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A STUDY ON INVESTMENT BEHAVIOUR OF THE
INVESTORS
Dissertation Report submitted in partial fulfillment of the
requirement for the award of the degree of
Master of Business Administration
Of
Bangalore University
Submitted By
Avinash Kumar Singh
(06RWCM6012)
Under the guidance of
Ms M. Priya
T. JOHN GROUP OF INSTITUTIONS
Bangalore
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S t ud e n t s D ec la r at io n
I Avinash Kumar Singh hereby declare that this dissertationtitled A Study on Investment Behavior of the Investors
submitted by me to the department of Management,
Bangalore University in partial fulfillment of requirement of
MBA programme is a bonafide work carried by me under the
guidance of Ms M Priya This has not been submitted to any
other university or institution for the award of any degree or
published any time before.
Place: Bangalore Avinash Kumar
Singh
Date:
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C er t if ic at e f r o m F a c u lt y G u i d e
Certified that this dissertation entitled A Study on
Investment Behavior of the Investors submitted in partial
fulfillment for the award of MBA Degree of Bangalore
University, was carried out by Avinash Kumar Singh has not
been submitted to any other university or institution for the
award of any degree/diploma/certificate.
_
_ (Ms M Priya)
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A c kn o w l e d g e m e n t
I express my sincere gratitude towards the Manager for
providing me the information for the successful completion
of my dissertation. I am also thankful towards the
management for providing me the opportunity, guidance andencouragement for the successful completion of my
dissertation.
I am also thankful to my Guide Ms M Priya for giving me
the valuable time and teachings. Under the able guidance of
my mentor I have learned a lot about how to go about for my
dissertation.
Lastly I express my sincere thanks to my Parents and Friend
and
Those who have helped directly or indirectly in successfulcompletion of my Dissertation
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C o nt e nt s
1. Introduction to Insurance industry.
2. Research Design
3. Industry Profile
4. Analysis and Interpretation of Data
5. Summary of Findings, Conclusion and
Recommendations.
Bibliography
Annexure
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L i st o f T a b l e s
S. No Title1
2
3
4
5
6
7
8
9
10
11
Investment preference among varies age groups
Investment preference among various income levels
Types of Investment
Frequency of Investment
Basis of investment
Investment pattern affected by market movement
Factors influence to choice various investmentalternatives
Period of the investment
Reason behind the choice of investment
Analysis of companies before investing in percentage
The type of analysis used by the investors.
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L is t o f G r a p h s
S. No Title1
2
3
4
5
6
7
8
9
10
11
Investment preference among varies age groups
Investment preference among various income levels
Types of Investment
Frequency of Investment
Basis of investment
Investment pattern affected by market movement
Factors influence to choice various investmentalternatives
Period of the investment
Reason behind the choice of investment
Analysis of companies before investing in percentage
The type of analysis used by the investors.
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INTRODUCTION
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1. I n t r o d u c t i o n :
Chapter 1
The money you earn is partly spent and the rest saved for meeting
future expenses. Instead of keeping the savings idle you may like touse savings in order to get return on it in the future, which is known as
'investment'. There are various investment avenues such as Equity,
Bonds, Insurance, Bank Deposit etc. A Portfolio is a combination of
different investment assets mixed and matched for the purpose of
achieving an investor's goal.
The two key aspects of investment are time and risk. Sacrifice takes
place now and is certain. Benefit is expected in the future and tends to
be uncertain. In some investments (like stock options) risk element is
dominant attribute and in some investment (like govt. bonds) time is
dominant attribute .There are various factors which affects investors'
portfolio such as annual income, government policy, natural
calamities, economical changes etc.
Almost every one owns a portfolio of investments. The portfolio is
likely to comprise financial assets (bank deposits, bonds, stocks, and
so on) and real assets (motorcycle, house, and so on)
The Companies Act 1850, introduced the concept of limited liabilityto India, served to stimulate the activity in the stock market. From
then number of acts are passed to boost the revolutionary change. The
global capital market registered spectacular growth in the decade of
1990's which had an effect on the growth of Indianmarket.
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The world market capitalization grew at an average annual rate of
16% during the decade, it grew from about US $ 9.3 trillion in 1990
to about US $ 36 trillion in 2000 but fell to about US $ 28 trillion by
2001.
The turnover on all markets taken together has grown nearly 19 times
from US $ 5.5 trillion in 1990 to US $ 48 trillion in 2000 before
depleting to about US $ 42 trillion in 2001.
The turnover in developed markets has, however, grown more sharply
than that in emerging markets. The US alone accounted for about 70%
of world wide turnover in 2001. Despite having a large number of
companies listed in its stock exchanges, India accounted for a merger
of 59% in 2001 as compared to 1.06% in 2000.
The stock markets world wide has grown in size as well as depth:
since last one decade. During the decade 1990-2000, the world
market: capitalization/GDP ratio more than doubled from 51% to
120%. Value traded GDP rose from 29% to 103% and turn over ratio
shot up from 48% to 89%. The combined market capitalization of a
select 22 emerging economies increased US $ 339 billion in 1990 to
US $ 2.2 trillion in 2000.
The average market capitalization increased from 3.6% to 7%,
Annual value of shares traded increased from $ 180 billion to $ 2.2
trillion increased from 16.7% to 45.5%.
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For India the total capitalization grew from $ 38,567 million at the
end of 1990 to $ 110,396 million at the end of 2001. Turn-over of
stocks increased from $ 21,198 million in 1990 to $ 249,298 million
in 2001. Market capitalization as a percentage of GDP grew from12.2% in 1999 to 32.4% in 2001 .while turnover ratio went up from
65.9% in 1999 to 191.4% in 2000. The number of listed companies in
India was 5,975 as at end of 2001. There are very few countries,
which have higher turnover ratio than India. Standard and Poor (SP)
ranked India, 25 th in terms of market capitalization, 15 th in terms of
total value traded in stock-exchanges and 6th
in terms of turn-over ratio.
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2.1 I n d u s t r y O v er v ie w :
Globalization of the financial market has led to a manifold increase
in investment. New markets have been opened; new instruments have
been developed new services have been launched.
India has a well established capital market mechanism where in
effective and efficient transfer of money capital or financial resources
from the -vesting class to the entrepreneur class in the private and
public sector of the economy occurs. Indian capital market has a long
history of organized trading which started with the transaction in loan
stocks of the East India Company from; at time it has undergone
drastic changes to meet the requirements of the globalization.
The Indian Capital Market had been dormant in the 70's and 80's - 3S
witnessed unprecedented boom during the recent years. There has
been a shift of household savings from physical assets to financial
assets, particularly:" i.e. risk bearing securities such as shares and
debentures. Capital markets 3tructure has also undergone sea changes
with number of financial services and banking companies, private
limited companies coming in to the scene which lade the competition
in the market stiffer.
The Companies Act 1850, introduced the concept of limited liabilityin India, served to stimulate the activity in the stock market. From
then number of acts are passed to boost the revolutionary change. The
global capital market registered spectacular growth in the decade of
1990's which had an effect on the growth of Indianmarket.
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The world market capitalization grew at an average annual rate of
6% during the decade, it grew from about US $ 9.3 trillion in 1990 to
about US $ 6 trillion in 2000 but f 9 11 to about US $ 28 trillion by
2001. The turnover on all markets taken together has grown nearly 19times from US $ 5.5 trillion in 1990 US $ 48 trillion in 2000 before
depleting to about US $ 42 trillion in 2001.
The turnover in developed markets has, however, grown more sharply
than that in emerging markets. The US alone accounted for about 70%
of world wide turnover in 2001. Despite having a large number of
companies listed in its stock exchanges, India accounted for a merger
of 59% in 2001 down from 1.06% in 2000.
The stock markets world wide has grown in size as well as depth over
last one decade. During the decade 1990-2000, the world market
capitalization/GDP ratio more than doubled from 51% to 120%.
Value traded 3DP rose from 29% to 103% and turn over ratio shot
up from
48% to 89%. The combined market capitalization of a select 22
emerging economies increased from US $ 339 billion in 1990 to US $
2.2 trillion in 2000.
The average market capitalization increased from 3.6% to 7%, annualvalue of shares traded increased from $ 180 billion to $ 2.2 trillion
and GDP increased from 16.7% to 45.5%.
For India the total capitalization grew from $ 38,567 million at the ed
of 1990 to $ 110,396 million at the end of 2001.
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Turn-over of stocks increased from $ 21,198 million in 1990 to $
249,298 million in 2001. Market capitalization as a percentage of
GDP grew from 12.2% in 1999 to 32.4% in 2001 while turnover ratio
went up from 65.9% in 1999 to 191.4% in 2000. The number of listedcompanies in India was 5,975 as at end of 2001. There are very few
countries, which have higher turnover ratio than India. Standard and
Poor (SP) ranked India, 25 th in terms of market capitalization, 15 th in
terms of total value traded in stock-exchanges and 6 th in terms of turn-
over ratio.
Indian Securities Market
The past decade in many ways has been remarkable for securities
market in India. It has grown exponentially as measured in terms of
amount raised from the market, number of stock exchanges and other
intermediaries, the number of listed stocks, market capitalization,
trading volumes and turnover on stock exchanges, and investor
population. Along with this growth, the profiles of the investors,
issuers and intermediaries have changed significantly. The market has
witnessed Fundamental institutional changes resulting in drastic
reduction in transaction costs and significant improvements in
efficiency, transparency and safety.
Dependence on Securities Market
Three main sets of entities depend on securities market. While the
corporate and Governments raise resources from the securities market
to meet their obligations, the households invest their savings in the
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securities. Corporate Sector: The 1990s witnessed emergence of the
securities market as a major source of finance for trade and industry.
A growing number of companies are accessing the securities market
rather than depending on loans from FIls/banks. The corporate sector is increasingly depending on external sources for meeting its funding
requirements.
There appears to be growing preference for direct financing (equity
and debt) to indirect financing (bank loan) within the external
sources. According to CMIE data, the share of capital
market based instruments in resources raised externally increased to
53% in 1993-
94, but declined thereafter to 33% by 199900 and further to 21 % in
2001-02.
In the sector-wise shareholding pattern of companies listed on NSE, it
is observed that on an average the promoters hold more than 55% of
total shares. Though the Non-promoter holding is about 44%, Indian
public held only 17% and the public float (holding by Fils, MFs,
Indian public) is at best 25%
There is not much Difference in the shareholding pattern of
companies in different sectors. Strangely, 63% of shares incompanies in media and entertainment sector are held by private
corporate bodies though the requirement of public offer was relaxed
to 10% for them. The promoter holding is not strikingly high in
respect of companies in the IT and telecom sectors where similar
relaxation was granted.
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Governments: Along with increase in fiscal deficits of the
governments, the dependence on market borrowings to finance fiscal
deficits has increased over the years. During the year 1990-91, the
state governments and the central government financed nearly 14%and 18% respectively of their fiscal deficit in per centage
terms, dependence of the state governments on market borrowing did
not increase much during the decade 1991-2001. In case of central
government, it increased to 77.6% by 2002-03.
Households : According to RBI data, household sector accounted for
82.4% of gross domestic savings during 2001-02. They invested 38%
of financial savings in deposits, 33% in insurance/provident funds, 11
% on small savings, and 8% in securities, including government
securities and units of mutual funds during 2001- 02. Thus the fixed
income bearing instruments are the most preferred assets of the
household sector. Their share in total financial savings of the
household sector witnessed an increasing trend in the recent past and
is estimated at 82.4% in 2001- 02. In contrast, the share of financial
savings of the household sector in securities (shares, debentures,
public sector bonds and units of UTI and other mutual funds and
government securities) is estimated to have gone down from 22.9%
in
1991-92 to 4.3% in 2000-01, which increased to 8% in 2001-02;Though there was a major shift in the saving pattern of the
household sector from physical assets to financial assets and within
financial I assets, from bank deposits to securities, the trend got
reversed in the recent past due to high real interest rates, prolonged
subdued conditions in the secondary Market, lack of c onf id e n ce
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by the issuers in the success of issue process as well as of
investors in the credibility of the issuers and the systems and poor
performance of mutual funds. The portfolio of household sector
remains heavily weighted in favor of physical assets and fixed income bearing instruments. Investor Population
The Society for Capital Market Research and Development carries
out periodical surveys of household investors to estimate the number
of investors. Their first survey carried out in 1990 placed the
total number of share owners at 90-100 lakh. Their second
survey estimated the number of share owners at around 140-150 lakh
as of mid-1993. Their latest survey estimates the number of
shareowners at around 2 crore at 1997 end, after which it remained
stagnant up to the end of 1990s.
The bulk of increase in number of investors took place during 199194
and tapered off thereafter.49% of the share owners at the end of 2000
had, for the first time, entered the market before the end of 1990, 44%
entered during 1991-94, 6.3% during 1995-96 and 0.8% since 1997.
The survey attributes such tapering off to persistent depression in the
share market and investors' bad experience with many unscrupulous
company promoters and managements.
Distribution of Investors : The Society for Capital Market Research
& Development estimates that 15% of urban households and only0.5-
1.0% of semi-urban and rural households own shares. It is estimated
that 4% of all households own shares.
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RESEARCH DESIGN
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RESEARCH DESIGN
C h a p t e r 2
2.1. Problem Identification:
Analyze the investment pattern of people and the popularity of
different products (Fund Invest, RBI Bonds, Stock Direct, Insurance
,mutual funds and other securities ) provided by the financial
institutions and banks for investment.
2.2 Ob j ec t ive o f t h e s t u d y :
To study the investment pattern of people.
To study the investment decisions of different social class people (in
term of age group, education, income level etc.)
To analyze the investment pattern of people who reside in an
economically developed area and economically developing area.
To study techniques and principles useful in systematic and rational
investment management.
To study the popularity of various products offered for investment in
the market. And, to study the role of brokerage firm as an intermediaries.
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2.3 CONCEPTS
2.3.1 I n v e s tm e n t :
Investment means buying securities or other monetary or paper
(financial) assets in the money markets or capital markets, or in fairly
liquid real assets, such as gold as an investment, real estate, or
collectibles.
Investment is the commitment of a person's fund to derive future
income in the form of interest, dividend, premiums ,pension benefits
or appreciation in the value of their capital .Valuation is the method
for assessing whether a potential investment is worth its price. Types
of financial investments include shares or other equity investment,
and bonds (including bonds denominated in foreign currencies).
These investments assets are then expected to provide income or
positive future cash flows, but may increase or decrease in value
giving the investor capital gains or losses.
Ess e n t ia l n a t u r e o f i n v e s t m e n t Reduced current consumption Planned later consumption
By saving money (instead of spending it), individuals tradeoff present consumption for a larger future consumption.
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2.3.2 C h a r a c t er is t ic s o f I n v e s t m e n t :
(i) Interest (return)
When we borrow money, we are expected to pay for using it - this is
known as Interest. Interest is an amount charged to the borrower for
the privilege of using the lender's money. Interest is usually
calculated as a percentage of the principal balance (the amount of
money borrowed).
The percentage rate may be fixed for the life of the loan or it may be
variable, depending on the terms of the loan.
And also it can be defined when we invest in some assetthen,
Rate of return = A nn u a l in c o m e + ( e n d p r ic e - b e g in p r ice )
Begin price
What factors determine interest rates?
The factors which govern these interest rates are mostly economy
related and are commonly referred to as macroeconomic factors.
Some of these factors are:
Demand for money Level of Government
borrowings Supply of money Inflation rate
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(ii) Risk
Risk may relate to loss of capital, delay in repayment of capital non-
payment of interest, or variability of return. While some investment
such as government securities and bank deposits are almost withoutrisk, others are more risky. The risk of an investment is determined by
the investment's maturity period, repayment capacity, nature of return
commitment, and so on.
To measure the deviation of the person'sincome:
- Variance
- Standard deviation
- Beta
(iii) Safety
Every investor expects to get back the initial capacity on maturity
without loss and without delay. Investment safety is gauged throughthe reputation established by the borrower of the fund. A highly
reputed and successful corporate entity assures investors of their
initial capital.
(iv) Liquidity
An investment which is easily saleable or marketable without loss of
money and without loss of time is said to be possess the characteristic
of liquidity. Some investments such as deposit in unknown corporate
entities, bank deposit, post office deposit, national saving certificate,
and so on are not marketable.
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An investor tends to be prefer maximization of expected return,
minimization of risk, safety of fund, and liquidity of investment
Investment versus speculation
INVESTER SPECUALTER
Has a relatively longer
planning horizon Assumes moderate risk
Assumes modest rate of return Gives greater significance
to fundamental factors and
evaluates the firm Typically uses his own
funds
Has very short planning Assumes high risk Assumes high rate of return
for high risk Relies more on hearsay
technical charts, and market. Normally borrow from
others.
T h e t h r e e Qo lde n r u l es f o r a ll in v e s to r s a r e :
~ Invest early
~ Invest regularly
~ Invest for long term and not short term
O n e ne e d s t o in v e s t fo r
~ Earn return on your idle resources
~ Generate a specified sum of money for a specific goal in life
~ Make a provision for an uncertain future
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~ To meet the cost of inflation
2.3.4 T y p e s o f I n v e s tm e n t :
(i) Short term Investment- It is an investment made by the investor
for very short period of time i.e. for one to three years. Such as
investment in bank, money market, liquid funds etc.
(ii) Long Term Investment - When investor invests money for
more than three to five years then it is called long term investment.
Such as investment in bonds, mutual funds, fixed bank deposits, PPF,
insurance etc
Various options available for investment
~ Physical assets Real estate Gold/jewelry Commodities Assets etc.
~ Financial assets fixed deposits with banks Small saving instruments with post offices Insurance /provident /pension fund etc.
> Securitiesmarket
Share
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Bonds Debentures Mutual fund Derivatives etc.
2.3.5 I n v e s t o r :
Investor is a person or an organization that invest money in various
investment sources for specific objective. Attitude of investment is
different in each alternative. E.g. financial market have different
attitude towards risk and return. Some investors are risk avers, whilesome have an affinity of risk. The risk bearing capacity of investor is
a function of personal, economical, environment, and situational
factors such as income, family size, expenditure pattern, and age. A
person with higher income is assumed to have higher risk-bearing
capacity. Thus investor can be classified as risk skiers, risk avoiders,
or risk bearers
Before making any investment, one must ensureto:
> Obtain written documents explaining theinvestment
> Read and understand suchdocuments
> Verify the legitimacy of the
investment> Find out the costs and benefits associated with theinvestment
> Assess the risk-return profile of theinvestment
> Know the liquidity and safety aspects of theinvestment
> Ascertain if it is appropriate for your specificgoals
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> Compare these details with other investment opportunitiesavailable
> Examineif it fits in with other investments you are consideringor you
have alreadymade
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> Deal only through an authorizedintermediary
> Seek all clarifications about the intermediary and theinvestment
> Explore the options available to you if something were to go
wrong, and then, if satisfied, make the investment.
Portfolio
A Portfolio is a combination of different investment assets mixed and
matched for the purpose of achieving an investor's goal. Items that areconsidered a part of your portfolio can include any financial asset you
own, like shares, debentures, bonds, mutual fund units etc. and real
assets like gold, art and even real estate etc. However, for most
investors a portfolio has come to signify an investment in financial
instruments like shares, debentures, fixed deposits, mutual fund units.
Diversification
It is a risk management technique that mixes a wide variety of
investments within a portfolio. It is designed to minimize the impact
of anyone security on overall portfolio performance. Diversification is
possibly the best way to reduce the risk in a portfolio.
Advantages of having a diversifiedportfolio
A good investment portfolio is a mix of a wide range of asset class.
Different securities perform differently at any point of time.
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So with a mix of asset types, your entire portfolio does not suffer the
impact of a decline of anyone security. When your stocks go down,
you may still have the stability of the bonds in your portfolio. There
have been all sorts of academic studies and formulas that demonstratewhy diversification is important, but it's really just the simple
practice of "not putting all your eggs in one basket. If you spread
your investments across various types of assets and markets, you'll
reduce the risk of your entire portfolio getting affected by the adverse
returns of any single asset class.
P O R T F O LI O M ANA G E M E N TP R O C E S S
1.specification of investment objectives andconstraints
2.choice of the asset mix
3.formulation of [portfolio strategy
4.selection of securities
5.portfolio execution
6.portfolio revision
7.performance evaluation
2.4 SCOPE OF THE STUDY
2.4.1 I n v e s t m e n t A v e n u e s :
In India, numbers of investment avenues are available for the
investors. Some of them are marketable and liquid while others are
non marketable and some of them also highly risky while others are
almost risk less. The investor has to choose Proper Avenue among
them, depending upon his specific need, risk preference, and return
expected
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Investment avenues can broadly categories under the following
heads
1. Corporate securities
Equity shares Preference sharesDebenture/Bonds GDR's/ADR's
Warrants Derivatives
2.Deposit in bank and non bankingcompanies
3.Post office deposits and certificate
4.Life insurance policies
5.Provident fund schemes
6.Government and semi-governmentsecurities
7.Mutual fund and schemes
8.Real estate
Odd Lot Market
The odd lot market facility is used for the Limited Physical Market.
The main features of the Limited Physical Market are detailed in a
separate section (1.14).
RETDEBT Market
The RETDEBT market facility on the NEAT system of capital market
segment is used for transactions in Retail Debt Market session.
Trading in Retail Detail Market takes place in the same manner as in
equities (capital market) segment. The main features of this market
are detailed in a separate section (1.15) on RETDEBT market.
Auction Market
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In the Auction market, auctions are initiated by the Exchange on
behalf of trading members for settlement related reasons. The main
features of this market are detailed in a separate section (1.13) on
auction.
(a) Equity share
Equity capital represents ownership capital. Total equity capital of a
company is divided into equal units of small denominations, each
called a share. For example, in a company the total equity capital of
Rs 2,00,00,000 is divided into 20,00,000 units of Rs 10 each. Each
such unit of Rs 10 is called a 'share'. Thus, the company then is said
to have 20, 00,000 equity shares of Rs 10 each. Equity share holders
collectively own the company .they bear the risk and enjoys the
rewards of ownership. The holders of such shares are members of the
company and have voting rights. When company makes profit
shareholder receives there share of the profit in form of dividends. In
addition, when company performs well and the future expectation
from the company is very high, the price of the companies share goes
up in the market.
\Investor can invest in shares either primary market offerings or in the
secondary market. While fixed income investment avenues may be
the more important of the investors, equity shares seem to capturetheir interest the most.
Authorized capital: The amount of capital that a company can issue
as per its memorandum .
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Issued capital: The amount offered by the company to the investors
Paid-up capital: It is part of issued capital that has been subscribed
to by the investors.
Face value: The value printed on the share scrip (if share is issued at
face value It is called par value)
Premium: If the share sold at higher than face value. Discount If the
share sold at lower than face value.
(b) Preference shares
Preference share as that part of share capital of the Company which
enjoys preferential right as to: (a) payment of dividend at a fixed rate
during the life time of the Company; and (b) the return of capital on
winding up of the Company. It is lie in between pure equity and debt.
But preference shares cannot be traded, unlike equity shares, and are
redeemed after a pre-decided period. Also, Preferential Shareholders
do not have voting rights. These are issued to the public only after a
public issue of ordinary shares.
Preference shares also get traded in the market and give liquidity to
investor. Investor can opt for this type of investment when their risk
performance is very low. currently preference dividend is tax exempt.
(c) Debentures and Bonds
It is a fixed income (debt) instrument issued for a period of more than
one year with the purpose of raising capital. The central or state
government corporations and similar institutions sell bonds.
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A bond is generally a promise to repay the principal along with a
fixed rate of interest on a specified date, called the Maturity Date.
Many types of debenture and bonds have been structured to suitinvestors with different time needs. Though having higher risk as
compared to bank fixed deposits, bonds and debentures do offer
higher returns. Debenture instruments require scanning the market
and choosing specific securities that will cater to investment
objectives of the investor.
(d) Depository Receipts(GDRs/ADRs)
Global depository receipts are the instrument in the form of a
depository receipts or certificate created by the overseas depository
bank outside India and issued to non-resident investors against
ordinary shares. A GDR issued in America, is an AmericanDepositary Receipts. As investors seek to diversify their equity
holdings, the option of GDRs and ADRs is very lucrative, while
investing in such securities, investors should identify the
capitalization and risk characterizes of the instrument and the
companies' performance in the home country.
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(e) Warrants
A warrant is a certificate giving its holder rights to purchase securities
at a stipulated price within a specified time limit. The warrants act asa value addition because holder of the warrant has the right but not
the obligation to investing in equity at the indicated rate. An
option contract often sold with another security. For instance,
corporate bonds may be sold with warrants to buy common stock of
that corporation. Warrants are generally detachable. Options
generally have lives of up to one year. The majority of options
traded on exchanges have maximum maturity of nine months.
Longer dated options are called Warrants and are generally traded
over-the counter
(ii) Savings bank account with commercial bank
Broadly speaking, savings bank account, money market/liquid funds
and fixed deposits with banks may be considered as short-term
financial investment options. Savings Bank Account is often the first
banking product people use, which offers low interest (8%-11.5%
p.a.), making them only marginally better than fixed deposits.
(iii) Bank fixed deposits
Fixed Deposits with Banks are also referred to as term deposits.
Minimum investment period for bank FDs is 30 days. Fixed Depositsin banks are for those investors, who have low risk appetite. Bank
FDs is likely to be lower than money market fund returns. Deposits in banks are very safe because of the regulations of RBI
and the guarantee provided by the deposit insurance corporation.
The interest rate on fixed deposits varies with term of thedeposits
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Bank deposits enjoy exceptionally highliquidity Loans can raised against bank deposits
iv) Company fixed deposits
These are short-term (six months) to medium-term (three to five
years) borrowings by companies at a fixed rate of interest which is
payable monthly, quarterly, semi annually or annually.
Fixed deposits mobilized by manufacturing companies is regulated by
the Company Law Board and fixed deposits mobilized by the finance
companies (precisely non banking companies) are regulated by the
RBI .They can also be cumulative fixed deposits where the entire
principal along with the interest is paid at the end of the loan period.
The rate of interest varies between 6-9% per annum for company
FDs. The interest received is after deduction of taxes. Company deposits represents unsecured loans Company deposits have to be necessarily credit rated Depositors don't get any tax benefits.
(v) Post Office Savings:
Post Office Monthly Income Scheme is a low risk saving instrument,
which can be availed through any Post Office. It provides an interest
rate of 8% per annum, which is paid monthly. Minimum amount,which can be invested, is Rs. 1,000/- and additional investment in
multiples of Rs. 1,000/-. Maximum amount is Rs. 3,00,000/- (if
Single) or Rs. 6,00,000/-(if held jointly) during a year.
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It has a maturity period of 6 years. A bonus of 10% is paid at the time
of maturity. Premature withdrawal is permitted if deposit is more than
one year old. A deduction of 5% is levied from the principal amount
if withdrawn prematurely. The 10% bonus is also denied. Deposits can be made in multiple of Rs.50 Deposits can be pledged
The interest rate on deposits is slightly higher than banks
The interest is calculated half yearly and paid yearly
Schemes like monthly income scheme of post office, Kisan vikas
patra, and National saving certificate etc...
(vi) Life insurance policies
Insurance companies offer many investment schemes to investors.
These schemes promote saving and additionally provide insurance
cover. L1C is the largest life insurance company in India. Some of its
schemes include life policies, Convertible whole life assurance policy, Endowment assurance policy, Jeevan Saathi, Money back policy
Unit linked plan Term assurance Immediate annuity Deferred annuity Riders etc.
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Insurance policies, while catering to the risk compensation to be
faced in the future by investor, also have the advantage of earning a
reasonable interest on their investment insurance premiums.
Considerations in choosing apolicy:
Reviewing the insurance needs and circumstances and that
most closely fit our needs. Ability of the payment of the premiums Don't buy life insurance unless you intend to stick with your
plan
(vii) Public Provident Fund (PPF):
A long term savings instrument with a maturity of 15 years but no of
contributions annually has to be 16 and interest payable at 8% per
annum compounded annually. The subscriber to a PPF has to make
minimum of deposits of Rs.100 Annually. A PPF account can beopened through a nationalized bank at anytime during the year and is
open all through the year for depositing money. Tax benefits can be
availed for the amount invested and interest accrued is tax-free.
A withdrawal is permissible every year from the seventh financial
year of the date of opening of the account and the amount of
withdrawal will be limited to 50% of the balance at credit at the end
of the 4th year immediately preceding the year in which the amount
is withdrawn or at the end of the preceding year whichever is lower
the amount of loan if any.
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The subscriber to the PPF is eligible to take loan from the third year
sixth year after opening of account .and interest for that loan is 1 %
higher than PPF ACC interest rate.
(viii) Government and semi-governmentsecurities
It is a fixed income (debt) instrument issued for a period of more than
one year with the purpose of raising capital. The central or state
government, corporations and similar institutions sell bonds. A bond
is generally a promise to repay the principal along with a fixed rate of
interest on a specified date, called the Maturity Date.
The government issues securities in the money market and in the
capital market. Money market instruments are traded in Wholesale
Debt Market (WDM) trades and retail segments. Instruments traded in
the money market are short term instruments such as treasury bills
and convertible bonds.Three types of instruments are issued by govtare:
An investment resembles a co. debenture .It carries the name of
the holder and registered with Public Debt Office.
A promissory note to the holder, which contain the promise byPresident of India (or stategovt).
A bearer security where the interest and other payments are made
to holder.
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(ix) Mutual fund
These are funds operated by an investment company which raises
money from the public and invests in a group of assets (shares,
debentures etc.), in accordance with a stated set of objectives. It is asubstitute for those who are unable to invest directly in equities or
debt because of resource, time, risk factor or knowledge constraints.
Benefits include professional money management, buying in small
amounts and diversification.
Till 1986 the Unit Trust Of India was only offering mutual funds. As
mutual fund sector is liberalized, at present there are more than 30
mutual funds offering over 1000 schemes.
E n ti t ie s in v o lve d in m u tual fi nd op e r a ti o na r e :
Mutual fund, the trustee, the asset management company,
the custodian, the registrar and transfer agents.
Mutual fund units are issued and redeemed by the Fund Management
Company based on the fund's net asset value (NA V), which is
determined at the end of each trading session. NAV is calculated as
the value of all the shares held by the fund, minus expenses,
divided by the number of units issued. Mutual Funds are usually
long term investment vehicle though there some categories of mutual
funds, such as money market mutual funds, which are short term
instruments.
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Mutual fund schemes invest in three broad categories of financial
assets like equity ,bond and cash .On the basis of objective we can
categories mutual funds as equity funds/growth funds, diversified
funds, sector funds, index funds, tax saving funds, debt/incomefunds, liquid funds/money market funds, gift funds, balanced
funds, mixed funds. And on the basis of flexibility we can categories
them as open-ended funds, close-ended funds and interval funds.
Pros and cons of mutual funds
P r o s C o n s
Diversification expenses
Professional management lack of thrill
Liquidity
Tax advantages
Comprehensive regulation
Transparency
(x) Real Estate
Investment in real estate also made when the expected returns are
very attractive. Buying property is an equally strenuous investment
decisions. Real estate investment is often linked with the future
development plans of the location. At present investment in real
assets is booming there are various investment source are available
for investment which are directly or indirectly investing real estate.
In addition to this, the more affluent investors are likely to be
interested in other type of real estate, like commercial property
,agricultural land ,semi urban land , and resorts .
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S o u rce s o f H o u s i n g F in a n c e
Employers
Life insurance corporations Housing Finance corporations Commercial banks
(xi) Bullion investment
The bullion offers investment opportunity in the form of gold, silver,
art objects (paintings ,antiques), precious stones and other metals
(precious objects), specific categories of metals are traded in the
metal exchange.
The bullion market presents an opportunity for an investor by offering
returns and the end value of future. It has been absurd that on several
occasions, when stock market failed, the gold market provided a
return on investments.
2.5 METHODOLOGY
Primary Data
A questionnaire schedule was prepared and the primary data was
collected.
Secondary Data Company website Customer data base Company report ' s Books and publications
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Related information from variouswebsites
Period of Study:The study concentrates only on the past 3 years data with the help of
data source available. Period of study and analyzing the primary data
is two months.
Type of research:
This is a descriptive research where survey method is adopted to
collect primary information from the investors using different scales
as required and the required secondary information for the analysis.
Sampling Technique
The sampling technique followed in this study is non-probability
convenient sampling. Simple random techniques are used to select the
respondent from the available database.The research work will be carried on the basis of structured
questionnaire. The study is restricted to the investors of the
Bangalore and Bhubaneswar city only.
Sample Size
The population being large the survey will be carried among 150
respondents who are the clients (or investors) of Bangalore
Stock Exchange. They will be considered adequate to represent
the characteristics of the entire population.
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Tools used for data analysis The analysis of data collection is
completed and presented systematically with the use of
Microsoft Excel.
2.6 Sources of data
S o u rce s o f s t u d y f o r i n v e s t o r s :
A look out for new investment opportunities helps investors to beat
the market. There are many sources from which investors can gather
the required information. Such as;
(i) Financialinstitutions
Corporate house, government bodies and mutual funds are the main
source of investment information. Many of these enterprises have
their own website and post investment related information on their
websites.
(ii) Financial market
Stock exchange and regulated bodies also provide useful information
to investor to make there investment decisions. With respect to
secondary market, the Securities and Exchange Board of India uses
various modes to promote investors education and takes great effort to
achieve an investor friendly secondary market in India.
The Reserve Bank of India also provide useful information relating to
the prevent interest rates and non-banking financial intermediaries
that mobiles money through deposit schemes.
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(iii) Financial service intermediaries
These are intermediaries who promote securities among the public.
Many of these intermediaries are the agencies of specific instruments
especially tax saving instruments. These intermediaries offer to sharetheir commission from there concerned organization with the
individual investor thus investor get additional advantages while
investing through intermediaries.
(iv) Media
Press sources such as financial news papers, financial magazine,
business news channel, websites etc. provide information related to
investment to the public. Besides information on securities, these
sources also provide analysis of information and in certain instance
suggest suitable investment decisions to be made by investor
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INDUSTRY PROFILE
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INDIAN CAPITAL MARKET C h a p t e r 3
3.1 About Capital Markets andDepository
3.1.1 Ab o u t C a p i t al M a r k e t :
The function of the financial market is to facilitate the transfer of
funds from surplus sectors (lenders) to deficit sectors (borrowers). A
financial market consists of investors or buyers of securities,
borrowers or sellers of securities, intermediaries and regulatory
bodies. Indian financial system consists of money market and capital
market.
The capital market consists of primary and secondary markets. The
primary market deals with the issue of new instruments by the
corporate sector such as equity shares, preference shares and debt
instruments. The secondary market or stock exchange is a market for trading and settlement of securities that have already been issued. The
investors will holding securities or sell securities through registered
brokers/sub-brokers of the stock exchange.
The introduction of NSE & SSE has increased the reach of capital
market manifold which in turn increased the number of investors
participating in the capital market and thus creates the possibility of a
bad delivery. The cost & time spend by the brokers for rectification of
this bad delivery tends to be higher with the geographical spread of
the clients. The increase in trade volumes leads to exponential rise in
the back office operation.
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The inconvenience faced by the investors (in area that are far long &
away from the main metros) in the settlement of the trade also limits
the opportunity for such investors in participating in auction trading.
This has made the investors as well as brokers wary of Indian capital
market. The erstwhile settlement system on Indian stock exchanges
was inefficient and increased risk, due to the time that elapsed before
trades was settled. The transfer was by physical movement of papers.
There had to be a physical delivery of securities - a process fraught
with delays and resultant risks.
The second aspect of the settlement related to transfer of shares in
favor of the purchaser by the company. The system of transfer of
ownership was grossly inefficient as every transfer involves physical
movement of paper securities to the issuer for registration, with the
change of ownership being evidenced by an endorsement on the
security certificate. In many cases the process of transfer would take
much longer than the two months stipulated in the Companies Act
and a significant proportion of transactions would end up as bad
delivery due to faulty compliance of paper work. Theft, forgery,
mutilation of certificates and other irregularities were rampant. In
addition, the issuer had the right to refuse the transfer of a security.
All this added to costs and delays in settlement, restrictedliquidity and made investor grievance redress time consuming and,
at times, intractable.
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To obviate these problems, the Depositories Act, 1996 was passed. It
provides for the establishment of depositories in securities with the
objective of ensuring free transferability of securities with speed,
accuracy and security.
3.1.2 De p o s it o r y :
Depository is an organization where the securities of a shareholder
are held in the electronic form at the request of the shareholder
through a medium of a Depository Participant (DP). The principal
function of a
Depository is to dematerialize securities and enables their transaction
in book-entry form electronically.
Depository functions like a security bank, where the dematerialized
securities are traded and held in custody. This facilitates faster, risk-
free and low cost settlement similar to bank.
Following tables compares the two;
(a) Bank (b) DEPOSITIRY
Hold funds in account Hold securities in accounts
Transfer funds between accounts Transfer securities between
accountsTransfer without physically
handling money
Transfer without physically
handling securities
Safekeeping of money Safekeeping of securities
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In India the Depository Act defines a Depository to mean, a company
formed and registered under the Companies Act, 1956 and which has
been granted a certificate of registration under sub-section (1 A) of
section 12 of the Securities and Exchange Board of India Act, 1992
Depositories in India
There are two depositories in India, which provide
dematerialization of securities
National Securities Depository Limited(NSDL) Central Depository Services Limited (CDSL)
Benefits of participation in adepository
o Immediate transfer of securities
No stamp duty on transfer of securities
o Elimination of risks associated with physical
certificates such as bad delivery, fake securities, etc.
o Reduction in paperwork involved in transfer of securities
o Reduction in transaction cost
o Ease of nomination facility
o Change in address recorded with DP gets registered
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electronically with all companies in which investor holds
securities eliminating the need to correspond with each
of them separately
o Transmission of securities is done directly by the DP
eliminating correspondence withcompanies
o Convenient method of consolidation of folios/accounts
o Holding investments in equity, debt instruments and
Government securities in a single account;
automatic credit into Demat account of shares,
arising out of split/consolidation/merger etc.
Depository ParticipantThe Depository provides its services to investors through its agents
called Depository Participants (DPs). These agents are appointed by
the depository with the approval of SEBI. According to SEBI
regulations, amongst others, three categories of entities, i.e. Banks,
Financial Institutions and SEBI registered trading members can
become DPs. The depository has not prescribed any minimum
balance. Customer can have zero balance in his account.
ISIN
ISIN (International Securities Identification Number) is a
unique identification number for a security.
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Custodian
A Custodian is basically an organization, which helps register and
safeguard the securities of its clients. Besides safeguarding securities,
a custodian also keeps track of corporate actions on behalf of itsclients: Maintaining a client's securities account Collecting the benefits or rights accruing to the client inrespect of securities
Keeping the client informed of the actions taken or to be taken by the issue of securities, having a bearing on the benefits or rights
accruing to the client.
Dematerialization of securities
In order to dematerialize physical securities one has to fill a Demat
Request Form (DRF) which is available with the DP and submit the
same along with physical certificates. Separate DRF has to be filled
for each ISIN number. Odd lot share certificates can also be
dematerialized. Dematerialized shares do not have any distinctive
numbers. These shares are fungible, which means that all the holdings
of a particular security will be identical and interchangeable. One can
dematerialize his debt instruments, mutual fund units; governmentsecurities in his single Demat account.
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Re-materialization
If one wishes to get back his securities in the physical form one has to
fill in the Remat Request Form (RRF) and request his DP for
rematerialisation of the balances in his securities account.
Legal framework:
The Depositories Act 1956 provides the regulation of depositories in
securities.
EBI formulated the Depositories and participants RegulationAct,
1996 to oversee the matter regarding admission and working of
Depositories and its participant. The Depositories Act passed by
parliament received the President's assents on August 10, 1996. The
Act enables the setting up of multiple depositories in the country.
Only a company registered under the companies Act (1956) and
sponsored by the specified categories of institution can setupdepository in India. The Depository offers services relating to holding
of securities and facility processing of transaction in such securities in
book entry form. The transaction handled by depositories includes
settlement of market trades, settlement of off-market trades, securities
lending and borrowing, pledge & hypothecations.
Eligibility criteria for a Depository:Any of the following may be aDepository:
A public financial institution as defined in section 4A of theCompanies Act, 1956.
A bank included in the second schedule to the RBI Act,
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1934.
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A foreign bank operating in India with the approval of theRBI.
A Recognized Stock Exchange.
An institution engaged in providing financial services where notless then 75% of the equity is held jointly or severally by theinstitution.
A custodian of the securities approved by Government of India.
A foreign financial services institution approved by Governmentof
India.The promoters of Depository are also known as its sponsors. Adepository company must have a minimum net worth of Rs. 100 cr.The sponsor(s) of the depository have to hold at least 51 % of thecapital of the Depository Company.
Agreement between depository andissuers:
If either the issuers (a company which has issued securities) or theinvestor opts to hold his securities in a Demat form, the issuer enters'into an agreement with the depository to enable the investors todematerialize their securities. No such agreement is necessary wherethe state or central government is the issuer of securities. Where anissuer has appointed a registrar to the issue of share transfer, thedepository enters into a tripartite agreement with the issuer and(R&T) agent; the case may be, for the securities declared eligible for
dematerialize
Rights and obligation of Depositories: Every depository should have adequate mechanism for reviewingmonitoring and evaluating the controls, system, procedures andsafeguards. Annual inspections of the procedures and it should be reportedto
SEBI.
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To ensure that the integrity of automatic data processor systemis maintained to safeguards information.
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Adequate measures, including insurance, to protect the interestsof the beneficial owners against any risk.
3.2 F u n c t i on o f De p o s i t o r y P a r t ic ip a n t :
Dematerialization:One of the primary functions of depository is to eliminate or minimize the movement of physical securities in the market.This is done through converting securities held in physical form into holdings in to back entry form. Account Transfer:
The depository gives effects to all transfer resulting from thesettlement of trade and other transaction between various beneficialowners by recording entries in the accounts of such beneficial owners. Transfer & Registration:A transfer is a legal change of ownership of a security in the recordsof the insurer. Transfer of securities under demat occur merely by
passing book-entries in the records of the depositories, on theinstruction of beneficial owners. Pledge and hypothecation: Depositories allow the securities with them to be used as collateral
to secure loans and other credits. The securities pledged are
transferred
to a segregated or collateral Linkage with clearing system:The clearing system performs the function of ascertainment in the payin (sell) or payout (buy) of brokers who leave traded on the stock exchange. Actually delivery of securities from the clearing system isfrom the selling brokers and delivery of securities from the clearingsystem to the buying broker is done by depository. To achieve thisdepositories and the clearing system are linked electronically.To handle the securities in electronic form as per the DepositoriesAct
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1996 two depositories are registered with SEBI.They are1)NSDL -- National securities depository limited.CDSL -- Central depository service (India) limited. account through
book-entries in the records of the depository .
3.3 N S D L
India had a vibrant capital market, which is more than a century old,the paper-based settlement of trades caused substantial problems like
bad delivery and delayed transfer of title till recently. The enactment
of Depositories Act in August 1996 paved the way for establishmentof NSDL, the first depository in India. NSDL promoted byinstitutions of national stature responsible for economic developmentof the country has since established a national infrastructure of international standard that handles most of the trading and settlementin dematerialized form.Using an innovative and flexible technology system, NSDL works tosupport the investors and brokers in the capital market of the country.
NSDL aims at ensuring the safety and soundness of Indianmarketplaces by developing settlement solutions that increaseefficiency and minimizing risk and cost. In the depository system,securities are held in depository accounts, which is more or lesssimilar to holding funds in bank accounts. Transfer of ownership of securities is done through simple account transfer.
This method does away with all the risks and hassles normallyassociated with paperwork. Consequently, the cost of transacting in adepository environment is considerably lower as compared totransacting in certificate sough simple account transfers.
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.3.4 CD S L
CDSL was set up with the objective of providing convenient,dependable and secure depository services at affordable cost to all
market participants. CDSL received the certificate of commencementof business from SEBI in February 1999.
Depository facilitates holding of securities in the electronic form andenables securities transactions to be processed by book-entry by aDepository Participant (DP), who as an agent of the depository, offersdepository services to investors. According to SEBI guidelines,financial institutions, banks, custodians, stockbrokers, etc. are eligibleto act as DPs. The investor who is known as beneficial owner (BO)has to open a Demat account through any DP for dematerialization of his holdings and transferring securities.
The balances in the investors account recorded and maintained withCDSL can be obtained through the DP. The DP is required to providethe investor, at regular intervals, a statement of account, which gives
the details of the securities holdings and transactions. The depositorysystem has effectively eliminated paper-based certificates, which were
prone to be fake, forged, counterfeit resulting in bad deliveries. CDSLoffers an efficient and instantaneous transfer of securities.
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3 . 5 C a pi t al m a r k e t s t r u c t u r e
An indirect, but very authentic source of information about
Distribution of Beneficial Accounts with NSDL at the end of Feb.2006
S. No. States / Union Beneficial AccountsTerritories Number % to total
1 Andhra Pradesh 194,405 6.08
2 Bihar 27,340 0.853 Chandigarh 7,891 0.254 Delhi 323,693 10.125 Goa 11,374 0.366 Gujarat 536,720 0.127 Himachal Pradesh 3,706 0.128 Jammu & Kashmir 7,320 0.239 Karnataka 195,159 6.1010 Kerala 76,793 2.4011 Madhya Pradesh 71,158 2.2312 Maharashtra 911,997 28.5213 Orissa 14,701 0.4614 Pondicherry 2,481 0.0815 Punjab 52,434 1.6416 Rajasthan 72,316 2.26
17 Tamil Nadu 230,407 7.2018 Uttar Pradesh 188,835 5.9019 West Bengal 214,432 6.712 0 O t h e r s 5 4 ,80 2 1 .7 1
Total 3,197,964 100.00
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Investor is the data base of beneficial accounts with thedepositories. By February 2006, there were 3 million beneficialaccounts with the National Securities Depository Limited(NSDL). The state-wise distribution of beneficial accounts with
NSDL is presented in Table. As expected Maharashtra andGujarat account for nearly 45% of total beneficial accounts.
Acc o un t O p e n i n gAny investor who wishes to avail depository services must first openan account with a Depository participant of NSDL. The investor can
open an account with any depository participant of NSDL. AnInvestor may open an account with several DPs or he may openseveral accounts with single DP. After exercising this choice, theinvestor has to enter into an agreement with the DP. The form andcontents of this agreement are specified by the business rules of
NSDL.
A DP may be required to open three categories of accounts for clients Beneficiary Account, Clearing Member Account andIntermediary Account.
A Beneficiary Account is an ownership account. The holder/sof securities in this type of account owns those securities.
The Clearing Member Account and Intermediary Account aretransitory accounts. The securities in these accounts are heldfor commercial purpose only.
A Clearing Member Account is opened by a broker or aClearing Member for the purpose of settlement of trades.
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An Intermediary Account can opened by a SEBI registeredintermediary for the purpose of stock lending and borrowing.
Check List for Account Opening
Proof of Address, certified copies of ration card/ passport! voter ID/ PAN card/ driving License / bank passbook. Ensure that all compulsory fields in the account opening formare filled (except PAN/ GIR & nomination which areoptional).
In case of corporate, ensure a copy of board resolution of authorized signatories. Ensure proper authorization in case of
power of attorney holder.
DP should give a copy of agreement to the client, includingthe charges.
Inform clients regarding standing instruction facility.
Branches of DP to co-ordinate & follow up with HeadOffice for account opening.
Ensure account is activated before forwarding Client 10to client. ~ Inform settlement deadlines to clients.
De m a t er ia li z a t i on
One of the methods for preventing all the problems that occur with physical securities is through dematerialization (Demat). The sharecertificates are shredded (i.e., its paper form is destroyed) and acorresponding credit entry of the number of securities (written on thecertificates) is made in the account opened with the depository
participant (DP). Each security is identified in the depository system by ISIN and short name.
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i) Steps in Dematerialization of shares:
1. Client! Investor submits the DRF (Demat Request Form)and physical certificates to DP. DP checks whether thesecurities are available for Demat or not. Client defaces thecertificate by stamping 'Surrendered for Dematerialization'.DP punches two holes on the name of the company anddraws two parallel lines across the face of the certificate.
2. DP enters the Demat request in his system to be sent to NSDL. DP dispatches the physical certificates alongwith the DRF to the R& T Agent.
3. NSDL records the details of the electronic request inthe system and forwards the request to the R& T Agent.
4. R& T Agent, on receiving the physical documents and theelectronic request, verifies and checks them. Once the R&TAgent is satisfied, dematerialization of the concernedsecurities is electronically confirmed to NSOL.
5. NSDL credits the dematerialized securities to the beneficiary account of the investor and intimates the DPelectronically. The DP issues a statement of transaction tothe client.
Re m a t e r i a li s a t i o n
Re-materialization is the exact reverse of dematerialization. It refersto the process of issuing physical securities in place of the securities
held electronically in book-entry form with a depository. Under this process, the depository account of a beneficial owner is debited for the securities sought to be re-materialized and physical certificates for the equivalent number of securities is/are issued.
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A beneficial owner holding securities with a depository has a right toget his electronic holding converted into physical holding at any time.The beneficial owner desiring to receive physical security certificatesin place of the electronic holding should make a request to the issuer or it's R& T Agent through his DP in the prescribed re-materialization request form (RRF).
Re-Materialization Process:
1. The DP should provide re-materialization request forms
(RRF) to clients.
2. The client should complete RRF in all respects and submit it
to the DP.
3. If RRF is not found in order, the DP should return the RRF
to the client for rectification.
4. If RRF is found in order the DP should accept RRF and
issue an acknowledgement to the client.
5. DP should enter the re-materialization request in DPM.
DPM will generate a remat request number (RRN) which
should be mentioned on RRF.
6. An authorized person, other than one who entered the RRF
details in OPM, should verify the details of RRN and release
a request to the depository .
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7. The OP should complete the authorization of RRF and
forward it to the issuer or it's R& T Agent for re-
materialization. The OP should forward RRF to the issuer or
it's R& T Agent within seven days of accepting it from theclient.
8. The issuer or its R& T Agent should verify the RRF for
validity, completeness and correctness. It should also match
the details with the intimation received from the depository
against the same RRN.
9. In case the issuer or its R& T Agent finds RRF in order, it
should confirm the re-mat request. The issuer or its R& T
Agent should then proceed to issue the physical security
certificates and dispatch them to the beneficial owner.
10. The OP, on receiving confirmation of debit entry in OPM,
should inform the client accordingly.
The entire process takes a maximum of 30 days.
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3.6 Capital market nature of business & services
T r a d i n g a n d s e tt le m e n t
One of the basic services provided by NSOL is to facilitate transfer of
securities from one account to another at the instruction of the
account holder. In NSOL depository system both transferor and
transferee have to give instructions to its depository participants
lPOs for delivering [transferring out] and receiving of securities.
However, transferee can give 'Standing Instructions' [SI] to its OPfor receiving in securities. If SI is not given, transferee has to give
separate instructions each time securities have to be received.
Transfer of securities from one account to another may be donefor any of the following purposes:
a. Transfer due to a transaction done on a person to person basisis called off-market transaction.
b. Transfer arising out of a transaction done on a stock
exchange. c. Transfer arising out of transmission and account
closure.
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Settlement of off-Market transaction
Off-Market Table
Steps in settlement of off-market transaction
1. Seller gives delivery instructions to his DP to move securities
from his account to the buyers account.
2. Buyer automatically receivers the credit of the securities into
his account on the basis of standing instruction for credits.
3. Buyer receivers credit of securities into his account only if hegives receipt instructions, if standing instructions have not been
given.
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4. DP needs to be extra careful in verifying the signature of the
client if unusual quantities of securities are being debited to the
account.
5. Funds move from buyer o seller outside he NSDL system.
Market Settlement-Demat Shares
A market trade is one that is settled through participation of a
Clearing Corporation. In the depository environment, the securities
move through account transfer. Once the trade is executed by the
broker on the stock exchange, the seller gives delivery instructions to
his DP to transfer securities to his broker's account.
The broker has to then complete the pay-in before the deadline
prescribed by the stock exchange. The broker removes securities from
his account to CC/CH of the stock exchange concerned, before the
deadline given by the stock exchange.
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The CC/CH gives pay-out and securities are transferred to the buying
broker's account. The broker then gives delivery instructions to his
DP to transfer securities to the buyer's account.
The movement of funds takes place outside the NSDLsystem.
1. Seller gives delivery instructions to his DP to move securities
from his account to his broker's account
2. Securities are transferred from broker's account to CC on the
basis of a delivery out instruction.
3. On pay-out, securities are moved from CC to buying
broker's account.
4. Buying broker gives instructions and securities move to the buyer's account.
Transfer of securities towards settlement of transactions done on a
stock exchange is called settlement of market transaction. This type
of settlement is done by transferring securities from a
beneficiary account to a clearing member account.
Brokers of stock exchanges that offer settlement through depository
are required to open a 'clearing member account'. In addition to the
brokers, custodians registered with SEBI and approved by stock
exchanges can open a clearing member account.
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These accounts are popularly known as 'Broker Settlement Account'.
A client who has sold shares will deliver securities into the settlement
account of the broker through whom securities were sold.
P le d ge a n d H y p o t h ec a t i on
The Depositories Act permits the creation of pledge and
hypothecation against securities. Securities held in a depository
account can be pledged or hypothecated against a loan, credit, or such
other facility availed by the beneficial owner of such securities. For
this purpose, both the parties to the agreement, i.e., the pledger and
the pledgee must have a beneficiary account with NSDL. However,
both parties need not have their depository account with the same DP.
The nature of control on the securities offered as collateral determines
whether the transaction is a pledge or hypothecation. If the lender
(pledge) has unilateral right (without reference to borrower) to
appropriate the securities to his account if the borrower (pledger)
defaults or otherwise, the transaction is called a pledge.
Pledge of Demat shares
Steps:
1. Agreement is signed between the pledger and pledgee outside the NSDL system
2. Pledger gives a pledge creation request to DP who enters it in the
system.
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3. The request reaches the pledgee's DP through the NSDL system.
Pledgee is intimated by his DP.
4. Pledgee gives a pledge creation confirmation to his DP whoenters it in the system.
5. Securities are transferred from 'free balances' head to 'pledged
balances' head.
6. Loan is given by pledgee to pledger outside the NSDL system.
Checklist for pledge/hypothecation
While processing a pledge/hypothecation request, the DP should
take care with regard to the following steps/points:
1. Ensure that the instruction form is submitted in duplicate.
2. On receipt of instruction for creation of pledge, check whether
there is enough balance in pledger's account to effect the
creation of pledge/hypothecation or not. If not, advise the client
suitably.
3. Ensure that all compulsory fields in the instruction form areentered.
4. Ensure that request for confirmation of pledge is given before
the closure date mentioned in the instruction form.
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S t o c k L e nd i n g a n dB o r r o w i n g
The transactions involving lending and borrowing of securities are
executed through approved intermediaries duly registered with SEBI
under the Securities Lending Scheme, 1997. Such an
intermediary may deal in the depository system only through a
special account (known as Intermediary Account) opened with a DP.
An intermediary account may be opened with the DP only after the
intermediary has obtained SEBI arrival and registered itself with
SEBI under the Securities Lending Scheme. The intermediary also
needs to obtain an approval of NSDL.
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Deposit of securities from lender to intermediary
Steps:
1. Lender forwards request to his DP.
2. Lender's DP electronically communicates request to NSDL.
3. The securities are blocked in lender's account in favor of
the intermediary.
4. NSDL electronically informs intermediary's DP.
5. Intermediary forwards acceptance request to his DP.
6. Intermediarys DP electronically communicates acceptance to
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NSDL.
7. Securities are moved from lenders account to
intermediarys account.
Lending of securities by intermediary to Borrower
Steps:
1. Borrower forwards request to his DP.
2. Borrower's DP electronically communicates request to
NSDL.
3. NSDL electronically informs intermediary's DP.
4. Intermediary forwards acceptance request to his DP.
5. Intermediary's DP electronically communicates
acceptance to NSDL.
6. Securities are moved from intermediary's account
to borrower's account
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Repayment of securities by Borrower to intermediary
1. Borrower forwards repayment request to his DP.
2. Borrower's DP electronically communicates request to NSDL.
3. The securities are blocked in borrower's account in favour
of the intermediary.
4. NSDL electronically informs intermediary's DP.
5. Intermediary forwards acceptance request to his DP.
6. Intermediary's DP electronically communicates acceptance to
NSDL.
7. Securities are moved from lender's account to
intermediary's account.
Repayment of securities by intermediary to lender
1. Intermediary forwards repayment requires to his DP.
2. Intermediary's DP electronically communicates request to
NSDL.
3. Securities are blocked in intermediary's account in favour of
the lender.
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4. NSDL electronically informs lender's DP.
5. Lender forwards acceptance request to his DP.
6. Lender's DP electronically communicates acceptance to NSDL.
7. Securities are moved from intermediary's account to
lender's account.
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DATA ANALYSIS
AND
INTERPRETATION
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DATA ANALYSIS AND INTERPRETATION
Chapter 4
4.1 M e t h o d o l o g y :
Primary Data
A questionnaire schedule was prepared and the primary data
was collected.
Secondary Data Company website Customer data base Company report ' Books and publications Related information from net
Period of Study:
The study concentrates only on the past 3 years data with the help of
data source available. Period of study and analyzing the primary data
is two months.
Type of research:
This is a descriptive research where survey method is adopted to
collect primary information from the investors using different scales
as required and the required secondary information for the analysis.
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Sampling Technique
The sampling technique followed in this study is non-probability
convenient sampling. Simple random techniques are used to select the
respondent from the available database. The research work will becarried on the basis of structured questionnaire. The study is restricted
to the investors of the Bangalore and Bhubaneswar city only.
Sample Size
The population being large the survey will be carried among 150
respondents who are the clients (or investors) of Bangalore Stock
Exchange. They will be considered adequate to represent the
characteristics of the entire population.
Tools used for data analysis
The analysis of data collection is completed and
presented systematically with the use of Microsoft Excel.
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4.2 Data analysis
1. Investment preference among varies age groups:
Investment
Avenues
Age Group (in Years)
< 20 20
30
31 40 41
60
> 60
Equity 25 24 27 28 15
Debenture / Bonds 11 10 9 15 23
Bank Deposits 18 18 17 16 20
Insurance 20 24 22 21 14
Gold & Real Estate 18 15 15 12 17
Others 2 4 2 4 4
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30
25 Age Group (in
20 Years) < 20
15 Age Group (in10 Years) 20 30
Age Group (in5 Years) 31 40
0 Age Group (inYears) 41 60
Age Group (inYears) > 60
Interpretation:
From the above tables we can conclude that, all the age groups are
give more preference on investing in equity, except those who are
more than sixty years. And the second more preferable investmentavenue is insurance. But the age group which is more that sixty yeas
gives more preference to invest in Debenture, Tax saving bonds and
then bank deposits.
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2. Investment preference among various income levels:
Investment
Avenues
Annual Income (in Rs. Lakh)
< 1 1 2 2 3.5 3.5 5 > 5
Equity 16 19 26 26 29
Debenture / Bonds 5 6 7 7 8
Bank Deposits 31 24 21 18 14
Insurance 15 17 18 20 21
Gold & Real Estate 3 4 5 8 9
Others 16 14 5 6 3
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35
30 Annual Income (in Rs.
25 Lakh) < 120
Annual Income (in Rs.15 Lakh) 1 210 Annual Income (in Rs.
5 Lakh) 2 3.5
0 Annual Income (in Rs.Lakh) 3.5 5
Annual Income (inRs. Lakh) > 5
Interpretation:The above table reveals that higher income levels are giving more
preference to invest in equity where as lower income levels given
more preference to invest in bank deposits. It implies that the higher
income level groups are preferred to take more risk in investment
rather than lower income level. And those who are taken more risk in
investment are preferred to invest in equality rather than any
investment avenues.
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3. Types of Investment:
Types of Investment Frequency
Short Term Investment 21Long Term Investment 44
Both 35
Type of inve stm ent
Both
Sho rt TermInvestment
Lon g TermInvestmen t
Sho rt TermInvestmen t
Lon g TermInvestmen t
Both
Interpretation:
Among the total sample size 44 per cent investors are prefer to
investing in long term and 21 percent are prefer to investment in shortterm. Where as 35 per cent of investors are preferred to invest in both
long term as well as in short term Investment Avenue
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4. Frequency of Investment:
Frequency of Investment Frequency
Weekly 13Monthly 35
Quarterly 26
Half Yearly 15
Yearly 11
Frequency
40
35302520 Frequency1510
50
Interpretation:
This graph reveals that 35 percent of investors are investing monthly,
26 per cent of investors are investing quarterly. 11 per cent of
investors are investing in a yearly basis where as 13 per cent and 15
per cent of investors are investing in weekly and half-yearly basis
respectively.
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5. Basis of investment
Types of Investment Frequency
Self A