literature review of mutual fund investment pattern

ORIGINAL RESEARCH article

Determinants of investment behavior in mutual funds: evidence from pakistan.

• 1 Lyallpur Business School, Government College University, Faisalabad, Pakistan
• 2 Department of Management Sciences, University of Gujrat, Gujrat, Pakistan

This paper aimed to provide empirical evidence on the behavior of the investor toward mutual funds by considering its relationship with risk perception (RP), return perception (Return P), investment criteria (IC), mutual fund awareness (MFA), and financial literacy (FL). Data were collected using a questionnaire from 500 mutual fund investors, from which 460 questionnaires were used for the analysis. In addition, the snowball sampling technique was used to collect data from different cities in Pakistan. The result showed that RP, Return P, and MFA are insignificant and negatively affect the behavior of mutual fund investors. Investment criteria have a negative and significant effect on the behavior of mutual fund investors. Financial literacy has a positive and insignificant effect on the behavior of mutual fund investors. The results provide better information and guidance to investors and policymakers on the factors that affect the behavior of mutual fund investors.

Introduction

A mutual fund is one of the professionally well-managed portfolios that typically pool funds for purchasing different shares from a variety of investors. Mutual funds utilize the wealth of small investors and families and make them available in the form of shares in business avenues, such as securities, bonds, and other financial instruments, to the economy. Mutual funds are very important for any market operation since risk control is also the most important issue, and it is important to analyze multiple variables that impact investors. In addition, the mutual fund makes it easier for small investors who do not have adequate knowledge, expertise, and low-risk tolerance to invest their savings in profitable portfolios by more skilled fund managers. To achieve a return for clients, these skillful technical managers target profitable and outperforming financial instruments.

In 1774, when the nation faced a massive downturn in its banking industry, the first mutual fund was launched in the Netherlands, followed by North America in 1924, and since 1980, the mutual fund has been a critical investment pool around the world. The mutual fund was first established in Pakistan in 1962 by the investment corporation. The Pakistan mutual funds association is described to be using mutual funds as a pooled investment system using a holistic approach ( Ahmed and Siddiqui, 2020 ). Mutual fund investing is a risky investment operation. This could be due to poor production of the asset class, change in design, and increases in high return costs. Sometimes the loss can also be related to the shift of the successful fund manager, which will allow you to generate a profit ( Kaveri and Bindu, 2017 ). Earlier research indicates that people with low-level financial literacy (FL) face personal financing issues such as savings, lending, investments, and pension plans. Hence, the judgment on investment means that particular transactions include risks and revenues, and a certain intensity of FL is needed to understand the risks and revenues involved with such purchases ( Assefa and Durga Rao, 2018 ).

The investment behavior of an individual may be studied under the theory of planned behavior as an extension of the theory of reasoned action. The theory of reasoned action if that purpose is the immediate falling of their behavior. It suggests that the behavior of an individual, which in turn is the responsibility of the attitude to an active and subjective norm, should be governed by his/her behavioral intention ( Kaur and Kaushik, 2016 ). This investing scheme is meant for those who want to invest in securities such as equity, stocks, instruments of the money market, and related assets. Mutual funds, especially in recent years, are an increasingly favored investment mode; this is apparent from the growing number of AMC funds. In 2018, the overall asset management companies (AMCs) stood at 20 with 248 funds under management with an average percentage shift of 40% for the year. The number of newly launched funds is another development that reflects the boom in the mutual fund market, with open funds facing rapid growth. According to the latest data released by the mutual fund association of Pakistan, the current amount of funds under administration as of December 2018 is Rs. 584 billion compared with Rs. 408 billion in 2014, reflecting a significant rise of 43% in 5 years. The tremendous number of mutual fund investors worldwide, especially in developed countries, indicates the option of investment. With the value of mutual funds and growth opportunities outlined above, mutual funds are becoming the center of focus, especially for researchers. Different authors conducted various facets of mutual funds, such as the effect of marketing with passively and actively managed funds, participation in foreign funds, and many more ( Ahmed and Siddiqui, 2020 ).

According to Kaur and Kaushik (2016) , perception has two dimensions: risk perception (RP) and return perception (Return P). First, perception is a method through which people look, evaluate, identify, and respond to all types of environmental information. Second, perception is a process through which a person tries to explain sensory data preeminently to help facilitate the participant to make a final verdict based on his intensity of experience and experience. The definition of “risks perception” applies to how investors perceive the risk of financial assets according to concern and experience. Risk perception implies an assumption that a risk arising is unbiased or incoherent or the degree, extent, and timing of its consequences retained by a person, group, or society is a significant success factor in facilitating good decision-making in risky situations. The fact that every investor has a tolerance to risk and RP complicates the study of financial risk. Therefore, a major factor that affects investment decisions is the RP of investors ( Sindhu and Kumar, 2014 ).

Investment criteria (IC) consist of defined parameters for evaluating the acquisition goal valued by financial and strategy purchasers. Sophisticated buyers typically have two criteria sets: the requirements that are revealed to brokers and investment bankers publicly so that they know how the user is looking to make appropriate contracts and the parameters for internal review that have been established to allow buyers to make quick decisions on whether the transaction should be pursued more closely. Geographical, investment size, or targeting business and industry are the most common publicly disclosed investment requirements. Several investors often disclose requirements regarding the type of investment, including management buyouts, distressed assets, and circumstances of succession. Investment criteria are generally defined as “another equity, which means that investments with the highest turnover rate on capital investment should be selected” ( Chenery, 1953 ).

Awareness programs, especially for institutional investors, are quite necessary to reduce the effect of interrogative or gambler mistakes ( Abbas et al., 2019 ). The research clarified the awareness of investors regarding mutual funds, the perceptions of investors, their priorities, and the level of satisfaction with mutual funds. This study aimed to know about this intensity of awareness for mutual funds and about investor preferences for mutual funds ( Sehdev and Ranjan, 2014 ). Financial literacy can also be described as integrating the knowledge of investors about, and their responsiveness to, financial risks, financial opportunities, informed decisions, information on where to support, and other successful steps to enhance the financial well-being of financial instruments and principles ( Abdeldayem, 2016 ).

The study aimed to (i) determine the choice of the investor on multiple forms of investment in Pakistan; (ii) find the effect of RP on investment behavior of investors toward the mutual fund in Pakistan; (iii) recognize the effects of the perception of return on the investment behavior of investors in Pakistan against mutual funds; (iv) identify the effects of mutual fund awareness (MFA) on the investment behavior of investors in Pakistan; (v) identify the influence of investment parameters on the investment behavior of investors in the mutual fund of Pakistan; and (vi) identify the effects of FL on the investment behavior of investors in the mutual fund of Pakistan.

The significance of this investigation is manifold. The research will cover several key factors of the investment behavior of mutual funds within the Pakistan mutual fund industry. First, it is imperative to appraise FL and its link with investment behavior; moreover, not much research was conducted in Pakistan to identify this relationship. The present review would provide a momentous contribution to behavioral finance through insights into the relationship between FL and investment behavior. This research aimed to identify the components that persuade the investment behavior of investors toward mutual funds. It also focused on the impact of awareness, FL, investment, and perception of investors on their investment behavior toward the mutual funds in Pakistan. As per our knowledge, no research has been conducted in Pakistan using the same variables used in this study.

This research includes new areas such as awareness of the behavior of mutual fund investors toward mutual funds, which has not been influenced in Pakistan, and no systematic study has been done on the behavior of investors in mutual funds. Therefore, this article would add to quality literature on behavioral finance, in particular on the behavior of investors against the mutual fund. The rest of the study is organized as follows. Section Literature Review presents the literature review. Section Methodology outlines the methodology of the study, detailed data source measures, and methodology deployed to test the various hypotheses. Section Results and Discussion provides empirical findings of the study. Finally, Section Conclusion presents the concluding remarks.

Literature Review

According to the base of this study, the research on the determinants of the behavior of the investor in mutual funds shows that evidence from Pakistan could be categorized into two parts: mutual funds and investors. These studies focus on mutual funds to examine the effect of different variables on the behavior of the investor in mutual funds. Also, they generally focus on variables like IC, RP, Return P, MFA, and FL. Examples of some studies related to those variables are given below.

The investment behavior of an individual may be studied under the theory of planned behavior as an extension of the theory of reasoned action. The purpose is to establish an immediate backdrop for the behavior. The theory suggests that the behavior of an individual, which is the attitude to an active and subjective norm, should be governed by his/her behavioral intention ( Kaur and Kaushik, 2016 ). The theory of planned behavior explains the relationship between perceived behavioral control and intentions as this study setting is based on perceived behavioral control and its positive association with intentions (MFA, IC, RP, Return P, and FL).

Prospect theory is a behavioral theory that explains how individuals choose between risky and uncertain options (e.g., percent likelihood of gains or losses). It shows that people consider predicted utility about a reference point (for example, current wealth) rather than absolute outcomes. Thus, according to prospect theory, people are loss-averse, which was established by framing uncertain options. Since people fear losses rather than equal gains, they are more likely to take risks to prevent a loss. This hypothesis corresponds to the following trend with risk due to biased weighting of probabilities (see certainty/possibility effects) and failure aversion ( Kahneman and Tversky, 1979 ; Kahneman et al., 2011 ).

The investing behavior of individual investors is very different from that of institutional investors. Individuals prefer to spend comparatively more in terms of non-tradable properties, such as real estate, hedge funds, or structured goods. The term institutional investor is commonly used to describe an entity, such as a mutual fund, a hedge fund, or a charitable organization, that invests on behalf of others. According to this report, investor behavior is one that an investor demonstrates in the quest for the acquisition, use, assessment, and disposal of products, resources, concepts, or experience to fulfill their needs and wishes. Environmental conditions largely impact the behavior of investors. While these variables are uncontrollable by the markets, they are quite significant in deciding the behavior of an investor. Investor actions, thus, suggest that investors modify their behaviors by purchasing and selling shares/commodities in different conditions ( Elankumaran and Ananth, 2013 ).

Cognitive capacity are features that let a person perceive even before their occurrence to take consolidated action in advance. The cognitive and decision-making processes are significantly connected. This study has also shown that rational thought always seeks to be influenced by cognitive capabilities. The intensity of motivation and possible motivation enhance the cognitive capacity to face a challenging situation ( Sarfraz et al., 2020a ). This study looks at the behavior of the investor to identify better investment paths. Investment strategy is a program intended to assist an individual in choosing the best investment portfolio to benefit them in meeting financial targets within a specific period. Particular investment forms give the lender, the business, and the community more advantages. This research explores the behavior of investors when considering multiple investment options ( Mane and Bhandari, 2014 ).

This study was performed to establish investor understanding of mutual funds, define the source of the information that affects the decision to buy, and define the factors that influence the choice of a particular fund. Among other factors, the study reveals that income schemes and open-ended strategies are more favored than growth schemes and close-ended schemes under the prevalent market conditions. Investors are pursuing security in order of priority for principal, liquidity, and capital growth. Magazines and newspapers are the first sources of information that investors can read about mutual funds/systems and is a major distinguishing factor in choosing mutual fund strategies on investor operation. The study also points out that investors see mutual funds as commodity goods and AMCs and that the consumer product distribution model should be adopted to catch the demand. Various papers and brief essays have been published in financial dailies, periodicals, and technical and academic journals since 1986, illustrating the fundamental definition of mutual funds and highlighting their relevance in the stock market environment. These papers and essays cover numerous elements such as mutual funds control, investor perceptions, investor security, and mutual growth pattern ( Bansal, 2014 ).

In the view of China, the intensity of the replacement of chief executive officers (CEOs) among poor state-owned companies is considerable. The tolerance of the government is also a strong source of bad performance. State-owned companies in China are allegedly managed extensively ( Sarfraz et al., 2020b ). There is a lack of research explicitly conducted to understand the investment behavior of mutual fund investors in Pakistan. Studies conducted on investment behavior in traditional finance have progressed far beyond the viewpoints of Markowitz, whereby investors (supposed to be the logical benefit maximizers) consider anticipated returns and risks on investment opportunities as the only deciding factors in their decision on investment ( Mishra and Kumar, 2016 ).

The effectiveness of a mutual fund relies on the level of awareness and confidence of investors—the pattern of investment changes with education, age, occupation, and gender. The ambition of this inquiry is to assess the intensity of awareness among investors. The research in Tezpur was conducted with a dataset of 99 individuals. The study initiates that investors have little awareness of mutual funds. The awareness of candidates with different educational backgrounds and ethnicity was also significantly different. A study has been done to determine the awareness of mutual funds of an investor to recognizing the sources of information affecting investor decisions and the elements affecting their choices. The study shows that income structures and open systems are needed in the prevailing market environment rather than development schemes and closed systems. Investors are pursuing the protection of principal, profitability, and appreciations in order of importance. The key information sources in the procurement of mutual funds are newspapers and journals. Investment schemes being informed by, and in the service of, an investor, is the main factor ( Chaudhary, 2016 ).

The study initiates that investment in mutual funds relates to investor behavior, which attracts investment in mutual funds. The opinions and perceptions of the investor were studied on several topics, including the variety of mutual fund schemes ( Trivedi et al., 2017 ). According to a research study, Chinese state-owned enterprises have financing challenges, except for state-owned firms, that can be funded through a commercial group. In this perspective, it may be stated that state-owned firms are more vulnerable than non-state-owned firms ( Sarfraz et al., 2020c ).

The study reveals the perception of risk and returns on the mutual funds of the investor. The inquiry examines the perception of an investor on mutual fund risk, returns from mutual funds, transparency, and disclosed practices compared with other financial avenues. The study also demonstrated that mutual funds are not considered a high-risk investment. Igt examined the behavior of investors against mutual funds. The study shows that RPs, current asset distribution, venture losses, investment blend, fund aging capital base, original fund efficiency, investment mixes, and portfolio diversification of an investor have been the main contributors to switching funds in the fund families. The research examined the significant aspects of mutual funds that affected investor perception and investigated the perception gaps between large and small investors based on factors investigated. Investment, return, and future have shown significant factors in the perception of investors of mutual funds ( Dhar et al., 2017 ).

This research is done on FL and its association with financial instruments and financial activity. It concludes that even though individuals are well aware of different financial instruments and have little impact on their financial behavior, they are of limited value in the case of FL. Various other researchers have indicated that psychological influences such as self-control, avoidance, and instant fulfillment are likely to be more associated with financial power than a lack of financial knowledge. Therefore, rather than teaching persons on the economic front, it is more important to understand these behavioral inclinations ( Gupta et al., 2018 ). The perception of risk, the perception of return, criteria of investment are some of the variables discussed in current research. By computing these variables, FL and awareness are used in this research. Until now, very limited evidence is available for research by using these two variables. According to our knowledge, there is no research conducted in Pakistan using these variables. As a result, current research analyses the link between the perception of return, the perception of risk, criteria of investment, awareness, and FL of investor behavior toward investment in mutual funds in Pakistan. It contained questions for RP and Return P, criteria of investment, MFA, and FL. Information about social demographics were obtained through direct questions about age, education, gender, level of savings, marital status, professional education, and income.

Following are the hypotheses of the study.

H1 : Risk perception has a negative effect on mutual fund investment behavior.

H2 : Return perception has a negative effect on mutual fund investment behavior.

H3 : Investment criteria have a negative effect on mutual fund investment behavior.

H4 : Mutual fund awareness has a negative effect on mutual fund investment behavior.

H5 : Financial literacy has a positive effect on mutual fund investment behavior.

Methodology

The study is quantitative, and the type of data is primary. The data were collected through questionnaires containing questions on RP and Return P, criteria of investment, awareness, and FL. Information about social demographics were obtained through direct questions about age, education, gender, level of savings, marital status, professional education, and income. Questionnaires were distributed through emails, social networking sites (Facebook, LinkedIn, etc.), and personal meetings. Out of the 500 distributed questionnaires, 460 responses were considered complete and up to the criteria. The sample included from a selected portion of a population for analysis is 460, and it is also known as the population part. In the research, we run binary logistic regression because the dependent variable is categorical. The explanatory variable in experiments is the one that is exploited; the dependent variable is the one that is examined. We also used Cronbach's alpha to check the reliability of the variables. In this study, the non-probability sampling technique was used to select a sample, that is, snowball sampling. The snowball sample was used to evaluate or analyze recruits from respondents, and it is used when potential participants are difficult to classify. It is called “snowball sampling” since (in theory) more “snow” is collected on the road before the ball is rolled up and is bigger. For example, basic random sampling, where the chances are the same for every respondent being chosen, was not effective. Instead, to select participants, the researchers used their judgment. Measurement of all variables used in the study is mentioned in Table 1 .

Table 1 . Measurement of variables.

The model formulated for regression analysis on basis of model Figure 1 is mentioned below

MFIB, mutual fund investment behavior; IC, investment criteria; MFA, mutual fund awareness; Return P, return perception; RP, risk perception; FL, financial literacy.

Figure 1 . Theoretical framework. The interpretation of Figure 1 is given in the section Methodology.

Investment behavior is described as how the systems are judged, predicted, analyzed, and checked by investors. Decision-making involves the psychology of investing, collecting, identifying, and interpreting knowledge, study, and analysis. Variables used in the study are categorical. Criteria or guidelines under which the planning authority allocates the cumulative sum of the investible funds of the community to different channels are referred to as IC. Perceptions of risk and return are beliefs about the possibility of effect or loss. It is a subjective assessment of the features of risk and the severity of risk taken by individuals. Financial literacy refers to the knowledge and understanding of how money is earned, invested, and saved and the skills and abilities used to make choices by financial resources. These options include how much money to make, save, and spend.

Results and Discussion

The demographic can be described in terms of analysis as a detailed group of people, organizations, institutions, and so on with shared themes of importance to the study. The shared features of the association distinguish them from others, organizations, objects, and so on. Individual investors have been included in the population from across Pakistan.

As shown Table 2 , this research represents 83.26% of participants as male, 16.74% of them as female. This research represents 71.09% of the respondents as married and 28.91% as single. Individuals who fill the questionnaires have different education levels: 6.30% of respondents were matric pass, 43.26% were graduates, and 50.43% were postgraduates or higher during the survey. This research presents 48.04% of respondents having a professional education and 51.96% having no professional education. It also presents 11.96% of respondents as working in a government sector, 27.17% as running their own business, and 60.60% as working in the private sector. Also, 27.61% of the respondents save <10%, 39.35% save 11–20%, 19.78% save 21–30%, and 13.26% save above 30%.

Table 2 . Demographic and socio-economic characteristics of respondents.

In this research, those individuals who responded were between 18 and 52 years. Those individuals who responds to our survey their income level ranges from 10000 to 400,000.

Using Cronbach's alpha, the reliability of the measurements was assessed. Cronbach's alpha helps calculate the reliability of distinct groups and is the most famous test of internal consistency (“reliability”). It is most widely found in a survey/questionnaire with several Likert questions that shape a measure and decides if the scale is accurate. It includes tests of how much variation occurred in the ratings of multiple factors attributed to casual or random errors. As a general rule and a simple measure of building reliability, a coefficient greater or equal to 0.5 is deemed acceptable ( Al-Tamimi, 2006 ). If you have inter-rater reliability issues.

The Cronbach's alpha ( Table 3 ) of the five divisions, specifically, IC, RP, Return P, MFA, and FL, were 0.758, 0.765, 0.705, 0.705, and 0.893, respectively. The Cronbach's alpha indicates that all these divisions are appropriate.

Table 3 . Reliability analysis.

In this research, we run the binary logistic regression because the dependent variable is categorical. The explanatory variable in the experiments is the one used; the dependent variable is the one that is examined. As shown in Table 4 , IC insignificantly affect the behavior of the investor. According to Abbas et al. (2019) , IC positively affect the behavior of the investors. On the other hand, IC have a negative and significant relationship with the behavior of the investor under the coefficient of −0.735, a result consistent with Kaur and Kaushik (2016) , Abbas et al. (2019) , Smith and Albaum (2013) , and George and Mallery (2003) . According to Kaur and Kaushik (2016) , MFA has a positive effect on the behavior of investors. On the other hand, MFA has negative and insignificant relation with the behavior of the investor under a coefficient of −0.195, a result consistent with Chowdhury and Steve (2018) . According to Abbas et al. (2019) , RP and Return P negatively affect investor behavior. Risk perception and Return P both have a negative and insignificant association with investor behavior under the same coefficient of −0.010, a RP result consistent with Kaur and Kaushik (2016) and Abbas et al. (2019) and a Return P result consistent with Abbas et al. (2019) and Barlett et al. (2001) . According to Gangwar and Singh (2018) , FL has a positive and insignificant effect on the behavior of investors. Financial literacy has a positive and insignificant association with investor behavior with a coefficient of 0.287, a result consistent with results of Gangwar and Singh (2018) . Per our knowledge, no research has been conducted in Pakistan using the same variables we used in this study.

Table 4 . Variables in the equation.

This paper empirically investigated the determinants of the behavior of investors toward mutual funds in Pakistan. We established an important association between a mutual fund, the behavior of the investor, demographic characteristics of the respondents, and other variables used in the research. This research used a modified questionnaire that includes 64 items that fit into five divisions: IC, RP, Return P, MFA, and FL. Data were collected from 500 respondents, of which 460 questionnaires were used for the analysis. The logistic regression model was used to analyze the relationship between the variables. Cronbach's alpha was used to test the reliability of the data. Investment criteria is an important factor that affects the behavior of investors. If the investor has a high investment, then the association between IC and the behavior of the investor is positive and it should be negative when investment is low. In the study, the most important variable that affected the behavior of the investor is MFA. Awareness is one of the biggest reasons why investors invest in mutual funds. The behavior of investors depends on the awareness about mutual funds. If the investor has awareness about mutual funds, then there is a positive relationship between these two. If investors do have not much awareness of mutual funds, then the relationship is negative. The relationship between RP and investment behavior, whether positive or negative, depends on how investors perceive risk while investing. Return perception can affect the behavior of the investor in both negative and positive ways. It depends on how the investor perceives the return from investment. Financial literacy association with the behavior of the investor depends on the FL level of the investors. If the investor has a high level of FL, then the relationship is positive. If the investors have a low level of FL, then the association is negative. As per our knowledge, no research has been conducted in Pakistan using the same variables we used in this study.

Implications

The research has implications for mutual funds and regulatory authorities. This inquiry identifies an inadequacy of awareness of mutual funds as a reason for the failure of mutual funds among certain sectors of society. Therefore, the popular funds and regulators need to concentrate their efforts on women, elderly groups, and middle-income groups to increase their knowledge of mutual funds.

The policy implications of this research are numerous. First of all, for fund managers of AMCs, our findings are compelling and insightful because they give further indication of the stimulus of Islamic and traditional funds performing in Pakistan. Furthermore, these results are also valuable for investors and provide them with important information about the characteristics of funds that undoubtedly improve performance.

Limitations and Future Directions

It is suitable for investors who are aware of the professional competence of fund managers to join them to good return by moving to those funds. Investors should evaluate their portfolios on an ongoing basis and review their funds by modifying them as per position in the market to maximize returns.

The study was limited to 460 investors. The research has been conducted to analyze only some factors affecting the investment behavior of investors. The research is conducted only in a few cities. In this research sample, female existence is very low. This research enforced the technique of snowball sampling and may not be representative of the actual population. To educate investors, AMCs can organize seminars and training programs, among other activities, for investors, particularly in times of market fluctuations, economic recessions, market introduction of new products, etc. This will eliminate the uncertainty of the investor and create trust in the industry.

Data Availability Statement

The raw data supporting the conclusions of this article will be made available by the authors, without undue reservation.

Ethics Statement

Ethical review and approval was not required for the study on human participants in accordance with the local legislation and institutional requirements. Written informed consent for participation was not required for this study in accordance with the national legislation and the institutional requirements.

Author Contributions

RS designed the model and the computational framework and analyzed the data. MU carried out the implementation. MB performed the calculations. SS wrote the manuscript with input from all authors. FM conceived the study and was in charge of overall direction and planning, supervised the findings of this work. All authors contributed to the article and approved the submitted version.

Conflict of Interest

The authors declare that the research was conducted in the absence of any commercial or financial relationships that could be construed as a po tential conflict of interest.

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Keywords: mutual fund investors behavior, investment criteria, mutual fund awareness, risk perception, return perception, financial literacy

Citation: Saleem S, Mahmood F, Usman M, Bashir M and Shabbir R (2021) Determinants of Investment Behavior in Mutual Funds: Evidence From Pakistan. Front. Psychol. 12:666007. doi: 10.3389/fpsyg.2021.666007

Received: 02 March 2021; Accepted: 09 June 2021; Published: 12 July 2021.

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Copyright © 2021 Saleem, Mahmood, Usman, Bashir and Shabbir. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) . The use, distribution or reproduction in other forums is permitted, provided the original author(s) and the copyright owner(s) are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.

*Correspondence: Faiq Mahmood, drfaiqmahmood@gcuf.edu.pk

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The Indian Mutual Fund Industry pp 39–60 Cite as

Review of Literature

• G. V. Satya Sekhar 2  

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In India, there are a few studies on mutual funds, which have a complete scientific analysis, primarily due to the comparatively short period of existence of mutual funds. Samir et al. (1994) reviewed the work done with respect to capital markets during the 15-year period from 1977 to 1992. 1 They mentioned that a large number of works are merely descriptive or prescriptive without rigorous analysis. However, a rigorous scientific research was carried out in this subject in other countries. Besides this, now we can obtain a lot of information through different websites or portals like ‘ mutualfundsindia.com ’. 2

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Sekhar, G.V.S. (2014). Review of Literature. In: The Indian Mutual Fund Industry. Palgrave Macmillan, London. https://doi.org/10.1057/9781137407993_2

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Impact of COVID ‐19 on portfolio allocation decisions of individual investors

1 Department of Commerce, Government PG College Datia, Datia Madhya Pradesh, India

2 School of Management Studies, IGNOU, New Delhi India

Nikhat Mushir

3 Department of Commerce, FCMS, PDM University, Bahadurgarh Haryana, India

Ratan Suryavanshi

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Research data are not shared.

Covid‐19 has impacted the financial markets dramatically. The risk and return expectations of investors have changed, leading them to reallocate their portfolios. This paper aims to analyse the impact of Covid‐19 on the portfolio allocation decisions of individual investors. The study examines the perceptions of investors about various investment avenues before and during the period of extreme uncertainty caused by the COVID‐19 pandemic. The data were collected from individual investors residing in Delhi and Mumbai. AHP is used to rank the investment preferences of the respondents. The results show that due to the present financial crisis pertaining to COVID‐19, investors have started reallocating their portfolios. Since the returns on risky assets are not as expected, investors are moving towards a conservative portfolio. However, the case of transition from risky to risk‐free assets is not the same in the case of all investors.

1. INTRODUCTION

COVID‐19 was declared a global health emergency by the World Health Organization (WHO,  2020 ) on 30 January 2020 and later a pandemic on 11 March 2020 due to the severity of spread. The outbreak is unprecedented as it is highly contagious in nature compared to any other recent epidemics. The infection rate of COVID‐19 and other epidemics is given in Table  1 .

Infection rates of COVID‐19 and other epidemics

Note : Abdul, A., & Mia, A. (2020). The Economic Impact of the COVID‐19 Outbreak on Developing Asia. https://www.adb.org/sites/default/files/publication/571536/adb‐brief‐128‐economic‐impact‐COVID19‐developing‐asia.pdf .

This has led governments across the world to the most challenging decisions of lockdowns. Lockdowns, first strictly and later at ease have been imposed since the outbreak, as a containment measure. This has affected human activities and practically brought down the economy to its knees. The global economic loss for the year 2020 has been estimated between 0.1% and 0.4% of global GDP, plunging the economy into recession (Abdul & Mia,  2020 ). The studies on the impact of pandemic suggest that the outbreak has spill over effect on almost every other sector of the economy across the globe (Fernandes,  2020 ; Ozili & Arun,  2020 ).

In the case of India, the disruption in supply chain management at both global and domestic market has been rendered as one of the most critical factors that would be responsible for India's growth output disruption. The other factors are constrained demand and supply at global level and decline in domestic demand (Agrawal et al.,  2020 ; Dev & Sengupta,  2020 ). Baker et al. ( 2020 ), in their study, explored the effect of COVID‐19 on economy and concluded that half of the contraction in output was due to the environment of economic uncertainty. With no conclusive vaccination for at least another year, the climate of uncertainty looms. As per ADB Report (2020), the estimated economic loss ranges between 7% and 10% of India's GDP, under two‐case scenario (shorter and longer lockdown). Now, with the lockdowns being re‐instated in several cities due to increasing number of COVID‐19, a higher figure of 10% loss could be assumed. The negative rate of GDP propagates fear among all investors. Although the central banks of various economies took steps to encourage investors, the steps proved inefficacious as investors are following a selling spree, leading to plunging of major indices (Sharma et al.,  2020 ; Siddiquei & Khan,  2020 ). This selling spree has hit investors' confidence to such a level that till April 9, Indian, European and U.S. stock markets lost 26%, 20% and 14% in dollar terms, respectively (Rakshit & Basistha,  2020 ; Singh & Neog,  2020 ).

The environment of perpetual uncertainty is not conducive for investors as the investment is made with basic objective of receiving a continuous cash flow over a period of time and retaining the principal amount safely (Geetha & Vimala,  2014 ). Investors prefer to make informed decision that is challenged during times of crisis and uncertainty. Investors' decision‐making during the crisis period has been observed to be influenced by emotional factors. As explained by the behavioural finance, emotions such as fear and sadness lead to risk aversion (Aren & Hamamci,  2020 ). During the period of financial crisis, the stock market reveals contradictory observations related to assumptions of standard finance (Nigam et al.,  2018 ) . It is also observed that decision‐making for risky investments is more influenced by psychographic variables (Sahi et al.,  2012 ). Liu et al. ( 2020 ) have established that investor's sentiments such as bad mood and anxiety make the investor risk averse, which consequently affects the return on assets. In their study of stock market of 21 countries, including India, during COVID‐19, they find that investors' sentiments have played a mediating role in influencing the stock market caused due to the COVID‐19 outbreak.

There are extensive studies exploring various dimensions of investors' order of preference for selected investment avenues. One such study is the one by Manikandan and Muthumeenakshi ( 2017 ), in which the attributes of investment, which influences investors' order of preferences, are reviewed. However, investors' preference for different investment avenues during a crisis of the magnitude of recent pandemic is still to be addressed.

It is imperative to ask the question, how investors perceive various investment avenues before and during the period of extreme uncertainty caused by the COVID‐19 pandemic. This paper seeks to examine the order of preference for such investments during COVID‐19 and compare it with post‐COVID‐19 pattern. It will give insight into investors' perceptions of preferred investment avenues and enable the policymakers in formulating financial policies.

2. LITERATURE REVIEW

The most critical investment avenues available in India have been identified as bank deposits (savings, current), provident fund, insurance policy, securities (shares, debentures, and bonds), mutual funds and derivatives (futures and options), based on risk, return, marketability, tax shelter and convenience (Mittal,  2018 ). The liberalisation in financial services introduced the non‐traditional investment avenues like diverse mutual funds schemes and investment plans (Arora & Marwaha,  2014 ). Insurance plans emerged as a safe alternative investment avenue than merely as a risk coverage instrument for the middle and salaried class investors (Kathuria & Singhania,  2010 ). Investments in real estate, gold and post office deposits are considered as reliable traditional investments due to the ease of operation, familiarity, inflation‐resistance, tax shield and physical presence (Murithi et al.,  2012 ; Nagpal & Bodla,  2007 ).

2.1. Stocks

It was traditionally recognised that the high‐income group had preference to invest in securities market, specifically in shares (Das,  2012 ; SEBI‐NCAER,  1964 ). Recently, the middle income and salaried class investors have begun to invest in stocks due to increased awareness and better services provided by brokerage agencies (Bandgar,  2000 ; Mittal & Dhade,  2007 ). Demographically, the urban investors have been investing in shares and most of them invest with a long‐term perspective (SEBI‐NCAER,  2000 ; Thirumavalavan,  1987 ). Liquidity, low investment and capital appreciation are the factors influencing investments in equity shares (Kumar,  2010 ). Studies reveal that around 24%–30% of investors prefer to invest in stocks (Agrawal & Jain,  2013 ; Mane & Bhandari,  2014 ). The investment in equity shares is preferred over mutual fund schemes by retail investors since it gives direct control over the holding (SCMRD,  2004 ).

2.2. Mutual funds

Investment in mutual funds influences the return, liquidity, flexibility, affordability and transparency (Parihar et al.,  2009 ). The higher income and highly educated group have traditionally been investing in mutual funds (Bhatt & Bhatt,  2012 ). Investment in mutual funds is a preferred tax‐saving investment next to insurance (Rathinavel,  1992 ). Compared to insurance, bonds, shares in terms of service quality and risk–return trade‐off, mutual funds are preferred by investors (Walia & Kiran,  2009 ). Some investors perceive it as less risky than bank deposits (Jothilingam & Kannan,  2013 ).

2.3. Bonds/debentures

Bonds and debentures provide steady income. They are exposed to interest rate risk and credit risk. There is a moderate and continuing shift from shares to high‐quality bonds (Gupta et al.,  2001 ). Income level is a closely associated factor affecting investment in bonds, that is, the high‐income group prefers to invest in bonds (Mittal & Dhade,  2007 ).

2.4. Bank deposits

Bank deposits are the most preferred investment avenue among all income groups, followed by insurance and post‐office savings because of less risk and high security (Agrawal & Jain,  2013 ; Samudra & Burghate,  2012 ). It is preferred over high return investment for contingency and long‐term plan such as higher education and marriage of children (Pati & Shome,  2011 ; Sathiyamoorthy & Krishnamurthy,  2015 ). Majority of investors prefer to invest in fixed deposit with banks (Pandian & Thangadurai,  2013 ; Umamaheswari & Kumar,  2014 ). Both fixed deposits and saving deposits are considered in the study.

2.5. Savings with post office

Safety and security remain the major factors for investors to invest in post office savings bank account (Jain & Kothari,  2012 ). Investors from diverse income groups prefer to invest in post office deposits (Bhatt & Bhatt,  2012 ). It is an ideal investment during recession because it is stable and risk‐free (Kasilingam & Jayabal,  2009 ). Previous studies have reported that postal savings may play a critical role in generating fund for the country (Kasilingam & Jayabal,  2009 ; Senthilkumar & Kannaiah,  2014 ).

2.6. Public provident fund

Provident fund is preferred by all income and category group of investors (Agarwal,  2001 ). As a tax‐saving investment, it is found to be the first preference for investors (Rathinavel,  1992 ) followed by NSC (National saving scheme; Nagpal & Bodla,  2007 ). Investors with retirement purpose prefer to invest in provident fund along with pension fund (Ranganathan,  2006 ).

2.7. Insurance

Academic literature shows mixed results on the relationship of income of individuals and investment in insurance. Investment in insurance is preferred by higher‐income group with high educational background (Bhatt & Bhatt,  2012 ). On the contrary, Palanivelu and Chandrakumar ( 2013 ) identified that low‐ and middle‐income group of investors prefer insurance. Nagpal and Bodla ( 2007 ) found that around 86% of investors invest in insurance policies. Tax benefit is a primary factor for investment in insurance for more than half of the investors than the risk coverage factor (Agrawal & Jain,  2013 ).

2.8. Real estate

Investment in real estate was traditionally preferred by higher‐income group and no association with education level (Bhatt & Bhatt,  2012 ). Chalam ( 2003 ) showed that investors have the first preference for real estate investments, followed by mutual fund schemes and gold.

Studies reveal that all income group prefer to invest in gold, demographically it is more popular in rural areas because of awareness and traditional form of investment (Kumar & Vikkraman,  2010 ). Gender‐based study on investor preference suggests that women prefer to invest in gold to avoid lengthy procedures, formalities, commission and brokerage fee associated with stocks (Desigan et al.,  2006 ; Yogesh & Charul,  2012 ). Hema ( 2007 ) also suggests that women prefer to invest in gold that is ranked after bank deposits.

2.10. Derivatives

Financial derivative is a risk management financial product introduced in India in June 2000 and since then it has grown exponentially. It is observed that equity futures are most preferred by traders and investors (Vashishtha & Kumar,  2010 ). The investor base for derivatives is mostly youth in the age group of 31–40, students, working executives and entrepreneurs (Mittal,  2018 ; Ravichandran,  2008 ).

3. RESEARCH METHODOLOGY

MCDM approaches like AHP, Fuzzy AHP and DEMATEL have been employed to rank the criteria in various research studies such as behavioural finance, banking, financial reporting, taxation and industrial asset maintenance (Antony & Joseph,  2017 ; Gupta et al.,  2020 ; Manda & Bansal,  2020 ; Mathew et al.,  2020 ). The study uses AHP to rank the investment avenues in India. The ranks obtained before and during COVID‐19 will help in knowing how investment preferences have been changed due to the COVID pandemic. The technique was developed by Saaty ( 1980 ), which helps in dealing the complex decision‐making problems (Antony & Joseph,  2017 ). The steps of AHP given by Saaty are shown in Figure  1 . (Chen & Wang,  2010 ).

Steps in AHP

3.1. Case study

The possible investment avenues were identified from the literature. Five investment avenues were identified under each of the two categories: risk‐free and risky investments. Figure  2 shows all selected investment avenues. These avenues were compared through a pairwise comparison matrix.

Different investment avenues

Questionnaire was mailed to the respondents. The data were collected from 184 individual investors residing in Delhi and Mumbai using the snowball sampling method. The data were collected between May 2020 and mid of July 2020. These respondents compared investment avenues according to their preference in a pairwise comparison matrix before COVID‐19 and during COVID‐19.

4. RESULTS AND DISCUSSION

Table  2 shows the preference of investment avenues (main criteria and sub‐criteria) based on weights before COVID‐19. The preference for risky assets (64.8%) is higher than that for risk‐free assets (35.2%). Based on local weights of sub‐criteria and global weights, investment in stocks (I6) is the highly preferred investment avenue. Based on global weights, mutual funds (I7) are ranked second, followed by real estate (I9). It reflects that investors are more willing to take higher risk for obtaining higher returns before the COVID pandemic.

Preference for investment avenues before COVID‐19

Table  3 shows the preference of investment avenues (main criteria and sub‐criteria) based on weights during COVID‐19. The local weights of main‐criteria show that there is no significant difference towards investing in either risky assets or risk‐free assets. Respondents believe that investors have shifted their investments to risk‐free assets due to high uncertainty. However, plummeting stock prices due to pandemic induce some investors to invest in risky assets for better future gains. The results reflect that insurance is the most preferred investment avenue followed by gold, bank deposits and public provident funds (PPF).

Preference for investment avenues during COVID‐19

At the present time, due to COVID, financial markets are witnessing a crisis and there is a situation of uncertainty in the market environment for investment. The study sheds some light on the behaviour of Indian investors during this period of uncertainty in the market environment for investment. The preferences of investors in various assets like stock, mutual funds, bonds and others were sought both in pre‐COVID and during the COVID‐19 period. The results showed that due to the present financial crisis pertaining to COVID‐19, investors have started to reallocate their portfolios. In the pre‐COVID period, the main preferences of investors in descending order were stocks, mutual funds, real estate, bank deposits and public provident funds. However, due to uncertainty in the financial markets, investors re‐apportioned their portfolios in a manner that insurance has come out as the topmost preference, gaining from Rank 8 in the pre‐COVID period to first rank during the COVID‐19 period, followed by other assets that climbed up the rank ladder like gold, bank deposits and PPF.

A reason for a change in portfolio allocation is due to the performance feedback of various securities. Once investors invest in various assets, they take feedback on the performance of those assets in the market. The returns from the previous allocation help investors in framing future portfolios (Sundali et al.,  2012 ). The results show that since the returns on the risky assets have not come as expected (Azimli,  2020 ; Mazur et al.,  2020 ; Topcu & Gulal,  2020 ), some investors are moving towards a conservative portfolio. The findings are in accordance with studies stating that prior gains lead to more investment in risky assets and prior losses lead to a cut in the risk‐taking ability, also named as ‘the snake bite effect’ (Massa & Simonov,  2005 ; Verma & Verma,  2018 ).

Another explanation to this attitude of investors can be attributed to the ‘Somatic market hypothesis’ (Bechara et al.,  1997 ; Damasio,  2001 ), which indicates that emotions (like fear, anger, etc.) act as external stimuli that trigger a somatic state in the brain, directing individuals consciously or unconsciously in the act of decision‐making. Academic literature shows that emotions act as a shortcut mechanism for making decisions during periods of financial disturbances (Loewenstein et al.,  2001 ).

During the period of financial crisis, investors are driven to invest more in safe assets (like insurance, gold, bank deposits and PPF) and less in risky assets (like stocks and mutual funds; Zhang et al.,  2020 ). However, the case of transition from risky to risk‐free assets is not same in the case of all investors. The results show that stocks slipped from the most preferred investment avenue to the sixth rank in the chosen alternatives. The choice of stocks is still favoured by some investors who feel that the prices of stocks will rise once a vaccine for COVID is explored. The risk‐lover investors are ready to bet upon this risk and so, they, along with keeping their prior investments in stocks, are also investing more funds in stocks in the hope of higher profits in the future. This result is an evidence of ‘Disposition effect’, which states that investors keep holding on to losing investments in the hope of realising profits from them (Chen et al.,  2007 ). Since some of the investors are opting not to change their existing portfolios, even in the case of financial crisis, they are susceptible to ‘Status‐Quo bias’.

Overall, the study finds the effect of disposition effect, status quo bias and snake‐bite effect on the portfolio holding decisions of investors in situations of financial uncertainty. The results show that ‘one size fits all’ policy does not work in the case of investors. So, financial managers, policymakers should frame policies by keeping in view the different types of investors.

5. CONCLUSION AND FUTURE SCOPE

A successful investor undertakes all possible measures to earn good returns. Investment avenues range from risk‐free simple asset such as bank deposits to complex and risky assets such as stocks and bonds. According to traditional finance, investors make the financial decisions on the basis of risk and return of various assets (Markowitz,  1959 ). However, behavioural finance theories state that in addition to risk and return, other factors affecting investment preferences are investment objectives, time horizon, safety of principal, future security, market environment and heuristics (Barber & Odean,  2001 ; Tversky & Kahneman,  1986 ). Market environment is an important factor for portfolio allocation (Chen et al.,  2011 ). In the wake of COVID‐19, a question arises on how the pandemic has affected the decisions concerning portfolio allocation.

The study examines the perceptions of investors about various investment avenues before and during the period of extreme uncertainty caused by the COVID‐19 pandemic. The preferences for different investment avenues were examined using AHP. Based on the literature review, 10 investment avenues were selected, which were classified into risk‐free and risky investments. The AHP results show that the preference for risky assets is higher than that for risk‐free assets before COVID‐19. Stocks are the highly preferred investment avenue. During COVID‐19, the preferences for investment have been changed. Risk‐free assets become more preferable. Insurance is the most preferred investment avenue followed by gold, bank deposits and public provident funds (PPF). The findings of the study will be useful to different investors and investment analysts while taking their investment decisions. Investment avenues considered in the study are not exhaustive, and preference for other avenues can also be explored. Future studies can use secondary data to analyse the portfolio holding strategies of various investors and the returns of such portfolios during COVID‐19.

CONFLICT OF INTEREST

We have no conflict of interest.

AUTHOR CONTRIBUTIONS

Nikhat Mushir: Theoretical background, introduction of topic, review of the literature. Ritika: Data collection and discussion of the results. Himanshu: Research methodology, data analysis. Ratan Suryavanshi: Conceptualisation, data collection.

Biographies

Himanshu is an Assistant Professor based at Department of Commerce, Govt. PG College Datia, Madhya Pradesh. He holds the degree of M.Com. and B.Com. (Hons.) from University of Delhi. He has qualified UGC NET‐JRF in both disciplines, Commerce and Management. He is the member of different academic committees in the college. He has been the member of organising committee for the national webinar series organised by the college. He has also worked on NAAC Criteria‐II. He has delivered keynote lectures in national webinars. Apart from that, he is associated with the British Accounting & Finance Association and Indian Commerce Association. He has been a member of the Academy for Global Business Advancement. He has published research papers in reputed journals indexed in Scopus, Web of Science, and Australian Business Deans Council list. He has presented papers at national and international conferences at institutions of national repute. His areas of interests include fair value reporting, financial management, earnings management, and accounting for managers.

Ritika is pursuing PhD from Indira Gandhi National Open University, New Delhi. She is a life‐time member of Indian Commerce Association. She holds the degree of B.Com. (Hons.) and M.Com. from the University of Delhi. She has qualified UGC NET‐JRF in both disciplines, Commerce and Management. She has published research papers in reputed journals indexed in UGC Care, Scopus and ABDC list. She has presented papers at national and international conferences at institutions of national repute. Her research areas include Behavioral and corporate finance, risk analysis and portfolio management.

Dr. Nikhat Mushir is an Assistant Professor in Department of Commerce, FCMS, PDM University, Haryana. She has 3 years of teaching experience. She has completed her Ph.D., M.Com. and B. Com. (Hons.) from Jamia Millia Islamia University, New Delhi. She has published papers in national and international journals. She has also presented papers in national and international conferences. Her areas of interests include Banking, Islamic finance, and Gulf studies.

Prof. Ratan Suryavanshi is currently serving as a Head of Commerce Department in Govt. PG College Datia, Madhya Pradesh. He has more than 30 years of teaching experience. He is the in‐charge of various academic committees in the college. He has published various papers in national journals. He has delivered many video lectures in virtual classes organised by Department of Higher Education, Govt. of M.P.

Himanshu, Ritika, Mushir N, Suryavanshi R. Impact of COVID‐19 on portfolio allocation decisions of individual investors . J Public Affairs . 2021; 21 :e2649. 10.1002/pa.2649 [ PMC free article ] [ PubMed ] [ CrossRef ] [ Google Scholar ]

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AN ANALYTICAL REVIEW OF THE LITERATURE ON PERFORMANCE EVALUATION OF MUTUAL FUNDS IN INDIA

Mutual Funds have evolved as an important investment option in the 21 st century. Its funds shareholding is increasing manifold year by year. Mutual Funds are effective and efficient and are gaining popularity among investors because of their convenient nature and easy operations with good returns. Therefore seeing the relevance of the topic, there is a need to do a review of literature and research done in the past on mutual funds. All the aspects of mutual funds have been covered namely Performance evaluation, Investor perception and relevance, History and evolution of Mutual funds, Selectivity and Market timing performance and Sector Funds. A Chronological study has been done. The most widely researched upon aspect of the mutual funds is " Performance Evaluation ". Researchers have compared the top – mutual fund houses of various times and compared public and private mutual funds. This helps the investor in the formulation of growth trends so that he may be able to forecast the future and increase his wealth. Investors were resistant to mutual funds in 1990s but their perception has changed relatively now. Mutual funds are rapidly emerging as an investment option due to the tax benefits associated with them.

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A mutual fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realized is shared by its unit holders in proportion to the number of units owned by them. Thus, a mutual fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The mutual fund industry in India was started in the year 1963 with the formation of Unit Trust of India. This industry was privatized in the year 1993. The wide variety of schemes floated by these mutual fund companies gave wide investment choice for the investors. Among wide variety of funds equity diversified fund is considered as substitute for direct stock market investment. In this research paper an attempt is made to analyze the performance of the growth oriented equity diversified schemes on the basis of return and risk evaluation. The analysis was achieved by assessing various financial tests like Average Return, Sharpe Ratio, Treynor Ratio, Standard Deviation, Beta and Coefficient of Determination (R 2). The data has been taken from various websites of mutual fund schemes and from amfiindia.com. The analysis depicts that majority of funds selected for study have outperformed under Sharpe Ratio as well as Treynor Ratio.

IJESRT Journal

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Shubham Rohella

— As the concept of mutual fund is gaining more and more importance with a wide array of institutions vying to lure the investing public, a proper evaluation of performance of mutual funds, ability of the funds to diversify and time their investment is of practical importance for a valued judgment. Mutual Fund is one of the most preferred investment alternatives for the small investors as it offers an opportunity to invest in a diversified, professionally managed portfolio at a relatively low cost. The paradigm shift toward mutual funds assumed greater importance ever since the financial sector gained momentum under the globalized and liberalized environment. Each mutual fund has its own investment objective such as capital appreciation, high current income or money market income. A mutual fund generally states its own investment objectives and investors as a part of their own investment strategies choose the appropriate mutual fund for investment. The performance of the mutual funds products become more complex in context of accommodating both risk and return measurement while giving due importance to investment objectives.

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There are many reasons why investors prefer mutual funds. Buying shares directly from the market is one way of investing. But this requires spending time to find out the performance of the company whose share is being purchased, understanding the future business prospects of the company, finding out the track record of the promoters and the dividend, bonus issue history of the company etc. The present research is a study of examining and analysing equity mutual fund schemes by using different financial and statistical tools. Three schemes taken for this purpose are Large Cap, Small & Mid CAP, and Diversified Equity Mutual Fund Schemes. This paper was an attempt to evaluate the performance of equity mutual fund ranked 1 by CRISIL, and compared the annualized return with their category average and benchmark. The collected data have been analysed on basis of returns of last one year as on 16 may 2014. Various statistical and financial techniques namely, Standard Deviation and Sharpe ratio have been used to measure volatility of returns, and returns per unit of risk respectively. Furthermore, Coefficient of determination (R2), Expenses ratio and Corpus size of funds have also been evaluated.

Asian Online Journal Publishing Group

The mutual funds is one of the important classes of financial intermediaries enabling tens of thousands small and large savers across India to participate in and get the benefits of the capital market. The involvement of mutual funds in the transformation of India's economy makes it all the more important to review their services for their role in mobilization and allocation of funds in the markets. The mutual funds have a lot of potential to grow but to capitalize the potential fully, however, the need is to create and market innovative products and frame distinct marketing strategies. Moreover, the equity culture has not yet developed fully in India as such, investor education would be equally important for greater penetration of mutual funds. As such mutual funds are expected to perform better than the market, therefore calls for a continuous evaluation of the performance of funds. In an academic perspective, the goal of identifying superior fund managers is of great interest due to the challenges it provides to the efficient market hypothesis. The present study looks into the risk and return analysis of the select mutual funds in India.

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