
• The ratio of ADM to India's GDP or what is commonly known as mutual fund
penetration has more than doubled, gradually increasing from 4.3 percent in
2000-2001 to 10.1 in 2009-2010. Despite this, it remains significantly lower
than the ratio in developed countries where the ADM accounts for 20 to 70
percent of GDP. During this period, GDS as a percentage of GDP rose from
23.7 percent to 34.82 percent. Moreover while the GDP grew at a CAGR of 12
percent GDS grew at a CAGR of 17 percent over the above period. These
statistics indicate that we are a nation with a high inclination to save. The net
inflows into mutual funds grew from Rs. 9128 crore in 2000-2001 to Rs.
83080 crore in 2009-2010 registering a CAGR of 28 percent but when one
observes the percentage share of net mutual fund collections as a percentage of
GDS one understands that mutual fund industry could not take advantage of
the high savings rate.
A majority of the household financial savings are in the form of
deposits with banks. The percentage of savings in the form of bank deposits
has increased from 32.5 percent in 2000-2001 to 54.9 percent in 2008-2009.
Compared to deposits with banks, small savings schemes and insurance funds,
stock markets in general and mutual funds in particular have fared poorly so
far as channelizing of household financial savings is concerned. The
percentage of savings in mutual funds has been miniscule throughout the
period of study except in the financial years ending 2006, 2007and 2008 when
it showed a comparatively higher percentage of 3.5, 5.3 and 7.9 respectively.
This again indicates lack of penetration in Indian market -all a pointer to
significant untapped opportunities ahead
• India is among the fastest growing markets for mutual funds. In the 10 year
period from 2000-2009 (calendar year) the Indian mutual fund industry grew
at a CAGR of 29 percent against the global average of 8 percent. Over this
period mutual fund industry in US and UK grew at 5 percent and 8 percent
respectively. However despite clocking high growth rates, the Indian mutual
fund industry continues to be a very small market comprising only 0.57
percent of the global AUM as on December 2009. However its share in the
world AUM has been growing constantly from 0.11 percent in 2000 to 0.57
percent in 2009.
The performance of the selected schemes in terms of returns has been
good.
• Out of the 56 equity diversified schemes, 19 equity linked savings scheme
(ELSS) and 20 balanced schemes examined on the basis of the annualized
returns of the 3 years preceding 28 February 2010, 14 percent of the equity
diversified schemes and 16 percent of the ELSS gave returns ranging between
percent and 5 percent. Returns ranging between 5.01 and 10 percent were
generated by 21 percent, 47 percent and 30 percent of equity diversified, ELSS
and balanced schemes respectively. Thirty eight percent of equity diversified
schemes, 21 percent of ELSS and 45 percent of the balanced schemes
produced returns of 10.01 to 15 percent. Above 15 percent returns were
generated by 23 percent of equity diversified, 11 percent of ELSS and 20
percent of the balanced schemes. Two schemes out of 56 equity schemes and
lout of 20 balanced schemes produced negative returns when the three years
annualized return prior to 28 February 2010 was considered.
• When the returns are observed over a slightly longer period of 5 years
proceeding 28 February 2010, the annualized returns look more impressive
.All the schemes generated returns greater than 5 percent. One of the equity
linked saving scheme gave an above 30 percent return. Fifty eight percent of
the equity diversified schemes, 69 percent of the equity linked saving schemes
and 60 percent of the balanced schemes produced returns ranging between
20.01 and 30 percent. Returns ranging between 10.01 and 20 percent were
generated by 67 percent, 32 percent and 70 percent of the equity diversified,
ELSS and balanced schemes respectively.
Annualized returns generated since the inception of the respective schemes
resents a positive picture with 95 percent of all the schemes producing returns
greater than 10 percent. It is observed that 21 percent of the equity diversified
schemes and 16 percent of the ELSS produced more than 30 percent annualized
return and 45 percent, 37 percent and 25 percent of the above schemes in the same
order produced returns ranging between 20.01 and I 30 percent.
• Of the 75 schemes (Equity diversified and ELSS) examined, 71 percent of the
schemes outperformed the BSE Sensex on a one year time line, while 65
percent and 59 percent of the schemes outperformed the BSE Sensex on a 3
year and 5 year time line immediately preceding 28, February 2010. The same
schemes when benchmarked against the S&P CNX Nifty, it was fourid that 83
percent of the schemes out performed its 1 year return, while 71 percent and
64 percent of the schemes were out performers when the performance was
mapped on a 3 year and 5 year time line indicated above. Perceptual difference
among investors relating to investment objectives.
Importance attached to investment objectives
Safety of principal was the most important investment objective while making
an investment closely followed by capital appreciation. This was followed by
liquidity, tax benefits and generation of regular income in the order of importance.
These results are almost similar to the results shown by Jambodekar (1996).
Perceptual difference among the investors with respect to the importance
attached to different investment objectives
• The ANOVA technique and the Duncan's Homogeneous subset comparison
analysis reveal that there exists a statistically significant difference among the
following variables at 5 percent level.
• There is significant difference with respect to the investment objective of
generating regular income (F=7.116, p=O.OOO) among the investors of
various age groups. There is no significant difference with respect to the other
investment objectives of safety, capital appreciation, associated tax benefits
and liquidity among the investors of various age groups. Investors in the age
group 61 years and above, give high importance to generation of regular
income while making an investment decision, when compared to investors in
the other age group
• Significant difference exists with respect to the investment objectives of
capital appreciation (F=2.590 p=0.036), generation of regular income
(F=9.872 p=O.OOO) and associated tax benefits (F=6.603 p=O.OOO) among
investors categorized on the basis of their occupation. It is found that there is
no significant difference as regards safety of investments and liquidity.
• Professional practitioners give high importance to capital appreciation;
investors who have retired from their respective occupations give high
importance to the objective of generating regular income; investors who come
under the salaried class give high importance to tax benefits associated with
investments.
• When investors are categorized on the basis of income, there is a significant
difference among them with respect to importance given to the objective of
generating regular income (F=4.~14 p=O.OOl) and the tax benefits associated
with an investment. (F=10.108 p=O.OOO). Investors earning monthly income
of less than Rs.20000 give very high importance to the objective of generating
regular income; investors earning monthly income of Rs. 30001 to 40000
attach great importance to the objective of tax benefits associated with the
investment.
Influence of investment objectives on the choice of appropriate mutual fund
schemes.
The General Linear Model (GLM) and The test of Between Subjects Effects
reveal that investors whose main objective of investment is capital appreciation have
rightly chosen equity schemes (F 8.402, P = 0.004) and those investors whose
investment objective is tax benefits have again chosen the right scheme -equity
schemes (F =26.274, P =0.000) and tax saving schemes (F =192.181, P =0.000).
Investors whose objective is to get regular income have not been correct in the choice
of their schemes. Financial asset preferences, fund ownership characteristics and
effect of demographic factors on fund ownership characteristics.
Financial asset preferences
Individual investors prefer investing in equity shares followed by insurance
policies, bank fixed deposits, deposits with non banking financial institutions,
infrastructure bonds for tax planning, mutual funds tax saving schemes, mutual funds,
NSC/other post office savings schemes and Public Provident Fund in that order.
Fund ownership characteristics
• A majority of the respondents (49.3%) have concentrated their investments in
1 to 2 mutual fund families, 25.9 percent in 3 to 4 mutual fund houses. Eight
point three percent in 5 to 6 mutual funds and only 16.5 percent of them hold
their investments in more than 5 mutual fund houses. Private sector mutual
funds are preferred over Public sector Bank sponsored
The ownership pattern of mutual fund schemes reveals that equity schemes are
more popular. 89.27 percent of the respondents own equity schemes. 63.2 percent of
them own tax saving schemes which are again equity linked. Income schemes and
balanced schemes are less popular with only 21.3 and 24.3 percent of the respondents
owning them in that order.
• A majority of the respondents (56.6 percent) have been investing in mutual
funds only during the last 2 to 5 years. Only 9.3 percent of them have been
investing for more than 10 years.
• For a majority of the respondents (67.8 percent) the average holding period of
their mutual fund investment is 2 to 5 years and for 27.6 percent of them it is
less than 2 years.
• The post purchase monitoring of the respondents' investments reveals that a
good majority of them can be categorized as active monitors. 34.2 percent of
them monitor their investments monthly, 25.1 percent quarterly and 17 percent
of them on a fortnightly basis. Only 8.3 percent of them monitor it rarely while
8.9 and 6.6 percent monitor it on half yearly and yearly basis
respectively.
Impact of demographic variables on fund ownership characteristics
Chi-square test was performed to determine whether a relationship exists
between the different demographic factors and each of the fund ownership
characteristics. The statistical analysis reveals that there exists a statistically
significant association among the following variables.
• Age has an association with the extent of diversification of the respondent's
investments in various Fund houses, preference for a mutual fund sector, length of
investment in mutual fund, and holding period.
• Gender is well associated with the extent of diversification and length of
investment in mutual fund.
• Occupation has association only with length of investment in mutual funds
and with no other fund ownership characteristics.
• Income of the respondents exhibits a relationship with the length of
investment in mutual funds, the holding period, and the extent to which the investors
investment in mutual funds are spread across different mutual fund families. It is also
noted that income is well associated with the extent of investments in -equity
schemes, income schemes, balanced schemes and tax saving schemes.
• There is no association between frequency of monitoring and any of the
demographic variables studied.
The results support the empirical evidence of Lewellen et al. (1977) who
reports that gender was the third most important determinant of investor style after
age and income.
Preferred distribution channel for purchase of mutual fund units and the T
influence of information sources used on the choice of distribution
channel.
Preferred distribution channel
Preferred distribution channel was identified with the help of Weighted Rank analysis.
• Independent Financial Advisors (IFAs) was ranked the most preferred
distribution channel for the purchase of mutual funds with a weighted total
which was more than double the next preferred source of purchase namely
Banks which had a minor edge over direct purchase from mutual fund office.
These are followed by corporate agents, online, investor service centers' and
post offices in that order.
• A good majority of the respondents purchase their mutual fund units from
IFAs. More than half of the total respondents (52.48%) have ranked them the
first choice, while Banks and Direct purchase from the mutual fund office is
the first choice of 16.67 percent and 16.5 percent of the respondents
respectively. Corporate agents are the first choice of 9.08 percent of the
respondents and direct purchase through the internet is patronized by only 4.3
percent of the respondents.
• Analysis clearly indicates that in India Mutual fund is not bought but sold.
Only 22 percent of the respondents choose the direct channel, while 88 percent
of them use the distribution channel.
Influence of information sources used on the choice of distribution channel.
The influence of information seeking behaviour brought out by factor analysis
on different methods of purchase is measured through multivariate General Linear
Model (GLM)which sharply estimates the influence through 4 different statistics -
Pillai's Trace, Wilks' Lambda, Hotelling's Trace and Roy's Largest Root. The test of
Between Subjects Effects is used to microscopically analyze the influence of investor
types classified on the basis of information sought on the method of purchase chosen.
• The 4 different statistics Pillai's Trace, Wilks' Lambda, Hotelling's Trace and
Roy's Largest Root on investors seeking unbiased information sources and
recommendation driven investors are statistically significant at 5 percent level
in explaining method of purchase chosen.
• The test of Between Subjects Effects reveals that investors who seek unbiased
information sources prefer to purchase their mutual fund schemes directly
from mutual fund office (F=17.180) and "on line" (F;::::6.202) and this is
statistically significant at 5 percent level. Similarly those investors who rely on
recommendations for their choice of mutual fund schemes use the channel of
direct purchase from the mutual fund office (F=5.794), make purchases
through "Independent Financial Advisors" (F= 7.151) and through "corporate
agents I distribution companies"(F=8.558) and this is statistically significant at
5 percent level.
Identification of investor groups on the basis of information sources used and
selection criteria employed. Determination of the relationship between these groups
and the fund ownership characteristics and investor demographics.
Importance attached to different information sources and selection criteria.
• Of the 12 information sources surveyed the most important source overall was
the recommendations in financial news papers, investment magazines,
business news channel followed by published performance rankings of
independent research agencies, recommendations of friends/family/business
associates, recommendations of Financial advisors/ Distribution Companies in
that order. Advertisements in the print media are also considered an important
source. An important point to be noted here is that advertisement in sources
other than the print media comes eleventh in importance. Seminar/Investor
club activities are considered as least important among the 12 variables
surveyed. The result of the survey is more or less consistent with the survey
results of the study conducted by Noel Capon (1996).
• Of the 24 selection criteria variables investigated past performance of the
fund/scheme was rated the most important selection criterion. Other important
selection criteria include -Funds reputation or· brand name, Investment
objective, Promptness in service. A deeper analysis of the results reveal that,
what prospective investors look into, is the performance figures per se, and not
the factors that contributed to the performance, like for example, the portfolio
characteristics, expense ratio etc. The results of the survey are again consistent
with results of Noel Capon (1996), Wilcox's experiment (2003), Rarnasamy
and Yeung (2003), ICI survey of fund investors (2006), CII-KPMG survey in
May 2009 across top cities in India among others.
Grouping investors on information sources and selection criteria variables
Three major factors emerged with respect to choice of information sources
unbiased information sources requiring independent analysis, advertisements and
recommendations. Even major factors emerged with respect to selection criteria
employed in the choice of mutual fund scheme. Investor rights and services, Fund
Management, Past Experience with the Fund Family, Investment objectives, Fund
Management Expenses, Cash commitments and "Past Performance and Brand
Equity".
• Cluster analysis permitted grouping of investors on the basis of both
information sources and selection criteria factors independently.
• Cluster analysis identified 3 types of investor behaviour in information search
based on sources of information used. They have been categorized as
"Believers", "Passives", and "thinkers". On the basis of selection criteria
employed again 3 clusters were formed. They have been categorized as
"Informed/Knowledge driven investors". "Performance only driven investors"
and "Performance and cash commitment driven investors"
Investor Grouping Combining Information Source and Selection
Criteria Clusters
The three information source (IS) groups and the three selection criteria (SC)
groups were formed from the same set of investors. The relationship between
memberships in each of the two cluster types was examined via a confusion matrix
(Cross Tabulation).
• The confusion matrix resulted in the formation of nine combined groupings.
The nine groups are: Informed Believers, Price insensitive Believers, Price " ,
sensitive Believers, Informed Passives, Price insensitive Passives, Price sensitive
Passives, Informed Thinkers, Price insensitive Thinkers, Price sensitive Thinkers
Viewed from the perspective of the selection criteria groups, as expected,
64%of the informed investors are concentrated in the information source group
categorized as "Thinkers" while only 13% are passive information seekers and 23%
are recommendation and advertisement driven (believers).A majority of the price
insensitive group (41%) are recommendation and advertisement driven investors. The
performance and cash commitment (price sensitive) investors are almost equally
spread between believers (39%) and thinkers (37% ).The largest investor grouping are
the informed thinkers (28% of the total number of respondents)
Association of Combined Groups to Demographic Variables
• Of the six demographic variables studied, only two variables marital status and
education are associated with the 9 composite groups at 5% level of
significance. An F test revealed that there is significant difference between
income levels and each of the nine investor group in & at 10% level of
significance.
The frequency distribution of the cross tabs reveals that informed investors be
they, informed believers, informed passives or informed thinkers are more likely to be
holding a post graduate degree. Price sensitive investors, be they, price sensitive
believers, price sensitive passives or price sensitive thinkers are more likely to be
graduates only. An interesting investor group is the price insensitive passives. They
are more likely to be professionals, most likely vis-a-vis other investor groupings to
be married and be in the highest income group Association of Combined Groups to
Fund Ownership Characteristics
Significant differences are found across the mne composite information
source/selection criteria group for each of the seven measures of mutual fund
ownership characteristics studied at 5 percent level of significance.
The nine groups differed with respect to the percentage of savings in mutual
funds, diversification among mutual fund houses, likelihood of future
investments in mutual funds, perceived riskiness of mutual fund investments
and importance attached to various investment objectives. With respect to
source of mutual fund purchase significant differences was found with respect
to use of online method, IF As and distribution companies Frequency
distribution of the cross tabs reveals that "Thinkers -informed, price
insensitive, and price sensitive are more focused. These investors invested
predominantly in 1-2 mutual fund houses. The passives and particularly the
price insensitive passives were the least focused and 50% of them had their
investments spread across more than 5 mutual fund families. The perceived
riskiness of equity mutual funds varied little across the 9 groups. Compared to
the other groups, the informed passives and the price sensitive passives
perceived investments in income schemes to be more risky. The likelihood of
future mutual fund investments was considerably greater for the informed
passives. The price sensitive passives, price sensitive believers and informed
passives are more likely to purchase their mutual funds from an IF A and the
price insensitive thinkers and the price sensitive thinkers are less likely to
purchase from IFAs. Online purchases are more likely to be done by 237 price
insensitive passives. Among the 9 groups it is the once insensitive / thinkers
who are oriented towards income schemes.
It can be concluded that the nine groups displayed distinctive mutual fund
purchase behaviour and to a somewhat lesser extent, had distinctive demographic
characteristics Impact of investor education on investor responsibility levels, use of
unbiased information sources and future intentions to invest in mutual funds.
Awareness and Response to Investor Education Programs
Awareness and response to investor education programs is poor but respondents who
have attended the programs have benefited from it.
• Only 48 percent of the respondents are aware of investor education programs.
• Thirty four percent of them have read the investor education materials posted
in the websites and 16 percent have attended the investor education programs.
• Seventy eight percent of those respondents who have attended the investor
awareness/investor education programs have indicated that the programs were
useful in enhancing investment knowledge and decision making.
Investor Responsibility
A majority of the investors exhibit high pre-investment and post-investment
behaviour as revealed by K means clustering method which brought out 2 segments
for each of the pre-investment and post investment behavioural statements.
• Moderate intensity pre investment responsible behaviour is exhibited by 35.5
percent of the respondents while 64.5 percent of them fall in the cluster of
high intensity pre investment responsible behaviour.
• High intensity post investment responsible behaviour is exhibited by 71
percent of the respondents while 29 percent reveal low post investment
responsible behaviour.
Impact of investor education on investor responsibility levels
The impact of each of the investor education variables -(1) reading of investor
education materials posted in the websites of SEBII AMFII respective mutual funds
and (2) attending investor awareness programs organized by SEBI on the different
segments of investors brought out by the cluster analysis, was studied with the help of
Chi-square using the application of cross tabulation.
• A higher percentage of response in the affirmative, with respect to the reading
of the investor education material and attending investor awareness programs
have been indicated by those respondents who fall into higher pre and post
investment responsible behaviour category.
• There is an association between attending investor education program and pre
investment responsible behaviour which is statistically significant at 5 percent
level.
• There is an association between reading investor education material and post
investment responsible behaviour and this is statistically significant at 5
percent level.
It can be inferred from the analysis that investor education enhances responsible
investment behaviour.
Impact of investor education on use of unbiased information sources
To find out the impact of investor education on the choice of unbiased
information source requiring independent analysis while choosing a mutual fund I
scheme, the independent t test has been used. ,.
• There is a positive relation between reading investor education material and
the importance attached to unbiased information source. (t=6.645, p=O.OOO). More
over the mean values of those investors who have read the investor education material
and who give importance to unbiased information source is higher (3.7010) than those
who have not read the investor education material (3.3608).
• There is a positive relationship between attending investor education programs
and the importance attached to unbiased information sources (t=4.504, p=O.OOO).
Again the mean values of those investors who have read the investor education
material and who give importance to unbiased information source is higher (3.7443)
than those who have not read the investor education material (3.4267).
Over all it can be concluded that investor education has a positive impact on
the importance attached to unbiased information sources requiring an independent
analysis.
Impact of investor education on the future intention to invest in mutual
funds.
Chi square test was performed on the summarized cross tabulation to
determine if a relationship exists between attending investor education programs and
the intention to invest in equity mutual funds.
Of the respondents who attended investor education programs 74.24 percent
expressed their intentions to invest in equity mutual funds in the next one year against
58.7 percent of them who did not attend the program.
chi-square test performed for the summarized cross tabulation reveals that
attending investor education program and intention to invest in equity mutual funds
are well associated at 5 percent level of significance (chi-square value
CONCLUSION
It can be concluded from the study that the mutual fund industry has showed
significant growth in all areas during the last decade. Yet the mutual fund penetration
is very low and skewed towards institutional investors. In spite of India offering an
exciting retail environment, with abundant growth opportunities, participation from
the segment of individual, investors continues to remain at low levels. When the first
mutual fund, Unit Trust of India was set up, the primary objective at that time was to
prod the small investor to saver the benefits of stock market investing in an affordable
manner and inculcate a habit of financial saving as opposed to physical saving. The
findings of the study suggest that this objective has not been achieved. The survey
revealed interesting observations about individual investors. The results of the survey
also suggest that that these investors can be grouped into "market segments" such that
there is homogeneity within groups and heterogeneity across groups. This
understanding of individual investor behaviour holds practical importance for
developing appropriate marketing strategies within the mutual fund industry which
can be leveraged to increase individual investor participation. For the industry to
develop further, as Benjamin Disraeli says, "The secret of success is constancy of
purpose".
SUGGESTIONS
In the light of the findings, the following suggestions are offered to increase
the mutual fund penetration among the individual investors.
Investor awareness
Investor awareness is the prerequisite for achieving transformational growth of
mutual funds. This requires planning, financing and executing initiatives aimed at
increasing financial literacy and enhancing investor education across the entire
country through collaborative efforts of SEBI, AMFI, AMCs, Confederation ofIndian
Industry (CIl), Ministry of Finance and the media.
The Investor Awareness Programs should be so designed and planned with a
long term perspective of at least 5 years to get the desired benefits. A "Mutual Fund
Education Fund" with contribution from all stake holders can be created for financing
investor awareness programs.
To create greater awareness of mutual funds among potential investors, SEBI/
AMFI must make efforts to have the concept of financial planning and mutual funds
in particular introduced at high school and college levels, sponsor research programs
and undertake publicity seminars/conferences at the regional level and in regional
languages. Knowledge of financial products is ingrained in school and college
curriculum in countries like UK, US and France.
AMCs with support of cn, AMFI and National Institute of Securities
Management (NISM) should roll out customer awareness campaigns and provide
infrastructure, content and speakers for running campaigns on a pan-India basis . .
Effective and meaningful mass media campaigns in multiple vernaculars using
television, hoardings, flyers and street plays can be used to reach the masses. The
infrastructure of The India Post' and Public Sector Banks both of which have a major
presence in semi urban and rural areas can be used to promote these programs in these
areas. Investor associations, self help groups and other affinity groups can be
identified to facilitate investor workshops in cities and towns across the country.
It There should be closer coordination between AMFI, mutual funds and the
media to promote investor education in India. Media especially Television plays a
definitive role in shaping the decision of investors. A media friendly environment
needs to be developed to promote the healthy exchange of views and news. Improved
and sustained communication with investors educates and creates a bond between
investors and AMCs which will be of benefit to the Industry. The medium of
communication should be simplified (region specific, language specific etc) to
accommodate even rural investors
Attractive Product Offering
The market success of any product, particularly a financial product, depends
largely on its acceptance by consumers, in this case investors. Asset management
companies need to introduce a new range of offerings in the market in order to attract
investments. AMCs through AMFI should conduct a nationwide survey of customer
needs across various investment objectives, frequency and quantum of contribution to
design product variants that have features that meet customer needs.
In order to make Mutual Funds more acceptable to the retail investor, the
mutual fund industry has to offer comprehensive life cycle financial planning. These
would include products catering to specific life cycle needs like buying a house,
funding college admission, marriage of children, retirement etc., India does not have
the kind of social security developed nations have. So, institutional structure for
savings needs to be provided. If one looks at the US market, in 1981 Ronald Regan
brought in 401(k) in a big way which led to the manifold growth of the mutual fund
industry. Pension fund products and insurance linked products are great vehicles to
foster the growth of the mutual fund industry considering the demographics of the
country.
Product innovations by AMCs should be driven around simple products that
have features of capital protection with returns that are higher than traditional
products. This can attract and retain risk adverse investors as also first time investors
of mutual funds.
Since the focus is on retail penetration beyond the metros and other Tier I
cities , products that appeal to low income groups , commodity related, crop related
and agriculture oriented fund products may be conceptualized and developed keeping
in mind the specific segment needs.
Investible surplus of investors should be allowed to be invested any time in
ongoing schemes with a flexible Systematic Investment Plan (SIP) option. SIPs can
be used to revolutionize the market just as the "sachets" did for the FMCG industry
and "pre-paid" did for the telecom industry. These small value products are endowed
with the potency to rip open the market potential.
Since products of mutual funds 90mpete with other investment avenues like
bank deposits, small savings, provident fund etc., where the returns are more or less
assured, assured return schemes should be permitted, subject to the conditions laid
down by SEBI. Hence in addition to the capital protection funds that have been
introduced assured return funds should be re introduced.
The identification of market segments that rely differentially on various
information sources and employ various selection criteria is consistent with hub and
spoke model mutual funds (master-feeder funds) which have been introduced in the
US and this can be introduced in India.
Distribution
AMCs should focus on giving training to distributors of mutual funds to
enhance their marketing and advisory capabilities so that they can win the trust and
confidence of customers. Advisory capabilities can be enhanced by having financial
planning modules in their course materials.
Today the contribution of direct channel to investments in MFs is low and it is
I more or less a 'distributor driven model'. IFAs are the hardest to be hit by the new
Regulation of banning entry load. Yet, ironically they are still the most preferred
investment routes amongst retail investors. IFAs comer a small part of the distribution
pie in big cities, but their function takes on tremendous importance when one looks at
Tier II and Tier III cities. IFAs can be paid fees instead of commissions and they can
be brought under the rolls of the AMCs or distribution houses by way of paying a
retainer and fixing minimum business to be executed with time targets. Employees of
Public sector banks, Regional Rural Banks, Cooperative Banks can be trained to
market mutual fund products to retail investors in semi urban and rural areas.
Provision of Conducive environment for serious AMes
The eligibility norms for setting up mutual fund houses should be looked into
to allow only serious players to enter/remain in the market. The minimum net worth
of AMCs can be increased from the existing Rs. 10 crores to Rs. 50 crores.
Regulations should be formulated to encourage and support more serious players in
the market, who help bring in more investor awareness and sale of mutual funds.
Leveraging Technology
Personal computers, mobiles, sophisticated hardware and software, as also
advances in information and communication technology are enablers that can be
harnessed effectively to increase retail mutual fund penetration in India and to also
increase the profitability of the industry. Fund houses need to assign an increased
budget for investment in technology, which will help them streamline their
distribution. networks and increase efficiencies in their business. Net asset value
updates on mobile phones, unit balance alerts via SMS messages, transacting
through ATM cards etc are some of the ways to promote mutual fund service and
attract customers.
Boost investor confidence in Mutual Funds.
More information on mutual fund performance through independent third
party research is required so that investors can make informed decisions about which
schemes to invest in. Currently, value research's portal on the web in India does a
good job of rating MF schemes but we need more such web portals which can
scientifically measure MF performance. In US there is a vibrant industry that thrives
on independent scientific performance measurement tools and it needs to be
developed in India as well, with a focus on developing the correct benchmarks for
comparing MF performance. For more quality performance measurement of MFs in
India, AMFI would need to train increasing number of professionals through tie-ups
with business schools to introduce such courses in the curriculum. AMFI can also
introduce certifications on scientific methods of performance measurement and can
develop a research division which will keep monitoring MF performance from time to
time and develop benchmarks. Fund managers should be made accountable to unit
holders. This can be done by organizing Annual General Meetings of unit holders
where performance of the fund would be reviewed.
Rating should be made mandatory for all fund houses and all schemes. It
should be made mandatory for all promotional materials of schemes to carry the
ratings of fund houses as well as those of the schemes. Adequate protection against
failures of schemes where retail participation is more can be provided by creating a
protection fund by instituting an insurance scheme akin to the insurance schemes of
bank deposits. This will increase investor confidence.
CONCLUSION
It can be concluded from the study that the mutual fund industry has showed
significant growth in all areas during the last decade. Yet the mutual fund penetration
is very low and skewed towards institutional investors. In spite of India offering an
exciting retail environment, with abundant growth opportunities, participation from
the segment of individual investors continues to remain at low levels. When the first
mutual fund, Unit Trust of India was set up, the primary objective at that time was to
prod the small investor to saver the benefits of stock market investing in an affordable
manner and inculcate a habit of financial saving as opposed to physical saving. The
findings of the study suggest that this objective has not been achieved. The survey
revealed interesting observations about individual investors. The results of the survey
also suggest that that these investors can be grouped into "market segments" such that
there is homogeneity within groups and heterogeneity across groups. This
understanding of individual investor behaviour holds practical importance for
developing appropriate marketing strategies within the mutual fund industry which
can be leveraged to increase individual investor participation. For the industry to
develop further, as Benjamin Disraeli says, "The secret of success is constancy of
purpose".