ABSRTACT

Each investment alternative has its own strengths and weaknesses. Some options seek
to achieve superior returns but with corresponding higher risk. Other provide safety but at the
expense of liquidity and growth. Other options such as FDs offer safety and liquidity, but at
the cost of return. Mutual funds seek to combine the advantages of investing in arch of these
alternatives while dispensing with the shortcomings. Indian stock market is semi-efficient by
nature and, is considered as one of the most respected stock markets, where information is
quickly and widely disseminated, thereby allowing each security's price to adjust rapidly in an
unbiased manner to new information so that, it reflects the nearest investment value.
Savings form an important part of the economy of any nation. With the savings
invested in various options available to the people, the money acts as the driver for growth of
the country. Indian financial scene too presents a plethora of avenues to the investors. Though
certainly not the best or deepest of markets in the world, it has reasonable options for an
ordinary man to invest his savings.
One needs to invest and earn return on their idle resources and generate a specified
Sum of money for a specific goal in life and make a provision for an uncertain future. 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 cost 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
service in the future as it does now or did in the past. The sooner one starts investing the
better. By investing early you allow your investments more time to grow, whereby the concept
of compounding increases your income, by accumulating the principal and the interest or
dividend earned on it, year after year.
The three golden rules for all investors are:
Invest early
Invest regularly
Invest for long term and not for short term
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1.1 INTRODUCTION:
The developing countries like India face the enormous task of finding sufficient capital in
their development efforts. Most of these countries find it difficult to get out of the vicious
circle of poverty of low income, low saving, low investment, low employment etc. With high
capital output ratio, India needs very high rates of investments to make a leap forward in her
efforts of attaining high levels of growth. Since the beginning of planning, the emphasis was
on investment as the primary instruments of economic growth and increase in national
income. In order to have production as per target, investment was considered the crucial
determinant and capital formation had to be supported by appropriate volume of saving.
1.2. INVESTMENT OPTIONS AVAILABLE
There are a large number of investment instruments available today. To make our lives
easier we would classify or group them. In India, numbers of investment avenues are available
for the investors. Some of them are marketable and liquid while others are non marketable and
some of them also highly risky while others are almost risk less. The people has to choose
Proper Avenue among them, depending upon his specific need, risk preference, and return
expected Investment avenues can broadly categories under the following heads.
1. Equity
2. FI Bonds
3. Corporate Debenture
4. Company Fixed
5. Bank Fixed
6. PPF
7. Life Insurance
8. Post Office-NSC
9. Gold/Sliver
10. Real Estate
11. Mutual Fund
12. Others
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Equity:
Equity is one of the most risky areas. But, at the same time this is also a place where an
investor can earn high rates of returns that will push up the returns of the entire portfolio.
There is a need for the investor to separate the speculation from the investment. Investment in
equities can be made directly by the purchase of shares from the market or it can be done
through the mutual fund route, whereby the investor buys the mutual fund units and the fund
in turn buys equity shares for its portfolio. There are various benefits as well as risks
associated with both these routes and it is up to the individual to make up his mind.
Debt:
Debt is a route that most people will know and have the necessary experience of. There is
a wide range of debt instruments that are present from bank fixed deposits to company fixed
deposits. Debt is simple as the investor ill earn at a fixed percentage of the investment, which
will then be returned to the investor at the time of maturity or redemption of the investment.
Mutual Funds:
This is an emerging area for investment and there is a large variety of schemes in the
market to suit the requirements of a large number of people. In finance, in general, you can
think of equity as ownership in any asset after all debts associated with that asset are paid off.
For example, a car or house with no outstanding debt is considered the owner's equity because
he or she can readily sell the item for cash. Stocks are equity because they represent
ownership in a company.
Corporate Debenture:
Corporate debentures are normally backed by the reputation and general credit
worthiness of the issuing company. It is a type of debt instrument that is not covered by the
security of physical assets or collateral. Debentures are a method of raising credit for the
company and although the money thus raised is considered a part of the company's capital
structure, it is not part of the share capital.

Company Fixed Deposit:

Company fixed deposit is the deposit placed by investors with companies for a fixed
term carrying a prescribed rate of interest. Company FDs are primarily meant for conservative
investors who don't wish to take the risk of vagaries of the stock market. But The 2013 IBEA,
International Conference on Business, Economics, and Accounting 20 23 March 2013,
Bangkok - Thailand experts say the due diligence that an investor should undertake is similar
to that before buying shares. Getting lured by the high interest rate alone is not advisable.
Fixed Deposits:
Fixed Deposits with Banks are also referred to as term deposits. Minimum investment
period for bank FDs is 30 days. Deposits in banks are very safe because of the regulations of
RBI and the guarantee provided by the deposit insurance corporation. The interest rate on
fixed deposits varies with term of the deposits Bank deposits enjoy exceptionally high
liquidity. Loans can raised against bank deposits.
Post Office Savings:
Post Office Monthly Income Scheme is a low risk saving instrument, which can be
availed through any Post Office. The interest rate on deposits is slightly higher than banks.
The interest is calculated half yearly and paid yearly
Life Insurance Policies:
Insurance companies offer many investment schemes to investors. These schemes
promote saving and additionally provide insurance cover. L1C is the largest life insurance
company in India. Some of its schemes include -Life policies,
-Convertible whole life assurance policy,
-Endowment assurance policy,
-Jeevan Saathi,
-Money back policy
-Unit linked plan
-Term assurance
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-Immediate annuity
-Deferred annuity
-Riders etc.
Insurance policies, while catering to the risk compensation to be faced in the future by
investor, also have the advantage of earning a reasonable interest on their investment
insurance premiums.
Public Provident Fund (Ppf):
A long term savings instrument with a maturity of 15 years. A PPF account can be
opened through a nationalized bank at anytime during the year and is open all through the year
for depositing money. Tax benefits can be availed for the amount invested and interest accrued
is tax-free. A withdrawal is permissible every year from the seventh financial year of the date
of opening of the account
Real Estate:
Investment in real estate also made when the expected returns are very attractive.
Buying property is an equally strenuous investment decisions. Real estate investment is often
linked with the future development plans of the location. At present investment in real assets
is booming there are various investment source are available for investment which are directly
or indirectly investing real estate. In addition to this, the more affluent investors are likely to
be interested in other type of real estate, like commercial property, agricultural land, semi
urban land, and resorts.
Gold/Silver /Others:
The bullion offers investment opportunity in the form of gold, silver, art objects
(paintings ,antiques), precious stones and other metals (precious objects), specific categories
of metals are traded in the metal exchange

1.3 Behavioral Finance Approach:

Retail investors are an important segment in the stock market and their prudent presence is
very essential for a healthy growth of stock market . The long belief of the Efficient Market
Hypothesis is gradually being eroded. Empirical studies have time and again proved that the
irrational behaviors have caused stock market bubbles and crashes. The knowledge so
developed through the studies would provide a framework of behavioral principles within
which the investors can critically inspect their investing decisions and if need be ,take
corrective actions to hopefully make their future financial decisions a bit more rational and a
lot more lucrative as well.
Theoretical and empirical evidence suggested that Capital Asset Pricing Model ,
Efficient Market Hypothesis and other rational financial theories did a respectable job of
predicting and explaining certain events (Robert J.Shiller ,2003). However, the real world is
altogether different and in which, market participants often behave very unpredictably. The
fact is, investors frequently behave irrationally. The January Effect (Michael and
William,1976),The Winners Curse (Robert Thaler,1988) and The Equity Premium Puzzle are
the stock market anomalies that remained unexplained by the traditional theories. These
anomalies prompted academics to look to cognitive psychology to account for the irrational
and illogical behaviors(Albert Phung,2002). Investors trade for both cognitive and emotional
reasons. They trade because they think they have information when they have nothing but
noise, and they trade because trading can bring the joy of pride. Trading brings pride when
decisions turn out well, but it brings regret when decisions do not turn out well.
Now, let us look in to some of the most prominent behavioral biases that cause irrational
decisions:
Prospect theory explains the occurrence of the disposition effect, which is the tendency for
investors to hold on to losing stocks for too long and sell winning stocks too soon. The most
logical course of action would be to hold on to winning stocks in order to further gains and to
sell losing stocks in order to prevent escalating losses.
Anchoring Bias: Kahneman and Tversky(1974) have provided an academic evidence of the
presence of strong anchoring effect even in random cases. According to them, investors have

the tendency to attach or "anchor" their thoughts around a reference point despite the fact that
it may not have any logical relevance to the decision at hand.
Mental Accounting :Some Investors have the tendency of separating the found money and
the earned money from the standpoint of the purpose for which it is utilized. Found money is
recklessly spent where as extra caution is used to spend earned money , though there is no
logical reason to distinguish.
Confirmation Bias :The investors would be more likely to look for information that supports
his or her original idea about an investment rather than seek out information that contradicts
it.
As a result, this bias can often result in faulty decision making.
Hindsight Bias: The belief that they can easily predict the future based on the past events
may result in incorrect oversimplifications and disastrous investment decision.
Gamblers Fallacy :Often, Investors erroneously believe that the onset of a certain random
event is less likely to happen following an event or a series of events. Investors can easily fall
prey to this gambler's fallacy.
Herd behavior: Investors have the tendency to mimic the actions (rational or irrational) of a
larger group.
Researchers have theorized that investors follow the crowd and conventional wisdom to avoid
the possibility of feeling regret in the event that their decisions prove to be incorrect.
The

Crowd

effects

have

resulted

in

nasty

turbulences

in

the

stock

market(Showry&Tabassum,2007)
Over Confidence :Investors are consistently overconfident in their ability to outperform the
market, however, most fail to do so (James Montier,2006).
At the height of optimism ,greed moves the stocks beyond their intrinsic value ,creating an
overpriced market. At other times ,fear moves prices below intrinsic value, creating an
undervalued market.
In recent years it has been experienced that the market frequently mispriced the stocks. This is
most often caused by human emotions of fear and greed (Meir Statman,1988).
Following are some of the tips to avoid being trapped by the investors biases:

(1)It is possible to minimize the disposition effect by using a concept called Hedonic
Framing to change investors mental approach. If investors try these methods of framing,
their thoughts should make their experience more positive.
(2) Anchoring can be avoided by a rigorous critical thinking about the figures that are used for
the evaluation of a stocks potential.
(3) Mental accounting bias can be avoided if the investors think that the money is fungible.
(4) A solution to overcoming confirmation bias would be finding someone to act as a
"dissenting voice of reason". That way investors will be confronted with a contrary viewpoint
to examine.
(5) Just because everyone is jumping on a certain investment "bandwagon" doesn't necessarily
mean the strategy is correct. Therefore, it is necessary for an investor to always do proper
homework before following any trend.
(6)Availability bias can be avoided if the investors retain a sense of perspective.

1.4 INDUSTRY PROFILE

Indian financial industry is considered as one of the strongest financial sectors among
the world markets. Many industry experts may give various reasons for such Indian financial
industry reputation, but there is only one answer which no one can deny, is the effective
control and governance of the country s supreme monetary authority the RESERVE BANK
OF INDIA (RBI). Financial sector in India has experienced a better environment to grow
with the presence of higher competition. The financial system in India is regulated by
independent regulators in the field of banking, insurance, and mortgage and capital market.
Government of India plays a significant role in controlling the financial market in India.
Ministry of Finance, Government of India controls the financial sector in India. Every year
the finance ministry presents the annual budget on 28th February. The Reserve Bank of India
is an apex institution in controlling banking system in the country. Its monetary policy acts as
a major weapon in India's financial market.
Various governing bodies in financial sector:
1. RBI - Reserve Bank of India is the supreme authority and regulatory body for all the
monetary transactions in India. RBI is the regulatory body for various Banking and Non
Banking financial institutions in India.
2. SEBI - Securities and Exchange Board of India is one of the regulatory authorities for
India's capital market.
3. IRDA Insurance regulatory and development authority in India regulates all the insurance
companies in India.
4. AMFI Association of mutual funds in India regulates all the mutual fund companies in
India.
5. FIPB Foreign investments promotion board regulates all the foreign direct investments
made in India.
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Investments in gold is governed by the world gold council, in India we do not have
any regulatory authority for investments in gold. Ministry of Finance, Government of India
has a control over all the financial bodies in India. Government securities, Public Provident
Fund (PPF), National Savings Certificate NSC), Post Office
Savings are all under the control of the central government. Investment are normally
categorized using the risk involved in it, risk is dependent on various factors like the past
performance, its governing body, involvement of the government etc., in this scenario Indian
investments are classified in to 3 categories based on risk. They are
1. Low Risk/ No Risk Investments.
2. Medium Risk Investments.
3. High Risk Investments.
Apart from these, there are traditional investment avenues and emerging investment avenues.
Various Investment avenues available in India
1.1 Safe/Low Risk Avenues:
Savings Account
Bank Fixed Deposits.
Public Provident fund.
National savings certificates.
Post office savings.
Government Securities.

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1.2 Moderate Risk Avenues:

Mutual Funds.
Life Insurance.
Debentures.
Bonds.

1.3 High Risk Avenues:

Equity Share Market.
Commodity Market.
FOREX Market.

1.4 Traditional Avenues:

Real Estate (property).
Gold/Silver.
Chit Funds.

1.5 Emerging Avenues:

Virtual Real Estate.
Hedge Funds/Private Equity Investments.
Art and Passion.

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CHAPTER 2: REVIEW OF LITERATURE

1.Behavioral finance is a new emerging science that studies the irrational behavior of
the people. Avinash Kumar Singh (2006) The study entitled "Investment Pattern of People"
has been undertaken with the objective, to analyze the investment pattern of people in
diversified city analysis of the study was undertaken with the help of survey conducted .After
analysis and interpretation of data it is concluded that investors are more aware about various
investment avenues & the risk associated with that. All the age groups give more important to
invest in equity & except people those who are above 50 give important to insurance, fixed
deposits and tax saving benefits. Generally those investors who are invested in equity, are
personally follow the stock market frequently i.e. in daily basis. But those who are invested in
mutual funds are watch stock market weekly or fortnightly. Major investors are more aware
about various investment avenues and the risk associated with that. But many investors are
more conservative in nature and they prefer to invest in those avenues where risk is less like
bank deposits, small savings, post office savings etc.
2.Sudalaimuthu and senthil Kumar (2008) Mutual fund is the one of investment
avenues the researcher research in this area about investors perception towards mutual fund
investments has been analyzed effectively taking into account the investors reference towards
the mutual fund sector, scheme type, purchase of mutual fund units, level of risks undertaken
by investors, source of information about the market value of the units, investors opinion on
factors influenced to invest in mutual funds, the investors satisfaction level towards various
motivating factors, source of awareness of mutual fund schemes, types of plan held by the
investors, awareness of risk category by investors, problems faced by mutual fund investors.
Running a successful mutual fund requires complete understanding of the peculiarities of the
Indian Stock Market and also the awareness of the small investor. The study has made an
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attempt to understand the financial behavior of mutual fund investors in connection with the
scheme preference and selection. An important element in the success of a marketing strategy
is the ability to fulfill investor expectation. The result of these studies through satisfactory on
the investors perception about the mutual funds and the factors determining their investment
decisions and preferences. The study will be useful to the mutual fund industry to understand
the investors perception towards mutual funds investments and the study would also be
informative to the investors.
3.Sunil Gupta (2008) the investment pattern among different groups in city had
revealed a clear as well as a complex picture. The complex picture means that the people are
not aware about the different investment avenues and they did not respond positively,
probably it was difficult for them to understand the different avenues. The study showed that
the more investors in the city prefer to deposit their surplus in banks, post offices, fixed
deposits, saving accounts and different UTI schemes, etc. The attitude of the investors towards
the securities in general was bleak, though service and professional class is going in for
investment in shares, debentures and in different mutual fund schemes. As far as the
investments are concerned, people put their surplus in banks, past offices and other
government agencies. Most of the cities though being rich have a tendency of investing then
surpluses in fixed deposits of banks, provident funds, Post Office savings, real estates, etc. for
want of safety and suitability of returns.
4.Manish Mittal and Vyas (2008) Investors have certain cognitive and emotional
weaknesses which come in the way of their investment decisions. Over the past few years,
behavioral finance researchers have scientifically shown that investors do not always act
rationally. They have behavioral biases that lead to systematic errors in the way they process
information for investment decision. Many researchers have tried to classify the investors on
the basis of their relative risk taking capacity and the type of investment they make. Empirical
evidence also suggests that factors such as age, income, education and marital status affect an
individual's investment decision. This paper classifies Indian investors into different
personality types and explores the relationship between various demographic factors and the
investment personality exhibited by the investors.

5.Babajida and Adetiloye (2012) examined the effects of behavior biases in performance of
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stock market in Nigeria of last twenty years and the variables they studied were
overconfidence, loss aversion, framing, anchoring and status quo bias. The research has been
conducted through administrating a questionnaire by targeting 300 respondents. . The Pearson
product moment coefficient method was used to analyze the survey, this paper concluded that
every investor must engage in the service of investor advisor that may reduce the personal
biases of management decision process, also found that there is negative relation between
independent and dependent variables due to indirect involvement in trade activity.
6.Chira, Adams & Thornton (2008) studied how cognitive biases and heuristics make
distortion in the decision making of the business students. In this paper student behavior was
investigated through questionnaire that included 45 questions which were presented to limited
graduate and undergraduate students of Jacksonville University in United States of America
and design to check the behavior mistakes that they make during both financial and nonfinancial decision making. There were number of biases and heuristics found after getting the
questionnaire but this paper focuses on overconfidence, excessive optimism, loss aversion,
familiarity, sunk cost, illusion of control and confirmation biases. This paper found that
generally student rationality is bounded in their decision making behavior, when they are
asked to show driving ability and school performance they react overconfident and extremely
optimistic on the other hand they are less optimistic about investment ability and athletic
ability.
7.Poluch (2011) analyzed the impact of overconfidence biases on different level of
management and also that cognitive ability can explore the relationship between
overconfidence biases and level of management. The managers of professional services
organizations of South Africa used as sample. Online survey was conducted and some
individuals were also personally approached and 30 managers were targeted at each level.
This study concluded that middle managers has the least level of overconfidence due to
difficulties faced by them and lower level managers feel more overconfidence due to unique
and specific task required by middle managers. The upper level managers are more
overconfident due to authority and self independency.
8.Bogan and Just (2008) investigated the existence of confirmation bias in mergers
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particularly in the behavior of actual corporate executives. For this purpose he did
experimental study at Ivy League University used frequency technique that included
observations from 2333 respondents i.e. 2034 students and 299 higher executives. This
research concluded that higher executives were less likely to absorb the new information in
contrast to non-executives.
9. Park and Konana et. al. (2010) analyzed the impact of stock message boards on
investors trading decision and investment performance. This research included 502
respondents from the largest message board operator in South Korea. The data set came from
a field experiment on the participants of the largest online portal website Naver stock
message boards. The frequency technique used in this research paper and concluded that the
investors exhibit the confirmation bias when they get information from the message board.
10. According to Thaler (1999) mantel accounting was used by the individual to
managing, evaluating and financial activities in household. Investor of Indonesia tend to be
neutral choosing a positive frame, if turn into negative frame then it would be risky.
Indonesian investors mostly choose risky alternatives as compare to less risky. Mental
accounting suggested to Indonesian investors, they are not able to incorporate financial
information separately.
11. Seppala (2009) examined the effects of three behavioral biases hindsight,
overconfidence and self-attribution. This paper examined the effect of individual thinking
style and cognitive ability on investment advisors. The survey was created by three separate
groups of people, financial professionals, university students and employees of engineering
company and also creates two-pronged structure for recollect and repeat the issues. Asset
selection effect, sign of return effect, drift of return effect and strange of views were used to
analyze the hindsight biases. Commonly behavior biases were shown by people but it varies
individual to individual due to experience and characteristics. They found that all people
including investment advisors are suffered to hindsight bias. Findings on overconfidence
indicated that people are confident and results on self attribution bias also showed that people
suffer from it.
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12.Ofir and Wiener (2011) investigated the performance of behavior biases among
professional investors in the case of structured products investment for this purpose they
picked a population of 573 subjects as a sample out of which 75% were investment advisors
and 25% portfolio managers by using the logic probit model and linear probability model. The
purpose of this study was to test the possible impact of each behavior bias on decisions
pertaining to investments in structured products. They found that even professional investors
make major systematic errors even they were not immune to behavioral biases.

13. Moore, Kurtzburg et. Al (1999) examined the portfolio allocation decisions of 80
business students through a computer based investing simulation. The purpose of study was to
better understand why investors spend so much time and money on actively managed mutual
funds. They created a simulated market based on the real performance data of nine largest
mutual funds in 1985 plus and S&P 500 index fund. An experiment was conducted for this
and the data was organized into a computer based environment in which investors were able
to invest a set amount of money over the 10-year period. Every participant could review the
performance of its investment and could move it to new mutual fund. Investor could allocate
its investment in 10 mutual funds. They concluded that investment decisions are susceptible to
positive illusions and overestimation of inter temporal consistency. These biases influence
judgment, satisfaction and behavior in some consistent ways that can cost investor dearly.
14. Chen, A. Kim et. al (2010) studied investment decision making in an emerging market.
They found that Chinese investors make poor trading decisions suffering from three
behavioral biases (i) They tend to sell stocks that have appreciated in prices, but not those that
have depreciated (ii) they seem to be overconfident (iii) they seem to believe that past returns
are the indicative of future returns. For this purpose they selected the Chinese market and
investors. The dataset came from a brokerage firm of SHSE & SZSE in China. The complete
dataset included 74960 investor accounts out of which 27779 were deleted due to some
reasons leaving a final sample of 46969 individual investors and 212 institutional investors.
They used regression relation for this purpose and concluded that Chinese investors make
16

trading mistakes, they are reluctant to realize their losses, they tend to be overconfident and
they exhibit a representativeness bias.
15.Charness and Gneezy (2003) studied basic intuition during decision: how investment
split between risky lottery and assets having fix return by using three biases ambiguity
aversion, illusion if control and myopic loss aversion. This paper replicated the previous
result related to basic intuition and then tests the participants by paying small sum of money
with line of bias (less ambiguity, more perceived control). The experimental research is
conducted in University of California and graduates school of business in University of
Chicago, which included 275 students, pages that having 10 treatments one of them is given to
each student. This paper studied how portfolio choice depends on above biases and concluded
the illusion of control was eliminated when investors want to gain more control, in less or
more control investors always face fractions if they invest in risky options. This paper
discussed there was no influence on investment against the level of ambiguity but people
always want to pay for less ambiguity. In loss aversion people less invested where more
freedom to change their investment.
16.Bashir and Rasheed, et. Al (2013) investigated the influence of behavioral biases on
investment decisions. The study was conducted through questionnaire. About 100 respondents
were targeted out of them 55% were employees and the remaining students. They took female
and male as dependent variable and confirmation biases, illusion of control, overconfidence,
loss aversion as independent. The methodology used in this study was chi-square. The finding
concluded that there is no significant difference between decision making regarding
overconfidence bias of male and female.

San and Phuachan investigated whether loss

aversion affects the investment or not? Questionnaire and non-parametric tests were applied
on the employees of Stock exchange of Thailand for this purpose. The results showed that
SETs employees mostly use media reports for their decisions on stock trades. It was also
discovered that some personal factors like gender, education and investment experience are
related to loss aversion. The targeted sample of the study was 260. Non-parametric and Chi
square test were used to find out the relationship. And significant relationship was found
between them.
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17.Yahyazadehfar and Shams et. al (2012) investigated people who are subject to a Status
quo bias (SQB) tend to choose an alternative that they have chosen previously even if that is
not a right option for them anymore. The purpose of this study was to investigate Status Quo
Bias (SQB) in behavioral finance. SQB in this study was investigated using Ruenzi & Kempf
model & Stata 10.0 software package from the companies listed in Tehran Stock Exchange
from 2003-2010. The data was collected quarterly from investment companies. They
concluded that people who are subject to a SQB tend to choose an alternative that was chosen
previously even if it is not optimal choice anymore.
18. Shiller (1997) explained that investors place their investments into haphazardly
separate mental compartments, and in different ways to the investment based on which
compartment they are in. In the study researcher investigated that people of India save money
for some specific purpose, like for children education and they borrow money from other
people for other needs and desires of their lives like for buy car. Even the interest rate on the
borrowed money was higher that the interest rate which they receive on saving for the
education purpose of childrens. Ultimately this bias of people effect their decision making
process.
19.Thaler (1999) reported that mental accounting was consisted on three components.
The first section of mental accounting was how outcomes were experienced and perceived,
how decisions were made and evaluation of decisions. The second components of mental
accounting assigned the actions to specific accounts. It maintained the way how inflow and
outflow of funds was done from each specific activity. The third component was concerned
with the rate at which account were evaluated. Investors were can be balanced accounts on a
daily, weekly, monthly, or yearly basis. Each component of mental accounting violated the
economic principle of balance. Due to the mental accounting the decision of investors were
influenced.
20.Kosnik (2007) investigated the confirmatory bias behavior in tax policy and
established effect on aggregate outputs. Primary data was collected from 284 participants
through confidential survey in the United State. The Descriptive state and Frequency
distribution technique was used to investigate the confirmatory bias behavior within investors
18

decision making. The study concluded that the confirmatory bias affected the evidence related
losses strongly as compared to evidence related gains.
21. Hong et al., (2001) conducted a study wherein they proposed that stock market
participation is influenced by social interaction. According to them any given social investor
finds the market more attractive when more of his peers participate. They tested this theory
and found that social households those who interact with
their neighbors, or attend church are substantially more likely to invest in the market than
non social households, controlling for wealth, race, education and risk tolerance.
22.Another study conducted by Barberis and Huang (2001) suggests that loss aversion
the tendency to be more sensitive to losses than to gains and narrow framing the tendency
to focus on narrowly defined gains and losses 13 play an important role in determining how
people evaluate risky gambles.
23.Kahneman and Tversky (1979) found that contrary to expected utility theory, people
placed different weights on gains and losses and on different ranges of probability. They found
that individuals are much more distressed by prospective losses than they are happy by
equivalent gains.
24.Wood R (2004) studied attitudes and trading behavior of stock market investors by
conducting a study among 90 individual investors and identified four main segments of
individual investors as: risk-intolerant traders, confident traders, less risk-averse young traders
and conservative long-term investors. His cluster segmentation analysis shows that each
segment purchases different types of stock and had different levels of trading behaviour.
25.another study, Meng Chen Gong et al. (2004) tested how investor experience influence
investing behaviour and trading performance. The study shoes that experienced investors are
more inclined toward making trading mistakes and suffering from the representativeness bias.
26.Barber and Odean (2001) by examining the personal characteristics of investors
argued that investing is traditionally a masculine task in the U.S and therefore, as a group,
19

men can be considered to be more in tune to investing than women. Their study also shows
that men do show more overconfident characteristics, such as excessive trading and higher
risk trading.

27.DeBondt and Thaler (1985, 1987) find that investors overreact to drastic or unexpected
events or information. They find that portfolios of prior losers outperform that of prior
winners in the long run. Since investors count on the representative heuristic, they become too
optimistic about recent winners and too pessimistic about recent losers.
28. Kahneman and Riepe (1998) noted that the human mind is a pattern seeking device, and
it is strongly biased to adopt the hypothesis that a causal factor is at work behind any notable
sequence of events. As a result, investors tend to over interpret patterns that are coincidental
and unlikely to persist. They react to recent history and their own experiences, without paying
enough attention to events that were not directly experienced or retained in memory.
29.TheBarberis et al. (1998) theory states that extrapolation from random sequences,
wherein agents expect patterns in small samples to continue, creates overreaction (and
subsequent reversals), whereas conservatism, the opposite of extrapolation, creates
momentum through under reaction.
30. Hong and Stein (1999) suggest that gradual diffusion of news causes momentum, and
feedback traders who buy based on past returns create overreaction because they attribute the
actions of past momentum traders to news and hence end up purchasing too much stock,
which, when positions are reversed, causes momentum.

20

CHAPTER 3: RESEARCH METHODOLOGY

3.1 NEED FOR THE STUDY:

This study will help to the investors on his investment decision making

This study will help to understand in depth about different investment avenues

3.2 OBJECTIVES OF THE STUDY:

To know the factors that influences the investors for investment.

To find out how investors get information about the various financial instruments.

To identify the objective of savings of an investor.

To know the risk tolerance level of the individual investor.

21

3.3 HYPOTHESIS:
Hypothesis is proposition that is stated as testable form and that predict
Particular relationship two or more variables.
H0: There is no significant impact of factors that influences the behavior
of investors in investment.
H1: There is significant impact of factors that influences the behavior of investors in
investment.

3.4 SCOPE OF THE STUDY:

This study is focusing on the financial behavioral of people and it will be helpful to
identify the better investment options in the market.

3.5 RESEARCH DESIGN

Sample Technique:

Initially, a rough draft was prepared by keeping in mind the objective of the research.
A pilot study was undertaken in order to know the accuracy of the questionnaire. The final
questionnaire was arrived at only after certain important changes are incorporated.
Convenience sampling technique has used for collecting the data from different investors. The
investors are selected by the convenience sampling method. The selection of units from the
population based on their easy availability and its best in surveys dealing with an exploratory
purpose for generating ideas and hypothesis.

22

Sample Unit:

The respondents who asked to fill out the questionnaires are the sampling units. These
comprise of employees of MNC s, government employees, housewives, self employed,
professionals and other investors.

Sample Size:

The sample size was around more than 50, which comprised of people from different
regions. But around 50 respondents (Investors) filled up the form.

Primary Data:

Information is collected by conducting a survey by distributing a questionnaire to

more than 50 investors in diversified area. These investors are of different age group, different
occupation, different income levels, and different qualifications.

Secondary Data:

This data is collected by using the following means.

1. Investment Magazines, Business Magazines, Financial chronicles.

23

2. Experts opinion published in various print media.

3. Data available on internet through various websites

3.6 Limitations of the study

The study is limited only to the investors behavior towards various investment
avenues.
It also states that different investors thinks in different manner.
The data is available in various websites and business magazines.

CHAPTER 4: DATA ANALYSIS & INTERPRETATION

An analysis is made on the responses received from 50 sample investors. The objective
of the report is to find out the investors behavior on various investment avenues, to find out
the needs of the current and future investors.
The questionnaire contains various questions on the investors financial experience,
based on these experiences an analysis is made to find out a pattern in their investments.
Based on these investment experiences of the 50 sample investors an analysis is made
and interpretations are drawn. Interpretations are made on a rational basis, these
24

interpretations may be correct or may not be correct but care is taken to draw a valid and
approvable interpretation.
Analysis is made only from the information collected through questionnaires no other
data or information is taken in to consideration for purpose of the analysis.

4.1 ANALYSIS OF THE SURVEY:

TABLE NO: 1

DEMOGRAPHICS OF THE SAMPLE INVESTOR

PARAMETER

FREQUENCY

PERCENTAGE

30
20
50

60%
40%
100%

0
20
17
13
50

0
40%
34%
26%
100%

GENDER
Male
Female
TOTAL
AGE GROUP
Below 20
Between 20-30
Between 31-40
Above 41
TOTAL
25

QUALIFICATION
Under Graduate
Graduate
Post Graduate
Others
TOTAL

4
23
19
4
50

8%
46%
38%
8%
100%

Salaried
Business
Professional
House Wife
Retired

27
10
7
5
1

54%
20%
14%
10%
2%

TOTAL

50

100%

OCCUPATION

Interpretation:
Table 1 above shows, that 30 (60%) of the investors are men and the rest 20(40%) are
females. Generally males bear the financial responsibility in Indian society, and therefore they
have to make investment (and other) decisions to fulfill the financial obligations.
When it comes to age, it was found that 40% are young and significant number under
the age group of 20-30. 34% of them are in the age group of 31-40. 26% of them are above 40
years of age. There are no investors below 20 years of age.
Nearly 54% of the investors belong to the salaried class, 20% were business class,
14% were professionals, 10% were housewives and the rest 2% were retired.
It was found that irrespective of annual income they earn all the investors interested in
investments since todays inflated cost of living is forcing everyone to save for their future
needs, and invest those saved resources efficiently.
19(38%) of the individual investors covered in the study are postgraduates; 23(46%)
investors are graduates and 4(8%) of the investors are under-graduates, and 4(8%) investors
are categorized as others who are either illiterates, had less education than under graduation or
26

who are more qualified than post graduates. It is interesting to note that most investors
(covered in the study) can be said to possess higher education (Bachelor Degree and above),
and this factor will increase the reliability of conclusions drawn about the matters under
investigation.
TABLE 2 OTHER CHARACTERISTICS OF SAMPLE INVESTORS
TABLE NO:2.1 INVESTORS TOTAL INCOME
Frequency

Percent

Valid Percent

Cumulative Percent

Valid 1

13

26.0

26.0

26.0

13

26.0

26.0

52.0

12

24.0

24.0

76.0

12

24.0

24.0

100.0

Total

50

100.0

100.0

Interpretation:
Above table shows that 13(26%) of the investors are earning less than 20k per month,
13(26%) investors are earning between 20k and 30k, 12(24%) investors are earning between
30k and 40k, 12(24%) investors are earning more than 40k P.m. All are equally earning
income.

TABLE NO: 2.2 TIME PERIOD PREFERRED TO INVESTMENT

Frequency

Percent

Valid Percent

Cumulative Percent

18.0

18.0

18.0

24

48.0

48.0

66.0

16

32.0

32.0

98.0

32

2.0

2.0

100.0

Total

50

100.0

100.0

Valid 1

Interpretation:
27

It is interesting to know that many investors prefer to invest their money for medium
term i.e. from 1 - 5 years, instead of short term and long term.18% preferred short term,
48% preferred medium term and 32% preferred long term.
TABLE NO: 2.3 THE PORTION OF INCOME TOWARDS INVESTMENT
Frequency

Percent

Valid Percent

Cumulative Percent

Valid 1

15

30.0

30.0

30.0

10

20.0

20.0

50.0

17

34.0

34.0

84.0

16.0

16.0

100.0

Total

50

100.0

100.0

Interpretation:
15(30%) of the investors prefer to invest their income between10%to20%,10(20%) of the
respondents prefer to divert their income between 20-30percent,and 17(34%) most of the
peoples would like to divert 30-40 percent of their income, and the minimum of 8(16%)
respondents would like invest 40% above

TABLE NO: 2.4 FREQUENCY OF MONITORING THE INVESTMENT

Frequency

Percent

Valid Percent Cumulative Percent

16.0

16.0

16.0

15

30.0

44.0

60.0

22

44.0

30.0

90.0

10.0

10.0

100.0

Total

50

100.0

100.0

Valid 1

Interpoai:
Duhetobsylifdc,nmavrpetoihgnms,ly16%oftevraighnmsd,30l%otaybi4hemjnrvsotgIquaely.Mnmfhwvoistd aeunbhrimvsto,fegaunrmys.
28

TABLENUMBER3FACTNORSLIUEVM
TABLENO:3.1ANCHORGI
Frequency

Percent

Valid Percent Cumulative Percent

24

48.0

75.0

75.0

16.0

25.0

100.0

Total

32

64.0

100.0

Missing System 18

36.0

Total

100.0

Valid

50

Interpoai:
bThoveatlsw48%pfrndiyghboctae16%fplsuy.rmnig3odtwe'ba
TABLE NO: 3.2 MENTAL ACCOUNTING
Frequency

Percent

Valid Percent Cumulative Percent

28

56.0

82.4

82.4

12.0

17.6

100.0

Total

34

68.0

100.0

Missing System 16

32.0

Total

100.0

Valid

50

Interpoai:
bThoveatlsw56%pfrndiygbmeacouth12%fplsy.rnig3eodtw'ba

TABLE NO: 3.3 GAMBLER FALLACY

Frequency

Percent

Valid Percent
29

Cumulative Percent

Valid

28

56.0

96.6

96.6

2.0

3.4

100.0

Total

29

58.0

100.0

Missing System 21

42.0

Total

100.0

50

Interpoai:
bThoveatlsw56%pfrndiygmbaecoth2%fplsu.nrig4eodtw'ba

TABLE NO: 3.4 HERD BEHAVIOR

Frequency

Percent

Valid Percent

Cumulative Percent

21

42.0

75.0

75.0

12.0

21.4

96.4

2.0

3.6

100.0

Total

28

56.0

100.0

Missing System 22

44.0

Total

100.0

Valid

50

Interpoai:
bThoveatlsw42%pfrndiyghboctae12%fplsuy.rmnig4odtwe'ba

TABLE NO: 3.5 OVER CONFIDENCE

Valid

Frequency

Percent

Valid Percent

Cumulative Percent

27

54.0

96.4

96.4

30

2.0

3.6

Total

28

56.0

100.0

Missing System 22

44.0

Total

100.0

50

100.0

Interpoai:
bThoveatlsw54%pfrndiyghboctae2%pflsuy.rmnig4odetw'ba
TABLE NO: 3.6 OVER REACTION
Frequency

Percent

Valid Percent

Cumulative Percent

24

48.0

96.0

96.0

2.0

4.0

100.0

Total

25

50.0

100.0

Missing System 25

50.0

Total

100.0

Valid

50

Interpoai:
bThoveatlsw48%pfrndiyghboctae2%pflsuy.rmnig50odetw'ba

TABLE NO: 3.7 PROSPECT THEORY

Frequency

Percent

Valid Percent

Cumulative Percent

24

48.0

85.7

85.7

8.0

14.3

100.0

Total

28

56.0

100.0

Missing System 22

44.0

Total

100.0

Valid

50

31

Interpoai:
bThoveatlsw48%pfrndiyghboctae8%pflsuy.rmnig4odetw'ba

TABLENUMBER:4OBJEVCTSINFM
TABLE NO: 4.1 SAVING OBJECTIVES
Frequency

Percent

Valid Percent

Cumulative Percent

Valid 1

11

22.0

22.0

22.0

11

22.0

22.0

44.0

18.0

18.0

62.0

19

38.0

38.0

100.0

Total

50

100.0

100.0

Interpoai:
Tableshowtnvgijcmfpr,saenotilcmvgbj,sehrayonwtigvfechprmbason yti,xemugwhpanrsyvto bijec.Basdhnwgtlukrvieofmaxwghtnbysr.Fikvoeldcuat,nmyshfigoerutdClcansmvypihoer.Mftsangupo20-3d14fwythareinksvgldcm.SohreaisngvtkAfldcuoerasgithwnc.T dfoerIsiavthlcwngmeif.Rtradhopucsvgenbqkfrlta.

TABLE NO: 4.2 PURPOSE BEHIND INVESTMENT

Valid 1

Frequency

Percent

Valid Percent

Cumulative Percent

16.0

16.0

16.0

32

15

30.0

30.0

46.0

10

20.0

20.0

66.0

17

34.0

34.0

100.0

Total

50

100.0

100.0

Interpoai:
Anlthoveirsaycmpufg;heorantsivmy.Sldpextforangs,uibeplvhtforsangu.Ameihvltp4osrnbdgym.e
TABLE NO: 4.3 FACTORS CONSIDER BEFORE INVESTING

Percent

Valid Percent

12

24.0

24.0

24.0

13

26.0

26.0

50.0

15

30.0

30.0

80.0

10

20.0

20.0

100.0

Total

50

100.0

100.0

Valid

Frequency

Cumulative
Percent

Interpoai:
Whentvsoirakbdufcgnetmhyoavdrsfpcinlwk.Ftavgeoyfprd2nwiskl.hHtamecogru,nvxsphitaylowekdnsbprciIvaetmu. lsnopdricg,hekt uwlorsn.vIetdkbuahpilcorfsng.

TABLE5RISKONCVF:

TABLE NO: 5.1 RISK TOLERANCE

Frequency

Percent

Valid Percent

Cumulative Percent

6.0

6.0

6.0

36

72.0

72.0

78.0

16.0

16.0

94.0

Valid 1

33

6.0

6.0

Total

50

100.0

100.0

100.0

Interpoai:
In the case of risk meaning of investors 6% of the respondents are thinking risk means
loss,72% of the investors are considering it is a uncertainty,16%of the investors are accepting
as opportunity, and the 6% of the investors are feeling thrill.

TABLE NO: 5.2 RISK TOLERANCE1

Frequency

Percent

Valid Percent Cumulative Percent

Valid 1

16

32.0

32.0

32.0

22

44.0

44.0

76.0

12

24.0

24.0

100.0

Total

50

100.0

100.0

Interpoai:
bThoveatlswkrincf,4%hoevtsmlyinagqubdortfs,32h%nevipbkacoutmyrn,dsiCDe.24%hfvotckrumalnds

TABLE NO: 5.3 COMFORTABLE BY INVESTING

Frequency

Percent

Valid Percent

Cumulative Percent

Valid 1

20

40.0

40.0

40.0

19

38.0

38.0

78.0

18.0

18.0

96.0

4.0

4.0

100.0

Total

50

100.0

100.0

Interpoai
The above table shows the 40% of the investors are not at all comfortable with the
investment of stocks or mutual funds,38% of the investors somewhat comfortable with
34

that,18% of the investors are very comfortable.

TABLE NO: 5.4 RISK TOLERANCE2

Frequency

Percent

Valid Percent

Cumulative Percent

Valid 1

11

22.0

22.0

22.0

26

52.0

52.0

74.0

6.0

6.0

80.0

10

20.0

20.0

100.0

Total

50

100.0

100.0

Interpoai:
The above table shows the 22% of the investors are choosing risk less option and the
52%of the investors are choosing the 50-50 percent chance of the winning option 6% of the
investors are looking for risk bear, and 20% of the people risk takers.

TABLE NO: 5.5 RISK TOLERANCE3

Frequency

Percent

Valid Percent

Cumulative Percent

Valid 1

11

22.0

22.0

22.0

23

46.0

46.0

68.0

10

20.0

20.0

88.0

12.0

12.0

100.0

Total

50

100.0

100.0

Interpoai:
The above table shows the 22% of the investors are choosing risk less option and the
46% of the investors are choosing the 50-50 percent chance of the winning option 20% of the
investors are looking for risk bear, and 12% of the people risk takers.

35

CHAPTERN5:FDIGS,OLU&
15.

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Investorpwfmuciaknvestod.
65h%oneftvirsdcuwmlya bkngviestdco.
Pgercntaofimhyvsdp ulce,orntmi agfhyves.

36

 Theinvstordcab w.

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Increasgidhktolv.
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35Con.clusi:
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Theindvualorstpf cwhivgekrntus.oTfmadI yihrengco,wluatdsprevinofytsal.

37

Theinvstmproducga wenthovirskladuTVmetngiyshoplwacTV.

ANEXUR1QOSTI
QUESTIONNAIRE
DEMOGRAPICS:
1. Name

2. Age
3. Se

:
:

4. Education:
5. Occupation:
6. Married:
7. What is the total income p.m.?
a. 10000-20000
c. 30000-40000

b. 20000-30000
d. 40000-Above

8. what is the time period you preferred to invest?

a. short-term(0-1yrs)
term(>5yrs)

b. medium-term (1-5yrs)

9. What portion of your income is diverting to words investment (%)?

a. 10%-20%
b. c. 30%-40%

b.20%-30%
d.40%-Above

10. Who are the initiatives to take decisions in investment?

a.Parents
c. Relatives

b. Friends
c. Employees

38

c. long-

11.How often do you monitor your investment?

a.Daily
c.Quarterly

b.Monthly
d. Occasionally

12. Which are the following factors influence your investments?

CONCEPTS

PARTIALLY

1. Anchoring.
2. Mental accounting.
3. Confirmation and hindsight bias.
4. Gamblers fallacy.
5. Herd behavior.
6. Over confidence.
7. Over reaction and availability bias.
8.

Prospect
theory.

12.What are your savings objectives?

a. Childrens educations
c. Home purpose

b. Retirement plan
d. Childrens marriage

e. Health care
13.What are your investment objectives?
a.Income and capital preservation
C. Growth and income

b. Long-term growth
d. Short-term growth

14.What is the purpose behind investment?

a. Wealth creation

b. Tax saving

c.Earn returns

d. Future expenses
39

FULLY

15.Which factor do you consider before investing?

a.safety

b.Low risk

c. High returns

d. Maturity period

16. When you think of the word risk which of the following words comes to mind first?
a. loss

b. uncertainty

c. opportunity

d. thrill

17. If you unexpectedly received $2, 0000 to invest, what would you do?
a. deposit it in bank a account ,money market account ,or an insured CD
b. invest it in safe high quality bonds or bond mutual funds
c. invest it in stocks or stock mutual funds
18. in terms of experience, how comfortable are you investing in stocks or stock mutual funds?
a. not at all comfortable

b. somewhat comfortable

c. very comfortable
19. You are on a TV game show and can choose one of the following. which would you take?
a. $1,000 in cash

b. A 50% chance at winning $ 5,000

c. A 25% chance at winning $10,000

$100,000

d. A 5% chance at winning

20. Given the best and worst case returns of the four investment choices below ,which would you
prefer?
a. $200 gain best case;$ gain/loss worst case c.$ 800 gain best case;$200 loss
worst case
c. $2,600 gain best case; $800 loss worst case
$2,400 loss worst case

40

d.$4,800 gain best case;

LBIOGRAPHY

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ph:/tw.ijbcaomrdnsl30125f

41