Professional Documents
Culture Documents
1 INTRODUCTION 2-23
1.1 Investment 2
1.2 Investment Need Of An Investor 3
1.3 Types Of Investment Avenues 4
1.4 Evaluation Of Various Investment Avenues 11
1.5 12
Attributes Of Investment
1.6 14
Approaches To Investment Decision Making
1.7 17
Common Errors In Investment Management
1.8 20
Risks In Investment
2 RESEARCH METHODOLOGY 24-30
2.1 Introduction 24
2.2 Statement Of The Problem 24
2.3 Review Of Literature 25
2.4 Need For Study 27
2.5 28
Objectives Of The Study
2.6 28
Scope Of Study
2.7 29
Hypothesis
2.8 29
Research Design
2.9 30
Tools Of Data Collection
2.10 30
Method Of Analysis
2.11 30
Limitations Of Study
3 INDUSTRY PROFILE 31-63
Indian Financial Market
3.1 31
Classification Of Financial Markets
3.2 Money Market 34
3.3 Capital Market 35
3.4 36
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3.5 Distinction Between Primary Market And 37
Secondary Market
3.6 Distinction Between Capital Market And Money 38
Market
3.7 Stock Exchange 38
3.8 Speculation In Stock Exchanges 43
3.9 Stock Exchanges In India 44
3.10 45
Regulations Of Stock Exchanges
3.11 46
Role Of SEBI
3.12 48
Emergence Of Financial Services Industry In
India
4 ANALYSIS AND INTERPRETATION 51-76
6 CONCLUSION 81
BIBLIOGRAPHY 82
ANNEXURE 83-85
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LIST OF TABLES
PAGE
No. NAME
NO.
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4.17 Relationship between Gender and Risk Tolerance of Respondents 67
LIST OF CHARTS
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3.1 Classification of financial markets 34
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the Respondents
Relationship between Age of Respondents and Time Horizon for
4.20 74
investment
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EXECUTIVE SUMMARY
Investing money is a crucial and deciding the avenues where to invest
needs a lot of planning. In India people are more conservative and hence prefer
investments that are less risky. Similarly there are other demographic factors like
age, income level, gender which affect their decision. As the availability of
financial products increase, perception of investors towards such avenues
changes over a period of time. It becomes important for a marketer to understand
the perception of investors towards investment avenues to successfully pitch the
product.
The objective of this study is to understand the investment characteristics
of investors and their objectives of investment plan. We will also study the
demographic information of investors, preferred investment avenues of investors,
preferred sources of information influencing investment decisions, the risk
tolerance level of the investors.
This study on investor’s behaviour is an attempt to know the profile and
the characteristics of the investors so as to understand their preference with
respect to their investments. The main focus of the study is to discover the
influence of demographic factors like gender and age on risk tolerance level of
the investor. Here we also look upon other factors that influence them while
making investment decisions. Innovations in financial products like derivatives,
unit linked insurance products, fund of funds likewise are not easily understood
by the investor.
Based on previous research in related areas, a questionnaire was
constructed to measure the investment pattern of individuals on the basis of
demographic characteristics and the risk tolerance of investors was also
calculated. Even though this study has certain limitations but it will be helpful to
mutual fund companies and other investment companies to understand individual
behavior of investors so that they could build suitable investment options for
them individually. Also this study will help the investor to decide the areas where
they could invest.
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CHAPTER 1
INTRODUCTION
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1.1 INTRODUCTION TO INVESTMENT
The money one earns is partly spent and the rest is saved for meeting future
expenses, instead of keeping savings idle one may like to use savings in order to
get returns on it in the future, this is called as investment. In an economic sense,
an investment is the purchase of goods that are not consumed today but are
used in the future to create wealth. In finance, an investment is a monetary asset
purchased with the idea that the asset will provide income in the future or
appreciate and be sold at a higher price. Mere earning will not help one to secure
the future, so it becomes important to invest.
One of the important reasons why one needs to invest wisely is to meet the
cost of Inflation. Inflation is the rate at which the cost of living increases. The cost
of living is simply what it costs to buy the goods and services you need to live.
Inflation causes money to lose value because it will not buy the same amount of
a good or a service in the future as it does now or did in the past. The sooner one
starts investing the better. By investing early one allow one’s investments more
time to grow, whereby the concept of compounding increases one’s income, by
accumulating the principal and the interest or dividend earned on it, year after
year.
The dictionary meaning of investment is to commit money in order to earn a
financial return or to make use of the money for future benefits or advantages.
People commit money to investments with expectations to increase their future
wealth by investing money to spend in future years. For example, if you invest
Rs. 1000 today and earn 10% over the next year, you will have Rs.1100 one year
from today.
An investment can be described as perfect if it satisfies all the needs of all
investors. So, the starting point in searching for the perfect investment would be
to examine investor needs. If all those needs are met by the investment, then
that investment can be termed the perfect investment. Most investors and
advisors spend a great deal of time understanding the merits of the thousands of
investments available in India. Little time, however, is spent understanding the
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needs of the investor and ensuring that the most appropriate investments are
selected for him.
Before making any investment, one must ensure to:
Obtain written documents explaining the investment
Read and understand such documents
Verify the legitimacy of the investment
Find out the costs and benefits associated with the investment
Assess the risk-return profile of the investment
Know the liquidity and safety aspects of the investment
Ascertain if it is appropriate for your specific goals
Compare these details with other investment opportunities available
Examine if it fits in with other investments you are considering or you have
already made
Deal only through an authorized intermediary
Seek all clarifications about the intermediary and the investment
Explore the options available to you if something were to go wrong, and then,
if satisfied, make the investment.
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Figure 1.1: Various investment alternatives
Source: Investment analysis and portfolio management
Author: Prasanna Chandra
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Employee Provident Fund Scheme : A major vehicle of savings for salaried
employees, where each employee has a separate provident fund account in
which both the employer and employee are required to contribute a certain
minimum amount on a monthly basis.
Public Provident Fund Scheme: One of the most attractive investment
avenues available in India. Individuals and HUFs can participate in this
scheme. A PPF account may be opened at any branch of State Bank of India
or its subsidiaries or at specified branches of the other public sector banks.
The subscriber to a PPF account is required to make a minimum deposit of
100 per year. The maximum permissible deposit per year is 70,000. PPF
deposits currently earn a compound interest rate of 8.0 percent per annum,
which is totally exempt from taxes.
1.3.2 Bonds: Bonds are fixed income instruments which are issued for the
purpose of raising capital. Both private entities, such as companies, financial
institutions, and the central or state government and other government
institutions use this instrument as a means of garnering funds. Bonds issued by
the Government carry the lowest level of risk but could deliver fair returns. Many
people invest in bonds with an objective of earning certain amount of interest on
their deposits and/or to save tax. Bonds are considered to be a less risky
investment option and are generally preferred by risk-averse investors. Bond
prices are also subject to market risk. Bonds may be classified into the following
categories:
Government securities: Debt securities issued by the central government
state government and quasi government agencies are referred as gilt edge
securities. It has maturities ranging from 3-20 years and carry interest rate
that usually vary between 7 to 10 percent.
Debentures of private sector companies: Debentures are viewed as a
mixture of having a shareholding and a fixed interest loan. Debenture
holders are normally entitled to a return equivalent to a fixed percentage of
their initial investment. The security inherent in debentures makes them a
safer investment than shares.
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Preference shares: Investing in shares is safer and dividends are assured
every year.
Savings bonds
1.3.3 Mutual funds: A mutual fund allows a group of people to pool their money
together and have it professionally managed, in keeping with a predetermined
investment objective. This investment avenue is popular because of its cost-
efficiency, risk-diversification, professional management and sound regulation.
There are three broad types of mutual fund schemes classified on basis of
investment objective:
Equity schemes: The aim of growth funds is to provide capital appreciation
over the medium to long- term. Such schemes normally invest a major part of
their corpus in equities. Such funds have comparatively high risks. These
schemes provide different options to the investors like dividend option, capital
appreciation, etc. and the investors may choose an option depending on their
preferences. Growth schemes are good for investors having a long-term
outlook seeking appreciation over a period of time.
Debt schemes: The aim of income funds is to provide regular and steady
income to investors. Such schemes generally invest in fixed income securities
such as bonds, corporate debentures, Government securities and money
market instruments. Such funds are less risky compared to equity schemes.
These funds are not affected because of fluctuations in equity markets.
However, opportunities of capital appreciation are also limited in such funds.
The NAVs of such funds are affected because of change in interest rates in
the country. If the interest rates fall, NAVs of such funds are likely to increase
in the short run and vice versa. However, long term investors may not bother
about these fluctuations.
1.3.4 Real Estate: Residential real estate is more than just an investment. There
are more ways than ever before to profit from real estate investment. Real estate
is a great investment option. It can generate an ongoing income source. It can
also rise in value overtime and prove a good investment in the cash value of the
home or land. Many advisors warn against borrowing money to purchase
investments. The best way to do this is to save up and pay cash for the home.
One should be able to afford the payments on the property when the property is
vacant, otherwise the property may end up being a burden instead of helping to
build wealth.
1.3.5 Equity Shares: Equities are a type of security that represents the
ownership in a company. Equities are traded (bought and sold) in stock markets.
Alternatively, they can be purchased via the Initial Public Offering (IPO) route, i.e.
directly from the company. Investing in equities is a good long-term investment
option as the returns on equities over a long time horizon are generally higher
than most other investment avenues. However, along with the possibility of
greater returns comes greater risk.
1.3.6 Money market instruments: The money market is the market in which
short term funds are borrowed and lent. These instruments can be broadly
classified as:
Treasury Bills: These are the lowest risk category instruments for the short
term. RBI issues treasury bills [T-bills] at a prefixed day and for a fixed
amount. There are 4 types of treasury bills: 14-day T-bill, 91-day T-bill, 182-
day T-bill and 364-day T-bill.
Certificates of Deposits: After treasury bills, the next lowest risk category
investment option is certificate of deposit (CD) issued by banks and financial
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Institution (FI). A CD is a negotiable promissory note, secure and short term,
of up to a year, in nature. Although RBI allows CDs up to one-year maturity,
the maturity most quoted in the market is for 90 days.
Commercial Papers: Commercial papers are negotiable short-term
unsecured promissory notes with fixed maturities, issued by well-rated
organizations. These are generally sold on discount basis. Organizations can
issue CPs either directly or through banks or merchant banks. These
instruments are normally issued for 30/45/60/90/120/180/270/364 days.
Commercial Bills: Bills of exchange are negotiable instruments drawn by the
seller or drawer of the goods on the buyer or drawee of the good for the value
of the goods delivered. These are called as trade bills and when they are
accepted by commercial banks they are called as commercial bills. If the bill
is payable at a future date and the seller needs money during the currency of
the bill then the seller may approach the bank for discounting the bill.
1.3.8 Bullion Market: Precious metals like gold and silver had been a safe
haven for Indian investors since ages. Besides jewellery these metals are used
for investment purposes also. Since last 1 year, both Gold and Silver have highly
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appreciated in value both in the domestic as well as the international markets. In
addition to its attributes as a store of value, the case for investing in gold revolves
around the role it can play as a portfolio diversifier.
Options: Options are of two types - calls and puts. Calls give the buyer the
right but not the obligation to buy a given quantity of the underlying asset, at a
given price on or before a given future date. Puts give the buyer the right, but
not the obligation to sell a given quantity of the underlying asset at a given
price on or before a given date.
Swaps: Swaps are private agreements between two parties to exchange
cash flows in the future according to a prearranged formula. They can be
regarded as portfolios of forward contracts. E.g. Currency swaps, interest
swaps.
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Source: Investment analysis and portfolio management
Author: Prasanna Chandra
Table 1.1 shows the evaluation of various investment avenues. From this
table we can say that risk, liquidity and return are the so called factors which are
considered before making an investment. But there is a trade off between risk
and return. Higher the risk higher is the return. Lower the risk and lower is the
return. The decision of which mode of investment to choose largely depends
upon the investors necessity and the factors which according to him is the most
vital one.
People with more security concern choose fixed investment like bank
deposits and investments in government securities and various post office
savings. The main reason for choosing such an investment mode is that the
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amount invested in the above stated securities seems to be very secure and
hence they seemed to be more preferred one where security is the prime
concern.
People whom returns are most important are ready to take risk to earn
fairer risk. The preferred mode of investment over here is equity shares and
mutual fund. The risk factor in these modes of investment is basically the returns
are basically performance based. If the company performs well the investors can
accept fairer returns but if the company fails to perform then there can be a threat
to the invested amount. Hence the returns are very volatile with the changes in
the market conditions.
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Capital Appreciation: It’s the rise in the market price of an asset. Capital
appreciation is one of two major ways for investors to profit from an investment in
a company. The other is through dividend income.
b) Risk: The risk of investment refers to the variability of its rate of return.
A simple measure of dispersion is the range of values, which is simply the
difference between the highest and the lowest values.
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The liquidity of a market may be judged in terms of its depth, breadth, and
resilience. Depth refers to the existence of buy as well as sells orders around the
current market price. Breadth implies the presence of such orders in substantial
volume. Resilience means that new orders emerge in response to price changes.
Generally, equity shares of well established companies enjoy high marketability
and equity shares of small companies in their formative years have low
marketability. High marketability is a desirable characteristic and low
marketability is an undesirable one.
d) Tax Shelter: Tax benefits are of the following three kinds:
Initial Tax Benefit: An initial tax benefit refers to the tax relief enjoyed at
the time of making the investment.
Continuing Tax Benefit: A continuing tax benefits represent the tax
shield associated with the periodic returns from the investment.
Terminal Tax Benefits: A terminal tax benefit refers to relief from
taxation when an investment is realized or liquidated.
e) Convenience: Convenience broadly refers to the ease with which the
investment can be made and looked after.
The degree of convenience associated with investments varies widely. At one
end of the spectrum is the deposit in a savings bank account that can be made
readily and that does not require any maintenance effort. At the other end of the
spectrum is the purchase of a property that may involved a lot of procedural and
legal hassles at the time of acquisitions and a great deal of maintenance effort
subsequently.
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There is an intrinsic value of a security, which depends upon
underlying economic (fundamental) factors. The intrinsic value can be
established by a penetrating analysis of the fundamental factors
relating to the company, industry, and economy.
At any given point of time, there are some securities for which the
existing market price will differ from the intrinsic value. Sooner or later,
of course, the market price will fall in line with the intrinsic value.
Superior returns can be earned by buying under-valued securities
(securities whose intrinsic value exceeds the market price) and selling
over-valued securities (securities whose intrinsic value is less than the
market price).
ii. Psychological Approach: The psychological approach is based on the
premise that stock prices are guided by emotion rather than reason. Stock
prices are believed to be influenced by the psychological mood of
investors. When greed and euphoria sweep the market, prices rise to
dizzy heights. On the other hand, when fear and despair envelop the
market, prices fall to abysmally low levels.
Since psychic values appear to be more important than intrinsic
values, the psychological approach suggests that it is more profitable to
analyze how investors tend to behave as the market is swept by waves of
optimism and pessimism, which seem to alternate. The psychological
approach has been described vividly as the ‘castles in the air’ theory
Burton G. Malkiel.
Those who subscribe to the psychological approach or the ‘castles
in the air’ theory generally use some form of technical analysis which is
concerned with a study of internal market data, with a view to developing
trading rules aimed at profit making. The basic premise of technical
analysis is that there are certain persistent and recurring patterns of price
movements, which can be discerned by analyzing market data. Technical
analysts use a variety of tools like bar chart, point and figure chart, moving
average analysis, breadth of market analysis, etc.
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iii. Academic Approach: Over the last five decades or so, the academic
community has studied various aspects of the capital market, particularly
in the advanced countries, with the help of fairly sophisticated methods of
investigation.
Stock markets are reasonably efficient in reacting quickly and rationally
to the flow of information. Hence, stock prices reflect intrinsic value
fairly well. Put differently, Market price = Intrinsic value
Stock price behaviour corresponds to a random walk. This means that
successive price changes are independent. As a result, past price
behaviour cannot be used to predict future price behaviour.
In the capital market, there is a positive relationship between risk and
return. More specifically, the expected return from a security is linearly
related to its systematic risk
iv. Eclectic Approach: The eclectic approach draws on all the three different
approaches discussed above. The basic premises of the eclectic
approach are as follows:
Fundamental analysis is helpful in establishing basic standards and
benchmarks. However, since there are uncertainties associated with
fundamental analysis, exclusive reliance on fundamental analysis
should be avoided. Equally important, excessive refinement and
complexity in fundamental analysis must be viewed with caution.
Technical analysis is useful in broadly gauging the prevailing mood of
investors and the relative strengths of supply and demand forces.
However, since the mood of investors can vary unpredictably
excessive reliance on technical indicators can be hazardous. More
important, complicated technical systems should ordinarily be regarded
as suspect because they often represent figments of imagination rather
than tools of proven usefulness.
The market is neither as well-ordered as the academic approach
suggest, nor as speculative as the psychological approach indicates.
While it is characterized by some inefficiencies and imperfection, it
seems to react reasonably efficiently and rationally to the flow of
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information. Likewise, despite many instances of mispriced securities,
there appears to be a fairly strong correlation between risk and return.
Level of return often necessitates the assumption of a higher level of
risk.
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way: “The fear of losing capital when prices are low and declining, and the greed
for more capital gains when prices are rising, are probably, more than any other
factors, responsible for poor performance. “if you know what your risk attitude is
and why you are investing, you will learn how to invest well. A well articulated
investment policy, adhered to consistently over a period of time, saves a great
deal of disappointment.
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Uncritically follow others because of the temptation to ride the bandwagon
or lack of confidence in their own judgment.
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increases. The psychological relief experienced by an investor from recovering
losses seems to motivate such behaviour. This means the tendency is to let the
losses run and cut profits short, rather than to cut the losses short and let the
profits run.
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d) Inflation Risk: Rising inflation will erode the value of your income and asset.
Due to inflation, the cost of products and services will rise and consequently,
your future income and assets will be worth less than what they are worth
today.
e) Currency Risk: Changes in exchange rates between currencies could lead to
decline in value of your investments. With Indian investors now being allowed
to invest in other countries, you will now be exposed to currency risk i.e. a fall
in the value of the currency in which you are investing vis-à-vis your home
currency i.e. the Rupee.
f) Liquidity Risk: Certain investments carry the risk of poor liquidity either due
to the nature of the asset or regulatory reasons. For example, property is
inherently an illiquid investment as it cannot be sold as simply as selling
stocks. Certain investments like the Reserve Bank of India bonds are not
transferable till maturity. Investments in Equity Linked Savings Schemes are
illiquid for a period of 3 years and in case you redeem from such schemes,
your tax benefit is withdrawn.
1.8.3 Risk Tolerance Level: Risk includes the possibility of losing money.
However, extra considerations should be made in addition to the safety of
the principal and the potential for growth. These considerations include the
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likelihood of achieving the financial goals you have established. Additionally,
one should consider whether he/she is willing and able to accept a higher
level of risk in order to achieve further rewards.
Before starting on the setting of the investment portfolio, every investor
should establish his/her risk tolerance level. Only after this he/she is ready to
build strategies for the accomplishment of his/her financial goals. The higher the
degree of risk involved in the investment portfolio the greater the chances of
higher returns and failures.
The setting of the risk tolerance level is very subjective issue. However,
younger investors can afford more risk taking since they have more time to fix the
losses. On the other hand older investors should apply more conservative
approach since they have less time in front of them. But, they should keep in
mind that they greatly decrease their chances of faster achieving their financial
goals.
A portfolio that carries more bonds is considered more conservative and
risk averse. However, the one that includes a greater percentage of stocks is
more risk taking with higher potential of rewards. Many financial experts
recommend the diversification between investments with different degrees of
risk. This is a good idea since your portfolio will benefit from the rises and falls of
the different investments and will alleviate the potential of losing money.
Risk Personalities: Based on the risk capacity and risk tolerance, risk
appetite can be decided. This is the level of risk that one is ready to bear. Broadly
risk personalities can be categorised at 3 levels – Conservative, Balanced and
Aggressive. Each risk personality has a different objective which it aims to
achieve through the investment portfolio. These personalities are explained
below:
Conservative personality: For investors having this personality preservation
of the capital invested is the ultimate goal, even if it means compromising on
the returns.
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Balanced personality: People with this type of personality wish to strike a
balance between high-risk and low-risk investments.
Aggressive personality: Investors with such personality do not wish to
compromise at all on the returns, even if their capital erodes.
CHAPTER 2
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RESEARCH
METHODOLOGY
2.1 INTRODUCTION
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is not the calculations of financial wizards, or company’s performance or widely
accepted criterion of stock performance but the investor’s irrational emotions like
overconfidence, fear, risk aversion, etc., seem to decisively drive and dictate the
fortunes of the market.
The market is so volatile that its behaviour is unpredictable. In the past
couple of years, the movement of share prices exceeded all the limits and had
gone remarkably low and high levels. These dramatic prices of the shares ruin
the concept of intrinsic value and rational investment behaviour. The traditional
finance theories assume that investors are rational but they are unable to explain
the behaviour and pricing of the stock market completely.
Many research studies have validated the relationship between a
dependent variable i.e., risk tolerance level and independent variables such as
demographic characteristics of an investor. Most of the Indian investors are from
high income group, well educated, salaried, and independent in making
investment decisions and from the past trends it is also seen that they are
conservative in nature. Television is the media that is largely influencing the
investor’s decisions. Hence, in the present project report an attempt has been
made to study the relationship between risk tolerance level and demographic
characteristics of Indian investors.
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The literature review section examines the importance of research studies,
company data or industry reports that serve as a foundation for the setup of
study. The research dimension of the related literature and the relevant
information begins from an explanatory perspective, approaching towards
specific studies which do related to judge the limitations and informational gaps
in data from the secondary sources. This analysis may reveal conclusions from
past studies to realize the reliability of the secondary sources and their credibility.
This in turn enables one to rely on a comprehensive review for the study.
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risk aversion with age although the households appear to become less risk
averse as their wealth increases. Yoo (1994) found that the change in the risky
asset holdings were not uniform. He found individuals to increase their
investments in risky assets throughout their working life time, and decrease their
risk exposure once they retire. Lewellen et.al while identifying the systematic
patterns of investment behaviour exhibited by individuals found age and
expressed risk taking propensities to be inversely related with major shifts taking
place at age 55 and beyond. Indian studies on individual investor’s were mostly
confined to studies on share ownership, except a few.
The RBI's survey of ownership of shares and L.C. Gupta's enquiry into the
ownership pattern of Industrial shares in India were a few in this direction. The
NCAER's studies brought out the frequent form of savings of individuals and the
components of financial investments of rural households.
The Indian Shareowners Survey brought out a volley of information on
shareowners. Rajarajan V (1997, 1998, 2000 and 2003) classified investors on
the basis of their demographics. He has also brought out the investor’s
characteristics on the basis of their investment size. He found that the
percentage of risky assets to total financial investments had declined as the
investor moves up through various stages in life cycle. Also investor’s lifestyles
based characteristics has been identified. The above discussion presents a
detailed picture about the various facets of risk studies that have taken place in
the past. In the present study, the findings of many of these studies are verified
and updated.
Latha Krishnan (2006) explained as Investments come in many forms.
While some people consider hard assets such as land, house, gold and platinum
as investments, others look to monetary instruments such as stocks and bonds
as ways to make their money grow.
A cautious or conservative investor is unlikely to play carelessly with his
hard-earned money. So he keeps to safe investments that guarantee the return
of his capital and still earn good returns in a stipulated period if the product in
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which he invested gains in that period. In such an investment, even if the markets
go down and he does not gain much, he also does not suffer a heavy loss.
A wealthy person with more money to invest can take more risks and
invest in a variety of products that major financial players provide. A wealth of
information on these as well as comments and criticisms on their performances
and profitability is readily available.
“Perception of investors towards capital market instruments globally” by
John Marshall and “Investment analysis and Portfolio management’” by
Punithavathy Pandian. John Marshall’s study was at global scale and it explains
the perception of people across globe towards capital market instruments and
Pandian explains the theoretical aspects of capital market instruments and use of
various investment avenues to build a strong portfolio.
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more popular, as it gives information regarding the perception of investors
towards investment avenues in India.
2.7 HYPOTHESIS
A hypothesis describes the relationship between or among variables. A good
hypothesis is one that can explain what it claims to explain, is testable and has
greater range, probability and simplicity than its rivals. There are two approach of
hypothesis testing:
1) Classical or sampling theory statistics and 2) The Bayesian approach
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In the present dissertation chi square test has been used to find out the
dependence/independence of various factors that influence investment decision.
Hypothesis has been found between following factors:
Gender and risk tolerance of respondents
Age and preferred investment avenues by the respondents
Income and investment avenues preferred by the respondents
Age of respondents and time horizon for investment
Age and risk tolerance of the respondents
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After collecting the data its variable having defined character, it was
tabulated and analyzed with the help of charts and graphs in Microsoft Excel
2007.
CHAPTER 3
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INDUSTRY PROFILE
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which transfer of funds is facilitated’. It consists of individual investors, financial
institutions and other intermediaries who are linked by a formal trading rules and
communication network for trading the various financial assets and credit
instruments.
Financial market talks about the primary market, FDIs, alternative
investment options, banking and insurance and the pension sectors, asset
management segment as well. India Financial market happens to be one of the
oldest across the globe and is the fastest growing and best among all the
financial markets of the emerging economies. The history of Indian capital
markets spans back 200 years, around the end of the 18th century. It was at this
time that India was under the rule of the East India Company. The capital market
of India initially developed around Mumbai; with around 200 to 250 securities
brokers participating in active trade during the second half of the 19th century.
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the SEBI came into prominence. The market loopholes had to be bridged by
taking drastic measures.
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The main functions of financial market are:
It provides facilities for interaction between the investors and the borrowers.
It provides pricing information resulting from the interaction between buyers
and sellers in the market when they trade the financial assets.
It provides security to dealings in financial assets.
It ensures liquidity by providing a mechanism for an investor to sell the
financial assets. It ensures low cost of transactions and information.
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Figure 3.1: Classification of financial markets
Source: Investment analysis and portfolio management
Author: Prasanna Chandra
Figure 3.1 shows the classification of financial markets. From this figure we can
interpret that there are different ways of classifying financial market.
One is to classify financial market by the type of financial claim. The debt
market is the financial market foe fixed claims (debt instrument) and the
equity market is the financial market for residual claims (equity instruments)
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The second way is to classify financial markets by the maturity of claims. The
market for short term financial claims is referred to as the money market and
the market for long term financial claims is referred to as the capital market.
The third way to classify financial markets is based on whether the claims
represent new issues or outstanding issues. The market where issues sell
new claims is referred as primary market and the market where issues sell
outstanding claims is referred as secondary market.
The fourth way to classify financial markets is by the timing of delivery. A cash
or spot market is one where the delivery occurs immediately and forward or
futures markets are those markets where the delivery occurs at a pre
determined time in future.
The fifth way to classify financial markets is by the nature of its organizational
structure. An exchange traded market is characterized by a centralized
organization with standardized procedures and an over the counter market is
a decentralized market with customized procedures.
These markets are further explained in detail.
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institutions. The Reserve Bank of India is the leader of the money market in
India. Some Non-Banking Financial Companies (NBFCs) and financial
institutions like LIC, GIC, UTI, etc. also operate in the Indian money market.
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3.4.2 SECONDARY MARKET
The secondary market known as stock market or stock exchange plays an
equally important role in mobilizing long-term funds by providing the necessary
liquidity to holdings in shares and debentures. It provides a place where these
securities can be encashed without any difficulty and delay. It is an organized
market where shares and debentures are traded regularly with high degree of
transparency and security. In fact, an active secondary market facilitates the
growth of primary market as the investors in the primary market are assured of a
continuous market for liquidity of their holdings. The major players in the primary
market are merchant bankers, mutual funds, financial institutions, and the
individual investors; and in the secondary market you have all these and the
stockbrokers who are members of the stock exchange who facilitate the trading.
After having a brief idea about the primary market and secondary market let see
the difference between them.
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4. Determination of prices: In case of primary market, the prices are
determined by the management with due compliance with SEBI requirement for
new issue of securities. But in case of secondary market, the price of the
securities is determined by forces of demand and supply of the market and keeps
on fluctuating.
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The main characteristics of a stock exchange are:
It is an organized market.
It provides a place where existing and approved securities can be bought and
sold easily.
In a stock exchange, transactions take place between its members or their
authorized agents.
All transactions are regulated by rules and by laws of the concerned stock
exchange.
It makes complete information available to public in regard to prices and
volume of transactions taking place every day.
It may be noted that all securities are not permitted to be traded on a
recognised stock exchange.
It is allowed only in those securities (called listed securities) that have been
duly approved for the purpose by the stock exchange authorities. The method
of trading nowadays is quite simple on account of the availability of on-line
trading facility with the help of computers.
It is also quite fast as it takes just a few minutes to strike a deal through the
brokers who may be available close by. Similarly, on account of the system of
scrip-less trading and rolling settlement, the delivery of securities and the
payment of amount involved also take very little time, say, 2 days.
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CNBC, Zee News, NDTV and Headlines Today. This enables the investors in
taking quick decisions on purchase and sale of securities in which they are
interested. Not only that, such information helps them in ascertaining the
trend in prices and the worth of their holdings. This enables them to seek
bank loans, if required.
Provides safety to dealings and investment: Transactions on the stock
exchange are conducted only amongst its members with adequate
transparency and in strict conformity to its rules and regulations which include
the procedure and timings of delivery and payment to be followed. This
provides a high degree of safety to dealings at the stock exchange. There is
little risk of loss on account of non-payment or no delivery.
Helps in mobilisation of savings and capital formation: Efficient
functioning of stock market creates a conducive climate for an active and
growing primary market. Good performance and outlook for shares in the
stock exchanges imparts buoyancy to the new issue market, which helps in
mobilising savings for investment in industrial and commercial
establishments. The stock exchanges provided liquidity and profitability to
dealings and investments in shares and debentures. It also educates people
on where and how to invest their savings to get a fair return. This encourages
the habit of saving, investment and risk-taking among the common people.
Thus it helps mobilising surplus savings for investment in corporate and
government securities and contributes to capital formation.
Barometer of economic and business conditions: Stock exchanges reflect
the changing conditions of economic health of a country, as the shares prices
are highly sensitive to changing economic, social and political conditions. It is
observed that during the periods of economic prosperity, the share prices
tend to rise. Conversely, prices tend to fall when there is economic stagnation
and the business activities slow down as a result of depressions. Thus, the
intensity of trading at stock exchanges and the corresponding rise on fall in
the prices of securities reflects the investor’s assessment of the economic
and business conditions in a country, and acts as the barometer which
indicates the general conditions of the atmosphere of business.
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Better Allocation of funds: As a result of stock market transactions, funds
flow from the less profitable to more profitable enterprises and they avail of
the greater potential for growth. Financial resources of the economy are thus
better allocated.
a) To the Companies
The companies whose securities have been listed on a stock exchange
enjoy a better goodwill and credit-standing than other companies because
they are supposed to be financially sound.
The market for their securities is enlarged as the investors all over the
world become aware of such securities and have an opportunity to invest
As a result of enhanced goodwill and higher demand, the value of their
securities increases and their bargaining power in collective ventures,
mergers, etc. is enhanced.
The companies have the convenience to decide upon the size, price and
timing of the issue.
(b) To the Investors:
The investors enjoy the ready availability of facility and convenience of
buying and selling the securities at will and at an opportune time.
Because of the assured safety in dealings at the stock exchange the
investors are free from any anxiety about the delivery and payment
problems.
Availability of regular information on prices of securities traded at the stock
exchanges helps them in deciding on the timing of their purchase and
sale.
It becomes easier for them to raise loans from banks against their
holdings in securities traded at the stock exchange because banks prefer
them as collateral on account of their liquidity and convenient valuation.
(c) To the Society
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The availability of lucrative avenues of investment and the liquidity thereof
induces people to save and invest in long-term securities. This leads to
increased capital formation in the country.
The facility for convenient purchase and sale of securities at the stock
exchange provides support to new issue market. This helps in promotion
and expansion of industrial activity, which in turn contributes, to increase
in the rate of industrial growth.
The Stock exchanges facilitate realisation of financial resources to more
profitable and growing industrial units where investors can easily increase
their investment substantially.
The volume of activity at the stock exchanges and the movement of share
prices reflect the changing economic health.
Since government securities are also traded at the stock exchanges, the
government borrowing is highly facilitated. The bonds issued by
governments, electricity boards; municipal corporations and public sector
undertakings (PSUs) are found to be on offer quite frequently and are
generally successful.
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as on account of rumours spread by interested parties. This makes it difficult to
assess the movement of prices in future and build appropriate strategies for
investment in securities. However, these days good amount of vigilance is
exercised by stock exchange authorities and SEBI to control activities at the
stock exchange and ensure their healthy functioning.
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In strict technical terms, however, the transaction is regarded as
speculative only if it is settled by receiving or paying the difference in prices
without involving the delivery of securities. It is so because, in practice, it is quite
difficult to ascertain the intention. Some people regard speculation as nothing but
gambling and consider it as an evil. But it is not true because while speculation is
based on foresight and hard calculation, gambling is a kind of blind and reckless
activity involving high degree of chance element. Not only that, speculation is a
legal activity duly recognised as a prerequisite for the success of stock exchange
operations while gambling is regarded as an evil and a punishable activity.
However, reckless speculation may take the form of gambling and should be
avoided.
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projects in a cost effective manner. It provides for nationwide online ring less
trading with 20 plus representative offices in all major cities of the country. On
this stock exchange, securities of those companies can be traded which are
exclusively listed on OTCEI only. In addition, certain shares and debentures
listed with other stock exchanges in India and the units of UTI and other mutual
funds are also allowed to be traded on OTCEI as permitted securities. It has
been noticed that, of late, the turnover at this stock exchange has considerably
reduced and steps have been afoot to revitalise it. In fact, as of now, BSE and
NSE are the two Stock Exchanges, which enjoy nation-wide coverage and
handle most of the business in securities in the country.
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As part of economic reforms programme started in June 1991, the
Government of India initiated several capital market reforms, which included the
abolition of the office of the Controller of Capital Issues (CCI) and granting
statutory recognition to Securities Exchange Board of India (SEBI) in 1992 for:
(a) Protecting the interest of investors in securities;
(b) Promoting the development of securities market;
(c) Regulating the securities market; and
(d) Matters connected there with or incidental thereto.
SEBI has been vested with necessary powers concerning various aspects
of capital market such as:
Regulating the business in stock exchanges and any other securities
market;
Registering and regulating the working of various intermediaries and
mutual funds;
Promoting and regulating self regulatory organisations;
Promoting investors education and training of intermediaries;
Prohibiting insider trading and unfair trade practices;
Regulating substantial acquisition of shares and takeover of companies;
As part of its efforts to protect investors’ interests, SEBI has initiated many
primary market reforms, which include improved disclosure standards in public
issue documents, introduction of prudential norms and simplification of issue
procedures. Companies are now required to disclose all material facts and risk
factors associated with their projects while making public issue. All issue
documents are to be vetted by SEBI to ensure that the disclosures are not only
adequate but also authentic and accurate. SEBI has also introduced a code of
advertisement for public issues for ensuring fair and truthful disclosures.
Merchant bankers and all mutual funds including UTI have been brought
under the regulatory framework of SEBI. A code of conduct has been issued
specifying a high degree of responsibility towards investors in respect of pricing
and premium fixation of issues. To reduce cost of issue, underwriting of issues
has been made optional subject to the condition that the issue is not under-
subscribed. In case the issue is under-subscribed i.e., it was not able to collect
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90% of the amount offered to the public, the entire amount would be refunded to
the investors. The practice of preferential allotment of shares to promoters at
prices unrelated to the prevailing market prices has been stopped and private
placements have been made more restrictive. All primary issues have now to be
made through depository mode. The initial public offers (IPOs) can go for book
building for which the price band and issue size have to be disclosed. Companies
with dematerialized shares can alter the par value as and when they so desire.
As for measures in the secondary market, it should be noted that all
statutory powers to regulate stock exchanges under the Securities Contracts
(Regulation) Act have now been vested with SEBI through the passage of
securities law (Amendment) Act in 1995. SEBI has duly notified rules and a code
of conduct to regulate the activities of intermediaries in the securities market and
then registration in the securities market and then registration with SEBI is made
compulsory. It has issued guidelines for composition of the governing bodies of
stock exchanges so as to include more public representatives. Corporate
membership has also been introduced at the stock exchanges. It has notified the
regulations on insider trading to protect and preserve the integrity of stock
markets and issued guidelines for mergers and acquisitions. SEBI has constantly
reviewed the traditional trading systems of Indian stock exchanges and tried to
simplify the procedure, achieve transparency in transactions and reduce their
costs.
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liberalization of economic policies and deregulation that led to economic
changes, development and contemporary evolution of capital market and
financial disintermediation.
The far reaching changes in the Indian economy since liberalization in the
early 1990s have had a deep impact on the Indian financial sector. The financial
sector has gone through a complex and sometimes painful process of
restructuring, capitalizing on new opportunities as well as responding to new
Challenges. During the last decade, there has been a broadening and deepening
of financial markets. Several new instruments and products have been
introduced.
Existing sectors have been opened to new private players. This has given
a strong impetus to the development and modernization of the financial sector.
New players have adopted international best practices and modern technology to
offer a more sophisticated range of financial services to corporate and retail
customers. This process has clearly improved the range of financial services and
service providers available to Indian customers. The entry of new players has led
to even existing players upgrading their product offerings and distribution
channels. This continued to be witnessed in 2002-03 across key sectors like
commercial banking and insurance, where private players achieved significant
success.
These changes have taken place against a wider systemic backdrop of
easing of controls on interest rates and their realignment with market rates,
gradual reduction in resource pre-emption by the government, relaxation of
stipulations on concessional lending and removal of access to concessional
resources for financial institutions. Over the past few years, the sector has also
witnessed substantial progress in regulation and supervision. Financial
intermediaries have gradually moved to internationally acceptable norms for
income recognition, asset classification, and provisioning and capital adequacy.
This process continued in 2002-03, with RBI announcing guidelines for
risk-based supervision and consolidated supervision. While maintaining its soft
interest rate stance, RBI cautioned banks against taking large interest rate risks,
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and advocated a move towards a floating rate interest rate structure. The past
decade was also an eventful one for the Indian capital markets. Reforms,
particularly the establishment and empowerment of securities and Exchange
Board of India (SEBI), market-determined prices and allocation of resources,
screen-based nation-wide trading, dematerialization and electronic transfer of
securities, rolling settlement and derivatives trading have greatly improved both
the regulatory framework and efficiency of trading and settlement.
On account of the subdued global economic conditions and the impact on
the Indian economy of the drought conditions prevailing in the country, 2002-03
was a subdued year for equity markets. Despite this, the National Stock
Exchange (NSE) and the Bombay Stock Exchange (BSE) ranked third and sixth
respectively among all exchanges in the world with respect to the number of
transactions. The year also witnessed the grant of approval for setting up of a
multi commodity exchange for trading of various commodities.
The US$ 28 billion Indian financial sector has grown at around 15 per cent
and has displayed stability for the last several years, even when other markets in
the Asian region were facing a crisis. This stability was ensured through the
resilience that has been built into the system over time. The financial sector has
kept pace with the growing needs of corporate and other borrowers. Banks,
capital market participants and insurers have developed a wide range of products
and services to suit varied customer requirements. The Reserve Bank of India
(RBI) has successfully introduced a regime where interest rates are more in line
with market forces.
Financial institutions have combated the reduction in interest rates and
pressure on their margins by constantly innovating and targeting attractive
consumer segments. Banks and trade financiers have also played an important
role in promoting foreign trade of the country. Here we will study the three
industries with respect to India.
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CHAPTER 4
ANALYSIS
Page | 59
&
INTERPRETATION
Interpretation:
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Table 4.1 shows the Gender wise classification of Respondents. It was found that
80% of the Respondents are men and the rest are females. Generally males
bear the financial responsibility in Indian society, and therefore they have to
make investment decisions to fulfil the financial obligations.
On the other hand females are not involved in such activities as majority of them
are busy with their household activities. Also there are very less houses which
depend on a female income most of them are male dominated households.
Hence investment activities are more seen in males than females.
Interpretation:
Table 4.2 shows the Age wise classification of Respondents. When it comes to
age, it was found that 37% are young i.e. of age group below 35 years and 53%
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of them are in the age group of 35 to 50. Other than these 7% of them belong to
age group of 51 to 60 and rest them belongs to age group above 60. This shows
that age group of 35 years an above are more interested in investments while
people above 51 years make less investments as most of them would retire at
age of 60 and would start planning for retirement.
Interpretation:
Table 4.3 shows classification of Respondents on the basis of their Marital
Status. It was found that marital status of 78% of the Respondents was found to
be married and the rest 22% are unmarried. This is because a married individual
is considered to have dependents so they are involved in making financial
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investments. Whereas Respondents who are unmarried mostly invest to
generate wealth but they do not have any financial responsibility.
Interpretation:
Table 4.4 shows classification of Respondents on basis of Occupation. From the
above graph indicates that 36% of the Respondents are working in private sector,
29% of them are government employees, 28% of them are self employed, 2% of
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them are students and rest are working in other sectors. Respondents who work
in private sectors are involved in investments as the income would be lesser in
private sectors.
Interpretation:
Table 4.5 shows the classification of Respondents on basis of Annual Income. It
was found that 48% of Respondents with annual earnings above 8 Lakhs are
interested in investments because their savings are more which they invest to
generate wealth, 23% of them are earning 4 to 6 Lakhs annually, the other 25%
are earning between 6 to 8 Lakhs in a year, 4% of them earn 2 to 4 Lakhs in an
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year but there were no respondents with annual income below 2 Lakhs as they
do not have savings to invest.
Interpretation:
Table 4.6 shows the classification of Respondents on basis of Education Level. It
indicates that 47% of the Respondents covered in the study are postgraduates;
43% Respondents are graduates and 10% of the Respondents are
undergraduates. Investors with post graduate degree would be more exposed to
market situation which make them more interested in investments. Also
graduates would have fair knowledge about investments. Whereas Respondents
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who are undergraduates mostly do not invest due to unfamiliarity to investment
avenues or unavailability if information about investments.
Interpretation:
Table 4.7 shows classification of Respondents on basis Influence on Investment
Decision. It was found that most Respondents tend not to depend upon expert
advice and help while making investment decisions. However, the majority of the
Respondents i.e. 74% make investment decisions without the help and advice
from experts; only 18% investors consult some experts, for advice in investment
decisions. And the rest of them allow the expert to take decision on their behalf.
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Figure 4.7: Classification of Respondents on basis Influence on Investment
Decision
Interpretation:
Table 4.8 shows the classification of Respondents on the basis of Regularity in
making Investment Decisions. Most of the Respondents i.e. 59% of total sample
make investment decisions on a regular basis while rest 41% does not invest
regularly. Those who are familiar with the working of investments would invest
more frequently than those who do not have much knowledge about investments.
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Figure 4.8: Classification of Respondents on the basis of Regularity in making
Investment Decisions
Page | 68
objective of investment plan is capital appreciation or balance of capital
appreciation and current income. It is clear that investors invest to accumulate
wealth rather as an avenue to supplement their income.
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Figure 4.10: Classification of Respondents on the basis of Factors Influencing an
Investment Decision
Table 4.11: Classification of Respondents on basis of Preferred Investment
Avenues
Investment Avenues Number of Percentage (%)
Respondents
Fixed Deposits 67 26.8
Insurance schemes 64 25.6
Equities 11 4.4
Mutual Funds schemes 60 24
Real estate 24 9.6
Commodities/ Derivatives 24 9.6
Total 250 100
Interpretation:
Table 4.11 shows classification of Respondents on basis of Preferred Investment
Avenues. It can be concluded that the Respondents prefer FD’s/Bonds/PPFs
avenues than insurance schemes next to mutual funds, equities and derivatives.
It was interesting to know that Indian individual investors still prefer to invest their
surplus amount in risk free investment avenues next to insurances schemes. It
confirms that Indian investors are conservative investors.
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Figure 4.11: Classification of Respondents on basis of Preferred Investment
Avenues
Interpretation:
Table 4.12 shows the classification of Respondents on the basis of Industry
preferred by them for Investing. It is found that 21% of Respondents prefer
financial service, 18% of them prefer IT sector, 10% of them prefer automobile
industry, 9% of them prefer manufacturing and telecommunication each, 7% of
them prefer banking followed by cement and agriculture industries and rest 19%
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prefer other industries to invest their funds. Majority of Respondents prefer
financial services to invest because it stable industry and fetch more returns.
Interpretation:
Table 4.13 shows the classification of Respondents on the basis of Time Horizon
for Investment. From the above table we can interpret that majority of the
Respondents i.e. 46% of the total sample invest for less than 1 year, 33% of
them invest for time period of 1 to 3 years, 19% of them invest for period of 4 to 9
years and the rest of them i.e. 2% of them invest for long term i.e. more than 10
years. It is found that most of the Respondents want to make money quickly
hence they invest for a short period of below 1year.
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Figure 4.13: Classification of Respondents on the basis of Time Horizon for
Investment
Table 4.14: Classification of Respondents on the basis of Knowledge about
Financial Terms
Knowledge about Number of Percentage (%)
Financial Terms Respondents
Excellent 107 42.7
Very good 70 27.8
Average 38 15.1
Good 27 11.3
Satisfactory 8 3.1
Total 250 100
Interpretation:
Table 4.14 shows classification of Respondents on the basis of Knowledge about
Financial Terms. Majority of the Respondents have excellent knowledge of
financial terms, 28 % have good knowledge, 15% have average knowledge, 11
% have good knowledge rest 3% have fair knowledge about investment.
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Figure 4.14: Classification of Respondents on the basis of Knowledge about
Financial Terms
Table 4.15: Classification of Respondents on basis of Sources of Investment
Information
Sources of Investment Number of Percentage (%)
Information Respondents
News Paper/ Magazines 75 30
Electronic Media (T.V) 25 10
Peer group/ Friends 44 17.6
Broker/ Financial Advisor 50 20
Internet 46 18.4
Total 250 100
Interpretation:
Table 4.15 shows the classification of Respondents on basis of Sources of
Investment Information. Most of the Respondents get their information related to
investment through print media (News paper/ Business news paper/ Magazines)
next to electronic media (TV- NDTV Profit, CNBC and some business news
channels). This could be because print media is easy and readily accessible
investment information when compared to the other sources of investment
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information whereas some other Respondents prefer brokers to get information
about investment.
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Figure 4.16: Classification of Respondents on basis of Risk Tolerance Level
HYPOTHESIS:
The relationship between important factors has been analyzed with the help of
Chi-Square Test. The following pairs have been analyzed:
a) Gender and Risk Tolerance: Gender and the Risk Tolerance Level of an
investor are two independent attributes. The relationship between the
Gender and Risk Tolerance of investors can be presented with the help of
following table and diagram:
Table 4.17: Relationship between Gender and Risk Tolerance of
Respondents
Gender/ Risk Low risk Moderate risk High risk Total
Tolerance Level
Male 80 52 68 200
Female 22 12 16 50
Total 102 64 84 250
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Interpretation:
Table 4.17 shows the relationship between Gender and Risk Tolerance of
Respondents. Let us consider,
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b) Age and Investment Avenues: Age of investor and the Investment
Avenues preferred by an investor are two independent attributes. The
relationship between the Age and Investment Avenues preferred by the
investors can be presented with the help of following table and diagram:
Interpretation:
Table 4.18 shows the relationship between Age and Investment Avenues
preferred by the Respondents. Let us take,
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H0: Age and Preferred Investment Avenues by investors are independent.
H1: Age and Preferred Investment Avenues by investors are dependent .
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c) Income and Investment Avenues: There is no significant relationship
between the Income of an investor and the Investment Avenues preferred
by the investors. The relationship between Income and Investment
Avenues preferred by the investors can be presented with the help of
following table and diagram:
Interpretation:
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Table 4.19 shows the relationship between Income and Investment Avenues
preferred by the Respondents. Let us consider,
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d) Age and Time Horizon: The relationship between Age of investors and
Time Horizon for investment can be presented with the help of following
table and diagram:
Table 4.20: Relationship between Age of Respondents and Time Horizon
for investment
Age/
Below 1 1-3 years 4-9 years Above 10 Total
Investment
year years
Time
Horizon
Below 43 31 17 1 92
35years
36-50years 62 44 25 2 133
51-60years 7 5 4 1 17
above 3 2 2 1 8
60years
Total 115 82 48 5 250
Interpretation:
Table 4.20 shows the relationship between Age of Respondents and Time
Horizon for investment. Let us take,
H0: Age of investors and Time Horizon for investment has no significant relation
H1: Age of investors and Time Horizon for investment has a significant relation
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Figure 4.20: Relationship between Age of Respondents and Time Horizon
for Investment
e) Age and Risk Tolerance: The relationship between Age and Risk
Tolerance of the investors can be presented with the help of following
table and diagram:
Interpretation:
Table 4.21 shows the relationship between Age and Risk Tolerance of the
Respondents. Let us consider,
H0: Age and Risk Tolerance of the investors is independent.
H1: Age and Risk Tolerance of the investors is dependent.
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CHAPTER 5
Page | 85
FINDINGS &
SUGGESTIONS
Page | 86
5.1 FINDINGS
In the present project, an attempt is made to study the investment
characteristics of Indian investors. Based on the data collected and
analysed about the investment preferences of the investors, the following
findings are given.
The study reveals that male investors dominate the investment market in
India.
It is found that most of the investors belong to the age group of below 35
years and 35 to 50 years indicating youngsters and the middle aged
people are predominant in the financial investment sector.
Most of the investors possess higher education qualification like
graduation and above.
Majority of respondents are working in private sector organisations as
compared to government organisations.
As per the general perception, it is found respondents with higher income
groups like income above 8 Lakhs were found to invest more because of
their large portions of savings.
The investor’s decisions are based on their own initiative.
Specific investment pattern was noted in a majority of the people who
participated in the study.
Respondents usually prefer to invest frequently.
The objective of investment was either capital appreciation or balance of
capital appreciation and current income.
Investors usually invest their funds so as to earn wealth.
Investors prefer to invest their funds in avenues like PPF/FD/Bonds next
to insurance and mutual funds scheme.
Most preferred industries for investment are financial services banking
and information technology.
Most of the respondents preferred to invest for a short period that is less
than 1 year. Some of them preferred to invest for a time period of 1-3
years.
With reference to the objective of investment, most of the respondents
preferred high returns, followed by risk, tax shelter, convenience and
marketability.
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Most of the investors get their information related to investment through
print media like business newspapers and magazines while others prefer
to get information from brokers and electronic media like TV.
Most of the investors prefer to invest in to less risky investments. Very
less proportion of respondents preferred risky portfolios.
Indian investors are conservative in nature and prefer to invest in less
risky avenues.
Majority of the investors have moderate knowledge about financial terms
related to investment.
Gender and the risk tolerance level of the investor are independent
attributes of the investor.
It is found from the analysis of data that increase in age decrease the risk
tolerance level.
It is revealed from the study that age of investors independent of
preferred investment avenue.
Income of investors and investment avenues preferred by them are two
independent attributes of the investor.
Age of investors and time horizon for which they invest are two
independent attributes of the investor.
Age and risk tolerance of the investors are two independent attributes of
the investor.
5.2 SUGGESTIONS
The traditional finance theories assume that investors are rational but they
are unable to explain the behaviour and pricing of the stock market completely.
Despite loads of information popping from all directions, it is not the calculations
of financial wizards, or company’s performance or widely accepted criterion of
stock performance but the investor’s irrational emotions like overconfidence, fear,
risk aversion, etc., seem to decisively drive and dictate the fortunes of the
market. Many research studies have validated the relationship between a
dependent variable i.e., risk tolerance level and independent variables such as
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demographic characteristics of an investor. Hence, in the present project report
an attempt has been made to study the relationship between risk tolerance level
and demographic characteristics of Indian investors. Based on the analysis of
data, the following suggestions are given.
It is evident from the study that investors’ lack knowledge of the pros and
cons of various investment avenues. Hence it is suggested that investors
are to be educated about various investment avenues, selection of
schemes based on their objectives, their risk tolerance, importance of
diversification and so on to which will in turn help in efficient investment
rather impulsive.
The analysis of data clearly indicates that the investors’ investment
behaviour is independent of their demographic factors. Therefore it is
suggested that the schemes can be designed based on matching the
objectives of the investment rather based on demographic factors in order
to motivate investors.
The primary objective of most of the respondents is maximise return
through capital appreciation as well as regular returns. Hence, the
investment avenues that offer capital appreciation and dividend income
like equity shares are more attractive to the investors. Therefore various
schemes can be designed that includes equity investment.
Most of the respondents hesitate to invest their money through online
mode, so it is preferred to contact the investors through the distributors
and financial advisers besides online services.
All the investors prefer to maximise their returns and minimise the risk.
Even now fixed deposits and insurance schemes are more famous among
Indian investors. It is suggested that the investors have carefully construct
their portfolios after doing fundamental analysis and through proper
diversification.
It always better that the investors follow a systematic investment process
to invest their money. Investment avenues are to be chosen based on
their objectives and risk preferences which would result in risk return trade
off.
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CHAPTER 6
Page | 90
CONCLUSION
CONCLUSION
Investment is putting money into something with the expectation of profit.
More specifically, investment is the commitment of money or capital to the
purchase of financial instruments or other assets so as to gain profitable returns
in the form of interest, dividends, or appreciation of the value of the instrument.
Investment is involved in many areas of the economy, such as business
management and finance whether for households, firms, or governments.
Investment comes with the risk of the loss of the principal sum. The investment
that has not been thoroughly analyzed can be highly risky with respect to the
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investment owner because the possibility of losing money is not within the
owner's control.
This study has tried addressing the “Investment characteristics of Indian
investors”. Because of time limit only 250 respondents are taken for the study. A
survey was conducted to get knowledge of factors which influence Indian
investor’s investment decisions. This study was an attempt to understand the
characteristics of Indian investors.
This study is limited to Indian investors only but the study can be extended
to other investors also. The study can be extended to global investor’s
investment behaviour. There is also a scope of a comparative study which can be
done between Indian investors investment behaviour with the global investors
behaviour. Due to time limitation this study was restricted to only demographic
characteristics but the study can be done with considering other factors also.
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BIBLIOGRAPHY
BIBLIOGRAPHY
Books
C K Kothari, Research Methodology, Wishwa Prakashan Publishing,
1996, Second Edition
Herbert B. Mayo, Investments, Chennai Micro Print pvt. Ltd Chennai,
2006
Punithavathi Pandyan, Security Analysis and Portfolio Management,
Tata Mc Graw-Hill Publishing Company Ltd , New Delhi,2008 Third Edition
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Prasanna Chandra, Investment Analysis And Port Folio Management,
Tata Mc Graw-Hill Publishing Company Ltd , New Delhi,2008
Prasanna Chandra, Financial Management, Tata Mc Graw –Hill
Publishing Company Ltd , New Delhi2007
Journals
Asian Journal Of Management
Global Journal of Finance and Management
Indian Journal of Finance
The IUP Journal of Behavioural Finance,
Barberis, N. and Thaler, R. H. (2002) A Survey of Behavioural Finance
Websites Reference
www.indiafinance&investmentguide.com
www.wikipedia.org
www.nseindia.com
www.capitalmarkets.com
www.bseindia.com
www.financeindia.org/article
ANNEXURE
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ANNEXURE
QUESTIONNAIRE
I am Chitra Raveendran student of MBA from Acharya Institute of Management
and Sciences Bangalore, conducting a survey on “A Study on Investment
characteristics of Indian investors” as a part of my dissertation. I would request to
kindly fill in this questionnaire and the information given by you will be kept highly
confidential.
(Please tick mark √ the choice from the option given below)
PART – A
1) Name:
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3) Age Group:
Below 35years 36-50years 51-60years above 60years
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6) How regularly do you make investment decisions?
Frequently Often
10) If you could choose only one of the three portfolios characterized below,
which would you select, given your investments are in Equities, Fixed
deposits, cash equivalents, alternative assets?
Portfolio A(less risky): 25%, 50%, 25%, and 0%
Portfolio B (balanced): 55%, 30%, 10%, and 5%
Portfolio C (risky): 10%, 5%, 5%, 80%
Thank You
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