INVESTMENT IN MUTUAL FUNDS: AN EMPIRICAL STUDY ON INFLUENCE OF SYSTEMIC FACTORS (2012-2018)

Abstract

In recent times, mutual funds have emerged as the preferred investment tool for investors promoting financialisation of savings. Mutual funds based on different asset class are available for investment in the market but the choice of the right fund based on the investment needs that are function of the investment goal. Financial markets are subject to unpredictability and volatility and fund managers try to diversify the individual asset class risk to the maximum extent but the macroeconomic environment risk needs to be tided over waiting for the cycle to turn. The share of Income Funds in the total Assets under Management (AUM) has declined significantly from 45 per cent of total AUM in January 2012 to 30 per cent of total AUM in December 2018. The share of Equity Funds in the total industry AUM increased from 24 per cent in January 2015 to 31 per cent in December 2018. However, the volatility in the share of the Liquid Fund as a percentage of industry AUM is greater as compared to the other two funds. The observed shift from income funds to equity funds and others category over the last four years is interesting and also raises some questions. It would be interesting to examine the factors that have led to this shift from income funds to other category of funds and examine whether changes in macroeconomic environment are responsible for this shift. The data for the analysis includes the monthly AUM of each of the three mutual funds categories as a percentage of the total Mutual Funds industry AUM on a monthly basis for the period from January 2012 to December 2018. Multivariate Regression Analysis is used in order to examine the relationship between AUM and multiple macroeconomic factors. The results show that the factors impacting debt, equity and liquid funds are appreciably varying given the risk and return perspective with which investment is made in these three funds