Investment in the Modern Era

Topics: Mutual fund, Investment, Financial services Pages: 27 (8235 words) Published: May 9, 2011
In this globalised era we have different instrument both for capital market and money market to invest .The vital motto of this investment is to get maximum benefit with a little risk.sometime people hesitate to invest ,the reason is very clear i.e risk-return aspect .This aspects compelled the market maker to find out a better alternative and perhaps the solution is MUTUAL FUND. Consumer behavior from the marketing world and financial economics has brought together to the surface an exciting area for study and research: behavioral finance. The realization that this is a serious subject is, however, barely dawning. Analysts seem to treat financial markets as an aggregate of statistical observations, technical and fundamental analysis. A rich view of research waits this sophisticated understanding of how financial markets are also affected by the ‘financial behavior’ of investors. With the reforms of industrial policy, public sector, financial sector and the many developments in the Indian money market and capital market, Mutual Funds which has become an important portal for the small investors, is also influenced by their financial behavior. Hence, this study has made an attempt to examine the related aspects of the fund selection behavior of individual investors towards Mutual funds. From the researchers and academicians point of view, such a study will help in developing and expanding knowledge in this field. Behavioral finance is the paradigm where financial markets are studied using models that are less narrow than those based on Von Neumann-Morgenstern expected utility theory and arbitrage assumptions. Specifically, behavioral finance has two building blocks: cognitive psychology and the limits to arbitrage. Cognitive refers to how people think. There is a huge psychology literature documenting that people make systematic errors in the way that they think: they are overconfident, they put too much weight on recent experience, etc. Their preferences may also create distortions. Behavioral finance uses this body of knowledge, rather than taking the arrogant approach that it should be ignored. Limits to arbitrage refer to predicting in what circumstances arbitrage forces will be effective, and when they won't be.


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The Indian capital market has been growing tremendously with the reforms of the industrial policy, reforms of public sector and financial sector and new economic policies of liberalization and restructuring. The Indian economy has opened up and many developments have been taking place in the Indian capital market and money market with the help of financial system and financial institutions or intermediaries which foster savings and channels them to their most efficient use. One such financial intermediary who has played a significant role in the development and growth of capital markets is Mutual Fund (MF). The concept of MFs has been on the financial landscape for long in a primitive form.The story of 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 launching of innovative schemes in India has been rather slow due to prevailing investment psychology and infrastructural inadequacies. Risk adverse investors are interested in schemes with tolerable capital risk and return over bank deposit, which has restricted the launching of more risky products in the Indian Capital market. But this objective of the MF industry has changed over the decades. For many years funds were more of a service than a product, the service being professional money management. In the last 15 years MFs have evolved to be a product. The term ‘product’ is used because MF is not merely to park investor’ s savings but schemes are ‘ tailor made’ to cater to investor’ s needs, whatever their age, financial position, risk tolerance and return expectations. This issue of combining service...
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