An Impact on Individual perception towards Investment Patterns and its Diversification Abstract Behavioral finance attempts to understand and

explain how human emotions influence investors in their decision-making process. According to the Theory of Planned Behavior (TPB), people act in accordance with their intentions and perceptions of control over a particular behavior, while intentions in turn are influenced by attitudes towards the behavior based on the financial stability. Among different groups of investors, individual investors are generally less able to objectively evaluate companies risks and returns, and tend to be emotionally biased in their investing decisions. Therefore their decisions may be formed as a result of perceived risks and returns, and influenced by companies images. In fact, an investor-driven marketing strategy necessitates an understanding of the demographic, socioeconomic and lifestyle characteristics of the investors. The present study is an attempt to bring out perception of the respondents and their influence on investment preferences. The investors are aware about the present investment pattern and risk and returns in diversified portfolio. Attitudes of investors were highly positive and showed their intention to save for better future. Nearly two-thirds of the investors were satisfied with their savings. Both income and expenses of a family influenced the level of satisfaction over savings. A large proportion of investors were concerned about their children's well-being and future security. The study has used chi-square test to understand the impact of perception on saving behavior of investors and the factors which determine the perception of investors towards saving instruments. The study concludes that investors' lifestyle predominantly decides the risk taking capacity of investors Author: Jayashree.T, Asst Professor, RVS Institute of Management Studies and Research,Cbe. Email: jayashree@rvsgroup.com, Ph: 9944282301. Co Author: Sreeraj, II MBA, RVS Institute of Management Studies and Research, Cbe. Email: sreerajb4u@gmail.com, Ph7845741892.

Introduction Savings form an important part of the economy. 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 pilthora of avenues to the investors. One needs to invest and earn returns on their idle resources and generate a specified sum of money for a specific goal in life and 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 of which the cost of living increases. The three steps to follow for all investors are Invest early, Invest regularly, and Invest for long term not for short term. Golden rules for the investors Rule 1: Choose long term investment time horizon Rule 2: Do not be influenced only by the past performance of a fund Rule 3: Selling is not a crime (for long term investors) Rule 4: Trust the information rather than emotion Rule 5: If you are not an expert better not to put all your eggs in one basket Rule 6: The growth will never continue till eternity Rule 7: Buy when others are selling and sell when others are buying. Investment refers to the concept of deferred consumption which may involve purchasing an asset, giving a loan or keeping funds in a bank account with the aim of generating future returns. Various investment options are available; with differing risk-reward tradeoffs. An understanding of the core concepts and a thorough analysis of the options can help an investor create a portfolio that maximizes returns while minimizing risk exposure.

Factors Determining Selection of Investment Options Past market trends Sometimes history repeats itself; sometimes markets learn from their mistakes. One has to understand how various asset classes have performed in the past before planning our finances. Risk appetite The ability to tolerate risk differs from person to person. It depends on factors such as our financial responsibilities, our environment, our basic personality, etc. Therefore, understanding our capacity to take on risk becomes a crucial factor in investment decision making. Investment horizon The time taken to keep the money invested. The longer the time-horizon, the greater are the returns that one should expect. Further, the risk element reduces with time. Investible surplus The money that are kept aside for investments. The investible surplus plays a vital role in selecting from various asset classes as the minimum investment amounts differ and so do the risks and returns. Investment need The money do we need at the time of maturity. This helps to determine the amount of money one need to invest every month or year to reach the magic figure. Expected returns The expected rate of returns is a crucial factor as it will guide our choice of investment. Based on our expectations, one can decide whether he want to invest heavily into equities or debt or balance our portfolio. Types of Investments:

Cash investments: These include bank savings accounts, certificates of deposit (CDs) and treasury bills. These investments generally pay a low rate of interest and are risky options in periods of inflation. Debt securities: This form of investment provides returns in the form of fixed periodic payments and possible capital appreciation at maturity. It is a safer and more 'risk-free' investment tool than equities. However, the returns are also generally lower than other securities Stocks: Buying stocks (also called equities) makes you a part-owner of the business and entitles you to a share of the profits generated by the company. Stocks are more volatile and therefore riskier than bonds. Mutual funds: This is a collection of stocks and bonds and involves paying a professional manager to select specific securities. The prime advantage of this investment is that you do not have to be involved in tracking the investment. There may be bond, stock- or index-based mutual funds. Derivatives: These are financial contracts which are derived from the value of the underlying assets, such as equities, commodities and bonds, on which they are based. Derivatives can be in the form of futures, options and swaps. Derivatives are used to minimize the risk of loss resulting from fluctuations in the value of the underlying assets (hedging). Commodities: The items that are traded on the commodities market are typically agricultural and industrial commodities. These items need to be standardized and must be in a basic, raw and unprocessed state. The trading of commodities is associated with high risk and high reward. Trading in commodity futures requires specialized knowledge and in-depth analysis. Real estate: This investment involves a long-term commitment of funds and gains that are generated through rental or lease income as well as capital appreciation. This includes investments into residential or commercial properties. Diversification

It is a technique that reduces risk by allocating investments among various financial instruments, industries and other categories. It aims to maximize return by investing in different areas that would each react differently to the same event. Most investment professionals agree that, although it does not guarantee against loss, diversification is the most important component of reaching long-range financial goals while minimizing risk. Concentrating investment concentrates risk. Diversifying investments spreads risk by having more than one kind of investment and thus more than one kind of risk, like reducing economic risk; reducing industry risks; reducing asset class risk; reducing company risks. Steps to Diversification In traditional portfolio theory, there are three levels or steps to diversifying: capital allocation, asset allocation, and security selection. Capital allocation is diversifying capital between risky and riskless investments. A riskless asset is the short-term (less than ninety-day) U.S. Treasury bill. Because it has such a short time to maturity, it wont be much affected by interest rate changes, and it is probably impossible for the U.S. government to become insolventgo bankruptand have to default on its debt within such a short time. The capital allocation decision is the first diversification decision. It determines the portfolios overall exposure to risk, or the proportion of the portfolio that is invested in risky assets. That, in turn, will determine the portfolios level of return. The second diversification decision is asset allocation, deciding which asset classes, and therefore which risks and which markets, to invest in. Asset allocations are specified in terms of the percentage of the portfolios total value that will be invested in each asset class. To maintain the desired allocation, the percentages are adjusted periodically as asset values change. Asset allocation is based on the expected returns and relative risk of each asset class and how it will contribute to the return and risk of the portfolio as a whole. If the asset classes one choose are truly diverse, then the portfolios risk can be lower than the sum of the assets risks.

One example of an asset allocation strategy is life cycle investingchanging your asset allocation as you age. When a person retire, for example, and forgo income from working, he become dependent on income from his investments. As he approaches retirement age, he shifts asset allocation to less risky asset classes to protect the value of his investments. Security selection is the third step in diversification, choosing individual investments within each asset class. Here is the chance to achieve industry or sector and company diversification. For example, if one decided to include corporate stock in your portfolio (asset allocation), he decide which corporations stock to invest in. Choosing corporations in different industries, or companies of different sizes or ages, will diversify your stock holdings. He will have less risk than invested in just one corporations stock. Diversification is not defined by the number of investments, but by their different characteristics and performance. Just as life cycle investing is a strategy for asset allocation, investing in index funds is a strategy for security selection. Indexes are a way of measuring the performance of an entire asset class by measuring returns for a portfolio containing all the investments in that asset class. Essentially, the index becomes a benchmark for the asset class, a standard against which any specific investment in that asset class can be measured. An index fund is an investment that holds the same securities as the index, so it provides a way to invest in an entire asset class without having to select particular securities. For example, if you invest in the S&P 500 Index fund, you are investing in the five hundred largest corporations in the United Statesthe asset class of large corporations. There are indexes and index funds for most asset classes. By investing in an index, you are achieving the most diversification possible for that asset class without having to make individual investments, that is, without having to make any security selection decisions. This strategy of bypassing the security selection decision is called passive management In contrast, making security selection decisions to maximize returns and minimize risks is called active management. Investors who favor active management feel that the advantages of picking specific investments, after careful research and analysis, are worth the added transaction costs.

Actively managed portfolios may achieve diversification based on the quality, rather than the quantity, of securities selected.

Investor Psychology cycle The typical behavior of investors is linked to the so-called investor psychology cycle

Before seeking to apply the cycle to the present stock market situation, lets consider a short definition of each of the stages. Contempt: According to the cycle, a bull market typically starts when a market is at a low and investors scorn stocks.

Doubt and suspicion: They try to decide whether what they have left should be invested in a safe haven such as a money market fund. They have burnt their fingers with stocks and vow never to invest again.

Caution: The market then gradually starts showing signs of recovery. Most investors remain cautious, but prudent investors are already drooling at the possibility of profit.
7

Confidence: As stock prices rise, investors feeling of mistrust changes to confidence and ultimately to enthusiasm. Most investors start buying their stocks at this stage.

Enthusiasm: During the enthusiasm stage, prudent investors are already starting to take profits and get out of the stock market, because they realise that the bull market is coming to an end.

Greed and conviction: Investors enthusiasm is followed by greed, which is often accompanied by numerous IPOs on the stock market.

Indifference: Investors look beyond unsustainably high price-earnings ratios.

Dismissal: As the market declines, investors show a lack or interest that quickly turns to dismissal.

Denial: Then they reach the denial stage where they regularly affirm their belief that the market definitely cannot fall any further.

Fear, panic and contempt: Concern starts to take a hold and fear, panic and despair soon follow. Investors again start scorning the market and once again they vow never to invest in stocks again.

Objective of the study 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 mesure how the investors think about the products and services provided by the company. The main objectives of the study is to find out the needs of the current and future investors 1. To understand in depth about different investment avenues
8

2. The time factor, risk tolerance level and return expected by the investor 3. To identify the diversification of investment 4. To study the dependence and independences of the demographic factors of the investor and risk preference of the investors Review of literature Literature suggest that major research in the area of investors behaviour has been done by behavioral scientist such as Weber, Shiller and Shefrin. Shiller who strongly advocated that stock market is governed by the market information which directly affects the behavior of the investors. Several studies have brought out the relationship between the demographics such as Gender, age, risk profile of individuals. Of this the relationship between age and risk profile has attached much attention. Horvath and Zucherman suggested that one biological, demographic and socio economic characteristics; together with his/her psychological makeup affets onr risk profile level. Malkiel suggested that an individual risk tolerance is related to his/her household situation, lifecycle stage and subjective factors. Mittra discussed factors that were related to individual risk tolerance, which years until retirement, knowledge sophistication, income and networth. Guiso, Jappelli and Terlizzese, Bajtelsmit and VenDerhei, Powell and Ansic, Jianakoplos and Bernasek, Hariharan, Chapman and Domain, Hartog, Ferrer-I-Carbonell and Jonker concluded that males are more risk tolerant than females. Sample size Many investors were reluctant to divulge their investment details especially the amount of money invested so. It has been carried out with a sample size of 300 investors. Convenience sampling method has been chosen for the study. Methodology Based on the questionnaire an analysis has been carrying out for the purpose of the study. The sample population is infinite. From this sample size of 300 is used for the study. And the data collected through questionnaires. That is by primary method of data collection. And secondary data are collected through journals and websites.
9

LIMITATIONS OF THE STUDY y The main limitation of the study is that people are reluctant to give accurate information about their investment. y y y The time limit is another constraint for the study. The study is covered only in Coimbatore City. Only 300 samples were collected and there is no true representation of the sample size.

Table 1: Showing the demographic factors of the respondents Variables Age Parameters 20-30 31- 40 41-50 51 & ABOVE Gender Male Female Marital Status Married Unmarried 0ccupation Private Government Self employed Others Annual Income Below 2lakhs 2-5 lakhs 5-8 lakhs % 33 24 30 13 80 20 73 27 33 31 30 6 55 30 7
10

8 lakhs & above

From the above 300 respondents, 101 belong to the age group 20-30 i.e. 33%. Majority of the respondents are male persons compared to Female i.e, 80%. Majority (33%) of the respondents are private employees. 55% of them belong to the annual income below 2 lakh.

Table 2 Showing the Investment options selected by the respondents Investment Options Bank fixed deposit /PPF Commodity Insurance Real estate Bank FD /PPF and Insurance Debt and Equity market Mutual funds Others 8.67 13 13.67 4 5.33 4.67 18 % 32.67

Among the 300 respondents most of the respondents selected the Bank FD/ PPF ie 32.67 %. 14% respondents prefer investing in Real Estate. 13% of them prefer investing in Insurance. 9% prefer investing in Commodity. 5% prefer investing in Debt and Equity Market. 4.6 % prefer investing in Mutual Funds. Table 3 Showing the Investment profile preferred by the respondents

Investment profiles High Risk High Return Medium Risk Medium Return Low Risk Low return

% of respondents 11 54 17

11

I dont like to take risk

18

Most of them (54%) prefer medium term investment. Only 17% of them prefer long term investment. Among the 300 respondents most of them prefer medium risk medium return.33 of them prefer high risk high return 163 prefer medium risk medium return and 50 prefer low risk low return. Most of the respondents mainly 38% expect 10-20% of return. then 34% expect 2030 % of return. 16% of persons expect below 10% return & 11 %expect more than 30% of return Investment profile High risk Age 20- 30 31-40 41-50 Above 51 Total 3 33 26 164 2 50 6 53 37 300 , High return 18 6 6 Medium risk Medium return 49 34 55 Low risk Low return 15 17 16 I dont like to take risk 19 15 13 Total 101 72 90

every year. Table 4 Showing Relationship between the age of the respondents and investment profile

12

ChiSquare Value : 19.40555 Table Value : 21.0 d.f. : 9 The calculated value for the observed frequencies provided in the table is: 19.40555. The table value for 9 degrees of freedom and at 5% level of significance is 21.0 The comparison of the calculated value with the table value indicates that the calculated value is less than the table value and hence the null hypothesis is accepted. Hence, it is concluded that there is no significant relationship between age & investment profile

Table 5 Showing Relationship between e Gender of the respondents and Investment profile

Investment profile Medium High risk High Gender Male Female Total return 31 2 33 risk Medium return 128 36 164 Low risk Low return 43 7 50 I dont like to take risk 37 16 53 Total 239 61 300

Chi-Square Value : 8.830893, Table Value : 7.81, d.f. : 3

13

The calculated value for the observed frequencies provided in the table is The table value for 3 degrees of freedom and at 5% level of significance is 7.81 The comparison of the calculated value with the table value indicates that the calculated value is greater than the table value and hence the null hypothesis is rejected. Hence, it is concluded that there is significant relationship between gender & their opinion about their investment risk profile Findings and Suggestions 33% of the respondents belong to the age group 20-30. And majority of the respondents are Male persons compared to Female Majority(33%) of the respondents are private employees. And 55% of them belong to the annual income below 2 lakh. Majority of the respondents are neutral investors, taking medium risk with medium returns Based on the study conducted in few places in Coimbatore, individual prefer to invest in Real Estate and Commodity market, So Banks may encourage them by providing sufficient funds. Future planning is important for investment, so the investors can approach intermediaries for their financial support. Every individual should be created awareness of all types of investment opportunities, educational planning and tax benefits available for them through direct marketing, tele calls and campaigns Conclusion Investor's Behaviour is changing and they are now leaving behind the sacred investment options like the fixed deposits, company deposits, gold etc. Studies have shown that the youngsters are more concentrating on investing when compared to others. Real estate
14

sector is one of the booming sectors in India; most of the investors preferred to invest in Real Estate sector and Commodity trading.

References 1. C.R. Kothari, Research Methodology, New Age International Publishers Ltd, New Delhi. 2. Preethi Singh, (2006), Investment analysis and Portfolio Management, Himalaya Publishing Company, NewDelhi 3. Punithavathy Pandian,(2007) Security analysis and Portfolio Management, Vikas Publishing House Pvt Ltd, New Delhi 4. Warren W, Robert E Stevens and William C McConkey (1990), Using Demographic and Lifestyle Analysis to Segment Individual Investors, Financial Analysts Journal. 5. Rajarajan V (2000), Investors Lifestyles and Investment Characteristics, Finance India, . 6. Rajarajan, V.,investors Life styles and Investments Characteristics , Finance India,June. 7. Madhusoodanan T P (1997), Risk and Return: A New Look at the Indian Stock Market, Finance India. 8. Gupta Ramesh (1991), Portfolio Management: The Process and Its Dynamics,
15

Working Paper No. 923, JanuaryMarch, Indian Institute of Management,Ahmedabad. 9. Jawarhar lal, Understanding Indian Investors. 10. www.emeraldinsight.com/journals 11. icc.oxfordjournals.org/content 12. www.eurojournals.com 13. http://www.indianmba.com/Occasional_Papers 14. www.indianjournals.com.

16