Factors Affecting Investors Preference for Mutual Funds in India and Performance Evaluation of Mutual Funds in India

Under the Guidance of Dr. Chetan Srivastava Assistant Professor, School Of Management Studies University Of Hyderabad

Presented By Ankit Singh (08MBMA12)

Problem Statement
2

 The expectations of investors influence the price of the

securities, the volume traded and various other financial operations in actual practice. These expectations of investors are influenced by their perception and humans generally relate perception to action.  Individuals act rationally and consider all available information in the decision making process.  The fund managers manage the portfolio of the mutual funds by undertaking the risk so they are expected to perform better than the market.
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Objectives of the Study

3

 To identify preferred saving avenue among investors  To categorize investors towards investment products  To judge the importance of factors influencing the investors to invest in mutual funds such as fund qualities, AMC qualities, and Investor services, mode of communication, information sources etc.  To evaluate and compare the performance of selected funds using traditional performance measures.  To assess the performance and selectivity of fund managers.
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Hypothesis of the Study

4

 The investors consider all the qualities of the fund as

important in the selection of the fund/scheme.  The investors consider all the qualities of AMC important in the selection of the scheme.  The investors consider all the investor services important in the selection of the scheme.  The portfolios are well diversified and fund managers are able to generate returns more than that of the market because of their knowledge and stock selection skills.

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Limitations of the Study

5

 Size of Sample  Period of Study  Geographical Limitation  Knowledge of Investors  Selection of Funds  NAV of the Funds  Entry and Exit Load  Treatment of Dividend

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Literature Review
6

 Ippolito (1992) and Bogle (1992)  Goetzman (1997)  Lu Zheng (1998)  Madhusudhan V. Jambodekar (1996)  Shanmugham (2000)  Sujit Sikidar and Amrit Pal Singh (1996)  . Syama Sunder (1998)
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Literature Review- contd..

7

 Anjan Chakarabarti and Harsh Rungta (2000)  SEBI NCAER Survey (2000)  Sharad Panwar and Dr. R. Madhumathi  S.Narayan Rao  Jayadev (1996)  Amitab Gupta (2001)

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Literature Review- contd..

8

 Measures of performance-

(1) (2) (3) (4) (5) (6) (7)

(Beta) Co-efficient (A Measure of Systematic Risk) Sharpes Measure of Performance Treynors Measure of Performance Jensens Measure of Performance Famas Measure of Performance Standard Deviation (A Measure of Total Risk) Co-efficient of Determination: Measure of Diversification
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History of The Indian Mutual Funds Industry

9

 First Phase (1964-87) Unit Trust of India  Second Phase (1987-93) Entry of Public Sector -

SBI, Canara Bank, PNB, Indian Bank, Bank of India, BOB, LIC and GIC.  Third Phase (1993-03) Entry of Private Sector Mutual Funds Regulations.  Fourth Phase (since February 2003) Bifurcation of UTI  Current Status

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Research Methodology
10

 Designing of Questionnaire

Scheme Qualities Funds/Schemes performance record  Funds/Schemes brand name  Schemes portfolio constituents  Reputation of scheme(s), portfolio manager(s)  Investment/Withdrawal facilities Contd..
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Research Methodology (contd..)

11

Scheme Qualities- (contd..)  Rating by a rating agency  Innovativeness of the Scheme  Products with tax benefits  Entry and Exit load  Safety of capital

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Research Methodology (contd..)

12

 Designing of Questionnaire- (contd..)



AMC Qualities Private Sector / Public Sector ownership  Reputation of the company  Range of schemes with different qualities  Efficiency of research wing  Companys expertise in managing money

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Research Methodology (contd..)

13

 Designing of Questionnaire- (contd..)



Investor services Disclosure of investment objectives, method and Periodicity of valuation in advertisement  Disclosure of method periodicity of schemes sales and repurchase in offer document  Announcement of NAV on every trading day  Disclosure of deviation of the investments from the expected pattern  Disclosure of investments at regular intervals  Mutual Fund Investors grievance redressal machinery
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Research Methodology (contd..)

14

 Duration of Study- The survey is conducted for a period of

two months starting from May 10, 2009 to July 10, 2009. The performance of the Mutual Funds is calculated for a period of three years starting from July 2006 to June 2009.  Sample Selection- The survey is conducted on 120 investors which includes 29 Government Employees, 26 Private Employees, 21 Professionals, 27 Businessmen, and 13 Retired Government Employees so as to get effective results. Out of total 120 respondents, 55 investors invested through Reliance Money.

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Research Methodology (contd..)

15

 For the second part of the study the sample includes 10

similar equity schemes of Top 10 fund houses selected on the basis of their Assets under Management (AUM) as on 30th June 2009. This includes 9 open ended schemes and 1 closed ended scheme. More than 75% of corpus of each scheme is invested in equity stocks.  Data Collection and Analysis- The report is based on primary as well as secondary data. The Analysis of Variance is used for the analysis.

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Responses during the Survey

16

 Type of Investments- Out of 200 Investors 75 preferred

Fixed Deposits, 60 Mutual Funds, 28 Life Insurance, 22 Stock Market, 6 Postal Savings and 9 Others.  Objective of Investment- Out of 60 investors 21, preferred Liquidity / Safety, 16 Growth, 12 Returns and 11 Tax Benefits.  Type of Funds- Out of 60 investors 41 preferred OpenEnded Funds, 13 Close-Ended Funds and 6 Interval-Funds.

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Responses during the Survey

17

 Scheme preference of Investors- Out of 60 investors 19

preferred Equity (Growth) schemes, 8 Equity (Dividend), 17 Debt, 10 Balanced and 6 Sector Specific schemes.  Influence of Environmental Factors- Out of 60 investors 21 give importance to Self Evaluation, 17 to Advisors Suggestion, 13 to Commercials, and 9 to Friends/Family in the selection of the schemes.  Mode of Communication for receiving Updates- Out of 60 investors 21 preferred personal Communication for receiving updates,16 Internet / e-mail, 14 Telephone and 9 of them were indifferent.
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Analysis of Findings18

 Relation between Income and SavingsIncome / Savings Below 50,000 50,000-100,000 100,000-150,000 Above 150,000

Below 2,00,000 2,00,000-3,00,000 3,00,000-4,00,000 Above 4,00,000

47 19 1 0

4 37 10 1

0 21 17 5

0 0 6 32

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Analysis of Findings- (contd..)

19

 Relation between Savings and InvestmentsInvestments / Below 50,000 50,000-100,000 100,000-150,000 Above 150,000 Savings Fixed Deposits Mutual Funds Life Insurance Stock Market Postal Savings Others 42 13 5 3 3 1 16 16 11 6 1 2 9 15 7 7 2 3 8 16 5 6 0 3

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Analysis of Findings- (contd..)

20

 Relation between Age and Time HorizonAge / Time Below 30 30-40 40-50 50 and above Below 1 year 7 15 8 6 1-3 years 10 16 19 17 3-5 years 13 25 12 9 Above 5 years 12 14 15 2

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Analysis of Findings- (contd..)

21

 Relation between Age and Time Horizon-

Age / Fixed Investment Deposits 9 Below 30 25 30-40 22 40-50 19 50 and above

Mutual Funds Life Insurance Stock Market Postal Others Savings 26 2 5 0 0 20 12 11 0 2 12 11 4 2 3 2 3 2 4 4

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Analysis of Findings- (contd..)

22

 Relation between Age and SchemeEquity (Growth) 11 6 2 0 Equity (Dividend) 2 3 3 0 Sector Specific 3 2 1 0

Age / Scheme Below 30 30-40 40-50 50 and above

Debt 7 5 4 1

Balanced 3 4 2 1

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Ranking of AMC Qualities

23
OO AMC Q AL Private Sector / Public Sector ownership Reputation of the company Range of schemes with different qualities Efficiency of research wing Companys expertise in managing money R O 3 21 25 24 16 17 20 12 11 9 4 7 6 3 5 4 1 4 One o Reputation of the company Range of schemes with Companys expertise in managing money Private Sector / Public Efficiency of research wing RA K Base on Weig te A e age

ee

13

16

10

12

ou

19

20

16

i e

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Ranking of Scheme Qualities24

R S S R on eighte S H Q S Funds/Schemes performance record Funds/Schemes brand name Schemes portfolio constituents Entry and Exit load Investment/Withdrawal facilities Rating by a rating agency New Features of the Scheme Products with tax benefits Reputation of scheme(s), portfolio manager(s) Safety of Capital ase e age

32 29 15 29 21

21 15 12 14 19

5 10 21 7 11

2 5 9 8 5

0 1 3 2 5

ne o h ee ou i e

Safety of Capital Funds/Schemes performance record Products with tax benefits Funds/Schemes brand name Entry and Exit load

12

14

14

11

Six

Investment/Withdrawal facilities

13 26

21 24

10 6

6 3

10 1

Se en ight

Schemes portfolio constituents New Features of the Scheme

13 32

5 18

11 7

17 2

14 1

ine en

Rating by a rating agency Reputation of scheme(s), portfolio manager(s)

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Ranking of Investor Services25

S R S S ase I I S

27

18

10

19

24

11

18

24

13

20

26

10

Si

Mutual Fund Investors grievance redressal machinery

Disclosure of investments at regular intervals

Disclosure of deviation of the investments from the expected pattern

Announcement of NAV on every trading day

32

21

Disclosure of method, periodicity of schemes sales and repurchase in offer document

Disclosure of investment objectives, method and Periodicity of valuation in advertisement

31

23

ne

ree

iv e

& ( '  & # 

R on e ig verage te Announcement of NAV on every trading day Disclosure of investment objectives, method and Periodicity of valuation in advertisement Disclosure of method, periodicity of schemes sales and repurchase in offer document Mutual Fund Investors grievance redressal machinery Disclosure of investments at regular intervals Disclosure of deviation of the investments from the expected pattern

%$

"  !   

  

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Overall Ranking of Mutual Funds

26

 On the basis of Jensens Alpha

RANK 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
elian e T it

FUND QUARTER Y Te pleton n ia it n it n i la S nlife it n pe ial it n it n S it n

it it n n n

A F-YEAR Y Te pleton n ia it n it n i la S nlife it n

S it it elian e T it it n n n n

YEAR Y Te pleton n ia it n it n pe ial it n

it S it n n it n it i la S nlife n elian e it T it n n

it n pe ial it n ota e in it S he e

ota e in it S he e

ota e in it S he e

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Overall Ranking of Mutual Funds (contd.)

27

 On the basis of FamaRANK 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. ota it QUARTERLY em eton n ia it F n it F n i a n ife it F n F m e ia it F n F it F n it F n e ian e it F n it F n it F n me in heme F F n ota it FUND HALF-YEARLY em eton n ia it F n it F n i a n ife it F n it F n F e ian e it F n it F n YEARLY em eton n ia it F n it F n F m e ia F n it F n F it f n i a n ife it F n e ian e it f n it F n it f n ota it me in heme
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it

it F n it F n m e ia it me in heme

Overall Ranking of Mutual Funds (contd.)

28

 On the basis of Total RiskRANK 1 2 3 4 5 6 7 8 9 10 QUARTERLY FUND HALF-YEARLY YEARLY

it Te

n Te

it

Te

leton n ia it n it n it

leton n ia it n it n

leton n ia it n otak e in it he e it n it n n n uit

i la n

nlife

otak it i la n

e in he e nlife it it

it f n it n

it n n n it

i la n

nlife it it

it R elian e IDFC Impe ial Fun TI uit Fun

R elian e it IDFC Impe ial Fun TI uit Fun

it n R elian e it f n TI it n IDFC Impe ial uit Fun otak me in uit heme

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Overall Ranking of Mutual Funds (contd.)

29

 On the basis of DiversificationRANK 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. e D n ir a n QUARTERLY eria n ife it n it it D FUND HALF-YEARLY it it n n ota it ir a n YEARLY er in che e n ife it D D n e iance it it f n it eria n n it

it

D it n e iance it n ota er in it che e it n it n it n

ir a n ife it n e iance it n it n ota er in it che e D it n it n e eton n ia it n it n

it f n n it n

eton n ia it n

eton n ia it n
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Suggestions30

 Introduction of open ended and equity schemes.  Need for customer service centres.  Need to win the confidence of investors.  Need to educate investors.  Need for balanced schemes.  Need to improve performance of funds to build image.  Need to be transparent.

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