Financial Engineering A Strategic Framework for Financial Innovation in Mutual Funds

Abstract

Desire for exceptionally high returns with minimal risk has been the foremost priority of a human being whenever he faces dilemma among investment avenues. Traditionally, Indian investors used to restrict their investment choice to risk free securities but in the last two decades financial markets have come up with an entirely new face. Among the several financial avenues prevailing in India, mutual funds have been admitted as the preferred choice because being flexible security it suits the self-designed boundaries of investors. Intensified competition and involvement of private players in the race of mutual funds have forced professional managers to bring innovation in mutual funds. Thus, mutual funds industry has moved from offering a handful of schemes like equity, debt or balanced funds to liquid, money market, sector specific funds, index funds and gilt edged funds. Mutual funds comprise of the strongest band of Indian financial market but have not attracted much attention, despite their efforts to continuously design new schemes. Moreover, in India sufficient work has not been done to identify the reasons why mutual funds have not been able to embed their footprints even after half a century of inception. Thus, the prime concern of this research is to identify how truly mutual fund investors appreciate this investment including identification of factors that fosters gap in investors expectations from security returns and actual portfolio management by mutual funds through Investor s Risk Perception Analysis (IRPA). A well-structured comprehensive questionnaire has been designed which seeks to identify the factors responsible for creating gap in investors perception. Special emphasis has been given to identify mutual fund s disclosure practices and investors perception about working of AMCs, as it ultimately set base for determining the risk perception. A five point Likert scale has been employed for assessing the risk perception through questionnaire.