MF is a retail product designed to target small investors, salaried people and others
The safety of principal guaranteed, the added advantage of capital appreciation.
The mutual fund companies need to improve upon their weak areas
There has been considerable growth in the mutual fund industry since its inception in 1963. The rapid growth of the Indian mutual fund industry is reflected in the increase in Assets under management of various fund houses.
Considering Mutual Fund (MF) investors in India, it is widely believed that MF is a retail product designed to target small investors, salaried people and others who are intimidated by the stock market; however, they like to reap the benefits of stock market investing.
What are the driving forces of mutual funds?
The safety of principal guaranteed, the added advantage of capital appreciation along with the income earned in the form of interest or dividend, are the factors that make people prefer mutual funds to life insurance, bank deposits, chit funds and even bonds.
They can get started with their investment journey with little money.
Mutual funds act as a gateway to enter into big companies and own a string of blue chips like ITC, TISCO, and Reliance etc. through it that hitherto inaccessible to an ordinary investor with his small investment.
Why MF targets the investors?
The “expectations” of the investors play a vital role in financial markets. They usually influence the volume traded, price of the securities, and determine many other things in actual practice. These ‘expectations’ of the investors are influenced by their “perception,” and they relate perception to action.
Investors at the retail level are unique and represent a highly heterogeneous group. A gamut of products are on offer in the mutual fund industry. This increases the consumer confusion in his selection of the product. They are confused as to how to sift the grain from the chaff? Therefore MF schemes need to be tailored to their changing needs. Unless the AMCs understand the fund selection/switching behavior of the investors, the survival of funds will be difficult in the future.
The mutual fund companies need to improve upon their weak areas regarding the factors that influence investor’s decision making as regards the choice of a mutual fund and the facilities or options they expect from a mutual fund.
To improve the scope of the mutual funds market, the MF product designers need to build strategies to introduce innovative products. They must know the nerves of the retail investors as follow:
The factors that influence investment decisions of retail investors in Mutual funds
- Tax benefits, high return, price and capital appreciation are some of the major factors that influence the investors while investing in mutual funds. Liquidity, diversification, risk and brand image also have some influence on the final mutual fund purchase decision of the investor.
- The primary source of knowledge about mutual funds as an investment option is from sales representatives to most of the retail investors, followed by the internet, newspaper/journals, television and from friends /relatives.
- Prospective retail investors seek expert advice and rely on their advice the most while taking their investment decision. Some investors depend on the CRISIL, ICRA ratings etc. to decide as to where to invest. A few investors seem to analyze the past performance (NAV) or the asset management company.
- Retail investors collect information related to the performance of various mutual funds primarily from financial consultants, brokers, financial institutions, magazines/newspapers internet, TV channels, respectively.
The investors’ perception and preference for mutual funds
- Mutual funds are gaining popularity. The total money invested may be small, but the number of investors is large, and they would like to invest more in these in the future.
- Strong grievance mechanisms, regulations and expert advice might turn NMFI into MFI. Information related to government regulations and other training programs, however, would not be enough to motivate NMFI towards investment in mutual funds.
- Most of the investors invest once in a year; some invest once in six months and some on a monthly basis. This infers that almost all investors follow a regular investment pattern.
- Most of the investors prefer e-mail /internet for the mode of communication for receiving updates and performance of the portfolio of mutual funds. They also prefer telephone and personal visits. However, direct mail is the least preferred mode of communication.
- The level of satisfaction of investors regarding mutual funds based on risk exposure is average, and that of the overall experience is also average.
- Most of the investors accept the fact that investing in mutual funds will lead to economic development.
The factors that prevent investors from investing in mutual funds
Factors that hinder investment in mutual funds by investors are bitter past experience. Difficulty in the selection of schemes is another preventing factor. For some investors, it is lack of knowledge that prevents them from investing in mutual funds. The lack of confidence in service and inefficient investment advisers are among other factors that prevent them from investing.
The motivating factors that encourage the investors to invest in the mutual fund industry
The motivating factors that encourage the investors to invest in the mutual fund industry, such as tax benefit, return potential, liquidity, low-cost, and transparency, are the major factors that motivate a retail investor to invest in mutual funds. Economies of scale are also a motivating factor to a certain extent.
The best mutual fund schemes to investors as per their performance
The mutual fund plan, which is considered the best, is an equity plan followed by income plan, balanced plan and other sector-specific or special plans. Equity-based schemes are preferred over debt schemes.
To increase the loyalty and trust among the investors, proper information and knowledge related to mutual funds should be provided to them. It is the job of the financial consultants to ensure transparency and responsibility, and they should cater to the needs of the retail investors as well as marketing the mutual fund products.
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