Investment Patterns and its Strategic Implications for Fund Managers: An Empirical Study of Indian Mutual Funds Industry

Abstract

The mutual fund industry in India presents an interesting scenario of 48 million investors, a large variety of product offerings and coexistence of private, public and foreign Asset Managing Companies. The study, adopting the classification of investors and categorization of funds by Association of Mutual Funds in India (AMFI) empirically researches the investment patterns of the five investor groups in the eight fund categories; examines the portfolios of the investor groups to identify their propensity for specific fund categories and identifies the dominant investor groups in terms of quantum of investment and investor folios. Further, in order to examine the common thread among the investment patterns of the investor groups, ten hypotheses have been formulated and tested for statistical significance. The significant findings of the study have been that (a) Corporates are the dominant investor group in the Indian Mutual Fund Industry and they account for almost 48% of the total investment (AUM) in the industry and they are more oriented towards non-equity funds which offer high security & liquidity and hence their propensity towards Liquid/Money Market and Debt-oriented funds; The second dominant group in the industry is the Retail investors’ group which accounts for almost 24% of the total investment (AUM) in the industry, while they account for 98% of the 48 million investors in the industry. The portfolio of this group is highly skewed towards equity oriented schemes (almost 80%) which offer high return, capital appreciation coupled with high risk and 18% of the portfolio accounts for Debt-oriented and Balanced funds. Often, the volatility in Indian stock markets and mutual funds is attributed to Foreign Institutional investors. The study brings to the fore that the FIIs account for only 0.62% of the total assets held by the industry and the FIIs are not in a position to influence the trading patterns in the industry. Statistical evidence has not been established to suggest that there are similarities in the investment patterns of the five investor groups. The mutual fund industry in India is moving more towards equity oriented funds as evident from the ratios of debt-oriented funds to equity-oriented funds during the two time-periods of study (2.4744:1 in March 2009 and 2.0582:1 in September 2009) and the trend may continue if Indian Stocks perform better in the coming years. The findings of the study have significant implications for AMCs and their fund managers in terms of structuring their product offerings, investment philosophies, asset allocation and marketing strategies.