The investor’s perception and preference towards Mutual funds


There has been a spurt in the popularity of schemes like SIP

The size of investment determines the confidence of investors in mutual fund units.

During the last two decades, the mutual fund industry has grown by leaps and bounds. It has expanded and developed in terms of the number of mutual funds, AUM, investors’ base or penetration level, and the number and type of schemes available to the investors.

Mutual funds have become popular across the globe and have become one of the most preferred choices of most investors in the whole world. They provide various benefits to the investors like professional management, diversification, liquidity and higher returns, which has enhanced their relevance for the retail investors.

There has been a spurt in the popularity of schemes like Systematic Investment Plans (SIP). Another reason for the frenzied growth in this sector is the increasing number of global players setting up business in India.

Here is an attempt to talk about the perception of investors towards mutual fund investments in the current scenario on the basis of the outcome received in some surveys.

Size of Investment

The size of investment determines the confidence of investors in mutual fund units. It is found that the majority of investors invest between Rs.5000 to Rs.20000. Therefore, the size of investment of the maximum investors lies in the category of Rs.5000 to Rs.20000. This shows that investors are still not very confident about mutual fund investments, and they invest a very small amount in mutual funds.

The confidence of the investors has to be increased by spreading awareness about mutual fund investments. Necessary steps shall be taken in order to encourage a huge amount of investments, especially capturing the small investors.

Objective of Mutual Fund Investment

Mutual funds have come out with various types of schemes with different objectives to cater to the needs of different types of investors. The objectives include capital appreciation, liquidity, safety, tax-saving, immediate gains and periodical returns, among others. Capital appreciation is the main motive why the majority of investors invest in mutual funds. Capital appreciation can be achieved by making long-term investments in mutual fund units for at least three to five years. More than 60% of investors investing in mutual funds fall under this category.

Time Horizon of Investment

When it comes to the time horizon of the investment that is how long they had invested in mutual funds, majority of the investors (more than 60%) invest for a longer time horizon of more than 3 years in mutual funds, 20% invests for 2 to 3 years, around 10% invests for 1 to 2 years and for less than 1 year. Thus it is clear that a majority of investors had invested more than 3 years.

Nature and Type of Investment

Mutual funds can be classified by its nature into two categories: open-ended and close-ended mutual funds. Open-ended mutual funds are those which do not have any maturity period, and they remain open for entry and exit at all times to the investors. Close-ended mutual funds, on the other hand, are those which remain open for subscription only for a specific period and which have a fixed maturity period. Moreover, there are different types of mutual funds in which investors invest.

It has been observed that 95 percent of investors prefer open-ended mutual fund and the rest close-ended mutual fund schemes. On the other hand, more than 60% prefer equity schemes, 10-12% prefers ELSS, and 8-10% prefers balanced funds, while nearly 5% prefer gilt-funds and debt funds.

Future Preference for Investment

If investors are asked about their preference for the type of mutual fund in which they would like to invest the next 1-2 years, the majority of investors preferred to invest in equity schemes in the next 1-2 years. Other than equity schemes, around 10% prefer balanced funds, ELSS and 5% investors prefer to invest in debt funds.

General Awareness about Mutual Funds

If anyone asks the question “which organization regulates the Mutual Fund Industry?” the answer of more than 90% investors would be SEBI. Therefore it shows in the current scenario people are aware at least at a basic level about mutual funds.

Investment in various Mutual Funds

Several mutual funds are operating in the Indian Mutual Funds Industry. When it comes to the most popular mutual fund, it is observed that SBI mutual fund comes first, which is sponsored by SBI public sector bank. The order follows with FRANKLIN TEMPLETON mutual fund, RELIANCE, UTI mutual fund, HDFC mutual fund, LIC mutual fund, SUNDARAM mutual fund, PRU ICICI mutual fund, BIRLA SUN LIFE mutual fund, KOTAK MAHINDRA mutual fund, TATA mutual fund, CAN BANK, GIC mutual fund, and the list still counting.

Factors influencing Mutual Fund Investment

There are various factors that influence the choice of investment in mutual funds. Among these factors, capital appreciation comes first, followed by the previous record of the organization, tax benefits and others include friends’/ colleagues’/brokers’/agents’ recommendations and minimum assured return.

Investors’ Perceptions about various aspects of Mutual Funds

Most of the investors strongly agree that mutual funds are necessary for the growth of Indian capital market, and mutual fund investments are less risky than direct investing in the share market.

Other important aspects are that mutual funds are much better in terms of returns than depositing money in banks. The entry of private sector mutual funds has increased competition, and thus returns to the investors, and mutual fund investments are also helpful in saving tax. Mutual funds will help to mobilize savings from rural investors to the capital market.

Satisfaction of Mutual Fund Investors

Investors’ satisfaction is the most important ingredient for the success of the mutual fund industry. And it is evident that the majority are satisfied after investing in mutual funds. However, there are some who are uncertain, while around 5% is not satisfied with the mutual fund investment.

Reasons for not investing in Mutual Funds

When some people were asked about the reasons for not investing in mutual funds, the main reason was that they did not invest in mutual funds due to a lack of proper information. Among other reasons, 20% had a bad experience from the past mutual fund investments and a similar number of people view mutual fund investments as highly risky as they think there is a possibility of losing the principal amount too.

Future Investments in Mutual Funds

People who had not invested in mutual funds, majority of them prefer Fixed Deposit Schemes on the first rank, post-office deposits schemes on the second place, government securities on the third rank, and mutual funds on the fourth rank, followed by Insurance, bonds/debentures and lastly equity investments.

Mutual funds require reaching those retail investors who are still hesitant and yet not tried the mutual fund investments or denied investing in mutual funds. They might be interested in investing in mutual funds if given proper information about mutual funds.

In India, the perception of the majority of investors about future prospects of mutual funds is very bright, and it is a good symbol for the mutual fund industry. Undoubtedly, mutual funds are gaining popularity among Indian investors. Therefore, why delay? Talk to your advisor to be part of this promising industry today!

That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.

With this one can say “Mutual Fund Sahi hai”, so let me do Nivesh / Enquire