INTRODUCTION

WHAT IS A MUTUAL FUND?

Mutual fund is an investment company that pools money from shareholders and invests in a variety of securities, such as stocks, bonds and money market instruments. Most open-end Mutual funds stand ready to buy back (redeem) its shares at their current net asset value, which depends on the total market value of the fund's investment portfolio at the time of redemption. Most open-end Mutual funds continuously offer new shares to investors. Also known as an open-end investment company, to differentiate it from a closed-end investment company. Mutual funds invest pooled cash of many investors to meet the fund's stated investment objective. Mutual funds stand ready to sell and redeem their shares at any time at the fund's current net asset value: total fund assets divided by shares outstanding.

In Simple Words, Mutual fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with quantum of money invested by them. Investors of Mutual funds are known as unit holders. The profits or losses are shared by the investors in proportion to their investments. The Mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time. In India, A Mutual fund is required to be registered with Securities and Exchange Board of India (SEBI) which regulates securities markets before it can collect funds from the public. In Short, a Mutual fund is a common pool of money in to which investors with common investment objective place their contributions that are to be invested in accordance with the stated investment objective of the scheme. The investment manager would invest the money collected from the investor in to assets that are defined/ permitted by the stated objective of the scheme. For example, an equity fund would invest equity and equity related instruments and a debt fund would invest in bonds, debentures, gilts etc. Mutual fund is a 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.

ADVANTAGES OF MUTUAL FUNDS:

Professional Management.

The major advantage of investing in a mutual fund is that you get a professional money manager to manage your investments for a small fee. You can leave the investment decisions to him and only have to monitor the performance of the fund at regular intervals.

Diversification.

Considered the essential tool in risk management, mutual funds make it possible for even small investors to diversify their portfolio. A mutual fund can effectively diversify its portfolio because of the large corpus. However, a small investor cannot have a well diversified portfolio because it calls for large investment. For example, a modest portfolio of 10 blue chip stocks calls for a few a few thousands.

Convenient Administration.

Mutual funds offer tailor-made solutions like systematic investment plans and systematic withdrawal plans to investors, which is very convenient to investors. Investors also do not have to worry about investment decisions, they do not have to deal with brokerage or depository, etc. for buying or selling of securities. Mutual funds also offer specialized schemes like retirement plans, children’s plans, industry specific schemes, etc. to suit personal preference of investors. These schemes also help small investors with asset allocation of their corpus. It also saves a lot of paper work.

Costs Effectiveness

A small investor will find that the mutual fund route is a cost-effective method (the AMC fee is normally 2.5%) and it also saves a lot of transaction cost as mutual funds get concession from brokerages. Also, the investor gets the service of a financial professional for a very small fee. If he were to seek a financial advisor's help directly, he will end up paying significantly more for investment advice. Also, he will need to have a sizeable corpus to offer for investment management to be eligible for an investment adviser’s services.

Liquidity.

You can liquidate your investments within 3 to 5 working days (mutual funds dispatch redemption cheques speedily and also offer direct credit facility into your bank account i.e. Electronic Clearing Services).

Transparency.

Mutual funds offer daily NAVs of schemes, which help you to monitor your investments on a regular basis. They also send quarterly newsletters, which give details of the portfolio, performance of schemes against various benchmarks, etc. They are also well regulated and Sebi monitors their actions closely.

Tax benefits.

You do not have to pay any taxes on dividends issued by mutual funds. You also have the advantage of capital gains taxation. Tax-saving schemes and pension schemes give you the added advantage of benefits under section 88.

Affordability

Mutual funds allow you to invest small sums. For instance, if you want to buy a portfolio of blue chips of modest size, you should at least have a few lakhs of rupees. A mutual fund gives you the same portfolio for meager investment of Rs.1,000-5,000. A mutual fund can do that because it collects money from many people and it has a large corpus.

DISADVANTAGES OF MUTUAL FUNDS:

Professional Management

Did you notice how we qualified the advantage of professional management with the word "theoretically"? Many investors debate over whether or not the so-called professionals are any better than you or I at picking stocks. Management is by no means infallible, and, even if the fund loses money, the manager still takes his/her cut. We'll talk about this in detail in a later section.

Costs

Mutual funds don't exist solely to make your life easier--all funds are in it for a profit. The Mutual fund industry is masterful at burying costs under layers of jargon. These costs are so complicated that in this tutorial we have devoted an entire section to the subject.

Dilution

It's possible to have too much diversification (this is explained in our article entitled "Are You Over-Diversified?"). Because funds have small holdings

in so many different companies, high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money.

Taxes

When making decisions about your money, fund managers don't consider your personal tax situation. For example, when a fund manager sells a security, a capital-gain tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.

Equity funds, if selected in the right manner and in the right proportion, have the ability to play an important role in achieving most long-term objectives of investors in different segments. While the selection process becomes much easier if you get advice from professionals, it is equally important to know certain aspects of equity investing yourself to do justice to your hard earned money.

TYPES OF MUTUAL FUNDS:

Schemes according to Maturity Period:

A Mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period.

Open-ended Fund:

An open-ended Mutual fund is one that is available for subscription and repurchase on a continuous basis. These Funds do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature ofopen-end schemes is liquidity.

Close-ended Fund:

A close-ended Mutual fund has a stipulated maturity period e.g. 5-7years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the Mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. Either repurchase facility or through listing on stock exchanges. These Mutual funds schemes disclose NAV generally on weekly basis.

Fund according to Investment Objective:

A scheme can also be classified as growth fund, income fund, or balanced fund considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows:

Growth / Equity Oriented Scheme

The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. And the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The Mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.

Income / Debt Oriented Scheme

The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAV’s of such funds are affected because of change in interest rates in the country. If the interest rates fall, Nav’s of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.

Balanced Fund

The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAV’s of such funds are likely to be less volatile compared to pure equity funds. Money Market or Liquid Fund These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.

Gilt Fund

These funds invest exclusively in government securities. Government securities have no default risk. Nav’s of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes.

Index Funds

Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc these schemes invest in the securities in the same weight age comprising of an index. Nav’s of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms.

Necessary disclosures in this regard are made in the offer document of the Mutual fund scheme. There are also exchange traded index funds launched by the Mutual funds which are traded on the stock exchanges.

Mutual funds have emerged as the best in terms of variety, flexibility, diversification, liquidity as well as tax benefits. Besides, through MF’s investors can gain access to investment opportunities that would otherwise be unavailable to them due to limited knowledge and resources. Mutual funds have the capability to provide solutions to most investors' needs, however, the key is to do proper selections and have a process formonitoring.

OBJECTIVES OF THE STUDY:

To find out the degree of awareness among investors towards mutual fund and their schemes.

To study the factors influencing the purchase of mutual fund units.

To identify sources of information for investment in mutual fund units.

HISTORY OF MUTUAL FUND:

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank. The history of mutual funds in India can be broadly divided into four distinct phases: -

First Phase – 1964-87An Act of Parliament established Unit Trust of India (UTI) on 1963. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first

scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management.

Second Phase – 1987-1993 (Entry of Public Sector Funds)

1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Can bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. At the end of 1993, the mutual fund industry had assets under management of Rs.47,004 crores.

Third Phase – 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996.The number of mutual fund houses went on increasing, with many foreign mutual funds settingup funds in India and also the industry has witnessed several mergers and acquisitions. As at theend of January 2003, there were 33 mutual funds with total assets ofRs.1,21,805crores. TheUnit Trust of India with Rs.44,541 crores of assets under management was way ahead of other mutual funds.

Fourth Phase – since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end ofSeptember, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421schemes.

2. LITERATURE REVIEWMFs have attracted a lot of attention and kindled the interest of both academic and practitioner communities. Compared to the developed markets, very few studies on MFs are done in India.

Daniel Kahneman and Amos Tversky (1979) originally described “ Prospect Theory” and found that individuals were much more distressed by prospective losses than they were happy by equivalent gains.Some economists have concluded that investors typically consider the loss of $1 twice as painful as thepleasure received from a $ gain. Individuals will respond differently to equivalent situations depending on whether it is presented in the context of losses or gains. Here is an example from Tversky and Kahneman 1979 article. Tversky and Kahneman presented groups of subjects with a number of problems. One group of subjects was presented with this problem. 1. In addition to what you own, you have been given $1000. You are now asked to choose between

A sure gain of $500.

A 50% chance to gain $1,000 and a 50% chance to gain nothing.Another group of subjects were presented with another problem. 2. In addition to whatever you own, you have been given $2000. You are now asked to choose between:A. A sure loss of $500.B. A 50% chance to lose $1,000 and 50% chance to lose nothing. 3.In the first group 84% chose A. In the second group 69% chose B. The two problems are identical in terms of net cash to the subject; however the phrasing of the question causes the problem to be interpreted differently.

Langer (1983) suggests that when these preferences are based on choices, there is more ego involvement and attachment to the preferences, suggesting heightened level of preference bias. This phenomenon is consistent with the prediction from Cognitive Dissonance theory of Festinger (1957).

Robert J. Shiller (1993) reported that many investors do not have data analysis and interpretation skills. This is because, data from the market supports the merits of index investing, passive investors are more likely to base their investment choices on information received from objective or scientific sources.

Phillip (1995) reported that there is a change in financial decision-making and investor behavior as a result of participating in investor education programmes sponsored by employees.

Berhein and Garnette (1996) affirmed Philip’ s findings and further stated that a serious national campaign to promote savings through education and information could have a measurable impact on financial behaviour.

Alexander et al., (1996) reported that only 18.9% of respondents could provide an estimate of expenses for their largest MF holding. 57% stated that they did not know what the expenses were even at the time they made the MF purchase. This suggests insensitivity to costs and many investors do not use fund costs as an evaluative criterion in making investment decisions.

Hirshleifer (2001) categorized different types of cognitive errors that investors make i.e. self-deception, occur because people tend to think that

they are better than they really are; heuristic simplification, which occurs because individuals have limited attention, memory and processing capabilities; disposition effect, individuals are prone to sell their winners too quickly and hold on to their losers too long(http://www.investorhome.com/psych.htm).

Investor fund selection Behaviour influences marketing decisions of fund management and has captured the attention of researchers. The findings are reported below:· Foreign Studies:

Ippolito (1992) and Bogle (1992) reported that fund selection by investors is based on past performance of the funds and money flows into winning funds more rapidly than they flow out of losing funds.

Goetzman (1993) and Grubber (1996) studied the ability of investors to select funds and found evidence to support selection ability among active fund investors.

Malhotra and Robert (1997) reported that the preoccupation of MF investors with using performance evaluation as selection criteria is misguided because of volatility of returns, which may be due to superior management or just good luck is difficult to determine. The findings of Ferris and Chance (1987), Trzeinka and Zwing (1990), and Chance and Ferris (1991) are consistent with the findings ofMalhotra and Robert (1997).

Lu Zheng (1998) examined the fund selection ability of MF investors and found that the investor’ s decisions are based on short-term future performance and investors use fund specific information in their selection decision.

Indian Studies:

Vidyashankar (1990), Agarwal G.D. (1992), Gupta L.C. (1993) Atmaramani (1996), Madhusudan (1996) and Ajay Srinivasan (1999) and others have conducted extensive research regarding investor expectations, protection, awareness and fund selection behaviour. Few striking ones among the other studies are given below.

Gupta L.C. (1993) conducted a household investor survey with the objective to provide data on investor preferences on MFs and other financial assets.

Madhusudhan V. Jambodekar (1996) conducted a study to assess the awareness of MFs among investors, to identify the information sources influencing the buyer decision and the factors influencing the choice of a particular fund. The study revealed that income schemes and open-ended schemes are preferred over growth schemes and close-ended schemes during the prevalent market conditions. Investors look for Safety of Principal, Liquidity and Capital Appreciation in order of importance; Newspapers and Magazines are the first source of information through which investors get to know aboutMFs / Schemes and the investor service is the major differentiating factor in the selection of MFs.

Sujit Sikidar and Amrit Pal Singh (1996) carried out a survey with an objective to understand the behavioural aspects of the investors of the North Eastern region towards equity and MFs investment portfolio. The survey revealed that the salaried and self-employed formed the major investors in MFs primarily due to tax concessions. UTI and SBI schemes were popular in that part of the country then and other funds had not proved to be a big hit during the time when the survey was done.

Raja Rajan (1997, 1998) highlightened segmentation of investors on the basis of their characteristics, investment size, and the relationship between stage in life cycle of the investors and their investment pattern.

Syama Sunder (1998) conducted a survey to get an insight into the MF operations of private institutions with special reference to Kothari Pioneer. The survey revealed that the awareness about MF concept was poor during that time in small cities like Vishakapatnam. Agents play a vital role in spreading the MF culture; open-end schemes were much preferred then;

age and income are the two important determinants in the selection of fund / scheme; brand image and return are their prime considerations.An attempt was made by the NCAER in 1964 to understand the attitude and motivation for the savings of individuals, for which a survey of households was undertaken. 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 thepopulation 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 individual investors, for, data was collected from 3, 00,000 geographically dispersed rural and urban households. Some of the relevant findings of the study are: Households preference for instruments match their risk perception; Bank Deposit has an appeal across all income class; 43% of the non-investor households (estimated around 60 million households) apparently lackawareness about stock markets; and, compared with low income groups, the higher income groups have a higher share of investments in MFs signifying that MFs have not truly become the investment vehicle for small investors; the number of households owning units of mutual funds is more (9%) than the investor households owning investments in shares and debentures (8%). Nevertheless, the study predicts that inthe next two years (i.e., 2000 hence) the investment of households in MFs is likely to increase.

Shanmugham (2001) conducted a survey of 201 individual investors to study the information sourcing by investors, their perception of various investment strategy dimensions and the factors motivating share investment decisions, and reported that, psychological and sociological factors dominated economic factors in share investment decisions.

Rajeshwari T.R and Rama Moorthy V.E (2002) studied the financial behaviour and factors influencing fund/scheme selection of retail investors by conducting Factor Analysis using Principal Component Analysis, to identify the investor’ s underlying fund/scheme selection criteria, so as to group them into specific market segment for designing of the appropriate marketing strategy.

Kiran D. and Rao U.S. (2004) identified investor group segments using the demographic and psychographic characteristics of investors using two

statistical techniques, namely – Multinomial Logistic Regression (MLR) and Factor Analysis.An article by Personal fn (http://www.personalfn.com) for Business India August 2, 2004 with the title,“The Golden Nest Egg”, reported that, investor’ s age could be used as a benchmark to determine the nature of the portfolio.

REFERENCES

A. BOOKS:

Atmaramani, “Restoring Investor Confidence”, The Hindu

Survey of Indian Industry, 435-437, 1996.

Festinger, L., A Theory of Cognitive Dissonance, Stanford

University Press, Stanford CA, 1957.

Goetzman, W.N., “Cognitive Dissonance and Mutual Fund

Investors”, Working Paper, Columbia Business School, 1993.

Gupta, L.C., Mutual Funds and Asset Preference, Society for

Capital Market Research and Development, Delhi, 1994.

Kiran D. and Rao U.S., “ Identifying Investor Group Segments

Based on Demographic andPsychographic Characteristics”,

MBA Project Report, Sri Sathya Sai Institute of Higher

Learning, 2004.

Madhusudan V. Jambodekar, Marketing Strategies of Mutual

Funds – Current Practices and Future Directions, Working

Paper, UTI – IIMB Centre for Capital Markets Education and

Research, Bangalore,1996.

Naresh K. Malhotra., Marketing Research – An Applied

Orientation, Prentice Hall International, USA, 1999, 585 –597.

Rajeshwari T.R and Rama Moorthy V.E., Performance

Evaluation Of selected Mutual Funds and Investor Behaviour,

PhD Thesis, Sri Sathya Sai Institute of Higher Learning,

Prasanthinilayam, 2002.

Syama Sundar, P.V., 1998, “Growth Prospects of Mutual Funds

and Investor perception with special reference to Kothari

Pioneer Mutual Fund” , Project Report, Sri Srinivas Vidya

Parishad, Andhra University, Visakhapatnam.

Sadhak, H., Mutual Funds in India – Marketing Strategies and

Investment Practices, Response Books, New Delhi,1997, 63 –

64.

SEBI – NCAER, Survey of Indian Investors, SEBI, Mumbai,

2000.

Vidya Shankar, S., “Mutual Funds – Emerging Trends in India”,

Chartered Secretary, Vol.20, No.8, 1990, 639-640.

B. JOURNALS AND PERIODICALS:

Bhatt, M. Narayana, “ Setting standards for investor services”,

Economic Times, 27 Dec.1993.

Ferris, S.P., and D.M.Chance, “The effect of 12b-1 fees on

Mutual Fund expense ratio: A Note”, The Journal of Finance,

42, 1987, 1077-82.

Kahneman, Daniel and Amos Tversky, "Prospect Theory: An

Analysis of Decision Making Under Risk," Econometrica, 1979.

Kahneman, Daniel and Mark Riepe, “Aspects of Investor

Psychology” , Journal of Portfolio Management, Summer 1998.

Raja Rajan V “Investment size based segmentation of

individual investors” , Management Researcher, 1997b, 21-28; “

Stages in life cycle and investment pattern”, The Indian Journal

of Commerce, 51 (2 &3), 1998, 27 – 36; “Investors

demographics and risk bearing capacity” , Finance India, 17(2),

June 2003, pp.565 – 576; “ Chennai Investor is conservative”,

Business Line, 23 Feb.1997a.

Shankar, V., “Retailing Mutual Funds: A consumer product

model” , The Hindu, 24 July 1996, 26.

C. WEBSITES:

“AMFI-Mutual fund industry”, <

http://www.amfiindia.com/mutualind.html 12/12/2004.

“ Investor Home- Psychology and Behavioral Finance” ,

17/5/99, Investor Home Online

http://www.investorhome.com/psych.htm , 21/12/2004.

Nofsinger John R., “Does Investor Sophistication Influence

Investing Behavior and Trading Performance? Evidence from

China”, John_nofsinger@wsu.edu , 23/11/2004.

Ramachander, S., “Needed: A savings behavior model” ,

30/9/2004, The Hindu Business line

http://www.thehindubusinessline.com, 27/10/2004

“ The golden nest egg – What’ s the right investment mix for

you?”, 13/9/2004, Online<

http://www.personalfn.com ,27/11/2004.

“The SEBI-NCAER investor survey”, 28/8/2000, The Rediff

Money Special <

http://www.rediff.com/money/2000/aug/28spec.htm, 2/11/2004.

Tripathy Nalini P., ”Mutual funds in India- A Financial Service in

Capital Markets”, Online

http://www.iif.edu/data/fi/journal/FI101/FI101Art6.pdf,

20/12/2004.

LIMITATIONS OF THE STUDY:

Sample size is limited to 100 educated individual investors . The sample size may not adequately represent the national market.

Simple Random and judgment sampling techniques is due to time and financial constraints.

This study has not been conducted over an extended period of time having both ups and downs of stock market conditions which a significant influence on investor’ s buying pattern and preferences.this study was done during the year December 2010-march 2011.

METHODOLOGY OF THE STUDY: Primary data was collected with the help of questionnaire.

Secondary data was collected from books, magazines and other published records. The interest was also used to get some information

Convenient sampling has been used for selecting the respondents.

Analysis and interpretation was done on the basis of data collected.

Simple random method was used to grade the investment preference given by the investors and the information source which influenced them to invest in mutual fund.

IMPORTANCE AND NEED FOR THE STUDY:

Mutual fund is a product designed to target small investors, salaried people and others who are intimated by the stock market but nevertheless like to reap the benefits of stock market investing. At the retail level, investors are unique and are a highly heterogeneous group. Hence their fund scheme selection vary. In order to survive and stay ahead of the competition in a changing market scenario, mutual fund managers should be able to prepare themselves for the changes and be quick in coming out with new schemes and features satisfying the ever increasing, selective and demanding needs of the customer.

In recent past many investors from middle class family, salaried class, housewives, and rural investors have started investing in mutual fund and in primary market securities. ItIs in this context that the study aims at finding out.

The investment preferences of investors. The degree of awareness and response to mutual funds and

their schemes. The factors influencing the buying decision of a mutual fund

schemes.

The information sources influencing investment in mutual fund.