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Factors that affect mutual fund investment decision of Indian investors

Article  in  International Journal of Behavioural Accounting and Finance · January 2011

DOI: 10.1504/IJBAF.2011.045020

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328 Int. J. Behavioural Accounting and Finance, Vol. 2, Nos. 3/4, 2011

Factors that affect mutual fund investment decision

of Indian investors

Amarjit Gill*
College of Business Administration,
Trident University International,
5757 Plaza Drive, CA 90630, USA
E-mail: agill@tuiu.edu
*Corresponding author

Nahum Biger
School of Business,
Academic Center Carmel,
Shaar Palmer 4, Haifa, 33031, Israel
E-mail: nahum_b@carmel.ac.il

Harvinder S. Mand
Sikh National College,
Banga, Sahid Bhagat Singh Nagar,
144505, East Punjab, India
E-mail: hsmand27@gmail.com

Sukhinder S. Gill
Global Pacific Financial Services Ltd.,
10430 – 144 Street, Surrey,
BC, V3T-4V5, Canada
E-mail: sukhindergill@gmail.com

Abstract: The paper seeks to extend the findings of Gill and Biger (2009)
related to gender differences and factors that affect stock investment decision
of Western Canadian investors by examining the affects of:

1 investors’ investment expertise

2 investors’ knowledge of ‘neutral information’
3 investors’ consultation with investment advisors on their decisions to invest
in mutual funds.

The present study is based on a sample of people living in Punjab and Delhi
areas of India. Subjects were asked about their beliefs and feelings in relations
to their investment decisions with particular reference to investments in mutual
funds. We found that the degree of mutual fund investment decision is related
to the degree of Indian investors’ perceptions about their:

Copyright © 2011 Inderscience Enterprises Ltd.

 Factors that affect mutual fund investment decision of Indian investors 329

1 investment expertise
2 general knowledge about the economy and the concept of mutual funds
3 consultation with investment advisors.

Family size also plays some role in the decision to invest in mutual funds. The
valuable and useful recommendations for the investment managers and
investment advisors have also been provided in the paper.

Keywords: expertise about investing; general knowledge of individuals about

the economy and mutual funds in general; consultation of the investor with
advisors; decision about investing in the mutual funds; India.

Reference to this paper should be made as follows: Gill, A., Biger, N.,
Mand, H.S. and Gill, S.S. (2011) ‘Factors that affect mutual fund investment
decision of Indian investors’, Int. J. Behavioural Accounting and Finance,
Vol. 2, Nos. 3/4, pp.328–345.

Biographical notes: Amarjit Gill received his PhD from Touro University
International (Branch Campus of Touro College, New York), CA, USA in
2004. Currently, he is a Professor of Business Administration at Trident
University International, CA, USA. His research interests include finance and
management.

Nahum Biger received his PhD from York University in Canada in 1974. He is
the Dean and Professor of Financial Economics at the School of Business,
Academic Center Carmel in Haifa, Israel and a Distinguished Visiting
Professor of Finance and Management, Ecole nacional des ponts et chaussees,
School of International Management, Paris, France.

Harvinder S. Mand is currently a Lecturer in Finance at Sikh National College,

Banga, Punjab, India. His research interests include finance and management.

Sukhinder S. Gill is an Insurance and Investment Advisor at the Global Pacific

Financial Services Ltd., Surrey, British Columbia, Canada. He has been
working in this area for the last ten years.

1 Introduction

The paper investigates factors that affect decisions of Indian investors to invest in ‘equity
mutual funds’. We wished to examine motivations and understand the behaviour of
mutual fund investors.
The literature of behavioural finance usually assumes that information structure and
the characteristics of market participants systematically influence individuals’ investment
decisions [Al-Tamimi, (2006), p.225, who refers to the pioneering researchers in the
field]. The theory claims that investor’s market behaviour derives from psychological
principles of decision making. The field of behavioural finance focuses upon the ways
investors interpret and act on information in the process of making investment decisions.
In addition, the field of behavioural finance places an emphasis upon investor behaviour
that at times leads to various market anomalies [Gill and Biger, (2009), p.136].
A market anomaly is defined as a price and/or return distortion in a financial market.
One of the factors that cause market anomalies is the investor attitudes toward risk. When
330 A. Gill et al.

investors incur losses, they regret for their actions and are more cautious not to risk a
further loss. Conversely, investors are willing to take more risk when they make money
and are ready to run the risk of an equity market dip. This sort of behaviour leads to an
equity security price ‘bubble’. Another factor that may cause market anomaly is the
institutional investors. Sivalingam (2009) explains that the larger the amount of funds
held by institutional investors, the more likely they will be able to influence the prices of
equity shares. Thus, market anomalies are market patterns that seem to lead to abnormal
returns, or extra-ordinary gains or losses, in the securities market.
The theory of behavioural finance also helps to explain why and how markets might
be inefficient (Sewell, 2007). The theory dates back to the paper by Slovic (1972) and the
theory has been revitalised in the late 1980s. Then De Bondt and Thaler (1985) published
a paper on behavioural finance in which they asked the following question: “Does the
stock market overreact?” Their article gave evidence to support the hypothesis that
cognitive bias (investors’ over-reaction to a long series of bad news) could produce
predictable mispricing of stocks traded on the New York Stock Exchange (NYSE). Since
then academic researchers conducted extensive research into the impact of psychological
processes on financial decision making (Olsen, 1998).
A better understanding of behavioural processes and outcomes is important for
financial planners in devising appropriate asset allocation strategies for their clients.
Hence, the purpose of this study is to explore factors that affect the mutual fund
investment decision of Indian investors.
This study may benefit investment companies. Identifying factors that affect
individuals’ investment decisions would be instrumental for their future policies and
strategies. The government too may find that identifying factors that influence investors’
decisions might be considered in the process of legislations pertaining to financial
markets. It may consider additional procedures that may be in line with investors’ desires
and hence improve the efficiency of financial markets. The results can be generalised to
the financial management industry.
Several researchers such as Nagy and Obenberger (1994), Al-Tamimi (2006), and
most recently Gill and Biger (2009) have conducted research on “factors influencing
investor behavior”. These authors did not examine relationships between different
variables related to mutual fund investment behaviour. The present study presents an
analysis of such relationships and sheds additional light on the process leading to
investment in ‘equity mutual funds’.

2 Factors influencing investment decision

Al-Tamimi (2006) reported that investors consider accounting information,

self-image/firm-image, neutral information such as familiarity with macroeconomic
indicators, expert recommendations, and personal financial needs before investing in
equity securities. Investors invest in equity securities to obtain higher rate of return and to
diversify risk (Gill and Biger, 2009). Investment risk is a multidimensional construct with
four principal attributes:
1 the possibility of a very large loss
2 the possibility of rate of return that is lower than target return
 Factors that affect mutual fund investment decision of Indian investors 331

3 the ability to control loss

4 the investor’s level of knowledge [Olsen, 1997; Gill and Biger, (2009), p.137].
Nagy and Obenberger (1994) argue that although the classical wealth-maximisation
criterion is important to investors, they employ diverse criteria when choosing investment
in equities.
The investor’s (perceived) expertise is one of the principle attributes that impact on
investment decision. The relative importance of investor knowledge is a function of
idiosyncratic investor and asset characteristics. Gill and Biger (2009) indicate that
investors’ proportional investment in equity securities as part of their entire investment
portfolio is positively affected by their own perceived equity investment expertise. Byrne
(2005) argues that improved investment knowledge and experience enable people to
make better investment decisions. The more accurately investors perceive risk using
information, the better they understand the link between risk and return on mutual fund
investment. Better understanding of the link between risk and return in mutual fund
investment may lead to higher tendency to invest in mutual funds [Gill and Biger, (2009),
p.137]. Kadiyala and Rau (2004) also suggest that investors appear to under-react to prior
information and to information conveyed by events that lead to the different patterns,
return continuations, and long-horizon return.
Investor knowledge of ‘neutral information’ plays an important role in investment
decision making process. The concept of neutral information, in the context of this study,
is defined as the investors’ understanding of
1 recent mutual fund price movement
2 the current economic indicators (e.g., business cycle, GDP, etc.)
3 the fluctuation/developments in the mutual fund index.
This concept was used long ago by Siegel et al. (1979) who found that many investors
view financial statements as not useful for the purpose of investment decision-making.
These researchers conjectured that there are other sources of information which investors
feel to be more informative for investment decisions. Other sources of information can be
price movement in the equity funds, current economic indicators, and the
fluctuation/developments in the mutual fund index (Gill and Biger, 2009). This
information is termed here ‘neutral information’ because fluctuations in mutual funds’
prices, knowledge and understanding of macroeconomic indicators, and developments of
mutual funds indexes are not directly related to potential investors’ characteristics.
Economic data on financial markets, especially equity funds, is complex, imperfect,
and puzzling. Simons (2004) explains that many macroeconomic series are reported on a
quarterly basis with a lag of several weeks and are frequently revised. He also indicates
that profits as a percentage of GDP appear to lead real total returns on investment. Barber
and Odean (2008) found that individual investors display attention-driven buying
behaviour. The attention can be related to economic indicators, mutual fund prices, and
mutual fund indexes. Therefore it is important for the mutual fund investors to understand
financial market data. Merikas et al. (2003) reported that people base their equity fund
purchase decisions on economic criteria combined with diverse other variables. In
addition, they explain that speculative factors like ‘recent price movements in the firm’s
stocks’, and ‘affordable share price’ influence investors’ investment behaviour
significantly.
332 A. Gill et al.

Odean (1998) argues that many investors trade too much because they are
overconfident about the quality of their information. Such investors may overvalue the
importance of events that catch their attention, thus leading them to trade sub-optimally.
In a recent study, Gill and Biger (2009) found that investors’ proportional investment in
equity securities as part of their entire investment portfolio is positively affected by their
own perceived knowledge of what we call here ‘neutral information.’
Nagy and Obenberger (1994) indicate that the recommendations of brokerage
house, individual stock brokers, family members, and friends induce active trading.
Barber et al. (2001) examined changes in analysts’ recommendations and concluded
that these are positively associated with future excess return on securities. De Bondt
and Thaler (1987) suggest that the representativeness heuristic of investment
advisors may lead investors to buy securities with strong recent returns. Although
many investors rely on professional expertise, most of them tend to vary of these
information channels. In addition, many individual investors neither follow nor
understand the various classical ‘valuation models’ (Gill and Biger, 2009) that rank
mutual funds according to their risk-adjusted performance when they assess mutual
funds in their purchase decision. Indeed Gill and Biger (2009) have found that
investors’ proportional investment in equity securities as part of their entire investment
portfolio is positively affected by their own perceived consultation with an
advisor.
Krishnan and Booker (2002) analysed the factors influencing the decisions of
investors who use analysts’ recommendations to arrive at a short-term decision to hold or
to sell an equity fund. Their findings indicate that a strong form of the analyst’s summary
recommendation report (e.g., one with additional information supporting the analyst’s
position further) reduces the disposition error for gains and also reduces the disposition
error for losses. Finally O’Neal (2004) suggests that investment advisors and brokers play
a significant role in equity funds’ trading activities.
The limited literature review indicates that factors such as investment expertise,
knowledge of ‘neutral’ information, and consultation with advisors impact on mutual
fund investment decision of investors. It is important to note that there is a joint
family system in India which increases the number of family members. The average
family size in India is 5.24 (Niranjan et al., 2005). The large number of family
members may impact on the decisions of investors to invest in mutual funds. It has
also been observed that women are more risk averse than men and the young are
more risk seeking than the old (Clark and Strauss, 2008). Barber and Odean (2001)
argue that men are more overconfident than women in the area of investment. Investors’
age and gender may also affect mutual fund investment behaviour. Gender in particular
may be a moderating variable reflecting perhaps the different approach of female
and male investors to invest in mutual funds. Therefore, it is theorised that
investment expertise, knowledge of neutral information, and intensity of consultation
with advisors positively impact on mutual fund investment decision. We also examine the
extent to which family size, age, and gender affect the intensity of mutual fund
investment.
The following hypotheses were formulated:
H1 Investors’ proportional investment in mutual funds as part of their entire investment
portfolio is positively related to their own perceived expertise about mutual fund
investment.
 Factors that affect mutual fund investment decision of Indian investors 333

H2 Investors’ proportional investment in mutual funds as part of their entire investment

portfolio is positively affected by their own perceived knowledge and exposure to
general economic information.
H3 Investors’ proportional investment in mutual funds as part of their entire investment
portfolio is positively affected by their own perceived intensity of consultation with
an advisor.
Conjecture: There might be differences regarding the nature of the relationship between
the factors and the proportional investment in mutual funds as part of the investment
portfolio based on the investors’ level of education.
Investors’ level of education helps them understand the level of risk in the mutual
fund market. Finke and Huston (2003) indicate that investors with higher level of
education are willing take higher risk. It may be because they understand the risk in
securities investment better than the investors who have lower level of education.

3 Method

3.1 Research design

This study utilised survey research (a non-experimental field study design). To test the
hypotheses, p < .05 significance level was used to accept or reject a null hypothesis.

3.2 Measurement
Consistent with previous research, all measures pertaining to expertise of investors,
investor knowledge of neutral information, investor consultation with an advisor, and
mutual fund investment decision of investors were adopted from Gill and Biger’s (2009)
study.
All the scale items were reworded and the reliability of these re-worded items was
re-tested for construct validity. Respondents were asked to indicate their agreement with
each item, using a five-point Likert scale ranging from ‘none’ to ‘extreme’, related to
1 investment expertise of investors
2 investor knowledge of neutral information
3 investor consultation with an advisor variables.
Respondents were asked to indicate their agreement with each item, using a five-point
Likert scale ranging from ‘0%–5%%’ to ‘76%–100%’ related to ‘investment decision of
investors’ variable.
Three control variables age, family size, and gender were also used in this study.
1 Age control variable was measured by a single item that asked respondents to
indicate their ages. Categorised alternative responses were:
a 18–30
b 31–39
c 40–50
334 A. Gill et al.

d 51–59
e 60 and over.
2 Family size control variable was measured by a single item that asked respondents to
indicate number of family members in the family. Categorised alternative responses
were:
a 1–3
b 4–6
c 7–9
d 10 or more.
3 Gender control variable was measured by a single item that asked respondents to
indicate their genders. Categorised alternative responses were: 0 – male and
1 – female.

3.2.1 Investment expertise of investors

Investment expertise of investors is operationalised as the extent to which investors are

experienced and understand the mutual fund investment risk. Gill and Biger (2009) used
the two-item tolerance-of-freedom scale which measures the investors’ knowledge and
experience on investment products. Based on Gill and Biger’s (2009) confirmatory factor
analysis (CFA), two items were selected to measure the ‘investment expertise of
investors’ variable. Scale items were reworded and the reliability of these re-worded
items was re-tested.
We calculated a Cronbach’s alpha of .97 on the responses of the 30 respondents who
participated in the pre-test of the above scale items. Both items were included in the final
questionnaire.

3.2.2 Investor knowledge of neutral information

Investor knowledge of neutral information is operationalised as the extent to which

investors understand:
1 recent mutual fund price movement

2 the current economic indicators (e.g., business cycle, GDP, etc.)

3 the fluctuation/developments in the mutual fund index.
Gill and Biger (2009) used three items to measure ‘investor knowledge of neutral
information’ variable. Based on Gill and Biger’s (2009) CFA, all three items were
selected to measure this variable. Scale items were reworded and the reliability of these
re-worded items was re-tested.
We calculated a Cronbach’s alpha of .91 on the responses of the 30 respondents who
participated in the pre-test of the above scale items. All three items were included in the
final questionnaire.
 Factors that affect mutual fund investment decision of Indian investors 335

3.2.3 Investor consultation with an advisor

Investor consultation with an advisor is operationalised as the extent to which investors
consult their:
1 brokers
2 family members
3 friends before investing in mutual funds.
Gill and Biger (2009) used three items to measure ‘investor consultation with an advisor’
variable. Based on Gill and Biger’s (2009) CFA, all three items were selected to measure
the ‘investor consultation with an advisor’ variable. Scale items were reworded and the
reliability of these re-worded items was re-tested.
We calculated a Cronbach’s alpha of .89 on the responses of the 30 respondents who
participated in the pre-test of the above scale items. All three items were included in the
final questionnaire.

3.2.4 Investment decision of investors

Investment decision of investors is operationalised as “the proportion of investors’ total
portfolio” that they allocate in mutual funds in order to earn higher rate of return and to
diversify risk. Gill and Biger (2009) used three items to measure ‘investment decision of
investors’ variable. Based on that study, two items were selected to measure the
‘investment decision of investors’ variable. Scale items were reworded and the reliability
of these re-worded items was re-tested.
We calculated a Cronbach’s alpha of .95 on the responses of the 30 respondents who
participated in the pre-test of the above scale items. These two items were included in the
final questionnaire.

3.3 Sampling frame, questionnaire distribution, and collection

The current study consisted of the population of Indian investors who are employed and
invest funds in guaranteed investment funds and/or stock market. Indian investors living
in Punjab (Chandigarh, Ludhiana, Banga) and Delhi areas of India were chosen as a
sampling frame. To avoid sampling bias issues, it was ensured that subjects are selected
from Indian investors only.

3.4 Sampling method, sampling issues, and possible planned solutions

This study applied a convenience (non-random) sampling method to select and recruit the
research participants. To avoid sampling bias, surveyors were asked to only choose
participants that are indeed representative of the population. Non-Indian investors were
excluded.
To achieve a convenience sample, an exhaustive list of Indian investors’ names and
telephone numbers was created in order to distribute surveys and to conduct telephone
interviews. Survey questionnaire bundles coupled with an instruction sheet were provided
to participating surveyors for distribution.
336 A. Gill et al.

Approximately 900 surveys were distributed and 284 were returned, 8 of which were
not usable. The overall response rate was roughly one third.

4 Study procedures

4.1 Issues related to confidentiality of the research participants

All individuals who were approached were assured that their names will not be disclosed
and confidentiality will be strictly maintained. In addition all subjects were requested to
NOT disclose their names on the questionnaire. Since the research was based on the
survey questionnaire investors were not coerced to respond to any specific question.
All subjects were provided with stamped envelopes and confidentiality was assured.
There was no obligation for the subjects to answer questions over the telephone or in
person. Before any telephone interview the person was asked for willingness to
participate.
Investors’ consent letter specifically indicated that by completing the survey, subjects
have consented to participate in the study. Any information that was obtained in
connection with this study and that can be identified with subjects will remain
confidential and will be disclosed only with subjects’ permission or as required by law.

5 Analysis and results

5.1 Data analysis methods

Measures of central tendency, variance, skewness, and kurtosis were calculated on
responses to all of the items. Skewness measures for all of the items were within the
range of: +0.284 to +0.553, which is considered to be an excellent range for most
research that requires using statistics appropriate to normal distributions. Therefore, we
used statistics that assume scalar values and symmetric distributions to test our
hypotheses. Table 1 shows investor data statistics.
We began our analysis by factor analysing responses to the 10 items that described
the respondents’ feelings about their investment expertise of investors, investor
knowledge of neutral information, investor consultation of an advisor, and mutual fund
investment decision of investors.
Using a principle component rotation and a Varimax rotation, we ran a CFA on the
ten items. Four factors explained 94.63% of the variance in the ten items (see Table 2),
and all of the items loaded on the expected factors (see Table 3).
We then computed Cronbach’s Alphas on the above indicated clusters of items:
investment expertise of investors 0.9513; investor knowledge of neutral Information
0.9645; investor consultation of an advisor 0.9645; and mutual fund investment decision
of investors 0.9680.
We factor analysed the question subsets so that we could calculate weighted factor
scores. In terms of these weighted factor score items: two investment expertise of
investors, three investor knowledge of neutral information, three investor consultation of
an advisor, and two mutual fund investment decision of investors, loaded approximately
equally.
 Factors that affect mutual fund investment decision of Indian investors 337

Table 1 Investor data statistics

N = 276
x σ
Age 37.66 10.77
Family size 3.80 1.64

Investment expertise of investors

To what extent do you…?
IEOI1) …understand the mutual fund investment-risk? 2.30 1.12
IEOI2) …have mutual fund investment experience? 2.34 1.17

Investor knowledge of neutral information

To what extent do you understand…?
IKONI1) …recent mutual fund price movement? 2.34 1.09
IKONI2) …the current economic indicators (e.g., business cycle, GDP, etc.)? 2.31 1.16
IKONI3) …the fluctuation/developments in the mutual fund index? 2.42 1.18

Investor consultation of an advisor

To what extent do you consult…?
ICOA1) …a broker before investing in mutual funds? 2.37 1.11
ICOA2) …your family members before investing in mutual funds? 2.47 1.19
ICOA3) …your friends before investing in mutual funds? 2.48 1.23

Investment decision of investors

What proportion of your total individual portfolio (e.g., RRSPs, real estate
investment, personal savings, etc.) do you allocate in mutual funds to…?
IDOI1) …obtain higher rate of return? 2.30 1.05
IDOI2) …diversify risk? 2.17 1.05
Notes: N = number of responses
σ = standard deviation
x = mean score
Table 2 Total variance explained – rotation sums of square loadings

Total variance explained

Rotation sums of squared loadings
Component Total % of variance Cumulative %
1 3.009 30.095 30.095
2 2.771 27.707 57.801
3 1.971 19.713 77.514
4 1.712 17.118 94.632
Note: Extraction method: principal component analysis.
338 A. Gill et al.

Table 3 Rotated component matrix

Component
1 2 3 4
To what extent do you…?
IEOI1) …understand the mutual fund investment-risk? 0.305 0.435 0.774 0.266
IEOI2) …have mutual fund investment experience? 0.340 0.393 0.784 0.269

To what extent do you understand…?

IKONI1) …recent mutual fund price movement? 0.338 0.790 0.336 0.303
IKONI2) …the current economic indicators (e.g., business 0.340 0.784 0.332 0.261
IKONI3) …the fluctuation/developments in the mutual fund 0.336 0.789 0.371 0.286

To what extent do you consult…?

ICWA1) …a broker before investing in mutual funds? 0.830 0.302 0.250 0.298
ICWA2) …your family members before investing in mutual 0.842 0.291 0.269 0.253
ICWA3) …your friends before investing in mutual funds? 0.817 0.336 0.267 0.307

What proportion of your total individual portfolio (e.g., RRSPs,

real estate investment, personal savings, etc.) do you allocate in
mutual funds to…?
IDOI1) …obtain higher rate of return? 0.462 0.386 0.275 0.729
IDOI2) …diversify risk? 0.423 0.359 0.338 0.741
Notes: Extraction method: principal component analysis.
Rotation method: Varimax with Kaiser normalisation.
Rotation converged in 6 iterations.
Table 4 Pearson bivariate correlation analysis

IDOI IEOI IKONI ICOA Age Family size Gender

IDOI 1 0.762** 0.796** 0.812** –0.129* 0.082 0.103
IEOI 1 0.826** 0.717** –0.112 0.018 0.043
IKONI 1 0.745** –0.150* 0.054 0.100
ICOA 1 –0.064 0.017 0.195**
Age 1 0.285** –0.143*
Family size 1 –0.033
Gender 1
Notes: **Correlation is significant at the 0.01 level (two-tailed)
*Correlation is significant at the 0.05 level (two-tailed)
IEOI = investment expertise of investors
IKONI = investor knowledge of neutral information
ICOA = investor consultation of an advisor
IDOI = investment decision of investors
Table 4 provides the Pearson correlation for the variables that we used in the regression
model. Pearson’s correlation analysis was used for data to find the factors that affect
mutual fund investment decision of Indian investors. We found that the investment
 Factors that affect mutual fund investment decision of Indian investors 339

expertise of investors, investor knowledge of neutral information, and investor

consultation of an advisor are positively correlated with the investment decision of Indian
investors. The positive correlations explain that investment expertise of investors,
investor knowledge of neutral information, and investor consultation of an advisor
positively impact on the investment decision of Indian mutual fund investors. A negative
relationship between investors’ age and investment decision of investors were also found.
The negative relationship explains that as the Indian investors get older, their tendency to
invest in mutual funds tend to go down.
Table 5 Regression coefficientsa, b, c

Un-standardised Standardised Collinearity

coefficients coefficientsc t Sig. statistics
B Std. error Beta Tolerance VIF
(Constant) 0.066 0.123 0.537 0.592
IEOI 0.183 0.056 0.183 3.272 0.001 0.289 3.463
IKONI 0.285 0.059 0.285 4.857 0.000 0.262 3.820
ICOA 0.470 0.048 0.470 9.805 0.000 0.390 2.562
Age –0.006 0.003 –0.061 –1.881 0.061 0.867 1.154
Family size 0.043 0.019 0.072 2.278 0.023 0.904 1.106
Gender –0.068 0.068 –0.031 –0.997 0.320 0.922 1.085
Notes: Regression equation:
IDOI = 0.066 + 0.183 IEOI + 0.285 IKONI + 0.470 ICOA – 0.006 Age
+ 0.043 Family Size – 0.068 Gender
a
dependent variable: IDOI.
b
independent variables: IEOI, IKONI, ICOA, age, family size, and gender.
Age was dealt with as a single dummy variable:
1 18–30
2 31–39
3 40–50
4 51–59
5 60 and over.
Average scores
(18 + 30 / 2 = 24) were calculated to conduct regression analysis.
Family Size was dealt with as a single dummy variable:
1 1–3
2 4–6
3 7–9
4 10 or more.
Average scores (1 + 3 / 2 = 2) were calculated to conduct regression analysis.
Gender was dealt with as a single dummy variable: 0 – male, 1 – female.
c
Linear regression through the origin.

6 Testing of hypotheses

It was hypothesised that investors’ proportional investment in mutual funds as part of

their entire investment portfolio is positively related to their own perceived
340 A. Gill et al.

1 expertise about mutual fund investment

2 knowledge and exposure to general economic information
3 intensity of consultation with an advisor.
Positive relationships between
1 IEOI and IDOI
2 IKONI and IDOI
3 ICOA and IDOI
4 family size and IDOI were found (see Table 5).
That is, Indian investors’ proportional investment in mutual funds as part of their entire
investment portfolio is positively related to their own
1 perceived mutual fund investment expertise
2 knowledge and exposure to neutral information
3 intensity of consultation with an advisor.
No significant relationships between
1 gender and IDOI
2 age and IDOI were found (see Table 5).
The test for multicolinearity was also performed. All the variance inflation factor (VIF)
coefficients are less than 4 and tolerance coefficients are greater than 0.26. Nevertheless,
we performed an additional regression test that is reported at the end of the section before
discussion.
Table 6 Model summary

R R2 Adjusted R2 SEE
a
0.871 0.758 0.753 0.497
a
Notes: Predictors: (Constant), gender, family, IEOI, age, ICOA, and IKONI.
SEE = standard error of the estimate.
Note that around 75.80% of the variance in the degree of mutual investment decision of
the Indian investors can be explained by the degree of perceived gender, family size,
IEOI, age, ICOA, and IKONI (see Table 6). The r2 (0.758) is high due to the high
correlations between
1 IEOI and IKONI [r = 0.826]
2 IEOI and ICOA [r = 0.717]
3 IKONI and ICOA [r = 0.745] (see Table 4).
That is, the higher the correlation among independent variables, the higher the r2.
The high significant positive correlations between
 Factors that affect mutual fund investment decision of Indian investors 341

1 investment expertise of investors and investor consultation of an advisor

2 investor knowledge of neutral information and investor consultation of an advisor
may be because of the joint family system in India in which people ask other
people’s opinion before making investment decisions.
Table 7 ANOVAa, b

Sum of squares df Mean square F Sig.

Regression 208.506 6 34.751 140.585 0.000a
Residual 66.494 269 0.247
Total 275.000 275
a
Notes: Predictors: (xonstant), gender, family size, IEOI, age, ICOA, and IKONI.
b
Dependent variable: IDOI.
As shown in Table 7, ANOVA’s test is significant at 0.000.
Further examination of the data indicates that some of the ‘explanatory’ variables
exhibit relatively high multicolinearity. Therefore, we performed an additional regression
test where only explanatory variables that have non-significant linear correlations among
them were included. The variable that are significant are IEOI, IKONI, and ICOA with
the following results:
Table 8a Revised regression results

R R2 Adjusted R2 SEE
0.867 0.752 0.749 0.501
Note: Predictors: (constant), ICOA, IEOI, and IKONI.
Table 8b ANOVA a, b

Sum of squares df Mean square F Sig.

Regression 206.670 3 68.890 274.227 0.000a
Residual 68.330 272 0.251
Total 275.000 275
a
Notes: Predictors: (constant), ICOA, IEOI, and IKONI.
b
Dependent variable: IDOI.
Table 8c With the regressions coefficients

Explanation B SE T P
(Constant) 5.356 0.030 0.000 1.000
IEOI Expertise 0.184 0.056 3.305 0.001
IKONI General information 0.307 0.058 5.276 0.000
ICOA Consultation with advisors 0.451 0.047 9.600 0.000
Note: Dependent variable: IDOI.
342 A. Gill et al.

7 Discussion

The main purpose of this study was to determine whether investors’ proportional
investment in mutual funds as part of their entire investment portfolio is positively
affected by their own perceived
1 mutual fund investment expertise
2 knowledge of neutral information
3 consultation of an advisor.
This was done by surveying a sample of Indian investors. These investors’ perceptions
and judgments are the basis of our findings that investors’ proportional investment in
mutual funds as part of their entire investment portfolio is positively affected by their
own perceived
1 mutual fund investment expertise
2 knowledge of neutral information
3 consultation of an advisor.

Figure 1 Factors influencing mutual fund investment decision of investors

Figure 1 shows the factors that influence the mutual fund investment decision of Indian
investors. The overall ranking of the factors that lead investors to invest in mutual funds
are as follows:
1 ICOA (Beta = 0.470)
2 IKONI (Beta = 0.285)
3 IEOI (Beta = 0.183).
The above findings are only marginally affected by investors’ family size. Age and
gender were not significant factor in the investment decisions. The findings of this paper
 Factors that affect mutual fund investment decision of Indian investors 343

lend some support to Nagy and Obenberger’s (1994), Al-Tamimi’s (2006), and Gill and
Biger’s (2009) research on the factors that influence investor behaviour.

7.1 Recommendations for investment advisors

The significant positive correlations between
1 investment expertise of investors and investor consultation of an advisor
2 investor knowledge of neutral information and investor consultation of an advisor
show that Indian investors are risk averse.
To reduce the perceived investment risk, they seek consultants’ advice before investing in
equity funds. Thus, Indian investors can be considered conservative investors. Therefore,
investment advisors must be careful when they provide investment advice to invest in
equity funds. That is, investment advisors should not suggest aggressive funds to
conservative investors because it may create ethical issues.
The significant negative correlation between investor knowledge of neutral
information and age describes that older investors have low knowledge of neutral
information. This may be because once investors start to get older, their interest in neutral
information tends to go down due to the lower propensity to invest in equity funds. That
is, investment advisors should not suggest aggressive funds to older investors. The
conservative investment advice such as investing money in fixed-income funds may be
appropriate for the older Indian investors.
The significant positive correlation between family and age indicates that Indian
investors seek older family members’ advice before investing money in the equity funds.
This may be because of the joint family system in India. Therefore, investment advisors
must understand the joint family system in India and its impact on investment behaviour
of investors.
The significant positive correlation between gender and investor consultation of an
advisor explains that the male and female investors may not have same intensity to seek
investment consultant’s advice. The significant negative correlation between gender and
age points out that there is a gender difference based on the investors’ age (see Table 4).
Therefore, investment advisors must treat each investor differently based the age, gender,
and individual situation. In addition, the investment advisors must understand the gender
differences in India. Finally, the investment consultants must understand the joint impact
of investment expertise of investors, investor knowledge of neutral information, investor
consultation of an advisor, and family size on the investment behaviour of Indian
investors. This, in turn, will help investment managers and investment advisors to
succeed in the investment management field.

7.2 Practical implications

The practical implications is that if investors perceive that they have higher level of
1 investment expertise
2 general knowledge and understanding of macroeconomic indicators
3 consultation of an advisor, their proportional investment in mutual funds as part of
their entire investment portfolio tends to rise.
344 A. Gill et al.

7.3 Future research

This study focused on Indian investors, and responses were garnered regarding their
investment expertise, familiarity with economic information, consultation of an advisor,
and investments in ‘equity mutual funds’. While the study investigated the investor-side
of this relationship, future research might seek to assess both investor and investment
advisor perspectives to ascertain the consistency across the dyad.
To further enhance the generalisation of the findings beyond the mutual fund market,
additional research in other fields is advocated, complemented by studies focusing on a
longitudinal design, allowing for tracking and assessing the evolution of the determinants
of investor behaviour over time.

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