Investment Perception and Selection Behaviour towards Mutual Funds -Vishal Sharma
Introduction
The term mutual fund has been going around in the market for quite some time now. While, there are people who are clearly in favour of them, we also have another section of people who think mutual funds are not the right way of investment. Through, this article we shall endeavour to find out more about mutual funds.
Even the literal meaning of the term mutual fund goes on to tell us what mutual fund really is, common pool of funds that is put together. This pool is created by investors putting in their money and hence, the term mutual. Mutual fund is where investors put in their money in a common pool and this money is then invested by the experts according to the objective with which the fund was made.[1] These funds as stated earlier are monitored and operated by experts and hence, they invest on behalf of the people to accrue results and create growth for them. A mutual fund is set up after various steps so to begin it acts as a trust and like every trust being set up mutual fund shall have a sponsor, trustees, Asset Management Company (AMC) and custodian. The sponsor acts as the promoter of the company and the trust is established by them, the custodian will be the one who shall be registered with Securities Exchange Board of India (SEBI) and holds the custody to various schemes. The main task that is to be noticed is with the AMC to appoint professional expert and they are the ones who shall manage the funds of the investors and after analysing the market invest on behalf of them and manage it.
Mutual Funds or Shares?
The next question that comes up is, Mutual funds or investing in shares? It is important to weigh the pros and cons of both to analyse which kind of investment might suit an individual. While one hears that investing in share market will yield more gains, which is true but there is also the possibility of risk that comes clubbed with it. When deciding the pattern to invest it is very important to note that while investing in shares, you have to be more dedicated in investing and carry out proper research in what company or share you need to invest[2], while in mutual funds a professional manager/experts decides where the pool of fund shall be invested and due to expertise of the person hired by AMC it is better for a beginner to start investing through the mode of mutual funds so that the expert can take care of the investment. As stated earlier, shares can yield more profit but at the same time risk shall also be more and when it comes to mutual funds the probability of losses are low. Even when the amount of investment is low diversified investment portfolio can be created in mutual funds. Hence, the author would suggest what the market says too, for beginner in the field of investment mutual funds are a good start while, for people who are already well verse with investment and market trends and have the time to inspect share market can invest in shares.
Types of Mutual Fund
Mutual fund shall invest broadly in equity and debt or mix of both and the mutual fund schemes can open-ended and close-funded.[3] While, open-ended funds do not come with a time period and maturity it is open to investor whenever they want they can enter or exit and on the other hand, close-ended funds have a fixed maturity date. Investor shall enter at the time of New Fund Offer and shall exit at the time of maturity.
Equity fund allows investor to participate in stock market and has characteristics similar to investing in shares as even investing in equity can be risky and it is beneficial for people who want to make a better portfolio and want better returns in the long run. While, debt fund are of low risk since, they are invested in fixed instruments such as government securities. They although do have credit risk attached with it.
Investment Perception and Behaviour
The normal perception of investing in the market today is taken to be still as legalised gambling. The term gambling has been associated with share market due to the factor of risk and that is when mutual funds come into the picture. With low risk and more diversification mutual funds are appropriate for those who want to start investing. The normal perception of people of investing into share market has slowly reduced. In fact, with more awareness amongst people with regard to mutual funds more and more people have been attracted to it. Advertisements do play a major role and even when buying of stocks cannot be marketed buying or investing into mutual funds have been advertised time to time and made people attract toward it. The market today has seen more and more investors coming into the market and rather than the shift or rise taking place in share market the rise has been towards mutual funds. A research paper titled “A Study on Investor’s Perception towards Mutual Funds as an Investment Option” was published in International Journal of Latest Engineering and Management Research which covers a detailed analysis of investment in the market in the year 2018.[4] Although a research paper it attracts us to the point of analysing how the investor’s perception and behaviour has been. Table 2 indicates the investment avenues available amongst which are fixed deposit with 29% of people investing their money in FD, stock market which is preferred by 13% of people, 14% prefer mutual funds investment, 19% in postal savings and rest 25% invest in life insurance scheme.[5]
Although a lot depends on the people who were surveyed and even when close to 300 people were surveyed but when 14% of the people are in favour of investing in mutual funds which is a percent more than in stock market you do realise the investment pattern of people have changed over the period of time. This also goes on to tell us about the selection behaviour of the investors.
Hence to conclude as stated earlier,for beginner in the field of investment mutual funds are a good start while, for people who are already well verse with investment and market trends and have the time to inspect share market can invest in shares.
[1]What is Mutual Funds?, Mutual Funds by HDFC Bank
https://www.hdfcfund.com/learn/beginner/mutual-funds/what-mutual-fund
[2]Mutual Funds vs Shares: What’s the difference? by Mutual Funds SahiHai
https://www.mutualfundssahihai.com/en/Mutual-Funds-vs-Shares-What-is-the-difference
[3] Different Types of Mutual Fund by HDFC Bank
https://www.hdfcfund.com/learn/beginner/mutual-funds/different-types-mutual-funds
[4] A Study on Investor’s Perception towards Mutual Funds as an Investment Option, International Journal of Latest Engineering and Management Research Pg 107-111
[5] Ibid
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