ASIAN JOURNAL OF MANAGEMENT RESEARCH Online Open Access publishing platform for Management Research

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1 Online Open Access publishing platform for Management Research Copyright 2010 All rights reserved Integrated Publishing association Research Article ISSN A study of factors affecting Investor s preferences between mutual fund and equity Vishal Geete 1, Anshu Thakur 1, Avinash Desai 2 1- Asst. Professor, Acropolis Faculty of Management and Research, Indore 2- Head, Dept of Mgmt Studies, Malwa Institute of Technology vishalgeete@acropolis.in ABSTRACT The purpose of the present paper is to identify the factors which affects the decision of the investors while investing in Equity or Mutual Fund. Primary data was used and collected through structured questionnaire. Data of 100 investors were collected and to identify the factors, statistical tool factor analysis has been applied. Major factors which come out be deciding between mutual fund and equity are, Money Growth, Security of the money invested and reliability of the company in which they are investing or through which they are investing. Keywords: Mutual fund, Equity, Factors. 1. Introduction Behavioral Finance has become important area in the present day of financial studies. Investor of the present time is more aware and sophisticated as for as the knowledge is concerned. He responds rationally to the new products and always try to gather as much as information is possible. In other words, investors decisions in the market fully reflect the effects of any information revealed. Equity or the Stock exchange of any country is the economic indicators of that economy. It reflects the direction of the economy and its efficiency. Stock invest is not only the area of interest of big investor but now a days it has also become the area of small investors too. Small investors invest more funds and expects handsome return from the market can say more than the safe banking return and it is obvious that if some is taking risk expect more return in comparison to safe investment. Now there is one more option to invest in stock exchange or equity even though you are not having handsome amount by the way of Mutual Fund. In Mutual Fund investment an investor gets the benefits of expert advise and consultancy in the form of Fund Manager of the mutual fund company. When a Person wants to invest his money into Financial Market the First thing comes to his minds that how much Return (Return on Investment) I will get and what is the Risk (profit/loss) associated with it. As we Know that the Phrase about Risk & Return that High Risk High Return Lu Zheng (1999), in his study, examined the fund selection ability of Mutual Fund investors. He found that the investors choose funds based on the fund-specific information. The decision regarding the fund is always based on short-term future performance. Sayama (1998) has revealed in his study that awareness among people was very 374

2 poor, agents were playing very important role in spreading the awareness about the mutual fund. Open-ended schemes were much preferred then; age and income are the two important determinants in the selection of fund/scheme; and brand image and return are their prime considerations. Raja (1997a and 1997b; and 1998), has surveyed a number of investors and found that there is a segmentation among investors based on their characteristics, investment size and the relationship between stage in life cycle and their investment pattern. Malhotra et al (1997) has concluded that the preoccupation of MF investors with using performance evaluation as the selection criterion is misguided because of the volatility of returns, and it is difficult to determine the reason, which may be due to superior management or just good luck. Sujit et al (1996) the study revealed that the salaried and self-employed were the major investors in MFs, primarily due to tax concessions. UTI and SBI were popular in that part during the time the survey was done and other funds had not proved to be a big performer then. Gupta (1993) conducted a study based on the survey of household investor. The study is conducted with the objective of to provide data on investor preferences on Mutual Funds and other financial assets. Goetzman (1993) and Grubber (1996), in their study, reveals the fact that active fund investors select the fund by using their selection ability only. Ippolito (1992) in his study concluded that the fund is selected by investors on the basis of its past performance. He also found that generally the money flows into the fund that gives positive return in comparison to those funds having negative return during a particular period of time. The findings of Ferris and Chance (1987) are consistent with the findings of Malhotra and Robert (1997). 2. Research objectives The present study is conducted with the following objectives: 3. Methodology 1. To know the investor preference between Mutual Fund and Equity. 2. To identify factors influencing the investor while investing Mutual Fund and Equity market. 3. To suggest strategies so that investors can optimize their return on investment. 4. To suggest optimistic approach to reduce risk on investment. For the purpose of the study primary as well as secondary data was collected. Primary data was collected through structured questionnaire and secondary data was collected from different sources like magazine, news papers etc. The sample size 100 individuals from Indore city. Survey research has been conducted and systematic collection of information is done directly from respondents by the way of open & close ended questionnaire also experts views and opinions is also taken into consideration from secondary sources. For the purpose of the analysis of data, apart from Pie chart and bar diagram, SPSS is used to apply factor analysis abstract the main factor out of several. 4. Results and discussions 375

3 Figure 1: Age of the Respondents On the basis of the responses and the demographic majority respondents (51%) were pertaining to the age bracket of yrs. Out of the sample of 100 respondents 84% were male and 16% female. Figure 2: Gender The data include 68% of below Rs.1,00,000 income level. The Middle level income (1,00,000 to 5,00,000) contribute 24%. The high level income above 5,00,000 people also part of this project contribute 8%. Figure 3: Income Level The study shows 48% people invested less then 50 thousand PA. 34% investors invest between 50 thousand to 1 lakh PA and 18%. Investors above Rs /-. 376

4 Figure 4: Investment Amount The preference data shows majority of people 38% people invest because they consider the all mentioned factors. 25% people feel it s a source of income. 12% none of above because they are follower take suggestions before investment. 12 % believe its risk free security based investment. 8% take it as a fixed deposit. 5% says it is easily convertible. 38% 12% 8% Fixed return 12% 5% Risk free security Easily Convertable Its best source of income All of the above None of the above Its best source of income, 25% Figure 5: Reason of Investment 64% people investing in equity for 3-5 years 28% people investing in equity for 5-7 years 8% people investing in equity for more than7 years 377

5 Figure 6: Investment Tenor in Equity 74% people investing in mutual fund for 3-5 years 28% people investing in mutual fund for 5-7 years 6% people investing in mutual fund for more than 7 years Figure 7: Investment Tenor in Mutual Fund 57% people feel that investment growth in equity10-20% of there amount. 30% people feel that investment growth in equity more then 20% of there amount. 12% people feel that investment growth in equity less then 10% of there amount. Figure 8: Return in Equity 378

6 64% people feel that investment growth in mutual fund less then10% of there amount. 28% people feel that investment growth in mutual fund 10-20% of there amount. 8% people feel that investment growth in mutual fund more then 20% of there amount. Factor analysis Figure 9: Return in Mutual Fund Mutual fund investment analysis Table 1: Reliability Statistics Cronbach's Alpha N of Items The reliability analysis test shows that the value of Cronbach s Alpha is.736 which shows that the scale used for the purpose of the study is reliable. Table 2: KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy..584 Bartlett's Test of Sphericity Approx. Chi-Square Df 36 Sig..000 KMO is more then.45 which is acceptable. Table 3: Rotated Component Matrix a Component Secure Tax Moneygrows Flexiblepattern Reliability Generatingfund Experthelp Coprofile

7 Trendfollower Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. a. Rotation converged in 5 iterations. For better understand the above mentioned table we can divide into three groups these are same as under. Table 4: Fund generation growth Serial No. Factors 1 Money Grows 2 Generating fund Table 5: Reliability Serial No. Factors 1 Reliability 2 Expertise help Table 6: Ease and security of investment Serial No. Factors 1 Secure 2 Tax 3 Flexible pattern 4 Company Profile 5 Trend Follower 4.1 Finding in mutual fund The study of this project highlights the several fact and finding factors which we can understand separately as under. 1. The factor fund generation growth says that money grows and generating fund both are considered by customer they prefer these two when they invest their amount. 2. The reliability also play a vital role in customer minds they take experts help and suggestion according to market situations or trend and they analyze self also that mutual fund is reliable or equity for investment. 3. There also several things which also impact customer preference like security of his or her harden money and easy process of investment. 4. There are some customer preference are in investment because of tax purpose. They want growth of money along with tax benefit. 5. In the present scenario where there are different companies participating or hungry for customer investment cause very high to understand which company he or she can invest. The customer preference always follow the brand or good companies. 6. The new customer and old customers prefer the trend of experts or those who regularly watch the market each and every activity and invest accordingly. 380

8 7. The flexibility is also a factor in between the investment when any customer wants to draw or invest his amount in any other financial instrument co it is also consider as customer preference at that time when he or she is going for investment. 4.2 Equity analysis Table 7: Reliability statistics Cronbach's Alpha N of Items The reliability analysis test shows that the value of Cronbach s Alpha is.686 which shows that the scale used for the purpose of the study is reliable. Table 8: KMO and Bartlett's test Kaiser-Meyer-Olkin Measure of Sampling Adequacy..628 Bartlett's Test of Sphericity Approx. Chi-Square Df 10 Sig..000 KMO is more then.628 which is acceptable. Table 9: Rotated Component Matrix a Component 1 2 Secure Taxbenefit Transparent Moneygrows Higherreturn Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. a. Rotation converged in 3 iterations. Table 10: Equity growth and return Serial No. Factors 1 High Growth 2 Money Return Table 11: Secured benefit Serial No. Factors 1 Secure 2 Tax benefit 3 Transparency 381

9 4.2.1 Facts and finding in equity In the equity investors preference the various factors impact on customer preference mentioned below. 1. The investors preference always lies in the money growth and handsome amount of return. The growth and return of investment work as bread and butter for every investors. After bear high risk in equity every investors follows the market and work accordingly 2. The customer prefer those companies where he or she feels safe. Security of amount invested is very critical or important for every investor. 3. Tax benefit impact less in equity based investments. 4. In the equity based investments every investors prefer daily based updates because of transparency of his or her investment. The transparency help in volatile market because ups and down. 5. Customers prefer the expert or brokers for transparency because they provide the suggestion and information of market 5. Conclusion The study of this project topic along with experience to meet different people and analyze there preference was not easy task. The people having different mindset at the time of investment. With the help of questionnaire and data test SPSS it could possible to reach with any conclusion. Hence we can conclude that the various factors and there impact on customer preference. 6. References 1. The major factor between mutual fund and equity which hits customer preference that is money growth and return because customer his or money high return based investment. 2. One thing we can also not ignore at the time of investment that is security factor of money because both in mutual fund and equity are directly or indirectly connect with market. 3. The reliability is also consider at the time of investment weather he or she is going to purchase mutual fund or shares of any company. 4. The equity based investors also impact with factor transparency they want every movement information of their investment when they invest any company. 5. In the mutual fund the investors seeks company profile because they are not to much aware they follow company market brand value. 6. The tax based customers are different because their primary basic need is tax and secondary return if possible weather in equity or mutual fund 1. Ferris S P and Chance D M., (1987), The effect of 12b-1 fees on mutual fund expense ratio: A note, The journal of finance, 42, pp

10 2. Goetzmen W.N., (1993), Cognitive dissonance and mutual fund investor, working paper, Columbia Business School. 3. Gruber M., (1996), Another Puzzle: The growth in actively managed mutual funds, Journal of finance, 52, pp Gupta L.C., (1993), Mutual funds and assets preference, Society for capital Market research and development, Delhi. 5. Ippolito R A., (1992), Consumer reaction to measures of poor quality: Evidence from the mutual fund industry, Journal of law and economics, 35, pp Lu Zheng., (1999), Is Money Smart? A study of mutual fund investors Fund selection ability, The journal of finance, LIV(3). 7. Malhotra D and McLeod R., (1997), An empirical analysis of mutual fund expenses, Journal of financial research, 20(2), pp Raja Rajan., (1998), Stages in life cycle and investment pattern, The indian journal of commerce, 51(O2 & 3), pp Raja Rajan., (1997a), Chennai investor is conservative, Business Line, 23 February. 10. Raja Rajan., (1997b), Investment size based segmentation of individual investors, Management researcher, pp Sujit Sikidar and Amrit Pal Singh., (1996), Financial services: Investment in equity and mutual funds A behavioral study, in B S Bhatia and G S Batra (Eds.), Management of financial services, Chapter 10, pp , Deep and Deep Publications, New Delhi. 12. Syama Sundar P V., (1998), Growth prospects of mutual funds and investor perception with special reference to kothari pioneer mutual fund, Project report, Sri Srinivas Vidya Parishad, Andhra University, Visakhapatnam. 383