CHAPTER 2

REVIEW OF LITERATURE
2. REVIEW OF LITERATURE

This early study provided an essential foundation for understanding mutual fund

investments in India. Gupta emphasized the historical preference of Indian households for

traditional savings instruments like fixed deposits and gold, attributing it to the perceived

security and lower risk associated with these assets. The study found that mutual funds

were often seen as too complex and risky for the average investor, limiting their appeal in

the Indian market during the 1990s. Gupta’s research highlighted the need for better

awareness and education to promote mutual fund schemes (Gupta, L.C.; 1994).

Swarup’s study focused on understanding how awareness influences investor behavior

towards mutual funds. The findings revealed that households with higher financial

literacy had a more positive perception of mutual funds, leading to increased

participation. Swarup also noted that knowledge about risk-return profiles and the

advantages of diversification positively influenced investors’ decisions to participate in

the mutual fund market. This study underscores the importance of financial education

programs to enhance investor confidence (Swarup, S.; 2020).

Rao and Sharma’s research explored the psychological factors influencing mutual fund

investment behavior. They identified key behavioral biases such as loss aversion, where

investors tend to avoid mutual funds due to perceived risk, and herd behavior, where

investors tend to follow the crowd rather than making independent decisions. Their study

showed that a lack of understanding of risk management in mutual funds caused potential

investors to hesitate, even when mutual funds offered potentially higher returns than

traditional investments (Rao, D.N. & Sharma, K.; 2019).

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This study analyzed how demographic factors like age, income, and education level

influence investors’ attitudes towards mutual funds. Kansal and Singh found that younger

investors (under 35 years) with higher education levels and stable incomes were more

likely to view mutual funds as an attractive investment option. In contrast, older and less-

educated individuals often remained skeptical, influenced by a lack of familiarity with the

product and a preference for more tangible investment options like real estate (Kansal,

M. & Singh, A.; 2021).

Sadhak’s research focused on the early stages of mutual fund marketing in India. The

study found that during the 1990s, mutual fund companies primarily targeted high-net-

worth individuals (HNIs) and corporate investors, leaving retail investors with limited

access and knowledge about these products. Sadhak emphasized that marketing strategies

needed to focus on educating retail investors about the benefits of mutual funds, including

diversification, professional management, and liquidity, to increase market penetration

(Sadhak, H.; 1991).

Kumar and Goel’s study delved deeper into how specific demographic factors such as

income, occupation, and gender influence investment decisions. They discovered that

income was the most significant determinant of mutual fund investment, with individuals

in higher income brackets more likely to invest. They also found that male investors were

more likely to invest in mutual funds compared to female investors, a trend that could be

explained by traditional gender roles and a general lack of financial empowerment among

women in India (Kumar, P. & Goel, A.; 2018).

Jain and Mehta’s comparative study of investor perception towards mutual funds in India

and developed countries concluded that while awareness levels were growing in India,

they still lagged behind those in countries like the United States and the United Kingdom.

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The study indicated that the main challenges faced by Indian investors were lack of

transparency, mis-selling by financial advisors, and limited access to accurate, timely

information (Jain, P., & Mehta, R.; 2017).

Bhasin's research examined the primary factors influencing Indian investors’ decision to

invest in mutual funds, focusing on the role of financial advisors, advertising, and media

influence. The study found that financial advisors played a crucial role in shaping

perceptions, often offering biased recommendations based on commission incentives

rather than the investor's best interests. Additionally, media campaigns promoting specific

fund schemes were found to have a significant impact on investment choices, especially

among less experienced investors (Bhasin, M.; 2016).

This study explored how the rise of digital media and online platforms is influencing

mutual fund investments. Gupta and Soni found that younger generations, particularly

millennials, are increasingly turning to online platforms to invest in mutual funds. Digital

media campaigns, educational content, and robo-advisory services are helping to

demystify mutual funds and make them more accessible to a broader demographic

(Gupta, R., & Soni, P.; 2021).

Sethi and Pandit identified several key barriers that prevent retail investors from

participating in mutual funds. These included perceived high risk, lack of trust in

financial institutions, and insufficient knowledge about how mutual funds work. The

study emphasized the need for improved financial literacy programs and greater

regulatory transparency to enhance retail investors’ confidence (Sethi, R., & Pandit, A.;

2020).

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Sharma and Kumar’s research analyzed the investment preferences of Indian retail

investors. They found that a significant number of retail investors were hesitant to invest

in mutual funds due to concerns about market volatility and the complexity of product

offerings. The study also noted that investors preferred mutual funds with stable, long-

term returns and avoided high-risk equity funds (Sharma, N., & Kumar, V.; 2018).

Singh’s study focused on the role of trust in driving mutual fund investment decisions. It

highlighted that investor confidence in mutual funds was directly correlated with the

transparency and reliability of asset management companies (AMCs). However, the study

found that past scandals and instances of mis-selling had eroded trust among a significant

portion of the retail investor base (Singh, K.; 2017).

Mehta and Sood’s study highlighted the importance of financial advisors in influencing

retail investors’ decisions to invest in mutual funds. The study found that while financial

advisors could play an important role in educating investors, their advice was often biased

due to commissions and incentives, leading to skewed investment decisions (Mehta, M.,

& Sood, S.; 2019).

This study examined the correlation between risk appetite and investment choices in

mutual funds. The research found that risk-averse investors tended to avoid equity mutual

funds and preferred debt-based or hybrid funds, while those with higher risk tolerance

were more inclined to invest in high-growth equity funds (Rajput, R. & Gupta, S.;

2022).

Chopra and Bansal’s research identified several factors that influence the decision-

making process of retail investors. These factors included the investor's previous

experiences, the credibility of the fund manager, advice from peers, and media exposure.

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The study concluded that the most significant influence was the trust investors placed in

the advisor or AMC (Chopra, A., & Bansal, M.; 2020).

Kaur’s study focused on the link between financial literacy and investment in mutual

funds among urban middle-class households. She found that higher financial literacy was

strongly associated with a higher likelihood of investing in mutual funds, with educated

individuals demonstrating a more comprehensive understanding of risk-return dynamics

(Kaur, P.; 2018).

This research examined the factors that influenced mutual fund investment decisions

among urban investors. It found that investors who had exposure to financial news and

were more proactive in seeking investment information were more likely to invest in

mutual funds compared to those who lacked such exposure (Tiwari, P. & Gupta, R.;

2016).

This study analyzed how investors made decisions regarding mutual funds, considering

various behavioral finance concepts. It found that decision-making was often influenced

by emotions, such as fear of loss, which caused investors to avoid equity mutual funds

during periods of market downturns (Pandey, S. & Kumar, A.; 2021).

Joshi explored how psychological biases, such as overconfidence and recency bias, affect

mutual fund investment decisions in India. He concluded that investors often misinterpret

past performance as indicative of future results, leading to suboptimal investment

decisions (Joshi, V.; 2017). Reddy and Nair's research emphasized that trust in the asset

management company (AMC) and transparency in fund operations were key factors

influencing retail investors' participation in mutual funds. They recommended that AMCs

adopt better communication strategies to enhance trust and mitigate investor concerns

(Reddy, R. & Nair, S.; 2020).

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