Factors affecting Choice of a Mutual Fund by Investors -An empirical study in Delhi NCR

DOI: 10.5176/2251-1997_AF-30

Authors: Dr. Shri Prakash, Dean (Research) and K. C. Arora

Abstract:
MFs happen to attract substantial funds relative to other options of investment. As on March 31, 2010, there are a total number of 4.77 crore investors’ accounts holding units worth Rs. 616,966 crore. Of these, total number of investors’ accounts, 4.63 crore are individual investors’ accounts, accounting for 97{6e6090cdd558c53a8bc18225ef4499fead9160abd3419ad4f137e902b483c465} of the total investors’ accounts. These accounts contribute Rs. 2, 45,390 crore or 39.7{6e6090cdd558c53a8bc18225ef4499fead9160abd3419ad4f137e902b483c465} of the total net assets.
This paper focuses on factors that influence the choice of MFs by individual investors. Fourteen factors are either generally known or are such factors as are chosen from the survey of literature. Data base is primary data. One open option (any other) , was also included in the questionnaire to know the number of respondents who indicate some other factor(s) not included above. Data relating to 334 investors was used for Factor and Logit analysis. The Bartlett’s Test of sphericity and Kaiser-Meyer Olkin (KMO) measure test of sampling adequacy was applied. Data were evaluated for suitability for factor analysis.
The principal component method and Varimax rotation were used. The same data were used for estimating Logit function. The mean weighted income was treated as the independent variable and Log (P/Q) values for each factor were considered as dependent variable.
Both sets of results are quite consistent and confirmatory. The Logit method indicated that there are only two decisive factors that guide the decision of investors in the choice of Funds. Disclosures of NAV and several other aspects , transparency of charges at the time of investment and customer service together constitute first factor, reputation or brand name and the infrastructure based on Past performance are contained in the second factor affecting choice of Mutual Funds by investors.
Keywords: Mutual Fund scheme, Mutual Fund company, Principal Component Analysis, Logit Model