Analysis of Retail Investors: Behaviour in Mutual Fund Market in Rajasthan
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.
REVIEW OF LITERATURE
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.
OBJECTIVES OF THE STUDY
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.
HYPOTHESIS OF THE STUDY
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).
LIMITATIONS OF THE STUDY
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.
DATA ANALYSIS: 1. AWARENESS AMONG RESPONDENTS ABOUT VARIOUS MUTUAL FUNDS
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)
2. LEVEL OF EDUCATION
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)
3. TIME HORIZON OF INVESTMENT
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
4. INVESTORS’ LEVEL OF KNOWLEDGE ABOUT FINANCIAL MARKET
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.
5 INVESTMENT OBJECTIVES OF RETAIL INVESTORS
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.
6. LEVEL OF RISK ASSUMED BY RETAIL INVESTORS
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)
ANALYSIS AND INTERPRETATION
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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