A PROJECT REPORT ON

A STUDY ON INVESTMENT AND SAVING PATTERN

OF INVESTORS

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR

MASTER OF FINANCIAL MANAGEMENT 2017 – 18

ROLL NO : 15 – F – 301

NAME OF THE INSTITUTE :

JAMNALAL BAJAJ INSTITUTE OF MANAGEMENT STUDIES ,MUMBAI
 STATEMENT BY THE CANDIDATE

I wish to state that the work embodied in this Project titled

“A STUDY ON INVESTMENT AND SAVING PATTERN OF INVESTORS ” forms

my own contribution to management. Wherever references have been made to
intellectual properties of any individual / Institution / Government / Private /
Public Bodies / Universities, research paper, text books, reference books, research
monographs, archives of newspapers, corporate, individuals, business /
Government and any other source of intellectual properties viz., speeches,
quotations, conference proceedings, extracts from the website, working paper,
seminal work et al, they have been clearly indicated, duly acknowledged and
included in the Bibliography.

___________________

Date Signature of Student

 ACKNOWLEDGEMENT

I would like to take this opportunity to express my deep and sincere

gratitude to my guide who gave me a chance to show my capability and allowed
me to carry out a project .

I present my heartfelt gratitude towards my mentor and guide for giving me

this opportunity to wide my horizons of understanding by giving me in the project
on “A STUDY ON INVESTMENT AND SAVING PATTERN OF INVESTORS ”.

By working on this project, I got an opportunity to learn many aspects of

banking sector. The credit also goes to the timely guidance and support given by
the others who has helped me in enhancing my interest and understanding of the
intricacies involved with the subject.

Last, but not the least, I would like to thank everybody who has helped me
in the successful completion of the project. The whole experience was gratifying,
especially in terms of knowledge and information .
 TABLE OF CONTENTS

EXECUTIVE SUMMARY
OBJECTIVE OF THE PROJECT
CHAPTER 1: INDUSTRY PROFILE ........................................................................................................ 8
1.1 Safe/Low Risk Avenues: ............................................................................................................ 9
1.2 Moderate Risk Avenues: ............................................................................................................ 9
1.4 Traditional Avenues: .................................................................................................................. 10
1.5 Emerging Avenues: .................................................................................................................... 10
CHAPTER 2: LITERATURE REVIEW ............................................................................................... 33

CHAPTER 3: RESEARCH & METHODOLOGY .............................................................................. 35

3.1 Sample Technique: ...................................................................................................................... 35
3.2 Sample Unit:................................................................................................................................. 35
3.3 Sample Size: ................................................................................................................................. 35
3.4 Primary Data: ............................................................................................................................... 36
3.5 Secondary Data: .......................................................................................................................... 36
CHAPTER 4: DATA ANALYSIS & INTERPRETATION ....................................................................... 37
4.1 Analysis in this report: ............................................................................................................... 37
4.2 Analysis of the Survey: ............................................................................................................... 38
HYPOTHESIS TEST .............................................................................................................................. 52
CHAPTER 5: FINDINGS & SUGGESTIONS ....................................................................................... 55
5.1 Findings: ....................................................................................................................................... 55
CHAPTER 6: SUMMARY & CONCLUSION......................................................................................... 57
6.1 Summary: ..................................................................................................................................... 57
6.2 Conclusion:................................................................................................................................... 57
ANNEXURE 1 QUESTIONNAIRE ......................................................................................................... 58
BIBILIOGRAPHY..................................................................................................................................... 61
 EXECUTIVE SUMMARY
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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 OBJECTIVE OF THE PROJECT

The purpose of the analysis is to determine the investment behavior of

investors and investment preferences for the same. Investors perception will provide a
way to accurately measure how the investors think about the products and services
provided by the company. Today’s trying economic conditions has forced difficult
decisions for companies. Most are making conservative decisions that reflect a
survival mode in the business operations. During these difficult times, understanding
what investors on an ongoing basis is critical for survival.

Executives need a third party understanding on where investor’s loyalties

stand. More than ever management needs ongoing feedback from the investors,
partners and employees in order to continue to innovate and grow.

The main objective of the project is to find out the needs of the current and
future investors. For this analysis, customer perception and awareness level will be
measured in important areas such as:

1. To understand in depth about different investment avenues available in India.

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

3. The type of financial instruments, they would prefer to invest.

4. The duration for which they would prefer to keep their money invested.

5. What are the factors that they consider before investing?

6. To give a recommendations to the investors that where they should invest.

7. To know the risk tolerance level of the individual investor and suggest a suitable
portfolio.

8. To develop a profile of sample Indian individual investor in terms of their

demographics and demographics based on occupation of the sample investor.

9. To identify the objective of savings of an investor.

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10. To study the dependence/independences of the demographic factors (Age) of the
investor and his/her risk tolerance level.

Stock market has been subjected to speculations and inefficiencies, which are
beached to the rationality of the investor. Traditional finance theory is based on the
two assumptions. Firstly, investors make rational decisions; and secondly investors
are unbiased in their predictions about future returns of the stock. However financial
economist have now realized that the long held assumptions of traditional finance
theory are wrong and found that investors can be irrational and make predictable
errors about the return on investment on their investments.

This analysis on Individual Investors Behavior is an attempt to know the profile

of the investor and also know the characteristics of the investors so as to know their
preference with respect to their investments. The study also tries to unravel the
influence of demographic actors like age on risk tolerance level of the investor.

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 CHAPTER 1: 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.

1.2 Moderate Risk Avenues:

• Mutual Funds.
• Life Insurance.
• Debentures.
• Bonds.

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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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DESCRIPTION ON VARIOUS INVESTMENT AVENUES

SAVINGS ACCOUNT

As the name denotes, this account is perfect for parking your temporary savings.
These accounts are one of the most popular deposits for individual accounts. These
accounts provide cheque facility and a lot of flexibility for deposits and withdrawal of
funds from the account.

Most of the banks have rules for the maximum number of withdrawals in a period
and the maximum amount of withdrawal, but no bank enforces these. However,
banks have every right to enforce such boundaries if it is felt that the account is
being misused as a current account. At present the interest on these accounts is
regulated by Reserve Bank of India. Presently Indian banks are offering 3.50% p.a.
interest rate on such deposits.

This account gives the customer a nominal rate of interest and he can withdraw
money as and when the need arises. The position of account is depicted in a small
book known as 'Pass Book'. Such accounts should be treated as a temporary parking
area because the rate of interest is much less than Fixed Deposits. As soon as one's
savings accumulate to an amount which he can spare for a certain period of time,
shift this money to Fixed Deposit. The returns on the money kept in Savings Bank
account will be less but the freedom to withdraw is the highest.

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FIXED DEPOSITS/ TERM DEPOSITS

The term "fixed" in Fixed Deposits denotes the period of maturity or tenor. Fixed
Deposit, therefore, pre plans a length of time for which the depositor decides to keep
the money with the Bank and the rate of interest payable to the depositor is decided
by this tenure. Rate of interest differs from Bank to Bank. Normally, the rate is
highest for deposits for 3-5 years. This, however, does not mean that the depositor
loses all his rights over the money for the duration of the tenor decided. Deposits can
be withdrawn before the period is over. However, the amount of interest payable to
the depositor, in such cases goes down.

Every Banks offer fixed deposits schemes with a wide range of tenures for periods
from 7 days to 10 years. Therefore, the depositors are supposed to continue such
Fixed Deposits for the duration of time for which the depositor decides to keep the
money with the bank. However, in case of need, the depositor can ask for closing the
fixed deposit in advance by paying a penalty. Soon some banks have even introduced
variable interest fixed deposits. The rate of interest in such deposits will keep on
varying with the prevalent market rates i.e. it will go up if market interest rate goes
and it will come down if the market rates fall.

Tax deduction: Banks should deduct tax at source on interest paid in excess of Rs.
10000 per annum to any depositor. This is not per deposit but per individual.
Therefore if an individual has 5 deposits and the aggregate interest earned on these is
Rs. 15000 though in each individual deposit, interest should not exceed Rs. 5000,
tax must be deducted at source.

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PUBLIC PROVIDENT FUND (PPF)

PPF is a 30 - 35 year old constitutional plan of the Central Government happening

with the objective of providing old age profits security to the unorganized division
workers and self employed persons. Currently, there are almost 50 Iakhs PPF
account holders in India across banks and post offices.

Eligibility: Any individual salaried or non-salaried can open a PPF account. He may
also pledge on behalf of a minor, HUF, AOP and BOI. Even NRIs can open PPF
account. A person can contain only one PPF account. Also two adults cannot open a
combined PPF account. The collective annual payment by an individual on account of
himself his minor child and HUF/AOP/B01 (of which individual is member) cannot
exceed Rs.1,00,000 or else the excess amount will be returned without any interest.

Subscription: The yearly contribution to PPF account ranges from a least of Rs.500
to a maximum of Rs.1,00,000 payable in multiple of Rs.5 either in lump sum or in
convenient installments, not exceeding 12 in a year.

Penalty in case of non-subscription: The account will happen to obsolete if the

required minimum of Rs.500 is not deposited in any year. The amount before now
deposited will continue to earn interest but with no facility of taking loan or making
withdrawals. The account can be regularized by depositing for each year of default,
arrears of Rs.500 along with penalty of Rs.100.

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Where to open:
A PPF account can be opened at any branch of State Bank of India or its subsidiaries
or in few national banks or in post offices. On opening of account a pass book will be
issued wherein all amounts of deposits, withdrawals, loans and repayment together
with interest due shall be entered. The account can also be transferred to any bank
or post office in India.

Interest rate:
Deposits in the account earn interest at the rate notify by the Central Govt from time
to time. Interest is designed on the lowest balance among the fifth day and last day of
the calendar month and is attributed to the account on 31st March every year. So to
derive the maximum, the deposits should be made between 1st and 5th day of the
month, as it also enables you to earn interest on your Savings Bank A/c for the
previous month.

Tenure:
Even though PPF is 15 year scheme but the effectual period works out to 16 years i.e.
the year of opening the account and adding 15 years to it. The sum made in the 16th
financial year will not earn any interest but one can take advantage of the tax rebate.

Withdrawal:
The investor is allowable to make one removal every year beginning from the seventh
financial year of an amount not more than 50% of the balance at the end of the
fourth year or the financial year immediately preceding the withdrawal, whichever is
less. This facility of making partial withdrawals provide liquidity and the withdrawn
amount can be used for any purpose.

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NATIONAL SAVINGS CERTIFICATE (NSC)

National Savings Certificate (NSC) is a fixed interest, long term instrument for
investment. NSCs are issued by the Department of Post, Government of India. Since
they are backed by the Government of India, NSCs are a practically risk free avenue
of investment. They can be bought from authorized post offices. NSCs have a
maturity of 6 years. They offer a rate of return of 8% per annum. This interest is
calculated every six months, and is merged with the principal. That is, the interest is
reinvested, and is paid along with the principal at the time of maturity. For every Rs.
100 invested, you receive Rs. 160.10 at maturity.

NSCs qualify for investment under Section 80C of the Income Tax Act (IT Act). Even
the interest earned every year qualifies under Sec 80C. This means that investments
in NSCs and the interest earned on it every year, up to Rs. 1 Lakh, are deductible
from the income of the investor. There is no tax deducted at source (TDS).

Features of NSC
• Minimum investment Rs. 500/- No maximum limit.
• Rate of interest 8% compounded half yearly.
• Rs. 1000/- grow to Rs. 1601/- in six years.
• Two adults, Individuals, and minor through guardian can purchase.
• Companies, Trusts, Societies and any other Institutions not eligible to
purchase.
• Non-resident Indian/HUF cannot purchase.
• No pre-mature encashment.

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POST OFFICE SAVINGS

There are various investment schemes available in post offices, like KVP (Kisan Vikas
Patra), MIS (Monthly Income Scheme) and various others. All these schemes are
completely risk-free, and you do not need to have large sum of money to start
investing in these post office schemes. Some schemes offer Tax-saving benefits and
some gives tax-free returns. So you need to find out some scheme as per your
requirements.
These are some of the safe and secure investments that you can opt for. Though the
interest rates are not so high, but still you must invest some part of your money into
any of these investment instruments. It is your hard-earned money, so better play
safe and invests some part in secure funds also.

GOVERNMENT SECURITIES (G-secs)

Government securities (G-secs) are supreme securities which are issued by the
Reserve Bank of India on behalf of Government of India in lieu of the Central
Government's market borrowing program.
The term Government Securities includes:
• Central Government Securities.
• State Government Securities
• Treasury bills

The Central Government borrows funds to finance its 'fiscal deficit'. The market
borrowing of the Central Government is increased through the issue of dated
securities and 364 days treasury bills either by auction or by floatation of loans. In
addition to the above, treasury bills of 91 days are issued for managing the
temporary cash mismatches of the Government. These do not form part of the
borrowing program of the Central Government.

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Features of Government securities (G-secs) :

• Issued at face value

• No default risk as the securities carry sovereign guarantee.
• Ample liquidity as the investor can sell the security in the secondary market
• Interest payment on a half yearly basis on face value
• No tax deducted at source
• Can be held in Demat form.
• Redeemed at face value on maturity
• Maturity ranges from of 2-30 years.
• Securities qualify as SLR investments (unless otherwise stated). Benefits of
Investing in Government Securities
• No tax deducted at source
• Additional Income Tax benefit u/s 80L of the Income Tax Act for Individuals
• Qualifies for SLR purpose
• Zero default risk being sovereign paper
• Highly liquid.
• Transparency in transactions and simplified settlement procedures through
CSGL/NSDL.

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MUTUAL FUNDS

A mutual fund is a professionally-managed firm of collective investments that pools

money from many investors and invests it in stocks, bonds, short-term money
market instruments, and/or other securities. In a mutual fund, the fund manager,
who is also known as the portfolio manager, trades the fund's underlying securities,
realizing capital gains or losses, and collects the dividend or interest income. The
investment proceeds are then passed along to the individual investors. The value of a
share of the mutual fund, known as the net asset value per share (NAV), is calculated
daily based on the total value of the fund divided by the number of shares currently
issued and outstanding.

Advantages of Mutual Funds

1. Diversification
2. Professional Management
3. Regulatory oversight
4. Liquidity
5. Convenience
6. Transparency
7. Flexibility
8. Choice of schemes
9. Tax benefits
10. Well regulated

Following are the few drawbacks of Mutual Funds:

1. No Guarantees
2. Fees and commissions
3. Taxes
4. Management risk

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LIFE INSURANCE

Life insurance is a contract between the policy owner and the insurer, where the
insurer agrees to pay an amount of money upon the happening of the insured
individual's or individuals' death or other event, like terminal illness, critical illness.
In return, the policy owner agrees to pay a fixed amount called a premium at regular
intervals or in bulge sum.

Like other insurance policies, life insurance is also a contract between the insurer
and the policy owner whereby a benefit is paid to the nominated beneficiaries if an
insured event occurs which is covered by the policy. The assessment for the
policyholder is derived not from an actual claim event. But to a certain extent it is the
value derived from the 'peace of mind' experienced by the policyholder, because of the
negating of adverse financial consequences caused by the death of the Life Assured.
To be a life policy the insured event must be based upon the lives of the people
named in the policy.

Advantages of a Life Insurance Policy

1. Financial Security
2. Helps to diverts States Resources for Other Purpose
3. Facilitates Economic Movements
4. Helps to Avail Tax Exemptions

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BONDS & DEBENTURES

Bonds & Debentures, these two words can be used interchangeably. In Indian
markets, we use the word bonds to indicate debt securities issued by government,
semi-government bodies and public sector financial institutions and companies. We
use the word debenture to refer to the debt securities issued by private sector
companies.

Bonds - Debt securities issued by Govt. or Public sector companies

Debentures - Debt securities issued by private sector companies

In other words we can tell that a bond is a debt security, similar to an I.O.U. When
you purchase a bond, you are lending money to a government, municipality,
corporation, or Public entity known as the issuer. The issuer promises to pay you a
specified rate of interest during the life of the bond, in return for the loan. They also
promises to repay the face value of the bond (the principal) when it "matures."

Following are allowed to issue bonds

• Governments
• Municipalities
• Variety of institutions
• Corporations

Buying and Holding of Bonds: Investors can subscribe to primary issues of

Corporates and Financial Institutions (Fls). It is common practice for Fls and
Corporates to raise funds for asset financing or capital expenditure through primary
bond issues. Some bonds are also available in the secondary market. The minimum
investment for bonds can either be Rs 5,000 or Rs 10,000.

20
However, this amount varies from issue to issue. There is no prescribed upper limit
to your investment. The duration of a bond issue usually varies between 5 and 7
years.

Selling of Bonds:
Selling bonds in the secondary market has its own drawbacks. First, there is a
liquidity problem which means that it is a tough job to find a buyer. Second, even if
you find a buyer, the prices may be at a sharp discount to its intrinsic value. Third,
you are subject to market forces and, hence, market risk. If interest rates are running
high, bond prices will be down and you may well end up incurring losses. On the
other hand, Debentures are always secured.

Debentures
A debenture is similar to a bond except the securitization conditions are different. A
debenture is generally unsecured in the sense that there are no liens or pledges on
specific assets. It is defined as a certificate of agreement of loans which is given
under the company's stamp and carries an undertaking that the debenture holder
will get a fixed return (fixed on the basis of interest rates) and the principal amount
whenever the debenture matures.

Debentures vs. Bonds:

Debentures and bonds are similar except for one difference bonds are more secure
than debentures. In case of both, you are paid a guaranteed interest that does not
change in value irrespective of the fortunes of the company. However, bonds are more
secure than debentures, but carry a lower interest rate. The company provides
collateral for the loan. Moreover, in case of liquidation, bondholders will be paid off
before debenture holders.

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STOCK MARKET

The first step is to understand the stock market. A share of stock is the smallest unit
of ownership in a company. If you own a share of a company's stock, you considered
as the part owner of the company.

Stock Market Trading

Stock market trading consists of buying and selling of company stocks and as well as
stock derivatives. This type of trading usually takes place in a stock exchange, in
which companies need to be listed in order for their shares to be bought and sold.
This trading market provides with substantial earnings potential and is one among
the most popular investment options.

Working of Stock Market

Stock market trading is normally done by brokers. As a result, the first step is to seek
a reliable investment broker. Stock market trading occurs at a physical stock
exchange, where buyers and sellers of company shares meet and agree on the price
at which the transactions would materialize.

Conventional stock trading entails an investor placing an order for a specific number
of shares of a company with his/her broker present in the physical stock market. The
broker forwards the order to the floor clerk, who then attempts to locate a trader
desire to sell those shares. Bids are then exchanged. The transaction closes only after
the buyer agrees on the price quoted by the seller. This technique is also called "open
outcry," because it involves traders crying out their bids.

Stock market trading will also takes place online. This procedure is much quicker
and less complicated than trading in the physical stock market. Online stock market
trading engrosses the real time placement of buying and selling orders for stocks. The
transaction is accomplished when the trading system is capable to match bids and a
confirmation is received.

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Benefits of Stock Market Trading

1. It promotes economic growth.

2. It helps companies raise capital and handle financial issues.
3. It ensures that money is invested in businesses to enhance profit potential.
4. It helps investors realize substantial profits.

Drawbacks of Stock Market Trading:

1. It proposes lower leverage than other forms of trading, such as Forex trading.
2. The short selling of stocks is hard, because stock prices do not appreciate
significantly in a short span of time. Accordingly, there is a wait period before you
can book healthy profits.
3. It is traded for limited hours in a day.

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COMMODITY TRADING

The terms "commodities" and "futures" are often used to depict commodity trading or
futures trading. It is similar to the way "stocks" and "equities" are used when
investors talk about the stock market. Commodities are the actual physical goods
like gold, crude oil, corn, soybeans, etc. Futures are contracts of commodities that
are traded at a commodity exchange like MCX. Apart from numerous regional
exchanges, India has three national commodity exchanges namely, Multi Commodity
Exchange (MCX), National Commodity and Derivatives Exchange (NCDEX) and
National Multi-Commodity Exchange (NMCE). Forward Markets Commission (FMC) is
the regulatory body of commodity market.

It is one of a few investment areas where an individual with limited capital can make
extraordinary profits in a relatively short period of time. Many people have become
very rich by investing in commodity markets. Commodity trading has a bad name as
being too risky for the average individual. The fact is that commodity trading is only
as risky as you want to make it. Those who treat trading as a get-rich-quick scheme
are likely to lose because they have to take big risks. If you act carefully, treat your
trading like a business and are willing to settle for a reasonable return, the possibility
of success is very high.

The course of trading commodities is also known as futures trading. Unlike other
kinds of investments, such as stocks and bonds, when you trade futures, you do not
really buy anything or own anything. You are speculating on the future direction of
the price in the commodity you are trading. This is like a bet on future price
direction. The terms "buy" and "sell" merely indicate the direction you expect future
prices will move. If, for example, you were speculating in wheat, you would buy a
futures contract if you thought the price would be going up in the future. You would
sell a futures contract if you thought the price of wheat would go down.
For every trade, there is always a buyer and a seller. Neither person has to own any
wheat to participate. But he has to deposit sufficient capital with a brokerage firm to
insure that he will be able to pay the losses if his trades lose money.

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FOREX MARKET

Forex trading is the immediate trade of one currency and the selling of another.
Currencies are traded through an agent or dealer and are traded in pairs. For
example Euro (EUR), US dollar (USD), British pound (GBP) or Japanese Yen (JPY).

Here you are not buying anything physical; this type of trading is confused. Think of
buying a currency as buying a share of a particular country. When you purchase say
Japanese Yen, you are in effect buying a share in the Japanese financial system, as
the price of the currency is a direct reflection of what the market thinks about the
current and future health of the Japanese economy. In common, the exchange rate of
a currency versus other currencies is a reflection of the condition of that country's
financial system compared to the other countries financial system.

Unlike other financial markets like the New York Stock Exchange, the Forex spot
market has neither a physical location nor a central exchange. The Forex market is
measured an Over¬the-Counter (OTC) or Interbank market, due to the fact that the
entire market is run electronically within a network of banks continuously over a 24-
hour period.

Until the late 1990's only the big guys could play this game. The first requirement
was that you could trade only if you had about ten to fifty million bucks to start with
Forex. Forex was initially intended to be used by bankers and large institutions and
not by small guys. However because of the rise of the Internet, online Forex trading
firms are now able to offer trading accounts to 'retail' traders. All you need to get
started is a computer, a high-speed Internet connection, and the information.

25
The foreign exchange market is exclusive because of the following reasons;

• Its trading volumes

• The tremendous liquidity of the market
• Its geographical dispersion
• Its long trading hours
• The variety of factors that affect exchange rates.
• The low limits of profit compared with other markets of fixed income but
profits can be high due to very great trading volumes
• The use of leverage

Benefits of Forex Trading

1. Forex is the largest market.

2. No Bulls or Bears!
3. Forex trading online offers great leverage
4. Forex prices are predictable.
5. Forex trading online is commission free
6. Forex trading online is instant.

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REAL ESTATE AS AN INVESTMENT OPTION

The growth curve of Indian economy is at an all time high and contributing to the
upswing is the real estate sector in particular. Investments in Indian real estate have
been strongly taking up over other options for domestic as well as foreign investors.

The boom in the sector has been so appealing that real estate has turned out to be a
convincing investment as compared to other investment vehicles such as capital and
debt markets and bullion market. It is attracting investors by offering a possibility of
stable income yields, moderate capital appreciations, tax structuring benefits and
higher security in comparison to other investment options.

A survey by the Federation of Indian Chambers of Commerce and Industry (FICCI)

and Ernst & Young has predicted that Indian real estate industry is poised to emerge
as one of the most preferred investment destinations for global realty and investment
firms in the next few years. The potential of India's property market has a
revolutionizing effect on the overall economy of India as it transforms the skyline of
the Indian cities mobilizing investments segments ranging from commercial,
residential, retail, industrial, hospitality, healthcare etc. But maximum growth is
attributed to its growth from the booming IT sector, since an estimated 70 per cent of
the new construction is for the IT sector.

Real estate industry research has also thrown light on investment opportunities in
the commercial office segment in India. The demand for office space is expected to
increase significantly in the next few years, primarily driven by the IT and ITES
industry that requires an projected office space of more than 367 million sq ft till
2012-13.

27
INVESTMENT IN GOLD

Gold has got lot of emotional value than monetary value in India. India is the largest
consumer of gold in the world. In western countries, you can find most of their gold
in their central banks. But in India, we use gold mainly as jewels. If you look at gold
in a business sense, you will understand that gold is one of the all time best
investment tool. My dear readers, today I would like to discuss on investments in
gold and its potential.

Indian Gold Market Current Scenario:

• Size of the Gold Economy: more than Rs. 30,000 crores

• Number of gold jewelry manufacturing units: 1,00,000
• Number of people employed: 5,00,000
• Gems & Jewellery constitute 25% of India' I s exports about 10% of our import
bill constitute gold import.
• Number of banks allowed importing gold: 15 (While recently this has been
liberalized, detailed notification is awaited)
• Official estimates of the stock of gold in India: 9,000 tons
• Unofficial estimates of the stock of gold in India: 12,000 iV 14,000 tons
• Gold held by the Reserve Bank of India: 358 tons
• Gold production in India: 2 tons per annum.

Demand for gold in the Indian Market:

India has the highest demand for gold in the world and more than 90% of this gold is
acquired in the form of jewellery. Following are the factors influencing the demand for
gold. The movement of gold prices is one of the important variables determining
demand for gold. The increase in the irrigation, technological change in agriculture
(through mechanization and high yielding varieties), have generated large marketable
surplus and a highly skewed rural income distribution is another factors contributing
to additional demand for gold.

28
Supply of Gold:

The main economic effects that arise from the changes in the supply of gold can be
seen against the quantum of gold that is already in existence in the economy. The
supply of gold is not up to the requirements as the production of gold is also coming
down and demand for gold is going up very sharply.

Gold as an Investment Option:

Gold as an investment tool always gives good returns, flexibility, safety and liquidity
to the investors. Therefore as a financial consultant my advice to you all is, kindly
allocate a portion of your portfolio for gold investments. Practice the habit of buying
at least one gram of gold every month.

29
EMERGING INVESTMENT AVENUES

According to a study undertaken jointly by Merrill Lynch, Cap Gemini, and Ernst &
Young, High Net worth Individuals [HNIs] or wealthy investors are proactive in
portfolio management, risk management, consolidation financial assets and use of
diversification strategies as actively as large institutions. HNIs are proactive in
identifying new investment options and take inputs from professional advisors in
volatile market conditions.
HNIs are dynamic in modifying their asset allocation and were among the first
investors to move from equities to fixed income during 2001-2002 period of downturn
in equity markets. They shifted back to equities when they identified favorable
market trends.
Investment products and avenues
• Managed products: Managed product service is the most popular investment
strategy adopted by wealthy investors globally
• Real Estate: Wealthy investors have found this asset class very attractive and
have invested directly in real estate and indirectly through real estate investment
trusts.
• Art and passion: Wealthy investors also have their investment in art, wine,
antiques, and collectibles
• Precious Metals: Gold and other precious metals are attractive investment
options to balance the asset allocation
• Commodities: Wealthy investors have turned to commodities to offset the lower
returns from fixed income securities.
• Alternative investments: Hedge funds and Private equity investments such as
venture funds are becoming increasingly popular with wealthy investors to reduce
the investment risks related to stock market fluctuations. This is because these
instruments have low correlation with equity asset class performance. Investment in
non correlated assets, such as commodities helps to improve diversification of the
portfolio amidst volatile market conditions.

30
INVESTMENT IN ART

Today, we find that an increasing number of individuals are looking at alternative

investments, which provide them with a diversification away from a particular asset
class. People are willing to invest and looking for areas other than the stock market
for investing. Investing in the vintage wine, coins, stamps and Art, is now an
indulgence which gives them an opportunity to cash in on their hobbies, without
having the level of expertise that is required for other direct investments.

Art is being incorporated into the investor's overall asset allocation decision. The art
scene around the world is growing significantly. With more and more investors
looking at art as an alternative asset class and a store of a long term value, average
annual art valuations have outpaced average annual stock market valuations by
more than three times since 2000.

HEDGE FUNDS

Over the last 15 years, hedge funds have become increasingly popular with high net
worth individuals, as well as institutional investors. The number of hedge funds has
risen by about 20% per year and the rate of growth in hedge fund assets has been
even more rapid.
A hedge fund is a private investment fund, charging a performance fee and is open to
only a limited number of investors. These funds are like mutual funds, which collect
money from investors and use the proceeds to buy stocks and bonds. They can invest
on almost any type of opportunity; in any market where in good returns are expected
with low risk levels.
Hedge Fund Risks:
• Lack of transparency
• Limited liquidity
• Difficulty accessing quality hedge funds
• Unreliable or incomplete return data
• Valuation risk
• Asymmetrical nature of Hedge fund returns distributions [SKEW]
• Counterparty risk [Leverage]

31
PRIVATE EQUITY INVESTMENTS

Is the most important funding source in the entrepreneurial marketplace? Private

equity investments contribute to the funding of around 25 times the number of
businesses the venture capitalists fund each year.
Private equity investments are usually derived from a high net-worth individual who
represents an essential source of funding for early stage, high-risk ventures. It is
estimated that one-seventh of the 300,000 + start/early growth firms in the US
receive funding from angel investors. This translates into over $20 billion of
investment in approximately 50,000 deals each year. This investment group exceeds
venture capital sources which are estimated at $5 - $7 billion spread over 1,000
venture capital investments each year.
A typical profile of a private equity investor:
• Is someone that prefers to invest within one day of travel?
• Is very well educated
• Tends to invest collectively within a group of other private equity investors
• Usually invests within the dollar range of $10,000 - $500,000, averaging
$230,000
• Makes one investment every two years
Private equity investors have proven to be the single most important players in the
entrepreneurial marketplace. Private capital investors fund thirty to forty times as
many entrepreneurial companies as the entire venture capital industry and estimates
put the total amount between $20 - $60 billion annually.

32
 CHAPTER 2: LITERATURE REVIEW

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.

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 attempt to understand the financial behavior of mutual fund investors in
connection with the scheme preference and selection. An important element in the

33
success of a marketing strategy is the ability to fulfill investor expectation. The result
of these studies through satisfactory on the investor’s 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 investor’s
perception towards mutual funds investments and the study would also be
informative to the investors.

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.

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.

34
 CHAPTER 3: RESEARCH METHODOLOGY

3.1 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 accessibility to the researcher is known as convenience sampling.
Convenience sampling is at its best in surveys dealing with an exploratory purpose
for generating ideas and hypothesis.

3.2 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.

3.3 Sample Size:

The sample size was around more than 50, which comprised of people from
different regions. But around 60 respondents (Investors) filled up the form.

35
3.4 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. (A
copy of the questionnaire is given in the last as ANNEXURE 1).

3.5 Secondary Data:

This data is collected by using the following means.

1. Investment Magazines, Business Magazines, Financial chronicles.

2. Expert’s opinion published in various print media.

3. Data available on internet through various websites

36
 CHAPTER 4: DATA ANALYSIS & INTERPRETATION

4.1 Analysis in this report:

An analysis is made on the responses received from 60 sample investors. The

objective of the report is to find out the investor’s 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 60 sample investors an analysis

is made and interpretations are drawn. Interpretations are made on a rational basis,
these 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.

37
4.2 Analysis of the Survey:
Table: 1 Demographics of the Sample Investor

PARAMETER NO. OF. INVESTOR PERCENTAGE

GENDER

Male 35 59%
Female 25 41%
TOTAL 60 100%

AGE GROUP

Below 20 0 0
Between 20-30 22 36%
Between 31-40 20 34%
Above 41 18 30%
TOTAL 60 100%

QUALIFICATION

Under Graduate 5 9%
Graduate 27 45%
Post Graduate 23 38%
Others 5 8%
TOTAL 60 100%

OCCUPATION

Salaried 32 53%
Business 13 21%
Professional 8 14%
House Wife 6 11%
Retired 1 1%

TOTAL 60 100%

ANNUAL INCOME

Below Rs.2,00,000 22 36%

Rs.2,00,000-4,00,000 19 32%
Rs.4,00,000-6,00,000 11 18%
Above Rs.6,00,000 8 14%

TOTAL 60 100%

38
Interpretation:

Table 1 above shows, that 35 (59%) of the investors are men and the rest
25(41%) 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 36% are young and significant number
under the age group of 20-30. 34% of them are in the age group of 31-40. 30% of
them are above 40 years of age. There are no investors below 20 years of age.

Nearly 53% of the investors belong to the salaried class, 21% were business
class, 14% were professionals, 11% were housewives and the rest were retired.

It was found that irrespective of annual income they earn all the investors
interested in investments since today’s inflated cost of living is forcing everyone to
save for their future needs, and invest those saved resources efficiently.

23(38%) of the individual investors covered in the study are postgraduates;

27(45%) investors are graduates and 5(9%) of the investors are under-graduates, and
5(8%) investors are categorized as others who are either illiterates, had less education
than under graduation or 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.

22(36%) of the investors are earning less than 2 lakhs per annum, 19(32%)
investors are earning between 2 lakhs and 4 lakhs, 11(18%) investors are earning
between 4 lakhs and 6 lakhs, 8(14%) investors are earning more than 6 Lakhs P.a.
Since most of investors are below 4 lakhs annual earnings, many of them are non
risk takers.

39
Table 2 Other Characteristics of Sample Investors

Table 2.1 INVESTORS WILLING TO LOSE PRINCIPAL AMOUNT

PARAMETER NO OF INVESTOR PERCENTAGE
YES 4 7%
NO 56 93%
TOTAL 60 100%

NO OF INVESTORS
7%

YES
No
93%

Interpretation:

Since many of the investors annual earnings are below 2 lakhs and 4 lakhs,
many of them do not take the risk of losing their principal investment amount. 93%
of the sample investors are not ready to lose their principal investment amount. 7%
are ready to take risk of losing their principal up to certain extent.

Table 2.2 TIME PERIOD PEREFERED TO INVEST

PARAMETER NO OF INVESTOR PERCENTAGE
SHORT TERM 7 12%
MEDIUM 35 59%
LONG TERM 18 29%
TOTAL 60 100%

No of Investors

12%
29% SHORT TERM
MEDIUM
LONG TERM
59%

40
Interpretation:

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.12%
preferred short term, 59% preferred medium term and 29% preferred long term.

Table 2.3 FREQUENCY OF MONITORING THE INVESTMENT

PARAMETER No of Investors Percentage
DAILY 10 17%
MONTHLY 20 34%
OCCATIONALLY 24 40%
OTHER 6 9%
TOTAL 60 100%

Sales

9%
17% DAILY
MONTHLY

40% OCCATIONALLY
34%
OTHER

Interpretation:

Due to the busy life schedule, many of the investors are not able to spend time
in monitoring their investments, only 17% of the investors are monitoring their
investments daily,34% are monitoring on a monthly basis, 40% , the majority
investors are monitoring their Investments occasionally. Many of them who have
invested in safe investment avenues do not bother about their investments, some of
them forget about the investments for many years.

41
Table 2.4 INVESTMENT IN EQUITY MARET
PARAMETER No of Investors Percentage
YES 19 31%
NO 41 69%
TOTAL 60 100%

Interpretation:

Out of the total sample investors only 31% of the investors invest in equity share
market through their DEMAT A/C, 69% of the investors never invested in equity
shares. The investors who invest in equity share market are asked another question,
what would they do if the stock market falls immediately after their investment, many
of them replied that they would wait till the market increases instead of selling them
at a loss, very few answered that they would average the investment by buying some
more shares.

Table 2.5 FAMILY BUDGET

PARAMETER No of Inventors Percentage
YES 43 72%
NO 17 28%
TOTAL 60 100%

Sales

28%

YES
NO

72%

42
Interpretation:

72% of the sample investors had a monthly family budget for their daily
expenditure.28% of the investors replied they never thought of having a budget
calculation, and few think of having a budget but never implemented so far. Many
people with excess money never cared to make any family budgets.

Table 2.6 INVESTMENT TARGET

PARAMETER No of Investors Percentage
YES 28 47%
NO 32 53%
Total 60 100%

Interpretation:

Its interesting to know that almost same proportion of investors have different
thoughts, 47% of the investors have an investment target every year, and 53% of the
investors do not go for any targets for investment. On personal questioning many of
the investors who had an investment target every year are not able to reach their
targets due to contingent expenses. Few investors invest regularly but never thought
of having a target every year.

Table 2.7 FINANCIAL ADVISOR

PARAMETER No of Investors Percentage
YES 15 25%
NO 45 75%
TOTAL 60 100%

No of Investors

80%
60%

40% No of Investors
20%
0%
YES NO

43
Interpretation:

75% of the investors never had a financial advisor, they never approached an
advisor for their financial needs, the reason may be inadequate income and excess
expenditure, and there wouldn’t be surplus money to worry about. 25% of the
investors have financial advisors, who manage their investments.

Table 3 Objectives of Investment

Table 3.1 SAVING OBJECTIVE

PARAMETER VOTES WEIGHTS RANKING
CHILDREN’S EDUCATION 18 29 1
RETIREMENT 11 19 3
HOME PURCHASE 9 15 4
CHILDREN’S MARRIAGE 7 12 5
HEALTHCARE 14 23 2
OTHERS 1 02 6

TOTAL 60 100

Votes
OTHERS
HEALTHCARE
CHILDREN’S MARRIAGE
HOME PURCHASE Votes
RETIREMENT
CHILDREN’S EDUCATION

0 5 10 15 20

Interpretation:

Table 3.1 shows the savings objectives of the sample investors, investors are
given option to select one or more savings objectives, since there may be one or more
answers, weights are given for each parameter bases on the votes given by the
investors, the maximum weightage represents many investors have that as main
objective.

44
 Based on the weights calculated ranks are given in the order of maximum
weightage given by investors. First rank is given to children’s education, many
investors feel that, investing money for the future of the Child’s education is very
important than any other need. Many of the investors are in the age group of 20-30
and 31- 40 as of now they are thinking of saving for their children’s marriage. So
children s marriage is given last rank. After children s education investors are saving
for their own health care. There is a greater need for Indians to save for their health
care who are living a mechanical life. Retirement and home purchase are given
subsequent ranks after health care.

Table 3.2 PURPOSE BEHIND INVESTMENT

PARAMETER VOTES WEIGHTS RANK
WEALTH CREATION 13 22 4
TAX SAVING 15 25 3
EARN RETURNS 16 27 1
FUTURE 16 26 2

TOTAL 60 100

Votes
20
16
12
8
Vote
4

WEALTH TAX SAVING EARN FUTURE

CREATION RETURNS

45
Interpretation:

All the investors have very common purposes for investing; they have more than
one purpose for investing their money. Salaried people invest for tax savings, and for
future expenditure, business people invest for the purpose of earning returns. Almost
all the investors have all the 4 purposes behind investing their money.

Table 3.3 FACTORS CONSIDERING BEFORE INVESTIING

PARAMETER VOTES WEIGHTS RANKING
SAFETY OF PRINCIPAL 26 43 1
LOW RISK 15 25 2
HIGH RETURNS 12 19 3
MATURITY PERIOD 7 11 4
TOTAL 60 100

Votes
40
30
20
10 Votes
0
SAFETY OF LOW RISK HIGH RETURNS MATURITY
PRINCIPAL PERIOD

Interpretation:

When the investors are asked about the factors considering before investment
many of them have voted for safety of principal and low risk. First rank is given to
safety of principal and 2nd to low risk. Here there are some contradicting results,
some investors expect high returns at a very low risk, and this is not possible in
practical Indian investment avenues. Investment believes in a proved principle,
higher the risk higher the returns, lower the risk lowers the returns. Investors need
to know about this principle before investing.

46
Below are the demographics of the sample investors based on the category
occupation.

Table 4 Demographics Based On Occupation

Parameter No of Salaried Percentage

Age Group
Below 20 0 0%
Between 21-30 14 44%
Between 31-40 11 33%
Above 40 7 23%
Total 32 100%
Qualification
Under Graduate 0 0%
Graduates 13 43%
Post Graduate 15 46%
Others 4 11%
Total 32 100%
Annual Income
Below Rs.2,00,000 9 28%
Rs.2,00,000-4,00,000 10 31%
Rs.4,00,000-6,00,000 10 31%
Above Rs.6,00,000 3 10%
Total 32 100%

Parameter No of Business Percentage

Age Group
Below 20 0 0%
Between 21-30 1 9%
Between 31-40 6 45%
Above 40 6 45%
Total 13 100%
Qualification
Under Graduate 3 23%
Graduates 6 50%
Post Graduate 4 27%
Others 0 0%
Total 13 100%
Annual Income
Below Rs.2,00,000 6 50%
Rs.2,00,000-4,00,000 3 23%
Rs.4,00,000-6,00,000 1 5%
Above Rs.6,00,000 3 23%
Total 13 100%

47
Parameter No of Professional Percentage
Age Group
Below 20 0 0%
Between 21-30 5 57%
Between 31-40 1 14%
Above 40 2 29%
Total 8 100%
Qualification
Under Graduate 0 0%
Graduates 3 43%
Post Graduate 3 43%
Others 2 14%
Total 8 100%
Annual Income
Below Rs.2,00,000 1 14%
Rs.2,00,000-4,00,000 5 57%
Rs.4,00,000-6,00,000 1 7%
Above Rs.6,00,000 1 21%
Total 8 100%

Parameter No of House Wife Percentage

Age Group
Below 20 0 0%
Between 21-30 2 36%
Between 31-40 2 27%
Above 40 2 36%
Total 6 100%
Qualification
Under Graduate 1 9%
Graduates 3 55%
Post Graduate 1 18%
Others 1 18%
Total 6 100%
Annual Income
Below Rs.2,00,000 4 82%
Rs.2,00,000-4,00,000 1 9%
Rs.4,00,000-6,00,000 0 0%
Above Rs.6,00,000 1 9%
Total 6 100%

48
Assumption:

As a part of the analysis I assumed that preference for investment avenues is

dependent on the occupation of the investor. Hence preferred investment avenue are
derived from the demographics of the sample investor based on occupation.

Table: 5 Investment Preference Based On Occupation

Table 5.1 Preferred investment avenues for salaried

Investment Avenues Votes Weights Rank

Life Insurance 5 16 1
Gold 4 12 2
Bank Fixed Deposits 4 11 3
Mutual Funds 4 11 4
Real Estate 4 11 5
Post Office Saving 3 9 6
PPF 2 8 7
NSC 2 8 8
Equity Shares 2 7 9
Saving Account 2 7 10
Total 32 100

Since the investor has an option to invest in more than one Investment Avenue,
weights are given on the basis of preference to investment avenues. The avenue
which is given maximum weightage by the investors is ranked first. First Ten ranks
are given to the first ten preferred investment avenues. First preference is given to
life insurance, second to investing in gold, third to bank fixed deposits. Tenth
preference is given to bank savings account.

49
Table 5.2 Preferred investment avenues for Business people

Investment Avenues Votes Weights Rank

Bank Fixed Deposits 2 16 1
Life Insurance 2 16 2
Real Estate 2 14 3
Mutual Funds 2 12 4
Gold 1 10 5
Equity Shares 1 9 6
Chit Funds 1 7 7
Post Office Saving 1 6 8
Saving Account 1 5 9
NSC 0 5 10
Total 13 100

Thinking of the business people is almost same to that of salaried people,

both is similar in preferring insurance and bank fixed deposits, but given third
preference to real estate. Gold is given 5th place here. Last place is given to national
savings certificates.
Table 5.3 Preferred investment avenues for Professional

Investment Avenues Votes Weights Rank

Bank Fixed Deposits 1.5 19 1
Life Insurance 1.4 18 2
Gold 0.8 11 3
Real Estate 0.9 11 4
Post Office Saving 0.7 9 5
Saving Account 0.6 7 6
Mutual Funds 0.6 7 7
PPF 0.5 6 8
Bonds 0.5 6 9
Govt Securities 0.5 6 10
Total 8.00 100

There is no much difference in the preferences of professionals when

compared to salaried and business people. A professional does not prefer mutual
funds where salaried and business people prefer at 4th place. Professionals are
more interested in post office savings rather than mutual funds. As business people
professionals also prefer bank fixed deposits in the first place, then life insurance.
Professionals does not prefer national saving certificates at all, eliminated it from
the top 10.

50
Table 5.4 Preferred investment avenues for House Wife

Investment Avenues Votes Weights Rank

Gold 1.08 18 1
Life Insurance 1.08 18 2
Bank Fixed Deposits 0.96 16 3
Real Estate 0.70 10 4
Post Office Saving 0.68 10 5
Chit Funds 0.40 8 6
Equity 0.50 8 7
Saving Account 0.30 6 8
NSC 0.20 4 9
Mutual Funds 0.10 2 10
Total 6.00 100

Indian housewives love gold as much as themselves. Housewives have given

first rank to gold pushing insurance and bank fixed deposits to second and third
place. House wives gave least preference to mutual funds. They are more attracted
to traditional investment avenues like gold, real estate, post office savings and chit
funds.

Table 5.5 Preferred investment avenues for – Overall

Investment Avenues Votes Weights Rank

Life Insurance 10 17 1
Bank Fixed Deposits 8 14 2
Gold 8 13 3
Real Estate 8 12 4
Mutual Funds 6 10 5
Post Office Saving 5 9 6
Equity Shares 4 8 7
Saving Account 4 6 8
NSC 4 6 9
PPF 3 5 10
Total 60 100

51
 HYPOTHESIS TEST

HYPOTHESIS - Increase in Age decreases the Risk tolerance level.

• Relation between Age and risk tolerance

• Level of risk tolerance dependent on the age of the investor.

• Risk tolerance of an investor shows a negative relation to the age of

that investor

• Lower the age higher the risk capabilities, higher the age lower the risk
capabilities.

LEVEL OF RISK TOLERANCE WITH RESPECT TO AGE GROUP

For the purpose of analysis investors are placed under three

categories.
1. Low risk category
2. Medium risk
3. High risk

Classification is done based on three factors

1. Past investments of the investor.
2. Investor experience in investing (level of experience).
3. Investor preference for investments.

First the total sample of 60 is divided in to 3 age groups.

Investors in each age group are classified in to 3 risk categories based on the above
factors.

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Table 6: Finding Relationship between Age Group and Level of Risk Tolerance

Table 6.1 Risk tolerance of age group 20-30

Parameters No of Investors Percentage

Level of Risk

Low Risk 8 35%

Medium Risk 11 51%
High Risk 3 14%
Total 22 100%

Table 6.2 Risk tolerance of age group 30-40

Parameters No of Investors Percentage

Level of Risk

Low Risk 11 57%

Medium Risk 7 32%
High Risk 2 11%
Total 20 100%

Table 6.3 Risk tolerance of age group above 40

Parameters No of Investors Percentage

Level of Risk

Low Risk 12 70%

Medium Risk 4 20%
High Risk 2 10%
Total 18 100%

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Observations:
Observations from table 6.1, 6.2, 6.3
From the table 6.1 we find that 51% of Investors between the age group of 20-
30 came under medium risk category, where as the percentage of investors who
came under medium risk in the age group of 30-40 has decreased to 32%. It still
came down in the case of investors in the age group of 40 above, which is only 20%.
We can see a decreasing trend in the behavior of investors towards medium risk
when their age increased.

35% of the investors in the age group of 20-30 are in the low risk category,
where as Investors under the age group 30-40, 57% came under the low risk
category, there is a large increase in the investors who came under low risk category
in this age group. It has further increased, 70% of the investors in the age group
above 40 came under the low risk category. We can see an increasing trend with
respect to low risk category as the age increases.
Same observations are arrived at, when comparing the high risk category with
respect to the age groups. As the age increases the level of risk tolerance is coming
down. 14% came under the high risk category under the age group 20 - 30, when it
came to age group above 40 above only 10% came under the high risk category.

From the above observations we can conclude that there is a strong inverse or
negative relationship between risk tolerance and age group.
Attributes Risk Tolerance Level
Age -0.74
When Karl Pearson’s correlation coefficient is calculated, it is found to be
-0.74 by which we can conclude that there is a strong negative correlation
between Age and Risk tolerance. Age accounts for the major differences in risk
taking decisions by the investors. The older an investor, the better seemed his/her
performance in comparison to the younger ones. Over-confidence in their own
investment ability among the youngsters largely accounts for the excessive trading
among younger investors leading to lower returns and this direct to decline in the
risk tolerance level.

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 CHAPTER 5: FINDINGS & SUGGESTIONS

5.1 Findings:

1. The study reveals that male investors dominate the investment market in
India.

2. Most of the investor’s possess higher education like graduation and above.

3. Majority of the active and regular Investors belong to accountancy and

relate employment, non-financial management and some other occupations are
very few.

4. Most investors opt for two or more sources of information to make

investment decisions.

5. Most of the investors discuss with their family and friends before making an
investment decision.

6. Percentage of income that they invest depend on their annual income, more
the income more percentage of income they invest.

7. The investor’s decisions are based on their own initiative.

8. The investment habit was noted in a majority of the people who participated
in the study.

9. Most Investors prefer to park their funds in avenues like Life insurance, FD,
Gold and Real Estate.

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10. Most of the investors get their information related to investment through
electronic media (TV) next to print media (News paper/ Business news paper/
Magazines)

11. Most of the investors are financial illiterates.

12. Increase in age decrease the risk tolerance level.

13. Women are attracted towards investing gold than any other investment
avenue.

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 CHAPTER 6: SUMMARY & CONCLUSION

6.1 Summary:

This report is a reflection of the behavior of various categories of investors.

Selection of a perfect investment avenue is a difficult task to any investor. An effort
is made to identify the tastes and preferences of a sample of investors selected
randomly out of a large population. Despite of many limitations to the study I was
successful in identifying some investment patterns, there is some commonness in
these investors and many of them responded positively to the study.

This report concentrated in identifying the needs of current and future

investors, investor s preference towards various investment avenues are identified
based on their occupation. Investors risk in selecting a particular avenue is
dependent on the age of that investor.

6.2 Conclusion:

This study confirms the earlier findings with regard to the relationship between
Age and risk tolerance level of individual investors. The Present study has
important implications for investment managers as it has come out with certain
interesting facts of an individual investor.

The individual investor still prefers to invest in financial products which give
risk free returns. This confirms that Indian investors even if they are of high
income, well educated, salaried, independent are conservative investors prefer to
play safe.

The investment product designers can design products which can cater to the
investors who are low risk tolerant and use TV as a marketing media as they seem
to spend long time watching TVs.

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 ANNEXURE 1 QUESTIONNAIRE

1. Are you aware of the following investment avenues? (Tick which ever applicable
in the boxes).
A) Safe/Low Risk Investment Avenues:
Savings Account. Bank Fixed Deposits, Public Provident Fund, National Savings
Certificates. Post Office Savings. Government Securities.

B) Moderate Risk Investment Avenues:

Mutual Funds, Life Insurance. Debentures. Bonds.

C) High Risk Investment Avenues:

Equity Share Market. Commodity Market. FOREX Market.

D) Traditional Investment Avenues:

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

E) Emerging Investment Avenues:

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

2. What do you think are the best options for investing your money? (Choose from above list,
Rank in the order of preference)

1. 3.
2. 4.

3. Reasons for selecting these options

1.

2.

4. In the past, you have invested mostly in (write as many as applicable)

5. In which sector do you prefer to invest your money?

1. Private Sector 2.Public Sector 3.Foreign Sector

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6. What are the important factors guiding your investment decisions?(Return, safety of
principal, Diversification, progressive values, etc.)?

7. What are your savings objectives?

Children’s Education Retirement Plan Home Purchase Children Marriage

Health Care Others (Specify)

8. What is your investment objective?

Income and Capital Preservation Long-term Growth

Growth and Income Short-term Growth

9. What is the purpose behind investment?

Wealth Creation Tax Saving Earn Returns Future Expenses

10. Have you set aside funds specifically for the education and marriage of
your children? If yes, please give amounts and how the funds are held

Education: Amount Rs.__________________________________ invested in: ____________

Marriage: Amount Rs.__________________________________ invested in: _____________

11. Do you have a formal budget for family expenditure?

Yes No

12. Do you have a savings and investment target amount you aim for each year?

Yes No (if YES Specify Amount) :____________

13. At which rate do you want your investment to grow?

Steadily At an Average Rate Fast

14. Which factor do you consider before investing?

Safety of Principal Low Risk High Returns Maturity Period

15. Do you invest your money in share market? (Through a DEMAT A/C)
Yes No

If yes: Imagine that stock market drops after you invest in it then what will you do?
Withdraw your money Wait to increase Invest more in it

16. How often do you monitor your investment?

Daily Monthly Occasionally

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17. What percentage of your income do you invest?
0-15% 15-30% 30-50%

18. What is the time period you prefer to invest?

Short-term (0-1yrs) Medium-term (1-5yrs) Long-term (>5yrs)

19. Can you take the risk of losing your principal investment amount?

Yes No If yes: What percentage

20. What is your source of investment advice?

Newspapers News Channels Family or Friends

Books Internet Magazines
Advisors Certified Market Professional/Financial Planners

Personal Details:

Name:

Gender:

Designation:

Organization:

Age: Below 20 Between 20-30 Between 30-40 Above 40

Qualification: Under Graduate Graduate Post Graduate Other_____

Occupation: Salaried Business Student Housewife Retired

Annual Income: Below Rs.2,00,000 Rs.2,00,000-4,00,000

Rs.4,00,000-6,00,000 Above Rs.6,00,000

Financial Advisor:
Yes No

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 BIBILIOGRAPHY

Books:
• Investment Analysis and Portfolio Management, by Prasanna Chandra.

Research Paper
• An Empirical study on Indian individual investor’s behavior, by Syed Tabassum
Sultana.

Web Sites
www.economictimes.Indiatimes.com
www.business-standard.com
www.Indiamoney.com
www.moneymanagementideas.com

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