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".