The impact of perceived purchase risk on investment behaviour of mutual fund investors

Abstract

This study investigates the impact of perceived purchase risk (PPR) of mutual fund (MF) investors on their investment behaviour through a survey of 268 MF investors. The results suggest that significant differences exist between the information search and information processing behaviour of high PPR mutual fund investors and low PPR mutual fund investors. Specifically, compared to low PPR mutual fund investors, high PPR mutual fund investors: (a) during information search use less number of information sources and rely more on personal formal sources of information like sales agent rather than impersonal sources (e.g. financial portal) of information; and (b) during information processing use less number of attributes information to compare MF schemes and engage in less depth of information processing. Hence, it is concluded that MF investors’ high level of PPR impedes active information search and processing by them and motivates them to depend more on distribution channels for investment advice during investment into the MF schemes. Thus, this study supports the proposition that risk reduction through active information search and processing (Cho & Lee, 2006) is a context specific response rather than being universally applicable to all situations. This response does not hold true in the context of investment into the MF schemes. Further, the above behaviour of high PPR mutual fund investors can be viewed as an explanation for the ‘distribution centric’ nature of MF industry in India.