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Determinants Of Investment Beh

Determinants of Investment Behaviour

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  Determinants of investmentbehaviour of investors towardsmutual funds Inderjit Kaur and K.P. Kaushik  National Institute of Financial Management, Faridabad, India Abstract Purpose  – MutualfundsinIndiahavenotbeenasfavourableinvestmentalternativesasindevelopedcountries, as assets under management of mutual funds to gross domestic product in India have been7-8 per cent compared to 37 per cent globally. Further, investor base of mutual funds has been narrow,as retail investors constitute 98 per cent of folios but contributed only 58 per cent of investments inSeptember 2014. To broaden the investor base for mutual funds in India, it remains imperative tounderstand the determinants of investment behaviour of investors towards mutual funds. This studyaims to achieve this objective. Design/methodology/approach  – Based on the theory of planned behaviour, the study examinedthe effect of awareness, attitude (perception for outcome) and socioeconomic conditions of an investoron his investment behaviour towards mutual funds with the logit model. The results are based on 450valid responses from the primary survey in Delhi-NCR. Findings  – The research provided that investment behaviour could be explained with awareness,perception and socioeconomic characteristics of individual investors. Better awareness related tovarious aspects of mutual funds will have a positive effect on investment in mutual funds. Contrary tobelief,riskperceptionformutualfundshadnoeffectontheinvestmentdecision.Further,socioeconomiccharacteristicssuchasage,gender,occupation,incomeandeducationofinvestorshadanimpactontheawareness about mutual funds. Research limitations/implications  – As the study has been con󿬁ned to Delhi-NCR, it should beconsidered a pilot study and needs to be replicated in other states of India to have more robust results. Practical implications  – The study has implications for mutual funds and regulators. The studyhighlightsalackofawarenessaboutmutualfundsamongparticularsectionsofsocietyasareasonfornon-investment in mutual funds. The mutual funds and regulators need to focus on females, older agegroupsandmiddle-incomegroupsintheireffortstoimprovetheirawarenessaboutmutualfunds.Thiswould improve their investor base and 󿬂ow of funds in mutual funds. Furthermore, the process of investment in mutual funds needs to simpli󿬁ed. Originality/value  – In an Indian context, this study has been the 󿬁rst attempt to understand thesystematic relation between actual investment behaviour towards mutual funds and variousdeterminantssuchassocioeconomiccharacteristics,awarenessandattitude(perception)aboutmutualfunds. Keywords  Awareness, Mutual funds, Perception, Factor analysis, Investor behaviour Paper type  Research paper 1. Introduction The economic growth of India, among many other factors, has been associated with its󿬁nancial sector development, as it facilitates the ef󿬁cient mobilization and allocation of resources.The󿬁nancialintermediarieswithinthe󿬁nancialsectorareimportant,asthey The current issue and full text archive of this journal is available on Emerald Insight at: www.emeraldinsight.com/1755-4195.htm Investmentbehaviour of investors 19 Received20April2015Revised22July20153October201515November2015Accepted15December2015  Journal of Indian BusinessResearchVol. 8 No. 1, 2016pp. 19-42©EmeraldGroupPublishingLimited1755-4195DOI 10.1108/JIBR-04-2015-0051  mobilize the savings of the household sector through various instruments. Mutualfunds, being one such 󿬁nancial intermediary, provide the bene󿬁t of pooling resourcesand portfolio diversi󿬁cation of an investor with professional acumen at a lower cost. InIndia, the 󿬁rst mutual fund, UTI, was established in 1963 and since then the landscapeof mutual funds has evolved in terms of varied sponsors and the number of productsoffered. In 2002, Unit Trust of India Act 1963 was repealed, which provided alevel-playing 󿬁eld for all mutual funds in India under the ambit of SEBI as theregulatory body. Though the total net assets of mutual funds have grown with acompoundannualgrowthrateof20.54percentovertheperiod2002-2012[1],theratioof  assets under management to gross domestic product has been 7-8 per cent compared to37 per cent globally ( PWC, 2010, 2013, 2014; KPMG, 2014 ). This has been coupled with thenarrowinvestorbase,as98percentoftheretailedinvestorscontributedonly66percent of assets under management during 2012-2014[2]. Further, there has been net out󿬂ow of funds in the recent years, for the 󿬁nancial years 2008-2009, 2010-2011 and2011-2012. Though, the recent out󿬂ow of funds could be explained with poor stockmarket returns and macroeconomic environment, as it has been found thatmacroeconomic conditions affect the 󿬂ow of funds in mutual funds ( Warther, 1995; Santini and Aber, 1998; Cao  et al. , 2008; Siera, 2012; and Jank, 2012 ). But a narrow investor base and comparative low assets under the management of mutual fundsmanifest the behaviour of investors towards mutual funds. A better understanding of determinants of investor behaviour for mutual funds is needed to address the issue of narrow investor base in India.The investment behaviour of an individual can be studied under the theoreticalframework of  Ajzen’s (1991) theory of planned behaviour (TPB), which has been anextension of  Fishbein and Ajzen’s (1975) ( Ajzen and Fishbein, 1980 ) theory of reasoned action(TRA).TRAprovidedthatintentionistheimmediateantecedentofbehaviour.Itpropoundedthatthebehaviourofanindividualwouldbeguidedbyhis/herbehaviouralintention(BI),whichinturnisthefunctionofaperson’sattitudetowardsanact(A)andsubjective norms (SNs). The attitude towards behaviour has been de󿬁ned as anindividual’s positive and negative feelings about performing a particular behaviour,whichdependsonindividual’sassessmentaboutconsequencesofhis/herdecision.SNshavebeende󿬁nedasanindividual’sperceptionofdesirabilityofaparticularbehaviourtothepeopleimportanttoindividual.TheTPBfurtherimprovedTRAbyincorporatinganother element “perceived behaviour control” (PBC), i.e. the skills and knowledge toperformtheaction.ThePBCreferredtotheindividual’sperceptionabouthis/herabilityto perform a given behaviour.The TPB model could be applied to study investment behaviour towards mutualfunds. An individual investor formulates his/her A towards mutual funds based on theoutcome of his investment, i.e. his/her perception about bene󿬁ts and risks from mutualfunds  vis-a`-vis  other investment alternatives. The SN behaviour would depend on thesocioeconomic status of the individual, as socioeconomic categories such as gender,occupation, income and age may affect investment behaviour. Further, the mostimportantbarrierorfacilitatorforhis/herinvestmentbehaviourcouldbeanawarenessor knowledge about mutual funds (the PCB). Thus, it can be said that attitude orperception of the outcome from investment in mutual funds, SNs and awareness aboutmutual funds could determine the investment behaviour of an individual towardsmutual funds.  JIBR8,1 20  Based on this, the objective of the present study has been to study the effect of selected determinants, such as the attitude, SNs and awareness, on the investor’sbehaviour towards mutual funds. The remainder of the paper has been organized asfollows: Section 2 provides empirical evidences in the context of understanding of investor behaviour towards mutual funds. Section 3 provides discussion on researchmethodology. Section 4 provides empirical 󿬁ndings of the study. Section 5 providesimplicationsofthestudy,and󿬁nally,Section6provideslimitationsofstudywithfuturedirections for research. 2. Empirical evidences The research on determinants of investment in mutual funds could be broadlycategorized into two categories based on the focus of the study: mutual funds andinvestors.Thestudieswithafocusonmutualfundshavemainlyattemptedtoexaminetheeffectofvariousfund-relatedattributesonthe󿬂owoffundsorinvestmentinmutualfunds.Ithasbeenfoundthatinvestors’investmentinmutualfundshasbeenaffectedbytheperformanceofmutualfunds( Grubber,1996;SinghandVanita,2002;BuandLacey, 2008; Sapp and Tiwari, 2004 ), advertisement expenditure ( Siri and Tufano, 1998; Cashman  et al. , 2014 ), fund size ( Cashman  et al. , 2014 ), fund age ( Chavlier and Ellison, 1997 ), redemption fee and load/no load ( Cashman  et al. , 2014 ). Further studies havefound that a macroeconomic environment ( Santini and Aber, 1998; Siera, 2012; Jank, 2012 ) and stock market conditions ( Warther, 1995; Cao  et al. , 2008 ) also affect theinvestment in mutual funds.The studies with a focus on investors have mainly studied the socioeconomiccharacteristics, perception and awareness of mutual fund investors (MFIs). Barber andOdean(2013),basedontheliteraturesurveyonbehavioural󿬁nance,maintainedthatthedecisions/choices of individual investors have been in󿬂uenced by their social settings.The personal characteristics, such as age, education level, investment experience andextent of 󿬁nancial literacy, affect the investor’s choice of 󿬁nancial services and theirperceivedriskfrom󿬁nancialservice( FalkandMatlulich,1976;MitchellandGreatorex, 1993 ).In India, the main objective to invest in mutual funds has been risk management( Walia and Kiran, 2009; Pandey, 2011 ), better ef󿬁ciency and 󿬂exibility than stock market ( Vyas, 2012; Kaur  et al. , 2013 ) and tax savings ( Singh and Vanita, 2002; Saini et al. , 2011; Das, 2012; Kothari and Mindargi, 2013; Prabhu and Vachalekar, 2014 ). But the 󿬁ndings by Gupta (1993), Ranganathan (2006), Parihar  et al.  (2009), NCAER (2011), Prathap and Rajamohan (2013) and Kumar and Rajkumar (2014) suggested that investment choice in mutual funds had been determined by various personalcharacteristics of investors. The studies have applied the chi-square test and theanalysis of variance technique to compare the preference for mutual funds for varioussocial categories.Wang (2006, 2009 ) found that knowledge provided the necessary information and con󿬁dencetotheinvestors.Theinvestorswithaccurateknowledgehaveabetterabilityto access and digest the information about mutual funds ( Chang, 2004; Hallahan, 2000 ). Wang (2009) provided that knowledge and risk-taking behaviour have been highlycorrelated and both have gender differences. Keller and Siegrist (2006) and Booth and Nolen (2009) found no difference in investment behaviour of men and women in the 21 Investmentbehaviour of investors  USA, but Badunenko  et al.  (2009) found that women were less likely to invest in risky󿬁nancial assets in Europe.InIndia,thepositiveeffectofeducationonperceptionandalevelofawarenessaboutmutual funds was found by Ranganathan (2006), Bhatt and Bhatt (2012), Rathnamani (2013)andSubramanyaandMurthy(2013).But,contrarytothese󿬁ndings,Parihar etal. (2009),Das(2012)andMehtaandShah(2012)foundnoeffectofeducationonperception and level of awareness about mutual funds. Either one or a few attributes, such as age,income, gender and occupation, have been found to be signi󿬁cant determinants of perception and awareness about mutual funds by Parihar  et al.  (2009), Saha and Dey(2011), Bhatt and Bhatt (2012), Vipparthi and Margam (2012), Das (2012), Mehta and Shah (2012), Rathnamani (2013), Subramanya and Murthy (2013) and Kumar and Rajkumar (2014).In the light of the above discussion, it can be said that, despite the voluminousresearch on investor behaviour for mutual funds in India, the issue of the effect of determinants such as perception, awareness and socioeconomic characteristics onactual investment behaviour has not been fully addressed. Therefore, it would berelevant to study the systematic effect of these on the actual investment behaviour formutual funds. 3. Research methodology 3.1 Data3.1.1 Questionnaire design.  The primary data related to socioeconomic characteristics,attitude and awareness of respondents have been collected through structuredquestionnaires.Thedataonvarioussocioeconomiccharacteristics,suchasgender,age,marital status, education, investment criteria, income and level of savings, have beencollected through direct questions. The attitude and awareness about mutual fundshavebeenmeasuredwithconstructs.Theattitudeofaninvestorhasbeende󿬁nedastheperception about consequences of investing in mutual funds. The consequences havebeenmeasuredontheoutcomerelatedtoperceptionforreturnandriskincomparisontovarious other investment alternatives. The perceptions about mutual funds on thesecriteria have been measured on a 󿬁ve-point Likert scale. The awareness about variousaspects of mutual funds, such as net asset value, returns from mutual funds and risksassociatedwithmutualfunds,hasbeenmeasuredwithathree-pointscale(yes/no/don’tknow).WehavefollowedAlexander etal. (1998)forthestatementsrelatedtoawarenessabout mutual funds. 3.1.2 Sampling design.  The objective of the study has been to research the effect of attitude, socioeconomic conditions and awareness about mutual funds on investmentbehaviour of investors. As behaviour towards mutual funds can be actually observed,thishasbeenconsideredasthe󿬁rstcriteriatoselectthesamplingunit.Anequalnumberofinvestorsandnon-investorsofmutualfundshavebeenselectedinthesample.Atthesecond stage, to give equal representation to all occupation groups, we have collecteddata from equal number of respondents from three occupational groups: governmentemployees, private sector employees and own-business groups.The scope of the study has been limited to Delhi-National Capital Region(Delhi-NCR) due to limited resources. The NCAER (2011) survey of investorsprovided 245 lakh investors in India, and thus, it can be safely assumed that theinvestor size in the Delhi-NCR region is greater than one lakh. Based on Cochran’s  JIBR8,1 22