FINAL MMS PROJECT - INVESTOR'S BEHAVIOR TOWARDS INVESTMENT AVENUES ( MANGESH SONAWANE C 22)

“INVESTOR’S BEHAVIOR TOWARDS INVESTMENT AVENUES”

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS

FOR

MASTER IN MANAGEMENT STUDIES (MMS)

2013-2015

STUDENT NAME: MANGESH SHANKAR SONAWANE

ROLL NO : C22

SUBMITTED TO

DR. V. N. BEDEKAR INSTITUTE OF MANAGEMENT STUDIES, THANE

STATEMENT BY THE CANDIDATE

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

“INVESTOR’S BEHAVIOR TOWARDS INVESTMENT AVENUES” 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 “DR.V.N.BRIMS” Who gave me a chance to show my capability and

allowed me to carry out a project guide under Prof. Sukhada Tambe.

I present my heartfelt gratitude towards Prof. Sukhada Tambe for giving me

this opportunity to wide my horizons of understanding by giving me in the project

on “INVESTOR’S BEHAVIOR TOWARDS INVESTMENT AVENUES”.

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.................................................................................................................. 5

1.1 Safe/Low Risk Avenues: ......................................................................................................................... 6

1.2 Moderate Risk Avenues: ......................................................................................................................... 6

1.4 Traditional Avenues: ................................................................................................................................ 7

1.5 Emerging Avenues: .................................................................................................................................. 7

CHAPTER 2: LITERATURE REVIEW .............................................................................................................. 8

3.1 Sample Technique: ................................................................................................................................. 10

3.2 Sample Unit:............................................................................................................................................. 10

3.3 Sample Size: ............................................................................................................................................. 10

3.4 Primary Data: ........................................................................................................................................... 11

3.5 Secondary Data: ...................................................................................................................................... 11

CHAPTER 4: DATA ANALYSIS & INTERPRETATION .............................................................................. 12

4.1 Analysis in this report: ......................................................................................................................... 12

4.2 Analysis of the Survey: ......................................................................................................................... 13

CHAPTER 5: FINDINGS & SUGGESTIONS................................................................................................ 30

5.1 Findings: .................................................................................................................................................... 30

CHAPTER 6: SUMMARY & CONCLUSION ................................................................................................. 32

6.1 Summary: .................................................................................................................................................. 32

6.2 Conclusion: ............................................................................................................................................... 32

ANNEXURE 1 QUESTIONNAIRE ................................................................................................................... 33

BIBILIOGRAPHY ........................................................................................................................................................ 36


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


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.


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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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


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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.


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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 100, which comprised of people from

different regions. But around 102 respondents (Investors) filled up the form.


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3.4 Primary Data:

Information is collected by conducting a survey by distributing a questionnaire

to more than 100 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


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CHAPTER 4: DATA ANALYSIS & INTERPRETATION

4.1 Analysis in this report:

An analysis is made on the responses received from 102 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 102 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.


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4.2 Analysis of the Survey:

Table: 1 Demographics of the Sample Investor

PARAMETER NO. OF. INVESTOR PERCENTAGE

GENDER Male Female

60 42

59% 41%

TOTAL 102 100%

AGE GROUP Below 20 Between 20-30 Between 31-40 Above 41

0 37 35 30

0 36% 34% 30%

TOTAL 102 100%

QUALIFICATION Under Graduate Graduate Post Graduate Others

9 46 39 8

9% 45% 38% 8%

TOTAL 102 100%

OCCUPATION Salaried Business Professional House Wife Retired

54 22 14 11 1

53% 21% 14% 11% 1%

TOTAL 102 100%

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

37 33 18 14

36% 32% 18% 14%

TOTAL 102 100%


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Interpretation:

Table 1 above shows, that 60 (59%) of the investors are men and the rest

42(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.

39(38%) of the individual investors covered in the study are postgraduates;

46(45%) investors are graduates and 9(9%) of the investors are under-graduates, and

8(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.

37(36%) of the investors are earning less than 2 lakhs per annum, 33(32%)

investors are earning between 2 lakhs and 4 lakhs, 18(18%) investors are earning

between 4 lakhs and 6 lakhs, 14(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.


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Table 2 Other Characteristics of Sample Investors

Table 2.1 INVESTORS WILLING TO LOSE PRINCIPAL AMOUNT

PARAMETER NO OF INVESTOR PERCENTAGE

YES NO

7 95

7% 93%

TOTAL 102 100%

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 MEDIUM LONG TERM

12 60 30

12% 59% 29%

TOTAL 102% 100%

7%

93%

NO OF INVESTORS

YES

No

12%

59%

29%

No of Investors

SHORT TERM

MEDIUM

LONG TERM


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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 MONTHLY OCCATIONALLY OTHER

17

35

41

9

17%

34%

40%

9%

TOTAL 102 100%

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.

17%

34%40%

9%

Sales

DAILY

MONTHLY

OCCATIONALLY

OTHER


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Table 2.4 INVESTMENT IN EQUITY MARET


YES NO

32 70

31% 69%

TOTAL 100 100%

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 NO

73 29

72% 28%

TOTAL 102 100%

72%

28%

Sales

YES

NO


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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


YES NO

48 54

47% 53%

Total 102 100%

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


YES NO

25 77

25% 75%

TOTAL 102 100%

0%

20%

40%

60%

80%

YES NO

No of Investors

No of Investors


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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 RETIREMENT HOME PURCHASE CHILDREN’S MARRIAGE HEALTHCARE OTHERS

71 47 38 30 57 05

29 19 15 12 23 02

1 3 4 5 2 6

TOTAL 248 100

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. 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

0 20 40 60 80

CHILDREN’S EDUCATION

RETIREMENT

HOME PURCHASE

CHILDREN’S MARRIAGE

HEALTHCARE

OTHERS

Votes

Votes


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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 TAX SAVING EARN RETURNS FUTURE

37 43 45 44

22 25 27 26

4 3 1 2

TOTAL 169 100

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.

0

10

20

30

40

50

WEALTH CREATION

TAX SAVING EARN RETURNS

FUTURE

Votes

Votes


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Table 3.3 FACTORS CONSIDERING BEFORE INVESTIING

PARAMETER VOTES WEIGHTS RANKING

SAFETY OF PRINCIPAL LOW RISK HIGH RETURNS MATURITY PERIOD

60 35 27 16

43 25 19 11

1 2 3 4

TOTAL 138 100

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.

0

20

40

60

80

SAFETY OF PRINCIPAL

LOW RISK HIGH RETURNS MATURITY PERIOD

Votes

Votes


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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 Between 21-30 Between 31-40 Above 40

0 24 18 12

0% 44% 33% 23%

Total 54 100%

Qualification Under Graduate Graduates Post Graduate Others

0 23 25 06

0% 43% 46% 11%

Total 54 100% 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

15 17 17 5

28% 31% 31% 10%

Total 54 100%

Parameter No of Business Percentage


0 2 10 10

0% 9% 45% 45%

Total 22 100%


5 11 6 0

23% 50% 27% 0%

Total 22 100% 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

11 5 1 5

50% 23% 5% 23%

Total 22 100%


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Parameter No of Professional Percentage


0 8 2 4

0% 57% 14% 29%

Total 14 100%


0 6 6 2

0% 43% 43% 14%

Total 14 100%

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

2 8 1 3

14% 57% 7% 21%

Total 14 100%

Parameter No of House Wife Percentage


0 4 3 4

0% 36% 27% 36%

Total 11 100%


1 6 2 2

9% 55% 18% 18%

Total 11 100%

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

9 1 0 1

82% 9% 0% 9%

Total 11 100%


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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 Gold Bank Fixed Deposits Mutual Funds Real Estate Post Office Saving PPF NSC Equity Shares Saving Account

35 25 24 23 23 20 18 17 16 14

16 12 11 11 11 9 8 8 7 7

1 2 3 4 5 6 7 8 9 10

Total 215 100

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.


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Table 5.2 Preferred investment avenues for Business people


Bank Fixed Deposits Life Insurance Real Estate Mutual Funds Gold Equity Shares Chit Funds Post Office Saving Saving Account NSC

13 13 11 10 8 7 6 5 4 4

16 16 14 12 10 9 7 6 5 5

1 2 3 4 5 6 7 8 9 10

Total 81 100

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


Bank Fixed Deposits Life Insurance Gold Real Estate Post Office Saving Saving Account Mutual Funds PPF Bonds Govt Securities

10 10 6 6 5 4 4 3 3 3

19 18 11 11 9 7 7 6 6 6

1 2 3 4 5 6 7 8 9 10

Total 54 100

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.


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Table 5.4 Preferred investment avenues for House Wife


Gold Life Insurance Bank Fixed Deposits Real Estate Post Office Saving Chit Funds Equity Saving Account NSC Mutual Funds

9 9 8 5 5 4 4 3 2 1

18 18 16 10 10 8 8 6 4 2

1 2 3 4 5 6 7 8 9 10

Total 50 100

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


Life Insurance Bank Fixed Deposits Gold Real Estate Mutual Funds Post Office Saving Equity Shares Saving Account NSC PPF

67 55 50 45 38 35 29 25 25 22

17 14 13 12 10 9 8 6 6 5

1 2 3 4 5 6 7 8 9 10

Total 391 100


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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 102 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 Medium Risk High Risk

13 19 5

35% 51% 14%

Total 37 100%

Table 6.2 Risk tolerance of age group 30-40



20 11 4

57% 32% 11%

Total 35 100%

Table 6.3 Risk tolerance of age group above 40



21 6 3

70% 20% 10%

Total 30 100%


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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

http://www.ijbarr.com/downloads/3001201511.pdf

FINAL MMS PROJECT - INVESTOR'S BEHAVIOR TOWARDS INVESTMENT AVENUES ( MANGESH SONAWANE C 22)

Documents

investment avenues

project chapter

traditional avenues

emerging avenues

project guide

safelow risk avenues

moderate risk avenues

investors behavior