A study on role of Financial Advisor and Investor Behavior towards Mutual Fund Industry in India

 

Dheeraj Agrawal

Junior Research Fellow (JRF), Department of Management, Dayalbagh Educational Institute (Deemed University), Dayalbagh, Agra – 282005

 

ABSTRACT:

It is very difficult to understand the behavior of the investor for Mutual Fund companies in India. To remain competitive in the market it is necessary to understand and to influence the behavior of the investor. Behavior of the investor is influenced by many factors like return, safety, liquidity, convenience etc. Investor selects the funds based on their information available to them and the future growth prospects. Investment in Mutual Fund products is not yet so familiar in Indian financial markets. So to make them aware about Mutual Fund investment and to make them motivated financial advisor plays an important role. They understand the financial need of the investor and suggest them the product which better fits to their need. The present study focuses on understanding impact of various factors on choice of different fund categories in Mutual Fund. The study will also analyze the role of financial advisor in influencing the behavior of the investor. From previous studies researcher has identified certain factors and constructed a questionnaire to analyze it. The data was collected from the respondents in Agra region and analyzed using Correlation Analysis, Analysis of Variance etc. The study will be helpful in identifying different factors and to understand the role of financial advisor in influencing the behavior of the individual investor. Study shows that Mutual Fund companies should provide constant training to their financial advisor and should launch various investor education programs.

 

 

 

INTRODUCTION:

Mutual Fund investment is one of the most traditional modes of investment to the investor in India. A Mutual Fund is a professionally managed fund that pools the savings of the investors and invests them in stocks, bonds, commodities money market instruments etc. The Mutual Fund investors have common financial goal and money is invested in different asset classes based on their investment objectives.

 

Mutual Funds are looked upon by individual investors as financial intermediaries/ portfolio managers who process information, identify investment opportunities, formulate investment strategies, invest funds and monitor progress at a very low cost and help them in earning optimum returns out of investments they made. Thus, the success of a Mutual Fund depends on joint effort of a competent fund manager and an educated investor. A competent fund manager understands the financial need of the investor and helps them in achieving their financial goals by prudent investments. Mutual Fund Industry is growing very fast, so for targeting the customer various Mutual Fund houses need representatives who can interact with the target customer on behalf of the company and analyze the need of the customer to serve a Mutual Fund product which better fits to the need of the customer. These representatives in Mutual Fund industry are known as ‘Financial Advisors’. Financial advisor is a well-qualified, professional and experienced person who has good knowledge of financial markets. Financial advisor need to get registered with SEBI in a well-defined process. Financial Advisors play a very crucial role in the development of mutual fund industry because the approach customer directly, identify their need and serve product which can fulfill their financial needs. Financial Advisors play their role in identifying the need of the customer, providing best product to the customer, influencing behavior to invest in Mutual Funds and to provide solution to meet future financial needs.

 

REVIEW OF LITERATURE:

Reviews on Choice of Fund:

(Bogle, 1992), study reveals that investment in financial services requires some background study like past performance of fund and future expected returns. The major element while investing in financial services is past financial performance of the fund. (Ippolito R. A., 1992), study indicates that the selection of a fund or scheme mainly depends upon the past financial performance of the fund and the new/ fresh investments which are added rapidly in a particular fund. (Bhatt, 1993), study reported that most of the investors in India are lacking the analysis and interpretation skills. So, mostly the investors in India invest their money on the basis of information available or the fund which suits to their need and can fulfill their future financial objective. (Gruber, 1996), he made a survey on Indian household investors with an objective to identify the preference of Mutual Funds and other financial assets.

 

He identified that most of the investors were risk conscious so they want to invest in those securities where they can get the guaranteed returns and also investors preferred investing in short- term funds. (Rajan, 1997), he studied various investor behavior and found that there is an impact of demographic factors such as Age, Gender and Income on the preference of fund by the investor. He found that the perception towards risk increases as the age increases. (Zheng L. , 1999), study identified that most of the investors do invest in the funds by analyzing its short- term financial performance rather than analyzing long- term performance.

 

Investors take very specific information about the fund while selecting fund for investment. (S. Anand, 2004), study analyzed industry perspective in selection of a fund by the investor. They found that the selection of fund for the purpose of investment by the investor is based on the process of innovation in developing and delivering the services and the investment strategy designed by the industry to attract the investor to invest in such funds. (Shankar S. V., 2005), he reported that the intention of Indian investors in investing short- term and safe return securities has changed by the ‘Investor Education Programme’ sponsored by government and the change in their decision making behavior has noticed. (Rao, 2011), he mentioned in his study that the regulatory authorities of financial market like SEBI, IRDA, AMFI should run more programs on investor education to educate investor regarding functioning of financial market and to change their perception/ behavior towards investing in Mutual Fund.

 

Reviews on Role of Financial Advisor:

(Hirshleifer D., 2001), study found that advice of financial advisor has a positive impact on financial asset of the investor. He found this by factoring 50 socio- economic, attitudinal and demographic variables that also affect individual’s financial asset. (S.P. Ferris D. C., 2002), study defined that the financial literacy of the investor can help in predicting inappropriate financial behavior like holding zero equity, lack of retirement planning or being too aggressive or too conservative. (Kavitha Ranganathan, 2006), study identified a negative relationship between the financial literacy of the investor and the disposition effect of the financial advisor, as the influence of financial advisor on the investment behavior of the investor becomes low as much as investor become financially literate. (Soumya Guha Deb, 2007), study established a positive relationship between financial literacy of the investor and the superior fund selection by them. Financial advisor better influence the investor’s behavior when the investor is financial literate. It is also noted that when investor is not financially literate, they generally selects the low cost fund and lack selecting superior funds. (Marten Van Rooij, 2011), study explained that less financially literate people are less likely to participate in equity funds. Most of the investor invests in equity funds only in the influence of financial advisor. Study also examined that less financial literate investors diversify their portfolio inappropriately.

 

OBJECTIVES OF THE STUDY:

1.     To analyze the factors affecting choice of different Mutual Fund categories.

2.     To understand the relationship between role of financial advisor and choice of different fund categories.

 

RESEARCH HYPOTHESES:

Following are the research hypotheses which have been developed after review of literature available:

 

 

H₀1:

There is no significant difference between factors affecting choice of a fund and investor demographics.

 

H_a1:

There is a significant difference between factors affecting choice of a fund and investor demographics.

 

 

H₀2:

There is no significant relationship between role of financial advisor and choice of a fund.

 

 

H_a2:

There is a significant relationship between role of financial advisor and choice of a fund.

 

RESEARCH METHODOLOGY

This study is a Descriptive research study in nature where researcher has collected the data from the respondent about the various variables of the study to accomplish the objectives of the present study. In order to make study more reliable, data from both primary and secondary sources is collected. Primary data has been collected from 100 respondents in Agra and Mathura region using appropriate sampling technique. Secondary data has been collected from journals, magazines, websites, newspaper etc. For analyzing the data collected, appropriate statistical tools has been used like, Cronbach’s Alpha, Descriptive statistics, ANOVA, Correlation etc. to draw logical inferences and valid conclusion of the research.

 

DATA ANALYSIS and INTERPRETATION:

Data collected from the respondents were analyzed in this section to reach to some meaningful conclusions. Data has recorded and filtered to make it useful or further analysis. The analysis of data has been shown below:

 

Table 1: Demographic Profile of Respondent

Demographic Profile	No. of Respondents
Age
20-29	27
30-39	45
40-49	18
50 and above	10
Total	100
Gender
Male	81
Female	19
Total	100
Income Level
Less than Rs. 20,000	07
Rs. 20,001 – Rs. 50,000	48
Rs. 50,001 – Rs. 1,00,000	33
Above Rs. 1,00,000	12
Total	100
Education Level
Intermediate	12
Graduate	44
Post Graduate	30
Other	14
Total	100
Occupation
Service	39
Business	37
Professional	12
Housewife	12
Total	100

 

Table 2: Reliability Statistics

Scale	No. of Items	Cronbach’s Alpha
Choice of Fund	19	.781
Role of Financial Advisor	12	.813

 

Table 3: ANOVA Results for Respondent Gender and Factors Preference

Factors/ Gender	Male	Female	F- Value
	Mean
Brand Image	2.65	2.79	1.27
Risk Association	3.15	3.74	4.53*
Past Performance	3.63	3.32	0.822
Time Horizon	3.65	3.32	5.16*
Transaction Cost	3.60	3.26	0.677
Transaction Convenience	3.96	3.63	0.288
Note: *significant at 5% level

 

 

Table 4: ANOVA Results for Respondent Age and Factors Preference

 

 

 

Table 5: ANOVA Results for Respondent Education Level and Factors Preference

 

Table 6: ANOVA Results for Respondent Occupation and Factors Preference

 

Table 7: ANOVA Results for Respondent Income Level and Factors Preference

 

Table 8: Correlation Statistics between Role of Financial Advisor and Choice of Fund

 

 

FINDINGS AND DISCUSSIONS:

The primary data has been collected from the respondents using structured questionnaire. The sample size for the study was 100 respondents. Table 1 is showing the values for each demographic variable. 100 valid responses were collected out of which 27 were from the age group of 20-29, 45 were from 30-39, 18 from 40-49 and 10 from above 50 age group. 81 respondents were male and 19 were female. 07 respondents were from below 20000 income group, 48 from below 50000, 33 from below 100000 and 12 from above 100000. 12 respondents were completed intermediate, 44 completed graduation, 30 completed post-graduation and remaining 14 were from other category. 39 respondents were the serviceman, 37 were having their own business, 12 were in different professions and remaining 12 were the housewives. Reliability of the scales used in the study has assured by calculating value of Conbach’s Alpha. Table 2 is showing the values for both the scales which are .781 for choice of fund and .813 for role of financial advisor. These values shows that the scales used in the study are reliable to give results. To test the hypothesis 1 researcher used Analysis of Variance (ANOVA) to analyze the difference between factors affecting choice of a fund and investor demographics. Table 3, 4, 5, 6 and 7 are showing the mean values and F values for the different factors affecting choice of a fund. Risk associated and time horizon differs based on gender of the investor. Risk associated, time horizon and transaction convenience are different based on the age. Brand image, risk associated, past performance and transaction cost are different based on the education level of the investor. Risk associated, past performance and transaction convenience differs based on the occupation of the investor. Based on the income level brand image, risk associated, past performance and transaction convenience is different. To test the hypothesis 2 the correlation analysis has been used to analyze the relationship between role of financial advisor and choice of a fund. Table 8 is showing the correlation statistics for these two variables. The correlation statistics between these two is .883 which shows that the role of financial advisor is highly correlated with choice of a particular fund and financial advisor have a significant role in selection of a fund by the investor.

 

CONCLUSION:

This study was conducted to understand the role of the financial advisor in influencing the behavior of the investor. By conducting this study researcher has identified many aspects towards the issue of this study. Financial advisor in the Mutual Fund industry plays an important role because it is a representative of the company. Financial advisor influence the behavior of the investor by understanding their financial need and providing them a solution which better fits to their financial need. Mutual Fund companies needs to appoint well qualified and experienced financial advisor for better influencing investor behavior. Mutual Fund companies should provide training to their financial advisor on regular basis and should also launch some investor education program to make aware the investor about Mutual Fund as an investment option. The choice of a fund category by an investor is affected by their financial need and their demographic variables as well. Demographical characteristics of the investor make their choices different. Mutual Fund houses need to provide variety of products for different needs of the investor or they can make customized product so that investor can better attract towards Mutual Fund investments. At last it can be concluded that, although Mutual Fund industry in India is performing well but by make some improvement towards the investor aspect, they can even attract more investors.

 

REFERENCES:

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3.     D.K. Malhotra, R. W. An Empirical Analysis of Mutual Fund Expenses. The Journal of Financial Research. 1997;  20 (2): 175-190.

4.     Gnana Desigan, S. K. Women Consumers Perception towards Investment. Indian Journal of Marketing. 2006; 6 (2): 68-79.

5.     Gruber, M. J. Another Puzzle : The Growth in Actively Managed Mutual Funds. The Journal of Finance. 1996; 51 (3): 783-810.

6.     Hirshleifer, D. Investor Psychology and Asset Pricing. The Journal of Finance. 2001; 56 (4): 1533-1597.

7.     Ippolito, R. Consumer Reaction to Measure of Poor Quality: Evidence from the Mutual Fund Industry. Journal of Law and Economics. 1992; 35 (2): 45-70.

8.     Kavitha Ranganathan, M. K. A Study of Fund Selection Behavior of Individual Investors Towards Mutual Funds - with Reference to Mumbai City. 9th Capital Market Conference. Indian Institute of Capital Markets. 2006.

9.     Mark Grinblatt, T. S. Mutual Fund Performance: An Analysis of Quarterly Portfolio Holdings. Journal of Business. 1989;  62 (3): 45-70.

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11.  Rajan, R. Stages in Life Cycle and Investment Pattern. The Indian Journal of Commerce. 1997; 51 (2): 27-36.

12.  Rao, K. L. Analysis of Consumer Perception towards Mutual Fund Schemes. Zenith International Journal of Multidisciplinary Research. 2011; 1 (8): 52-65.

13.  S. Anand, V. M. Marketing of Financial Services: Strategic Issues. Journal of Indian Management. 2004;  7 (1): 106-114.

14.  S.P. Ferris, D. The Effect of Fund Related Qualities on Mutual Fund Behavior. The Journal of Finance. 2002;  5 (3): 126-134.

15.  Shankar, S. Mutual Fund - Emerging Trends in India. Indian Journal of Capital Markets. 2005; 20 (8): 639-643.

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18.  Zheng, L. Is Money Smart? A Study of Mutual Fund Investor's Fund Selection Ability. The Journal of Finance. 1999; 7 (5): 50-62.

 

 

 

Accepted on 20.04.2017          © A&V Publications all right reserved