Study of Behavioural Dimensions of Perceived Risk of Investment of Financial Experts and Laymen in Equity Mutual Funds in India

Purpose: This paper aims to study the behavioural aspects of financial decision making variables like faith, knowledge, availability of information, uncertainty, predictability of future outcome, complexity of product, and transparency that define risk perception of individual investor in equity mutual fund. The objective is to identify the difference, if any, between factors defining risk of investment in equity mutual fund for a financial expert against a lay investor.

Research design: Convenience sampling was used to get response to questionnaire for variables relating to behavioural aspects of investment decision making. Research tool ANOVA was applied to responses from experts and laymen to establish if there is a difference between their perceptions of risk of investment in equity mutual fund. Further factor analysis was applied to identify the factors defining risks and finally discriminant analysis was done to find the impact of each of the factors in describing the riskiness of the product - equity mutual fund.

Findings: Results of ANOVA establish that there is significant difference in risk perceptions of experts and laymen in making investment decision. Factor analysis resulted in six components - risk of potential adverse returns, extent of control on the outcome, self-regulation, voluntary risk taking, financial consciousness, and transparent dealings -describing riskiness of investment. Discriminant analysis shows that there are distinct differences in the weights assigned to each of the factors by experts and laymen.

Research limitations/ implications: The limitation of our research is that the responses are collected only from four metropolitan cities of India, namely Mumbai, Delhi, Chennai and Kolkata. Future studies could cover a larger base. Since the questionnaires were mailed, the responses depend on the interpretation/ understanding of each of the question by individual respondents. Future researchers could address the shortcoming by conducting personal interviews for data collection.

Practical implications: The study is important from fund manager's point of view as identification behavioural dimensions of risk perceptions for laymen can help them manage better the risk perception of investors, contributing to encouraging investment environment.

Social implications: Understanding the fears of small/ lay investors and educating them to make informed investment decision will aid them earn better returns on investment.

Originality/ value: A large base of small investors stays away from investment in equity, particularly in India. The study will help fund managers understand the various reasons behind it so that appropriate steps could be taken to manage their risk perception and empower small investors to take calculated risks.