CHAPTER II

RE\!IEW OF LITERATURE
 CHAPTER II
REVIEW OF LITERATURE
2.1 INTRODUCTION:-
The review of literature is an important task of the research work. lt assists to understand the
significance, background and current position related to the chosen for the research study. So it is
necessary to review all kinds of literature related to the subject matter. Review of the relevant
literature and the past imperial studies connected with the research work is presented here i n
brief.

The research material which is available on the subject classified into the following parts-

2.2 Articles published in Journals and newspapers.

2.3 Researcher Papers Presented in Seminars, Workshops, Conferences.
2.4 2.4 Books related to Mutual Funds

2.2 Articles published in Journals and newspapers.

In this section the literature study has been done by analyzing the various research studies done
by the various researchers in this regard i.e the investors perception and awareness regarding the
mutual fund investment from time to time. In India, one of the earliest attempts was made by
NCAER in 1964 when a survey of households was undertaken to understand the attitude towards
and motivation for saving of i ndividuals. Another NCAER study in 1996 analyzed the structure
of the capital market and presented the views and attitudes of individual shareholders.

SEBI - NCAER Survey (2000) was carried out to estimate the number of households and the
population of individual investors, their economic and demographic profile, portfolio size, and
investment preference for equity as well as other savings instruments. This is a unique and
comprehensive study of Indian Investors, for; data was collected from 3,00,0000 geographically
dispersed rural and urban households. Some of the relevant findings of the study are:

Household's preference for instruments match their risk perception;

Bank Deposit has an appeal across all income class; 43% of the non-investor households
equivalent to around 60 million households (estimated) apparently lack awareness about stock
markets; and, compared with low income groups, the higher income groups have higher share of
investments in Mutual Funds (MFs) signifying that MFs have still not become truly the
investment vehicle for small investors. Nevertheless, the study predicts that in the next two years
(i.e., 2007 hence) the investment of households in MFs is likely to increase. (Note: Behavior is a
reaction to a situation. So as situation changes, behavior gets modified. Hence, findi ngs and
predictions of behavior studies should be viewed accordingly).

Dr. Shantanu Mehta, Charmi Shah; "Preference of Investors for Indian Mutual Funds and
its Performance Evaluation" Mutual funds have opened new vistas to millions of small
investors by virtually taking investment to their doorstep. In India, a smal l investor generally
goes for such kind of information, which do not provide hedge against inflation and often have
negative real returns. He finds himself to be an odd man out in the investment game. Y1utual
funds have come, as a m uch needed help to these investors. Thus the success of MFs is
essentially the result of the combined efforts of competent fund managers and alert i nvestors. A
competent fund manager should analyze investor behavior and understand their needs and
expectations, to gear up the performance to meet investor requirements. Therefore, i n this current
scenario it is very important to identify needs of mutual funds investors, their preference for
mutual funds schemes and its performance evaluation. In this research paper, researcher has an
objective to know preference of mutual funds investors and performance evaluation of the
preferred schemes by the investors. The survey is undertaken of I00 educated investors of
Ahmadabad and Baroda city and the major findings reveal the major factors that influence
buying behavior m utual funds investors, sources that investor rely more while making
investment and preferable mode to invest in mutual funds market. The study will be immensely
useful to the AMC';s , Brokers, distributors and to the other potential investors and last but not
least to academician as well.

V. Rathnamani,(2013), "Investor's Preferences towards Mutual Fund Industry in Trichy",

A Mutual fund is the ideal investment vehicle for today's complex and modern financial
scenario, there has been growing importance of mutual fund investment in India, when compared
with other financial instruments. Investments in mutual funds are safer and also yields more

IO
returns on the portfol io investment. Mutual fund are said to be the best channels for mobi l
izing the funds of the small investors and contribute significantly to the capital markets. The
present study explains briefly about the mutual fund industry, The study also helps to understand
the role of investment pattern and preferences of investors behi nd i nvesting i n mutual fund.

Ms Manasa Vipparthi Ashwin Margam (2013) "Perceptions of investors on mutual

funds: A comparative study on public and private sector mutual funds" Indian Mutual
Fu nd (MF) ind ustry provides reasonable options for an ordinary man to invest in the share
market. The plethora of schemes provides variety of options to suit the individual objectives
whatever their age, financial position, risk tolerance and return expectations. In the past few
years, we had seen a dramatic growth of the Indian MF industry with many private players
bringing global expertise to the Indian MF i ndustry. Investment in mutual funds is effected by
the perception of the investors. Financial markets are constantly becoming more efficient by
providi ng more promising solutions to the investors. Being a part of financial markets
although mutual funds industry is responding very fast by understanding the dynamics of
investor's perception towards
rewards, still they are continuously following this race i n their endeavor to differentiate their
products responding to sudden changes in the economy. Therefore a need is there to study
investor's perception regarding the mutual funds. The study at first tests whether there is any
relation between demographic profile of the investor and selection of mutual fund alternative
from among public sector and private sector. For the purpose of analysis perceptions of selected
i nvestors from public and private sector mutual funds are taken into consideration. The major
perceptual factors identified are Liquidity, Security, Flexibility, Transparency, Returns and Tax
benefits along with Monetary and Core product as the most influencing factors

Mochi Pan kajkumar Kantilal,(2012) "Strategies for Mutual Fund Investment" Over the
past decade, investors of India increasingly have moved to mutual funds to save their hard earned
money for their various goals. Mutual funds can provide the advantages of diversification and
professional management. But, as with other investment choices, i nvesting in mutual funds
involves risk. Also fees and taxes may diminish a fund's returns. To make m utual funds work for
you, you are required to understand their strategies and risks. On the other side there are
thousands of mutual funds to choose from and a lot of options to consider . Knowing a strategy
can enable mutual funds investors to properly evaluate performance , adopt reasonable
expectations, and build a po1tfolio of funds that work together. It also can help investors to
choose products that match their goals and tolerance for risk.

De Bondt and Thaler (1985) while investigating the possible psychological basis for investor
behaviors, argue that mean reversion in stock prices is an evidence of investor over reaction
where investors overemphasize recent firm performance in forming future expectations.

Dr.G.Santhiyavalli; M.Usharani, "A Study On Investment Avenues With Particular

reference To Mutual Fund Many developments have been taking place in the Indian capital
market with the opening of the Indian economy .The Indian financial system fosters savings
among the public and channels them to their most efficient use through financial institutions or
intermediaries operating in the money and capital markets segments. One such financial
intermediary which has played a significant role in the development and growth of capital
markets is Mutual Fund. Like most developed countries the mutual fund cult has been catching
on i n I ndia. There are various reasons for this. Mutual fund makes it easy and less costly for
investors to satisf.y their need for capital growth and income generation. In addition to this, a
mutual fund brings the benefit of diversification and money management to the ind ividual
investors, providing an opportunity for financial success that was once available only to a select
few.This paper will focus on saving pattern of investors, investment ·avenues, awareness about
various investments and preference towards mutual funds and their different types.

Bhagat Sanjai June 22 1999 "Why Consu mers Choose Managed Mutual Funds Over
Index Funds: Hypotheses from Consumer Behavior." Much evidence exists which suggests
that the vast majority of equity mutual fund managers do not possess differential information (or
skills) which allow them to achieve above average market returns for their investors. Thus, when
investors pay fees to equ ity mutual fund managers for investment advice and management , the
very probable outcome is that they are reducing the return that they would otherwise achieve by
investing in a no managed index fund that tracks the total stock market (e.g., Wilshire 5000) or
some significant portion of it (e.g., the Standard & Poor's 500). The long-term negative
consumer welfare implications are large, very possibly in the hundreds of thousands of dollars

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for individual consumer investors. Drawing largely on insights from the psychology, consu mer
behavior, and behavioral finance literatures, we offer a series of hypotheses that may partially
account for such consumer choices. We conclude with a call for i ncreased government- and
employer-sponsored education programs aimed at creating a more informed consumer investor.

Falkenstein, Eric(1996)"Preferences for Stock Characteristics as Revealed by Mutual Fund

Portfolio Holdings " Th is investigation of the cross-section of mutual fund equ ity holdi ngs for
the years 1991 and 1992 shows that mutual funds have a sign ificant preference towards stocks
with high visi bil ity and low transaction costs, and are averse to stocks with low idiosyncratic
volatility. These find ings are relevant to theories concerning investor recogn ition, a potential
agency problem i n mutual funds, tests of trend-following and herd behavior by m utual funds, and
corporate finance.

Lunde, Tim mermann, and Blake (1999), in "The Hazards of Mutual Fu nd

Underperformance: A Cox Regression Analysis" investigate the relationship between funds'
conditional probabi l ity of closure and their return performance. The authors explain that the
process of fund attrition rates is important because: ( I ) survivorship bias is impacted by the
funds' lives and their relative performance; (2) duration profiles of funds is important for
understanding fund managers' incentive envi ronments; and (3) term ination processes may
provide information about investor reaction to poor performance. The paper measures the
importance of various factors influencing the process and rate by which funds are terminated.
After examin ing a data set of dead and surviving funds (973 and 1402, respectivel y), the authors
present some reasons why funds are terminated: (I) not reaching critical mass in capitalization ,
(2) merging a poorly perform ing fund with a similar, more successful fund, and (3) mergi ng or
closing a poorly perform i ng fund to improve family group performance overall. All of these are
related to fund performance, which the authors use to explain fund deaths.

K. Laksh mana Rao, Department Of Commerce & Management Studies, And hra
University, "Analysis Of Individual Investors Behaviou r Towards .Mutual Fu nd
Schemes (A Study On Awa reness And Adoption Of Educational Levels) "Visakhapatna m
-, Andhra Pradesh, India. This paper presents mutual fund investors awareness and adoption
of different mutual fund schemes with educational levels. Educational level is important factor
that influence

13
the behavior of investment decisions. Increasing educational level attain ment is associated with
decreased levels ofrisk tolerance.

An investor 's level of formal education has found to influence risk tolerance. 350 respondents
have been selected for th is study, for three districts and five schemes in the Andhra Pradesh .
The chi-sq uare test has adopted to examine the association between the formal and technical
education factors with the awareness and adoption of the mutual fund schemes.

2.3 Researcher Papers Presented in Seminars, Workshops, Conferences:

Susanta Swain, Dr. Ansuman Sahoo, focused on "Investors Perception and Growth
Prospects of Mutual Funds: With Special Reference to SBI Mutual Fund" Bh ubaneswa r,
Financial markets are constantly becomi ng more efficient by providing more promising solutions
to the investors. Being a part of financial markets although mutual funds industry is res1xmding
very fast by understanding the dynamics of investor 's perception towards rewards , still they are
continuously following this race i n their endeavor to differentiate their products responding to
sudden changes in the economy. Thus, it is high time to understand and analyze investor's
perception and expectations, and unveil some extremely valuable information to support
financial decision making of mutual funds. In few years Mutual Fund has emerged as a tool for
ensuring one's financial well being. Mutual Funds have not only contributed to the India growth
story but have also helped families tap into the success of Indian Industry. As information and
awareness is risi ng more and more people are enjoying the benefits of investing in mutual funds.
The main reason the number of retail mutual fund investors remains small is that nine in ten
people with incomes in Jndia do not know that mutual funds exist. But once people are aware of
mutual fund investment opportunities, the num ber who decide to invest in mutual funds increases
to as many as one in five people. The analysis and advice presented in this paper is based on
market research on the saving and investment practices of the investors and preferences of the
investors for investmem i n Mutual Funds. This paper will help to know about the investors'
Preferences in Mutual Fu nd means Are they prefer any particular Asset Management Company
(AMC), Which type of Product they prefer, Which Option (Growth or Dividend) they prefer or
Which Investment Strategy they follow (Systematic Investment Plan or One time Plan).

14
Sumedh A. Gidd (May 2013) "A Study of Investors Psychology with Respect to Mutual
Funds from Vita City", Tal-Khanapu r, District-Sangli ,Assistant Professor, Department of
Commerce and Management, Balwant College, Vita, Dist.-Sangli (Maharashtra) ,There are
lots of investment avenues available today in the financial market. For an investor with invest
able surplus. Investor can invest in bank deposits, corporate debentures and bonds. Where
there is low risk but low return. The recent trends in the stock market have shown that
average retail investors always lost with periodic bearish trends, people began opting for
portfolio managers
with expertise in stock market that would invest in their behalf. These investors have found a
good shelter with the mutual bank. Now investors have wide range of schemes to choose from
depending on their individ ual profiles. The study gives an overview of mutual funds. Thus,
Mutual Fund is the most suitable investment for common man as it offers an opportun ity to
invest in a diversified, professionally managed portfolio at a relatively low cost. Anybody with
an investible surplus of as little as a few thousand rupees can invest in Mutual Funds. A typical
individual is unlikely to have the knowledge, skills, inclination and time to keep track of events,
understand their i mplications and act speed ily.

Treynor and Mazuy(l966), in "Can Mutual Funds Outguess the Market?", discuss how
investors frequently expect managers to be able to anticipate market moves, and the dilemma of
whether or not managers should try to time the market. In addressing the issue, they explain that
the only way a fund can translate ability to outguess the market into higher shareholders' returns
is to vary the fund's systematic volatility in a manner that results in an upwardly concave
characteristic line. Retu rns for 57 funds (1953-1962) are employed to determine if the volatility
of a fund is higher in up-years than in years when the market does poorly. They compute a
characteristic line wherein a managed fund's return is plotted against the rate of return for a
suitable market index.

Dr.G u rsharan Singh Kainth and Man pinderKa ur: To examine the investors ' perception, a
sample of 300 investors of Jaland har investing in mutual fund was selected. 34 per cent of the ,
target population included business class, 50 per cent service class and the remaining 16 per cent
were professionals who have invested in m utual funds. Nearl y three-fourth of the target
population was in the age group of 25 to 50 years of age. One fourth of the target popu lation was
above 50 years of age and the balance 6 per cent below 25 years of age. Furthermore, one-fourth

15
of the investors fall between the income group of Rs. 40,000 to 50,000; 16 per cent in above
50,000 income class. Majority of the investors (58 per cent) fall between the income groups of
Rs. I 0, 000 to 40,000 per month. On the other hand, one-fifth of the respondents are not satisfied
with thei r investment due to poor service after sales (9 per cent), other better paying avenues in
the market (6 per cent) and longer redemption period (21 per cent).One half of the investors
believe bright future of mutual fund industry. Only 5 per cent believe to be dark and 9 per cent it
is a risky avenue. One-tenth of the investors believe that most of the people are not aware about
the functioning of the mutual fund industry. Some generally people have a traditional mind set of
investing in banks, post offices and government securities. In the era of declining interest rates,
investors are looking foe at other avenues and mutual funds is the foremost avenue.

Madhusudhan V Jambodekar (1996) conducted a study to assess the awareness of MFs among
investors, to identify the information sources influencing the buying decision and the factors
influencing the choice of a particular fund. The study reveals among other things that Income
Schemes and Open Ended Schemes are more preferred than Growth Schemes and Close Ended
Schemes during the then prevalent market conditions. Investors look for safety of Principal ,
Liquidity and Capital appreciation in the order of importance ; Newspapers and Magazines are
the first source of i nformation through which investors get to know about MFs/Schemes and
investor service is a major differentiating factor in the selection of Mutual Fund Schemes.

Gupta (1994) made a household investor survey with the objective to provide data on the
investor preferences on MFs and other financial assets. The findings of the study were more
appropriate, at that time, to the policy makers and mutual funds to design the financial products
for the future.

Kavitha Ranganathan 2006 "A Study of Fund Selection Behavior of Individ ual Investors
Towards Mutual Funds - with Reference to Mumbai City" Consumer behaviors from the
marketing world and financial economics has brought together to the surface an exciting area for
study and research: behavioral finance. The realization that this is a serious subject is, however ,
barel y dawning. Analysts seem to treat financial markets as an aggregate of statistical
observations, technical and fundamental analysis. A rich view of research waits this sophisticated
understanding of how financial markets are also affected by the 'financial behaviors' of investors.

16
With the reforms of industrial policy, public sector, financial sector and the many develo:Jments
i n the Indian money market and capital market, Mutual Funds which has become an im ;:iortant
portal for the small investors, is also influenced by their financial behaviors. Hence, the study
has made an attempt to examine the related aspects of the fund selection behaviors of individual
investors towards Mutual funds, in the city of Mumbai. From the researchers and academicians
point of view, such a study will help in developing and expanding knowledge i n this field.

2.4 Books related to Mutual Funds

1) Chandra Prasanna, "The Investment Game" Tata Mc- Graw Hill Publishing, New Delhi.

2) Desai Vasant, "Indian Financial System" Himalaya Publishing House, New Delhi.

3) Fisher Donald E. and Jordan Ronald J., "Security Analysis and Portfolio Management"
Prentice Hall of India, Pvt. Ltd. Sixth Edition, New Delhi.

4) Pathak Bharati V., "Indian Financial System" Pearson Education Publ ishing, New Delhi.

5) Ramola K.S., "Mutual Fund and the Indian Capital Market" Yojana, Vol. 36, No 11,
June 30, 1992.

6) Vyas, B.A. "Mutual Funds- Boon to the Common Investors" Fortune India, July 16,
1990.

7) Bhalla,V.K And Tuteja,S.K(1992) , "Investment Management", S.Chand & Company,

New Delhi

8) Gupta,L.C (1993), "Mutual Fund And Asset Preference Household Investors Survey",
Society For Capital Market, research And Development ,New Delhi, 1993

9) Sadhak H.(1 997), "Mutual Funds In India: Marketing Strategic And Investment
Practices", Response Books, Sage Publications, Inc.

17
 J O) Gupta Santosh (2003), "Research Methodology And Statistical Techn iques", Deep
And Deep Publ ications, New Delhi.

11) Kothari.C.R ,"Research Methodology: Methods and Techniq ues" New age
international Publications Ltd. ,2nd Edition, New Del hi

REFERENCES

Dr.Shantan u Mehta, Charmi Shah; "Preference of Investors for Indian Mutual Funds
and its Performance Evaluation" Pacific Business Review International, Vol.3, Issue.5,pp62-
76

V. Rathnamani,(2013), "Investor's Preferences towards Mutual Fund Ind ustry in Tricby'1,

IOSR Journal of Business and Management, Volume 6, Issue 6,pp.48-55

Ms Manasa Vipparthi, Ashwin Margam (2013) "Perceptions of investors on m utual

funds: A comparative study on pu blic and private sector m utual funds" Research .Journal
of Business Management and Accounting Vol. 2(2), pp. 036 -047.

Mochi Pankajku mar Kantilal,(2012) "Strategies for Mutual Fund I nvestment "Indian
.Journal of Research-paripex ,Volume : 1, Issue : 10,pp. 1 21-124

De Bondt and Thaler (1985) International Journal of Research in Commerce and

Management Vol.3 Issue 5, pp.103-1 05

Dr.G.Santhiyavalli: M.Usharani, "A Study On Investment Aven ues With Particula r

reference To Mutual Fu nd" International Journal of Multidisciplinary Management Studies
Vol.2 Issue 1, pp.286-293

Bhagat Sanjai June 22 1999 "Why Consu mers Choose Managed Mutual Fu nds Over
Index Fu nds: Hypotheses from Consumer Behavior." International Journal of Research
Computer applications and management, Vol.2, Issue no. 7, pp.1-39

Falkenstein, Eric(1996)"Preferences for Stock Characteristics as Revealed by Mutual Fund

Portfolio Holdings", Journal of Finance, Vol. 51 No. l ,pp. I I l -135

Lunde, Timmermann, and Blake (1999), in "The Hazards of Mutual Fund

Underperformance: A Cox Regression Analysis" Journal of Empirical Finance,
Volume 6, Number 2, April 1%9, pp. 12 1 -1 52
K. Lakshmana Rao (2011) "Investors Perception and Growth Prospects of Mutual Funds: With
Special Reference to SBI Mutual Fu nd", International Journal of Marketing and Management
Research, Vol.2,Jssue:/ l,pp.145-160

Susanta Swain, Dr. Ansuman Sahoo, focused on "Investors Perception and Growth
Prospects of Mutual Funds: With Special Reference to SBI Mutual Fund" Bh u baneswar

Sumedh A. Gidd (May 2013) "A Study of Investors Psychology with Respect to Mutual
Funds from Vita City'', Tal-Khanapur, District-Sangli ,Assistant Professor, Department of
Commerce and Management, Balwant College, Vita, Dist.-Sangli (Maharashtra)

Treynor and Mazuy(1966), in "Can Mutual Funds Outguess the Market?",

Dr.Gursharan Singh Kainth and ManpinderKaur, The investor's perception a sample of 300
i nvestors of Jalandhar investing in mutual fund".

Madhusud han V Jam bodekar (1996) ,The awareness of MFs among investors, to identify
the information sources influenci ng the buying decision and the factors infl uencing the
choice of a particular fund.

Gupta (1994) made a household investor survey with the objective to provide data on the
investor preferences on MFs and other financial assets.

Kavitha Ranganatha n 2006 "A Study of Fund Selection Behavior of Individ ual
Investors Towards Mutual Funds - with Reference to Mumbai City".

2.5 CONCLUSION: .

From the above review it can be inferred that Mutual Fund as an investment
vehicle is capturing the attention of various segments of the society, for varied
reasons and deserves an in depth study.
Thus, the review of literature gives an idea about the past and present position,
changing streams and future challenges in Mutual Fund industry.

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