Anal­y­sis of Re­tail In­vestors: Be­hav­iour in Mu­tual Fund Mar­ket in Ra­jasthan

Economic Challenger - - CONTENTS - − Harsh Puro­hit − Preeti Sharma


Since the 1991 eco­nomic lib­er­al­iza­tion there is an in­crease in num­ber of in­vest­ment av­enues avail­able for re­tail in­vestors, de­pend­ing upon their risk ap­petite they can chose be­tween var­i­ous fi­nan­cial ser­vices like bank de­posits, government / pri­vate bonds, shares and stocks, ex­change traded funds (ETF), mu­tual funds, in­surance, de­riv­a­tives, gold, sil­ver, cur­ren­cies, real es­tate, etc. Most of the re­tail in­vestors’ pri­mary ob­jec­tive of in­vest­ment is to earn reg­u­lar in­come and ex­pected rate of re­turn dif­fers from in­di­vid­ual to in­di­vid­ual based on their level of mar­ket knowl­edge and risk tak­ing abil­ity. The present pa­per as­sesses the be­hav­ior of re­tail in­vestors in six cities of Ra­jasthan namely Ajmer, Jaipur, Jodh­pur, Bikaner, Kota and Udaipur and it re­veals that there is a neg­a­tive cor­re­la­tion be­tween the oc­cu­pa­tion of re­tail in­vestor and the level of risk. This has been iden­ti­fied on the ba­sis of cross anal­y­sis by ap­ply­ing cor­re­la­tion anal­y­sis.

KEY­WORDS: Re­tail In­vestors, Mu­tual Funds , level of risk, Oc­cu­pa­tion.


The eco­nomic devel­op­ment of any coun­try de­pends upon the ex­is­tence of a well−devel­oped fi­nan­cial sys­tem. It is the fi­nan­cial sys­tem which sup­plies the nec­es­sary fi­nan­cial in­puts for the pro­duc­tion of goods and ser­vices that in turn pro­mote the well−be­ing and stan­dard of liv­ing of the peo­ple of a coun­try. The ma­jor as­sets traded on the fi­nan­cial sys­tem are money and mon­e­tary as­sets. The re­spon­si­bil­ity of the fi­nan­cial sys­tem is to mo­bi­lize sav­ings in the form of money and mon­e­tary as­sets and in­vest them in pro­duc­tive ven­tures. A suc­cess­ful in­vestor is not the one who makes huge prof­its but one who stud­ies the mar­ket, un­der­stands his risk tak­ing abil­ity, sets the clear cut in­vest­ment ob­jec­tives, de­ter­mines the ex­pected rate of re­turn and also de­cides the time and pe­riod of in­vest­ment.


1.Cao, Ghy­sels & Hathe­way (2011) have in­ves­ti­gated two types of funds that make more ex­ten­sive use of de­riv­a­tives, global funds and spe­cial­ized domestic eq­uity funds and found that risk and re­turn char­ac­ter­is­tics of th­ese two groups of funds are sig­nif­i­cantly dif­fer­ent from funds em­ploy­ing de­riv­a­tives spar­ingly or not at all and that Fund man­agers time their use of de­riv­a­tives in re­sponse to past re­turns. 2. Sinha (2010) stud­ied im­pact of me­dia on mu­tual funds and con­cluded that the me­dia would have a lim­ited im­pact on the in­vest­ing au­di­ence. Most fund man­agers in­ter­viewed de­nied that the news me­dia played much part in their day−to−day in­vest­ment de­ci­sion−mak­ing on spe­cific trades. 3. Agar­wal, Boyson, Naik &Narayan Y (2009) have ex­am­ined the per­for­mance of th­ese funds rel­a­tive to hedge funds and tra­di­tional mu­tual funds and found that de­spite us­ing sim­i­lar trad­ing strate­gies, hedged mu­tual funds un­der­per­form hedge funds. 4. Wu, Chang and Wu (2008) try to find how in­vestors eval­u­ate mu­tual fund per­for­mance, not only based on quan­ti­ta­tive but also on qual­i­ta­tive cri­te­ria. They con­clude that the most im­por­tant cri­te­ria of mu­tual fund per­for­mance should be

mu­tual fund style fol­low­ing the mar­ket in­vest­ment en­vi­ron­ment. In­vestors should con­cen­trate more on gath­er­ing in­for­ma­tion of mu­tual fund style when se­lect­ing in­vest­ment ve­hi­cles. They rec­om­mend that mu­tual fund is­suers should try to pro­vide more in­for­ma­tion re­lated to mu­tual fund style and the in­vest­ment en­vi­ron­ment.


1) To un­der­stand the aware­ness among re­tail in­vestors about var­i­ous mu­tual funds.

2) To iden­tify the ob­jec­tives of in­vest­ments of re­tail in­vestors.

3) To as­sess the time hori­zon of in­vest­ment of re­tail in­vestors.

4) To ver­ify the cor­re­la­tion be­tween the oc­cu­pa­tion of the re­spon­dent and level of risk.


For the pur­pose of an­a­lyz­ing the set ob­jec­tives, this study has adopted the fol­low­ing hy­poth­e­sis: H0− There is no cor­re­la­tion be­tween the oc­cu­pa­tion and the level of risk as­sumed by the re­tail in­vestor. H1− There is a cor­re­la­tion be­tween the oc­cu­pa­tion and the level of risk as­sumed by the re­tail in­vestor.


This study is based en­tirely on pri­mary data col­lected through a well de­signed and struc­tured ques­tion­naire. The data was col­lected from in­vestors spread over the state. Ques­tion­naires were dis­trib­uted and col­lected dur­ing the pe­riod from Jan­uary 2009 to Jan­uary 2011 by us­ing random sam­pling tech­nique. The to­tal pop­u­la­tion (uni­verse) of re­tail in­vestors was 524 The data so col­lected with the help of pri­mary sources are an­a­lyzed by us­ing Sta­tis­ti­cal Package for So­cial Sci­ence (SPSS).


The study does not cover the en­tire pop­u­la­tion of the re­tail in­vestors in Ra­jasthan due to the lim­i­ta­tion of time and re­sources. The re­sults of the anal­y­sis are based on the data about the sam­ple pop­u­la­tion of re­tail in­vestors in Ra­jasthan only, the re­sults need to be gen­er­al­ized with cau­tion and may not be en­tirely valid for pop­u­la­tion of other dis­tricts or re­gions.


The Mu­tual Funds were of sev­eral types. It is cat­e­go­rized by the struc­ture, in­vest­ment ob­jec­tive and other in­te­rior. The in­vestors pre­fer the Mu­tual Funds ac­cord­ing to their will­ing­ness. In the present study, the types of Mu­tual Funds were con­fined to only nine. The in­vestors were asked to rate the nine funds ac­cord­ing to their pref­er­ence at five point scale

The mean score of the level of pref­er­ence of Mu­tual Funds (Port­fo­lio ba­sis) among the in­vestors and the re­spec­tive ’t’ statis­tics have been cal­cu­lated. The highly pre­ferred Mu­tual Funds among the in­vestors were money mar­ket schemes, in­dex schemes and bond schemes since their re­spec­tive mean scores were 2.95, 2.88 and 2.87 as shown in ta­ble 1 (Ap­pen­dix 1)


In to­tal, a max­i­mum of 30.91 per cent of the in­vestors were grad­u­ates. It was fol­lowed by the in­vestors with the ed­u­ca­tional back­ground of school level which con­sti­tuted 28.05 per cent to the to­tal. The in­vestors with pro­fes­sional ed­u­ca­tion which in­cluded MBA, CA and doc­tors con­sti­tuted 14.12 per cent to the to­tal. The first two lev­els of ed­u­ca­tion among the in­vestors were grad­u­a­tion and school level since it con­sti­tuted 30.91 and 28.05 per cent to its to­tal re­spec­tively which is shown in ta­ble 2 (Ap­pen­dix 1)


The im­por­tant years of ex­pe­ri­ence among the in­vestors were 3 to 6 years and less than 3 years which con­sti­tutes 47.14 and 28.44 per cent to the to­tal re­spec­tively. The num­ber of in­vestors with the ex­pe­ri­ence of above 12 years con­sti­tutes 0 to the to­tal


The in­vestors’ knowl­edge on fi­nan­cial mar­ket plays an im­por­tant role to in­vest on Mu­tual Funds. The in­vestors with high knowl­edge may have its own in­flu­ence to se­lect the type of Mu­tual Funds and also the time of

buy­ing and sell­ing of Mu­tual Funds in the mar­ket. The level of knowl­edge among the in­vestors was mea­sured with the help of some re­lated state­ments. The in­vestors were asked to rate th­ese state­ments at five point scale. From the mean score of th­ese state­ments, their level of knowl­edge on fi­nan­cial mar­ket is clas­si­fied into very high, high, mod­er­ate, low and very low. The im­por­tant level of knowl­edge on fi­nan­cial mar­ket among the in­vestors was high and mod­er­ate which con­sti­tutes 32.29 and 31.52 per cent to the to­tal re­spec­tively. The in­vestors with low and very low level of knowl­edge on the fi­nan­cial mar­ket con­sti­tute 17.79 and 5.8 per cent to the to­tal re­spec­tively.


The im­por­tant de­ci­sion vari­ables among the re­tail in­vestors were liq­uid­ity fac­tors, type of port­fo­lio/ scheme and rep­u­ta­tion of fund man­agers, since their re­spec­tive mean scores were 3.029, 2.916 and 2.9144. Re­gard­ing the im­por­tance given on the de­ci­sion vari­ables, the in­vestors have been iden­ti­fied in the case of brand eq­uity, fam­ily size, type of port­fo­lio/ scheme, risk in­volved in Mu­tual Fund, rep­u­ta­tion of fund man­ager and liq­uid­ity fac­tors since their re­spec­tive ’t’ statis­tics was sig­nif­i­cant at five per cent level.


The im­por­tant level of risk ori­en­ta­tion among the in­vestors was high and mod­er­ate which con­sti­tutes 37 and 26 per cent to the to­tal re­spec­tively. The num­ber of in­vestors with very low risk ori­en­ta­tion con­sti­tutes 9 per cent to the to­tal. This clearly de­picts that since the in­vestors were young they were ready to take more risk , they were risk tak­ers and not risk aversers which is shown in ta­ble 6 (Ap­pen­dix 1)


The present study is an ex­ploratory study on the in­vestors be­hav­iour in the mu­tual funds mar­ket. The cor­re­la­tion anal­y­sis be­tween the oc­cu­pa­tion of in­vestor’s and the level of risk taken as in­di­cated in Ta­ble 1 shows that there is a neg­a­tive cor­re­la­tion be­tween th­ese two vari­ables .Ex­cept in case of pro­fes­sion­als the level of risk taken has skewed at very high cat­e­gory oth­er­wise cor­re­la­tion anal­y­sis shows neg­a­tive change in the level of risk taken by the in­vestors. This is shown in the ta­ble 1 (Ap­pendix2) (with au­thros)


The in­vestors pre­fer the mu­tual funds ac­cord­ing to their will­ing­ness. In the present study an at­tempt was made to find the re­la­tion­ship be­tween the oc­cu­pa­tion of the in­vestors and the risk as­so­ci­ated with it. The re­search makes a per­ti­nent rev­e­la­tion that the cor­re­la­tion anal­y­sis be­tween the oc­cu­pa­tion of in­vestor and the level of risk as­sumed shows that there is a neg­a­tive cor­re­la­tion be­tween th­ese two vari­ables. The Anal­y­sis also shows that a 1 point change in oc­cu­pa­tion will lead to neg­a­tive change in the level of risk taken by the in­vestors. Note: Tab­u­lated data can be had from the au­thors.


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6] Kah­ne­man, Daniel, and Amos Tver­sky, 1979, Prospect the­ory: An anal­y­sis of de­ci­sion un­der risk, Econo­met­rica 46, 171− 185. 7] Gor­don E, Natara­jan K, 1999, Cap­i­tal Mar­ket in In­dia, Hi­malaya Pub­lish­ing House,Mum­bai 8 ] Machi­raju H.R. 1995, The Work­ing of Stock Ex­changes in In­dia, Wi­ley East­ern Ltd, New Delhi. 11] Tver­sky, Amos and Daniel Kah­ne­man, 1974, Judg­ment un­der un­cer­tainty; Heuris­tics and bi­ases, Sci­ence 211, 453− 458.

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