Source: E-mail dt. 28.6.2011
Investors Perception on Tax
Saving Mutual Funds in Tamil Nadu
N.S.Santhi
Assistant
Professor
Dept. of
Business Administration
KSR College of
Engineering
Tiruchengode –
637 215
Dr. K. Balanaga
Gurunathan
Professor
Dept. of
Management Studies
KSR College of
Technology
Tiruchengode –
637 215
Abstract
Though this
research work, Investors preferences and their knowledge on investment can be
identified. The investors will be considering various investment avenues which
provide high return but they may not consider the risk factors involved. This
study may help the investors to get right information about the various risk
factors involved and their impact on return of the investment. This study also
helps the investors to know the role of various agencies and their involvement
in attending grievances redressal on investment
Introduction
Investment is saving money and engaging into
something with the expectation of earning profit in future. It is the
commitment of money to gain profitable returns in the form of Interest,
Dividend and Appreciation of money. There are various avenues are available in
the financial market such as Fixed Deposit, PPF, NSC, Insurance, Real Estate, Mutual
Funds, Securities etc., Other than the returns, investor expects various
benefits on the investment such as, Protection, Convenient, Brand, Tax
relaxation, Security, Low cost and Transparency etc., There are investor who is
ready to bear the risk to have high returns and there are some investor they are
averse of taking risk. Mutual fund is supposed to a better avenue for the
individual investor whereby their investment collected and diverted to the
capital market to generate better returns for them with lower volatility and
risk. Individual investor generally enters into the stock market to get better
return, tax benefits and safety on their investment etc. The taxpaying
community likely to utilize various ways to reduce their taxable income under
Income Tax Act 1961 through Section 80C, 80 CCC, 80CCF and 80D. Under these
section, deduction is allowed from taxable income in respect of investment made
in some schemes such as Life insurance Premiums, Employee Provident Fund, National
savings Certificates, Unit Linked Insurance Plan, Equity Linked Savings of
Mutual funds, Fixed deposit with Banks, Deposits in National Bank for
Agriculture and Rural Development, etc., Through these schemes an individual
can avail up to Rs. 1.60 lakh deduction from their Gross total Taxable Income.
An Investor can avail tax deduction of
up to Rs. 1,00,000 from Equity Linked Savings Scheme(ELSS) of Mutual funds also
known as tax saving mutual funds. There are more than 35 tax saving mutual fund
schemes are offered by 32 Asset Management Companies(AMCs). The regulating
authorities like Securities and Exchange Board of India (SEBI) and Association
of Mutual Funds in India (AMFI) monitoring and regulating mutual fund
industries and trying to protect the investors in India. There are Grievances redressal
to solve the Investors’ grievances on their investment companies and the
regulating authorities organizing various awareness programme to create
awareness among the investors. Hence, the following objectives have been framed
to address the identified areas on Tax Saving mutual funds.
Tax
Saving Mutual Funds
Mutual
Fund is a trust that pools savings of number of investors who share a common
financial goal. Mutual fund is one of the instruments which satisfy the need of
the retail investors one who is seeking the benefits like safety, minimum
investment, tax exemption on income, etc., Mutual fund units are one of the
investment vehicles that provide a opportunity to participate in the stock
market for people who have intention to be part of the security market, no
adequate knowledge, unable to invest large amount of money, willing to
liquidate in short-term, etc.,
Proper
tax planning is the basic duty of every person, which should be carried out
religiously. Basically, there are three steps in the tax planning exercise.
A.
Calculate
the taxable income for the financial year (from April 1 to March 31) from all
sources such as salary/pension, interest etc.
B.
Calculate
tax payable on Annual Taxable Income using a simple tax rate table.
C.
After
calculating the amount of tax liability, the investor has two options to choose
from
i.
Pay
the tax which requires no tax planning.
ii. Minimize the tax through
Prudent Tax planning. The investor need not consult an Income Tax Practitioner
or a Chartered Accountant for this purpose.
While
planning for tax reduction/exemption the investor have to compare the
advantages of several tax saving schemes and depending upon the age, social
liabilities, tax slab and personal preferences. They can decide on the right
mix of investments/insurance plans, which shall reduce their tax liability to
zero or to the minimum possible.
Investors
in high tax brackets have purchased municipal bonds to avoid tax and they seek
other investment area which gives tax benefits like Bank saving, National
Savings Certificates (NSC), Public
Provident Fund (PPF), Kisan Vikas
Patra (KVP), Post Office
Scheme (POS), Special
Schemes For Retiring Person , Postal Life
Insurance, etc., Mutual fund is one of the best investment avenues
for individual investors those who wants to play in security market with the
benefits like low risk, better return and tax protection.
The
tax-saving mutual fund schemes are one of the important types of mutual funds
in India because it invests in equities, where the minimum risk proposition and benefits are susceptible to market
fluctuations. But it is advisable to
investigate other benefits and risk before investing into tax saving mutual
funds. A person who is planning to invest in tax-saving mutual funds in India,
should judge a proposition based on Performance , Investment Approach ,
Volatility , Expenses, etc.,
The amount invested in Equity Linked Savings Schemes (ELSS) is
eligible for exemption from Income Tax under Section 80C of Income Tax Act,
1961. These schemes generally have a lock in period of three years. The
dividend income received on mutual funds is exempt from income tax in the hands
of the investor. According to Securities & Exchange Board India, taxes that are
implied on annual salary will be exempted if the investment in tax saving
mutual funds. Moreover the returns that the investor earns aren’t taxable.
Tax saving mutual fund scheme provides
not only tax protection and also minimum return to the investors. The range of
minimum investment required for Tax saving mutual fund is Rs.500
Analysis
and Discussion
Investors choose
their investment area by calculating risk factors, quality of services
delivered. A structured questionnaire
was prepared and primary data has been collected from the investors in Tamil
Nadu. These statements were analyzed by
using ranking and rating methodology.
Investment
in Tax Saving Mutual funds and other avenues.
Finding the area
to Invest the hard earned money is very essential. Even though there are
various avenues to full fill the same kind of needs of the investor only
certain areas are attracted the investors. With reference to the data collected
from the respondents shown in Table 2. Respondents chosen multiple schemes
where they made their investment, majority 36% of the investors invested in SBI
tax saving mutual funds, 24% of investors invested in ICICI tax saver fund and
limited number of investors invested in DSP black rock tax saver (3%),
Principal personal tax saver(3%) and Franklin Templeton tax saver fund(2%).
Even though SBI
gives lesser benefits than other companies in the market most of the investors
preferred to invest SBI only. The reason may be it offers the services like readdressing
their grievances, easily approachable, action taken methods for queries from a
longer period and it built very good brand name with the customers.
The reason for
not investing in companies like DSP black rock tax saver, Principal personal
tax saver and Franklin Templeton tax saver fund is most of the investor in
Tamil Nadu does not aware of these companies and they are not ready to enter
into the new avenues. These companies may organize the awareness programme and
campaign to create awareness and to attract more investors. Those who invested in tax saving mutual funds
also invested in Term deposits, Insurance, Postal savings and Monthly Income
plan maximum.
Table
-1 Investment in Tax Saving Mutual Funds and other avenues
Tax Saving Mutual Fund
Schemes |
Term Deposit |
Insurance |
Postal Savings |
Monthly Income Plan |
House Construction |
Other Savings |
|
Tax Saving HDFC |
- 84 |
39 |
43 |
24 |
17 |
19 |
|
Tax Saving Tata |
-45 |
6 |
41 |
13 |
8 |
8 |
|
Tax Saving SBI |
-144 |
36 |
104 |
61 |
21 |
20 |
2 |
Tax Saving Reliance |
-78 |
15 |
58 |
26 |
7 |
10 |
|
Tax Saving DSP |
-11 |
6 |
5 |
2 |
2 |
1 |
|
Tax Saving Kotak Mahendra |
-38 |
18 |
25 |
6 |
13 |
11 |
|
Tax Saving Principal Personal |
-10 |
4 |
5 |
3 |
6 |
|
|
Tax Saving Sundaram BNP Paribas |
-72 |
20 |
50 |
32 |
15 |
8 |
|
Tax Saving Franklin templeton |
-8 |
2 |
5 |
4 |
1 |
|
|
Tax Saving Birla sunlife |
-28 |
11 |
15 |
5 |
8 |
4 |
|
Tax Saving ICICI Prudential |
-95 |
35 |
45 |
15 |
12 |
17 |
2 |
Tax Saving Others |
-43 |
3 |
36 |
14 |
11 |
10 |
2 |
Relationship
of Investors Income and Investment
Income has also
been considered as one of the important parameter that determines the objective
of investment. For the sake of convenient understanding total investors are
divided into three groups in relation to their income such as up to 2 lakhs, 2
lakhs to 3 lakhs and above 3 lakhs. Data collected through questionnaire revealed
that 43% of investors invested below Rs. 50,000/- in tax saving mutual funds, 28.25%
of investors invested in Rs.50,000 to Rs.1 lakhs and 14.25 % of investor
invested Rs. 1 lakhs to 1.5 lakhs, 8% of investors invest in 1.5 to 2.0 lakhs,
1.5% investors invest in 2.0 to 2.5 lakhs and 5% of investors invest in tax
saving mutual funds. A study at aggregate level tested by chi-square test has
shown that investor’s income is considerable determent in investment of tax
saving mutual funds at 1% level (x 2=65.213 a, df=12,
asymp.sig.000) shown in Table-1.
Table
2 – Chi-Square test for amount Invested in Tax Saving Mutual Funds
|
Value |
df |
Asymp.
Sig. (2-sided) |
Pearson
Chi-Square |
65.213(a) |
10 |
.000 |
Likelihood
Ratio |
66.861 |
10 |
.000 |
Linear-by-Linear
Association |
46.836 |
1 |
.000 |
N
of Valid Cases |
400 |
|
|
Relationship
of Investors’ age and amount invested in Tax saving Mutual fund
Age is one of
the factors for doing certain activity. Age factor compel people to do certain
activity and prevent them doing certain activity. In this research age is acted
as one of the factor that influence the amount invested in tax saving mutual
funds. 48% of investors in the age group of 26-35 years are entered into the
mutual fund market, 19.75% of investors in the age group of 36-45 years, 14.5%
of investors below 25 years, 12.25 % of investor in the age group of 46 to 55
years and only 5.5% investors in the age group of 50 years and above are
entered into the mutual fund market. Age is one of the factors making the
investors to invest some amount of money in tax saving mutual funds. This is
tested by chi square which is significant at 1% level indicate that association
exists between age group and investment amount in the tax saving mutual funds.(
x 2=99.777 a, df=20, asymp.sig.000).
Relationship
of Mutual fund option and Return Form.
Investors may
have varied objective on investment. They may willing to liquidate whenever
they want to liquid by accepting wither profit or loss on the settlement or
they may wait till the maturity and not to loose their money and they may aim
for regular income or growth or both. 61.5% of investors invested open ended schemes
and 15% of investors in close ended and 23.25% of invested in type of mutual
funds. 56.5% of investors wants growth of their money, 25.5% of investors wants
income out their investment and only 18% of investors needs both growth of
their money along with income out of their investment. The return intention on
mutual fund has association with mutual
fund option which is proved by significance level of chi square at 1% level (x
2=59.901 a, df=4, asymp.sig.000) shown in table 3.
Table
3 - Relationship of Mutual fund option and Return Form
|
Value |
df |
Asymp.
Sig. (2-sided) |
Pearson
Chi-Square |
59.901(a) |
4 |
.000 |
Likelihood
Ratio |
60.061 |
4 |
.000 |
Linear-by-Linear
Association |
46.003 |
1 |
.000 |
N
of Valid Cases |
400 |
|
|
Factors
considered by Investors
All the
investors will consider some factors relates to their chosen investment area.
There are some common factors which are mostly considered by all the investors.
Irrespective of their age, education, investment amount, income they will
consider some factors. From the data analysis, it can be noted that most of the
investor will consider safety aspect of their investment, closely followed by return
potential, reputation and capital appreciation. There are certain factors which
not mostly considered. Such as, Diversification, Transparency and low cost.
Awareness
on Facilities available in tax saving mutual funds
All the schemes
offered various facilities to increase the investor’s activity towards their
schemes and for that purpose they introduce number of new facilities. But very
facilities alone used by maximum number of investors. From the data collected from Tamil Nadu tax
saving mutual fund investors, it can be noted that 78% of respondents used
Systematic Investment features of tax saving mutual funds, followed by 64.75%
of investors used Switchover facility and only 18.5% of investors used
Systematic Transfer facility. The purpose of mutual fund is to make retail
investors to participate in the stock market. They cannot invest large amount
at a time that is the reason most of investors availing the systematic
investment feature of Tax saving Mutual fund.
Awareness
of SEBI Act
SEBI is the
regulating authority of securities market. It is essential to know about the
regulating body. The rights, limitation, facilitation, protection methods are
disclosed by the authorities like SEBI for the protection of investors. From
the data collection it has been tested the awareness on SEBI is relates to some
other properties of the investors.
Investor’s
Satisfaction
Customer
satisfaction is the main objective of every organization. In mutual fund market
also it is the aim of every AMCs. For that they introduce various products to
meet the requirement of all categories of people
.
Relationship
of age and Satisfaction
Data collected
through questionnaire revealed that 77% of investors satisfied with the overall
benefits from tax saving mutual funds, 21% of investors neither satisfied not
satisfied and negligible amount of (1.75%) investors not satisfied with the
overall benefits of tax saving mutual funds. 79.31% of investors in the age
group of up to 25 years are satisfied, 26.6% of investors neither satisfied not
satisfied with the overall benefits of the tax saving mutual funds. The
association between age and satisfaction has been tested by chi-square, that
proves that there is an association between age and overall satisfaction of the
investors (x 2=44.089 a, df=16, asymp.sig. = 000).
Relationship
of Gender and Satisfaction
Data collected
through questionnaire revealed that 83% of male investors satisfied with the
overall benefits from tax saving mutual funds and 63% of female investors are
satisfied with the overall benefits of tax saving mutual funds. The association
between gender and satisfaction has been tested by chi-square, that proves that
there is an association between gender and overall satisfaction of the
investors (x 2=23.414 a, df=4, asymp.sig. = 000).
Relationship
of Marital status and Satisfaction
Data collected
through questionnaire revealed that 79.5% of married investors satisfied with
the overall benefits from tax saving mutual funds and 72% of unmarried
investors are satisfied with the overall benefits of tax saving mutual funds.
The association between marital status and satisfaction has been tested by
chi-square, that shows that there is no an association between marital status and
overall satisfaction of the investors (x 2=4.957 a, df=4,
asymp.sig. = .292).
Relationship
of Educational Qualification and Satisfaction
Education should
educate the person in all the ways it is not only imposing the things in terms
of syllabus. It should activate the mind of the person. There are certain areas
where everyone will behave in a same manner. Irrespective of educational
qualification every investor are satisfied with tax saving mutual funds. Those
who have qualification up to SSLC 90%, HSC 58%, Diploma/UG 74% and PG Degree
holders 78% are satisfied. From this research
analysis it has been tested whether there is an association between the investor’s
educational qualification and satisfaction of tax saving mutual fund.
Chi-square test is used, that shows the hypothesis is not significant(x 2=11.519a, df=12, asymp.sig. = .485) and there is no association between investors
educational qualification and satisfaction of overall benefits of tax saving
mutual funds.
Risk
Factors of tax saving mutual fund
There are number
of factors which affect the performance of the funds and there are certain
common factors which are considered as the main by most of the investors.
Ranking method is used to analyze the data collected through questionnaire that
shown in Table 4. Inflation is considered the main factor closely followed by
security market condition and Terrorism are least considered by most of the
investors which affects the tax saving mutual fund performance.
Table
– 4 Factor affecting Tax saving mutual fund
Factors
which affect the tax saving mutual funds |
Mean |
|
Management
Affairs |
1.80 |
|
Nature
of Business |
1.84 |
|
Management
Strategies |
2.11 |
|
Securities
Market and Economy |
1.78 |
|
Inflation |
1.72 |
|
Political
factor |
2.00 |
|
Government
policies |
1.89 |
|
Terrorism |
2.39 |
|
National
& International events |
2.11 |
|
\
Using
rotation matrix these factors are grouped into three namely external factors,
international factors, Company related factors. Terrorism, National &
International events grouped into external factors, Securities Market and
Economy, Inflation, Political factor, Government policies grouped into internal
factor and Management Affairs, Nature of Business, Management Strategies
grouped into company related factors. From the analysis, the internal factors
are mostly affecting the performance of tax saving mutual fund investors.
Conclusion
The
present study endeavored to give a look on investor’s perceptions towards risk,
return and awareness on various aspects of tax saving mutual funds.
Understanding of investor’s knowledge and expectations on tax saving mutual
funds become necessary to study due to more number of retail investors are
involved mainly for the purpose of tax saving, protection and little bit growth
on their investment. Most of the investors are averse of mutual funds due the
volatility. It should be insisted that the investor can expect maximum return
out of their investment but they should not be greed on it. Young investors are
interested to invest in tax saving mutual funds, motivation cum awareness
programs should be organized by the AMCs along with the regulation authorities.
SEBI
and AMFI along with the AMCs organized many awareness programme to protect the
Investors from the risk and make them aware of the risk factors. In the financial year 2010-11, AMFI along
with 26 AMCs have conducted 4882 Investor Awareness Programs covering 280
cities and 313986 participants.[1]
But it is very less for the total population of participants in the securities
market. There are various factors with affect the investment behavior,
perception and risk return analysis, etc., To bridge the gaps between the
investors in terms of their age, profession, gender, income AMCs can organize
more number of programme which explain the risk, return, merits, demerits and
other features of the product and also they can restructure their existing practices
and innovate more new ways of service delivery.