Perceptual gap and anatomy of investment risk decisions

Mutual funds put forward a way out to investors to approach maximum number of financial securities and get a well-diversified portfolio. Investors are lured by mutual fund investment because along with small savings they neither have sufficient expertise nor the means for diversification. The value added services offered by mutual funds during last decade has definitely lured the untapped investors. Although, investors have shown their presence in mutual funds market by investing in various innovative funds than traditional risk-free securities, it still has not become the most preferred choice of investors. Thus, it becomes imperative here to study the perception gap as well as risk ambiguity which investors feel with reference to their mutual funds’ investment decisions. Empirical research results provided that investors experience a significant difference in actual services offered by mutual fund than they have perceived. Moreover, research results have also revealed that investors perceive mutual funds as a risky investment but simultaneously the analysis of preferred score provides that they do not wish to take extreme low or high risk. These findings for investors’ decision to assume risk level have implications similar to Simonson and Tversky, Benartzi and Thaler.   Key words: Return on investment (RoI), perception, risk, asset management companies (AMCs), volatility.