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DISERTATION
ON
A STUDY ON THE INVESTMENT
AVENUES FOR INDIAN
INVESTORS
Page2
Equity market
ACKNOWLEDGEMENT
Page3
On the successful completion of my dissertation I would
foremost like to place my everlasting gratitude to Almighty God,
who is most merciful, beneficent, gracious, who created Man,
taught the use of pen and taught man that of which he was not
aware. He is the greatest helper, reason behind the success of every
individual and blessed me with strength to complete this work.
I also wish to thank my parents and all those unknown people who
agreed on filling my questionnaires painstakingly and thus helped
me actually to go ahead with my assignment and my work would
have remained confined to my imagination.
Department Of Business
Administration, Aligarh Muslim
University, Murshidabad Centre
MR. MOFIKUL ISLAM
DATE.
CERTIFICATE
Page6
Chapte Title Page no.
r
1 INTRODUCTION 7
1.1 Investment 8
1.2 Investment Need of An Investor 9
1.3 Type of Investment Avenues 10-17
1.4 Evaluation of Various Investment 18
Avenues
Attributes of Investment 19
1.5
Common Errors In Investment 20-24
1.6
1.7 Risk In Investment 25-27
2 RESEARCH METHODOLOGY 28
2.1 Introduction 29
2.2 Statement of Problems 30
2.3 Review of Literature 30-32
2.4 Need For Study 32-33
2.5 Objectives Of The Study 33
2.6 Scope of Study 33
34
2.7 Hypothesis
34
2.8 Research Design
34
2.9 Tools For Of Data Collection
35
2.10 Method of Analysis 35
2.11 Limitation of Study 35
3 INDUSTRY PROFILE 36
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3.1 Indian financial market 37
6 Conclusion 73-74
Bibliography 75
Annexure 76-78
EXECUTIVE SUMMARY
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Investing money is a crucial and deciding the avenues where
to invest needs a lot of planning. In India people are more
conservative and hence prefer investments that are less risky,
similarly there are other demographic factors like age, income
level, gender which affect their decision. As the availability of
financial products increase, perception of investors towards such
avenues changes over a period of time. It becomes important for a
marketer to understand the perception of investors towards
investment avenues to successfully pitch the product.
The objective of this study is to understand the investment
characteristics of investors and their objectives of investment plan.
We will also study the demographic information of investors,
preferred investment avenues of investors, preferred sources of
information influencing investment decisions, the risk tolerance
level of the investors,
This study on investor's behaviour is an attempt to know the
profile and the characteristics of the investors so as to understand
their preference with respect to their investments, The main focus
of the study is to discover the influence of demographic factors like
gender and age on risk tolerance level of the investor, Here we also
look upon other factors that influence them while making
investment decisions. Innovations in financial products like
derivatives, unit linked insurance products, fund of funds likewise
are not easily understood by the investor.
Based on previous research in related areas, a
questionnaire was constructed to measure the investment pattern of
individuals on the basis of demographic characteristics and the risk
tolerance of investors was also calculated. Even though this study
has certain limitations but it will be helpful to mutual fund
companies and other investment companies to understand
individual behaviour of investors so that they could build suitable
investment options for them individually. Also this study will help
the investor to decide the areas where they could invest.
Page9
CHAPTER-1
INTRODUCTION
1.1 INTRODUCTION TO INVESTMENT
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The money one earns is partly spent and the rest it saved for
meeting future Expenses, instead of keeping savings idle one may
like to use savings in order to Get returns on it in the future, this is
called as investment. In an economic sense, an investment is the
purchase of goods that are not consumed today butt are Used in the
future to create wealth. In finance, an investment a monetary asset
Purchased with the idea that the asset will provide income on the
future or Appreciate and be sold at a higher price. Mere earning
will not help one to secure the future, so it becomes important to
invest.
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selected for him.
Page12
V. Income
Financial derivatives
Option futures
Page13
Author: Prasanna Chandra
Figure 1.1 shows various investment alternatives which are
explained below. One can invest money in different types of
Investment instruments. These instruments can be financial or non-
financial in nature. There are many factors that affect one's choice
of investment. Millions of Indians buy fixed deposits, post office
savings certificates, stocks, bonds or mutual funds, purchase gold,
silver, or make similar investments. They all have a reason for
investing their money. Some people want to supplement their
retirement income when they reach the age of 60, while others
want to become millionaires before the age of 40. We will look at
various factors that affect our choice of an investment alternative,
let us first understand the basics of some of the popular investment
avenues.
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meant to provide regular monthly income to the depositors.
The term of the scheme is 6 years. The minimum amount of
investment is 1,000. The maximum investment can be 3,
00,000 in a single account or 6, 00,000 in a joint account.
The interest rate is 8.0 percent per annum, payable monthly.
A bonus of 10 percent is payable on maturity.
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subsidiaries or at specified branches of the other public
sector banks. The subscriber to a PPF account is required to
make a minimum deposit of 100 per year. The maximum
permissible deposit per year is 70,000. PPF deposits
currently earn a compound interest rate of 8.0 percent per
annum, which is totally exempt from taxes.
1.3.2 Bonds: Bonds are fixed income instruments which are
issued for the purpose of raising capital. Both private entities, such
as companies, financial institutions, and the central or state
government and other government institutions use this instrument
as a means of garnering funds. Bonds issued by the Government
carry the lowest level of risk but could deliver fair returns. Many
people invest in bonds with an objective of earning certain amount
of interest on their deposits and/or to save tax. Bonds are
considered to be a less risky investment option and are generally
preferred by risk-averse investors. Bond prices are also subject to
market risk. Bonds may be classified into the following categories:
Government securities: Debt securities issued by the
central government state government and quasi government
agencies are referred as gilt edge securities. It has maturities
ranging from 3-20 years and carry interest rate that usually
vary between 7 to 10 percent.
Savings bonds
1.3.3 Mutual funds: A mutual fund allows a group of people to
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pool their money together and have it professionally managed, in
keeping with a predetermined investment objective. This
investment avenue is popular because of its cost- efficiency, risk-
diversification, professional management and sound regulation.
There are three broad types of mutual fund schemes classified on
basis of investment objective:
Equity schemes: The aim of growth funds is to provide
capital appreciation over the medium to long- term. Such
schemes normally invest a major part of their corpus in
equities. Such funds have comparatively high risks. These
schemes provide different options to the investors like
dividend option, capital appreciation, etc. and the investors
may choose an option depending on their preferences.
Growth schemes are good for investors having a long-term
outlook seeking appreciation over a period of time.
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volatile compared to pure equity funds.
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of up to a year, in nature. Although RBI allows CDs up to
one-year maturity. The maturity most quoted in the market is
for 90 days.
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the policyholder if he survives at maturity,
1.3.8 Bullion Market: Precious metals like gold and silver had
been a safe haven for Indian investors since ages. Besides jewellery
these metals are used for investment purposes also. Since last 1
year, both Gold and Silver have highly appreciated in value both in
the domestic as well as the international markets. In addition to its
attributes as a store of value, the case for investing in gold revolves
around the role it can play as a portfolio diversifier.
1.3.9 Financial Derivatives: Derivatives are contracts and can
be used as an underlying asset. Various types of Derivatives are:
Forwards: A forward contract is a customized contract
between two entities, where settlement takes place on a
specific date in the future at todays pre- agreed price.
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deposits e e
Public Nil Moderate Nil Average Sec.80 Very high
provident c
fund benefits
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with the changes in the market conditions.
1.5 ATTRIBUTES OF INVESTMENT
Investment can be said to be an art. Many people invest
money without knowing what they are doing. Only a few people
really understand the art of investing money. They invest according
to certain principles. There are also certain factors that affect the
investment decisions. All these are done mainly to increase the
return on the investment and also to keep the risk to a minimum.
The various factors that affect the investment decisions are given
below.
For evaluating an investment avenue, the following attributes are
relevant.
a) Rate of Return: The rate of return on an investment for a period
(which is usually a period of one year) is defined as follows:
Rate of return: Annual income + (Ending price beginning
price)
Beginning price
Yield: Yield is the annual rate of return for any investment and is
expressed as a percentage. With stocks, yield can refer to the rate
of income generated from a stock in the form of regular dividends.
This is often represented in percentage form, calculated as the
annual dividend payments divided by the stock's current share
price,
Current yield: Annual cash inflows
Market price
Capital Appreciation: It's the rise in the market price of an asset.
Capital appreciation is one of two major ways for investors to
profit from an investment in a company. The other is through
dividend income.
b) Risk: The risk of investment refers to the variability of its rate
of return, A simple measure of dispersion is the range of values,
which is simply the difference between the highest and the lowest
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values
Expected
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C. Marketability: An investment is highly marketable or liquid if
It can be transacted quickly
The transaction cost is low; and
The price change between two successive transactions is
negligible.
The liquidity of a market may be judged in terms of its depth,
breadth, and resilience. Depth refers to the existence of buy as well
as sells orders around the current market price. Breadth implies the
presence of such orders in substantial volume. Resilience means
that new orders emerge in response to price changes.
Generally, equity shares of well established companies enjoy high
marketability and equity shares of small companies in their
formative years have low marketability. High marketability is a
desirable characteristic and low marketability is an undesirable
one.
D) Tax Shelter: Tax benefits are of the following three kinds:
Initial Tax Benefit: An initial tax benefit refers to the tax
relief enjoyed at the time of making the investment.
Continuing Tax Benefit: A continuing tax benefits represent
the tax shield associated with the periodic returns from the
investment.
Terminal Tax Benefits: A terminal tax benefit refers to relief
from taxation when an investment is realized or liquidated.
E) Convenience: Convenience broadly refers to the ease with
which the investment can be made and looked after.
The degree of convenience associated with investments varies
widely. At one end of the spectrum is the deposit in a savings bank
account that can be made readily and that does not require any
maintenance effort. At the other end of the spectrum is the purchase
of a property that may involve a lot of procedural and legal hassles
at the time of acquisitions and a great deal of maintenance effort
subsequently.
1.7 COMMON ERRORS IN INVESTMENT
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MANAGEMENT
Investments always do not generate wealth sometimes it fail do so
because of some conditions. The reason for this failure is either the
market condition or some mistakes made by the investors. We
cannot control market condition but errors made by investors could
be avoided. Investors appear to be prone to the errors in managing
their investments. Some of the errors made by investors are
discussed below:
1.7.1 Inadequate Comprehension of Return and Risk
Many investors have unrealistic and exaggerated
expectations from investments, in particular from equity shares and
convertible debentures. One often comes across investors who say
that they hope to earn a return of 25 to 30 percent per year with
virtually no risk exposure or even double their investment in a year
or so. They have apparently been misled by one or more of the
following;
(a) Tall and unjustified claims made by people with vested
interests;
(b) Exceptional performance of some portfolio they have seen or
managed, which may be attributable mostly to fortuitous factors;
and
(c) Promises made by tipsters, operators, and others. In most of the
cases, such expectations reflect investor inexperience and
gullibility.
1.7.2 Vaguely Formulated Investment Policy
Often investors do not clearly spell out their risk disposition
and investment policy. This tends to create confusion and impairs
the quality of investment decisions. Ironically, conservative
investors turn aggressive when the bull market is near its peak in
the hope of reaping a bonanza; likewise, in the wake of sharp
losses inflicted by a bear market, aggressive investors turn unduly
cautions and overlook opportunities before them. Ragnar D. Naess
put it this
Way: "The fear of losing capital when prices are low and declining,
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and the greed for more capital gains when prices are rising, are
probably, more than any other factors, responsible for poor
performance. "If you know what your risk attitude is and why you
are investing, you will learn how to invest well. A well-articulated
investment policy, adhered to consistently over a period of time,
saves a great deal of disappointment.
1.7.3 Naive Extrapolation of the Past
Investors generally believe in a simple extrapolation of past trends
and events and do not effectively incorporate changes into
expectations. As Arthur ZEIKEL says:
"People generally, and investors particularly, fail to appreciate
the working of countervailing forces; change and momentum are
largely misunderstood concepts. Most investors tend to cling to
the course to which they are currently committed, especially at
turning point."
The apparent comfort provided by extrapolating too far, however,
is dangerous. As Peter Bernstein says: "Momentum causes things
to run further and longer than we anticipate. They very familiarity
of a force in motion reduces our ability to see when it is losing its
momentum. Indeed, that is why extrapolating the present into the
future so frequently turns out to be the genesis of an embarrassing
forecast."
1.7.4 Cursory Decision Making
Investment decision making is characterized by a great deal
of cursoriness. Investors tend to:
Base their decisions on partial evidence, unreliable hearsay,
or casual tips given by brokers, friends, and others.
Cavalierly brush aside several of investment risk (market
risk, business risk, and interest rate risk) as greed
overpowers them.
Uncritically follow others because of the temptation to ride
the bandwagon or lack of confidence in their own judgment.
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1.7.5 Untimely Entries and Exits
Investors tend to follow an irrational start and stop
approach to the market characterized by untimely entries (after a
market advance has long been underway) and exit (after a long
period of stagnation and decline).
1.7.6 High Costs
Investors trade excessively and spend a lot on investment
management. A good proportion of investors indulge in day trading
in the hope of making quick profits. However more often
transaction cost wipes out whatever profits they may generate from
frequent trading.
1.7.7 Over-Diversification and Under-Diversification
Many individuals have portfolios consisting of thirty to
sixty, or even more, different stocks. Managing such portfolios is
an unwieldy task and as R.J.Jenrette put it: Over-diversification is
probably the greatest enemy of portfolio performance. Most of the
portfolios we look at have too many names. As a result, the impact
of a good idea is negligible."
Perhaps as common as over-diversification is under-diversification.
Many individuals do not apparently understand the principle of
diversification and its benefit in term of risk reduction. A number
of individual portfolios seem to be highly under-diversified,
carrying an avoidable risk exposure.
1.7.8 Wrong Attitude towards Losses and Profits
An investor has an aversion to admit his mistake and cut losses
short. If the price falls, contrary to his expectation at the time of
purchase, he somehow hopes that it will rebound and he can break
even. Surprisingly, such a belief persists even when the prospects
look dismal and there may be a greater possibility of a further
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decline. If the price recovers due to favourable conditions, there is
a tendency to dispose of the share when its price more or less
equals the original purchase price, even though there may be a fair
chance of further increases. The psychological relief experienced
by an investor from recovering losses seems to motivate such
behaviour.
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investments lose value. This is because the investor will continue
to earn the same (lower) interest rate until the investment matures
while market interest rates have already gone up. In order to
compensate for a lower interest rate compared to the market rate,
the fixed income investment will thus have to be priced at a lower
rate.
d) Inflation Risk: Rising inflation will erode the value of your
income and asset. Due to inflation, the cost of products and
services will rise and consequently, your future income and assets
will be worth less than what they are worth today.
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continuous monitoring will help in controlling the market
and credit risk of your investments. This will caution
beforehand to avoid an investment and alert in case the risk
is increasing on an investment already undertaken.
1.8.3 Risk Tolerance Level: Risk includes the possibility of losing
money.
However, extra considerations should be made in addition
to the safety of the principal and the potential for growth. These
considerations include the likelihood of achieving the financial
goals you have established. Additionally, one should consider
whether he/she is willing and able to accept a higher level of risk in
order to achieve further rewards.
Before starting on the setting of the investment portfolio,
every investor should establish his/her risk tolerance level. Only
after this he/she is ready to build strategies for the accomplishment
of his/her financial goals. The higher the degree of risk involved in
the investment portfolio the greater the chances of higher returns
and failures.
The setting of the risk tolerance level is very subjective
issue. However, younger investors can afford more risk taking
since they have more time to fix the losses. On the other hand older
investors should apply more conservative approach since they have
less time in front of them. But, they should keep in mind that they
greatly decrease their chances of faster achieving their financial
goals.
A portfolio that carries more bonds is considered more
conservative and risk averse. However, the one that includes a
greater percentage of stocks is more risk taking with higher
potential of rewards. Many financial experts recommend the
diversification between investments with different degrees of risk.
This is a good idea since your portfolio will benefit from the rises
and falls of the different investments and will alleviate the potential
of losing money.
Risk Personalities: Based on the risk capacity and risk
tolerance, risk appetite can be decided. This is the level of risk that
one is ready to bear. Broadly risk personalities can be categorised
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at 3 levels Conservative, Balanced and Aggressive. Each risk
personality has a different objective which it aims to achieve
through the investment portfolio. These personalities are explained
below:
Conservative personality: For investors having this
personality preservation of the capital invested is the
ultimate goal, even if it means compromising on the returns.
Balanced personality: People with this type of personality
wish to strike a balance between high-risk and low-risk
investments.
Aggressive personality: Investors with such personality do
not wish to compromise at all on the returns, even if their
capital erodes.
CHAPTER 2
RESEARCH
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METHODOLOGY
2.1 INTRODUCTION
Indian investor today have to endure a slow-moving
economy, the steep market declines prompted by declining
revenues, alarming reports of scandals ranging from illegal
corporate accounting practices like that of Satyam to insider
trading to make investment decisions. Stock market's performance
is not simply the result of intelligible characteristics but also due to
the emotions that are still baffling to the analysts. Despite loads of
information coming from all directions, it is not the calculations of
financial wizards, or company's performance or widely accepted
criterion of stock performance but the investor's irrational emotions
like overconfidence, fear, risk aversion, etc., seem to decisively
drive and dictate the fortunes of the market.
The market is so volatile that its behaviour is
unpredictable. In the past couple of years, the movement of share
prices exceeded all the limits and had gone remarkably low and
high levels. These dramatic prices of the shares ruin the concept of
intrinsic value and rational investment behaviour. The traditional
finance theories assume that investors are rational but they are
unable to explain the behaviour and pricing of the stock market
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completely.
Many research studies have validated the relationship
between a dependent variable i.e., risk tolerance level and
independent variables such as demographic characteristics of an
investor. Most of the Indian investors are from high income group,
well educated, salaried, and independent in making investment
decisions and from the past trends it is also seen that they are
conservative in nature. Television is the media that is largely
influencing the investor's decisions. Hence, in the present project
report an attempt has been made to study the relationship between
risk tolerance level and demographic characteristics of Indian
investors.
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explanatory perspective, approaching towards specific studies
which do related to judge the limitations and informational gaps in
data from the secondary sources. This analysis may reveal
conclusions from past studies to realize the reliability of the
secondary sources and their credibility. This in tum enables one to
rely on a comprehensive review for the study.
Literature suggests that major research in the area of
investor's behaviour has been done by behavioural scientists such
as Weber (1999), Shiller (2000) and Shefrin (2000). Shiller (2000)
who strongly advocated that stock market is governed by the
market information which directly affects the behaviour of the
investors. Several studies have brought out the relationship
between the demographics such as Gender, Age and risk tolerance
level of individuals. Of this the relationship between Age and risk
tolerance level has attracted much attention.
Horvath and Zuckerman (1993) suggested that one's
biological, demographic and socioeconomic characteristics:
together with his/her psychological makeup affects one's risk
tolerance level. Malkiel (1996) suggested that an individual's risk
tolerance is related to his/her household situation, lifecycle stage
and subjective factors. Mittra (1995) discussed factors that were
related to individuals risk tolerance, which included years until
retirement, knowledge sophistication, income and net worth.
Guiso, Jappelli and Terlizzese (1996), Bajtelsmit and VenDerhei
(1997), Powell and Ansic (1997), Jianakoplos and Bernasek
(1998), Hariharan, Chapman and Domain (2000), Hartog, Ferrer-I-
Carbonell and Jonker (2002) concluded that males are more risk
tolerant than females.
Wallach and Kogan (1961) were perhaps the first to study
the relationship between risk tolerance and age. Cohn, Lewellen
et.al found risky asset fraction of the portfolio to be positively
correlated with income and age and negatively correlated with
marital status. Morin and Suarez found evidence of increasing risk
aversion with age although the households appear to become less
risk averse as their wealth increases. Yoo (1994) found that the
change in the risky asset holdings were not uniform. He found
individuals to increase their investments in risky assets throughout
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their working life time, and decrease their risk exposure once they
retire. Lewellen et.al while identifying the systematic patterns of
investment behaviour exhibited by individuals found age and
expressed risk taking propensities to be inversely related with
major shifts taking place at age 55 and beyond. Indian studies on
individual investors were mostly confined to studies on share
ownership, except a few.
The RBI's survey of ownership of shares and L.C. Gupta's
enquiry into the ownership pattern of Industrial shares in India
were a few in this direction. The NCAER's studies brought out the
frequent form of savings of individuals and the components of
financial investments of rural households.
The Indian Shareowners Survey brought out a volley of
information on shareowners. Rajarajan V (1997, 1998, 2000 and
2003) classified investors on the basis of their demographics. He
has also brought out the investor's characteristics on the basis of
their investment size. He found that the percentage of risky assets
to total financial investments had declined as the investor moves up
through various stages in life cycle. Also investor's lifestyles based
characteristics has been identified. The above discussion presents a
detailed picture about the various facets of risk studies that have
taken place in the past. In the present study, the findings of many of
these studies are verified and updated.
Latha Krishnan (2006) explained as Investments come in
many forms. While some people consider hard assets such as land,
house, gold and platinum as investments, others look to monetary
instruments such as stocks and bonds as ways to make their money
grow.
A cautious or conservative investor is unlikely to play
carelessly with his hard-earned money. So he keeps to safe
investments that guarantee the return of his capital and still earn
good returns in a stipulated period if the product in which he
invested gains in that period. In such an investment, even if the
markets go down and he does not gain much, he also does not
suffer a heavy loss.
A wealthy person with more money to invest can take more
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risks and invest in a variety of products that major financial players
provide. A wealth of information on these as well as comments and
criticisms on their performances and profitability is readily
available.
"Perception of investors towards capital market
instruments globally" by John Marshall and "Investment analysis
and Portfolio management'" by Punithavathy Pandian. John
Marshall's study was at global scale and it explains the perception
of people across globe towards capital market instruments and
Pandian explains the theoretical aspects of capital market
instruments and use of various investment avenues to build a
strong portfolio.
2.4 NEED FOR STUDY
Investing money is a crucial and deciding the avenues
where to invest needs a lot of planning. In India people are more
conservative and hence prefer investments that are less risky.
Similarly there are other demographic factors like age, income
level, gender which affect their decision. As the availability of
financial products increase, perception of investors towards such
avenues changes over a period of time. It becomes important for a
marketer to understand the perception of investors towards
investment avenues to successfully pitch the product. Marketing is
known as meeting needs profitably. If the marketer is able to
understand the mind-set of investor towards a product then he/she
will be in a position to market the product. This report attempts to
study the behaviour of Indian investors while making an
investment. Here we also look upon other factors that influence
them while making investment decisions. Innovations in financial
products like derivatives, unit linked insurance products, fund of
funds likewise are not easily understood by the investor. Hence the
need for this study arises to understand what exactly an Indian
investor thinks before investing his/her money and how much risk
he/she is willing to take. This report gives the marketer and other
peers to successfully market the financial products which are more
popular, as it gives information regarding the perception of
investors towards investment avenues in India.
Page37
2.5 OBJECTIVES OF THE STUDY
2.5.1 Primary Objectives
To study the investment characteristics of investors
To study the objectives of investment plan of an investors
To study the demographic information of investors
2.5.2 Secondary Objectives
To know the preferred investment avenues of investors
To identify the preferred sources of information influencing
investment decisions
To understand the risk tolerance level of the investors and
suggest a suitable portfolio
Page38
build suitable investment options for them individually. Also this
study will help the investor to decide the areas where they could
invest.
2.7 HYPOTHESIS
A hypothesis describes the relationship between or among
variables. A good hypothesis is one that can explain what it claims
to explain, is testable and has greater range, probability and
simplicity than its rivals. There are two approach of hypothesis
testing:
1) Classical or sampling theory statistics and 2) The Bayesian
approach In the present dissertation chi square test has been used to
find out the dependence/independence of various factors that
influence investment decision.
Hypothesis has been found between following factors:
Gender and risk tolerance of respondents
Age and preferred investment avenues by the respondents
Income and investment avenues preferred by the respondents
Age of respondents and time horizon for investment
Age and risk tolerance of the respondents
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details especially the amount of money invested so, referral
sampling method is used for this study.
Sample description
The sample was drawn from the population of the potential
investors from my contact with Gmail. A survey was
conducted to understand the investor's behaviour with the
help of questionnaire. It was carried out with a sample size
of 100 investors.
2.9 TOOLS OF DATA COLLECTION
Primary data: The data has been collected directly from
respondent with the help of structured questionnaires with
the help of google doc.
Industry profile
Page41
That means persons having excess of money lend it to those who
need money to fulfil their requirement. Similarly, in business
sectors the surplus money flows from the investors or lenders to the
businessmen for the purpose of production or sale of goods and
services. So, we find two different groups, one who invest money
or lend money and the others, who borrow or use the money.
The financial markets act as a link between these two
different groups. It facilitates this function by acting as an
intermediary between the borrowers and lenders of money. So,
financial market may be defined as 'a transmission mechanism
between investors (or lenders) and the borrowers (or users) through
which transfer of funds is facilitated'. It consists of individual
investors, financial institutions and other intermediaries who are
linked by a formal trading rules and communication network for
trading the various financial assets and credit instruments.
Financial market talks about the primary market, FDIs,
alternative investment options, banking and insurance and the
pension sectors, asset management segment as well. India
Financial market happens to be one of the oldest across the globe
and is the fastest growing and best among all the financial markets
of the emerging economies. The history of Indian capital markets
spans back 200 years, around the end of the 18th century. It was at
this time that India was under the rule of the East India Company.
The capital market of India initially developed around Mumbai;
with around 200 to 250 securities brokers participating in active
trade during the second half of the 19th century.
Page42
many other sectors as it became organized as early as the 19th
century with the securities exchanges in Mumbai, Ahmedabad and
Kolkata. In the early 1960s, the number of securities exchanges in
India became eight - including Mumbai, Ahmedabad and Kolkata.
Apart from these three exchanges, there was the Madras, Kanpur,
Delhi, Bangalore and Pune exchanges as well. Today there are 23
regional securities exchanges in India.
The Indian stock markets till date have remained stagnant
due to the rigid economic controls. It was only in 1991, after the
liberalization process that the India securities market witnessed a
flurry of IPOs serially. The market saw many new companies
spanning across different industry segments and business began to
flourish. The launch of the NSE (National Stock Exchange) and the
OTCEI (Over the Counter Exchange of India) in the mid-1990s
helped in regulating a smooth and transparent form of securities
trading. The regulatory body for the Indian capital markets was the
SEBI (Securities and Exchange Board of India). The capital
markets in India experienced turbulence after which the SEBI came
into prominence. The market loopholes had to be bridged by taking
drastic measures.
3.1.2 Potential of Indian Financial Market
India Financial Market helps in promoting the savings of the
economy - helping to adopt an effective channel to transmit various
financial policies. The Indian financial sector is well-developed,
competitive, efficient and integrated to face all shocks. In the India
financial market there are various types of financial products
whose prices are determined by the numerous buyers and sellers in
the market. The other determinant factor of the prices of the
financial products is the market forces of demand and supply. The
various other types of Indian markets help in the functioning of the
wide India financial sector.
Page43
indexes, stock quotes, Sensex charts, bond prices, foreign
exchange, Rupee & Dollar Chart
Indian Financial market news
Stock News - Bombay Stock Exchange, BSE Sensex 30
index,
S&P CNX-Nifty, company information, issues on market
capitalization, corporate earnings statements
Fixed Income - Corporate Bond Prices, Corporate Debt
details,
Debt trading activities, Interest Rates, Money Market,
Government
Securities, Public Sector Debt, External Debt Semce
Foreign Investment - Foreign Debt Database composed by
BIS,
IMF, OECD,& World Bank, Investments in India & Abroad
Global Equity Indexes - Dow Jones Global indexes, Morgan
Stanley Equity Indexes
Currency Indexes - FX & Gold Chart Plotter, J. P. Morgan
Currency
Indexes
National and Global Market Relations
Mutual Funds
Insurance
Loans
Forex and Bullion
The main functions of financial market are:
It provides facilities for interaction between the investors
and the borrowers.
It provides pricing information resulting from the interaction
between buyers and sellers in the market when they trade the
financial assets.
It provides security to dealings in financial assets.
It ensures liquidity by providing a mechanism for an investor
to sell the financial assets. It ensures low cost of transactions
and information.
3.2 CLASSIFICATION OF FINANCIAL
Page44
MARKETS
Debt market
Nature of claim
Equity market
Money market
Maturity of Claim
Capital market
Primary market
Seasoning of claim
Secondary market
Timing of delivery
Forward and future market
market
Organizational structure
Over the counter market
Page45
figure we can interpret that there are different ways of classifying
financial market.
One is to classify financial market by the type of financial
claim. The debt market is the financial market foe fixed
claims (debt instrument) and the equity market is the
financial market for residual claims (equity instruments)
Page46
treasury bills etc. These financial instruments are close substitute of
money. These instruments help the business units, other
organizations and the Government to borrow the funds to meet
their short-term requirement.
Money market does not imply to any specific market place. Rather
it refers to the whole networks of financial institutions dealing in
short-term funds, which provides an outlet to lenders and a source
of supply for such funds to borrowers.
Most of the money market transactions are taken place on
telephone, fax or Internet. The Indian money market consists of
Reserve Bank of India, Commercial banks, Co-operative banks,
and other specialized financial institutions. The Reserve Bank of
India is the leader of the money market in India. Some Non-
Banking Financial Companies (NBFCs) and financial institutions
like LIC, GIC, IJTI, etc. also operate in the Indian money market.
3.4 CAPITAL MARKET
Capital Market may be defined as a market dealing in
medium and long- term funds. It is an institutional arrangement for
borrowing medium and long-term funds and which provides
facilities for marketing and trading of securities. So it constitutes
all long-term borrowings from banks and financial institutions,
borrowings from foreign markets and raising of capital by issue
various securities such as shares debentures, bonds, etc.
The market where securities are traded known as Securities
market. It consists of two different segments namely primary and
secondary market. The primary market deals with new or fresh
issue of securities and is, therefore, also known as new issue
market; whereas the secondary market provides a place for
purchase and sale of existing securities and is often termed as stock
market or stock exchange.
3.4.1 PRIMARY MARKET
The Primary Market consists of arrangements, which facilitate the
procurement of long-term funds by companies by making fresh
issue of shares and debentures. You know that companies make
fresh issue of shares and/or debentures at their formation stage and,
Page47
if necessary, subsequently for the expansion of business. It is
usually done through private placement to friends, relatives and
financial institutions or by making public issue. In any case, the
companies have to follow a well-established legal procedure and
involve a number of intermediaries such as underwriters, brokers,
etc. who form an integral part of the primary market. You must
have learnt about many initial public offers (IPOs) made recently
by a number of public sector undertakings such as ONGC, GAIL,
NTPC and the private sector companies like Tata Consultancy
Services (TCS), Biocon, Jet-Airways and so on.
3.4.2 SECONDARY MARKET
The secondary market known as stock market or stock
exchange plays an equally important role in mobilizing long-term
funds by providing the necessary liquidity to holdings in shares and
debentures. It provides a place where these securities can be
encashed without any difficulty and delay. It is an organized market
where shares and debentures are traded regularly with high degree
of transparency and security. In fact, an active secondary market
facilitates the growth of primary market as the investors in the
primary market are assured of a continuous market for liquidity of
their holdings. The major players in the primary market are
merchant bankers, mutual funds, financial institutions, and the
individual investors; and in the secondary market you have all
these and the stockbrokers who are members of the stock exchange
who facilitate the trading.
After having a brief idea about the primary market and secondary
market let see the difference between them.
3.5 DISTINCTION BETWEEN PRIMARY MARKET
AND SECONDARY MARKET
The main points of distinction between the primary market
and secondary market are as follows:
1. Function: While the main function of primary market is to raise
long-term funds through fresh issue of securities, the main function
of secondary market is to provide continuous and ready market for
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the existing long-term securities.
2. Participants: While the major players in the primary market are
financial institutions, mutual funds, underwriters and individual
investors, the major players in secondary market are all of these
and the stockbrokers who are members of the stock exchange.
3. Listing Requirement: While only those securities can be dealt
with in the secondary market, which have been approved for the
purpose (listed), there is no such requirement in case of primary
market.
4. Determination of prices: In case of primary market, the prices
are determined by the management with due compliance with SEBI
requirement for new issue of securities. But in case of secondary
market, the price of the securities is determined by forces of
demand and supply of the market and keeps on fluctuating.
3.6 DISTINCTION BETWEEN CAPITAL MARKET
AND MONEY MARKET
Capital Market differs from money market in many ways.
While money market is related to short-term funds, the
capital market related to long term funds.
Page50
traded on a recognised stock exchange.
It is allowed only in those securities (called listed securities)
that have been duly approved for the purpose by the stock
exchange authorities. The method of trading nowadays is
quite simple on account of the availability of on-line trading
facility with the help of computers.
It is also quite fast as it takes just a few minutes to strike a
deal through the brokers who may be available close by.
Similarly, on account of the system of scrip-less trading and
rolling settlement, the delivery of securities and the payment
of amount involved also take very little time, say, 2 days.
3.7.2 ADVANTAGES OF STOCK EXCHANGES
Having discussed the functions of stock exchanges, let us look at
the advantages which can be outlined from the point of view of (a)
Companies, (b) Investors, and (c) the Society as a whole.
(a) To the Companies
The companies whose securities have been listed on a stock
exchange enjoy a better goodwill and credit-standing than
other companies because they are supposed to be financially
sound.
The market for their securities is enlarged as the investors all
over the world become aware of such securities and have an
opportunity to invest As a result of enhanced goodwill and
higher demand, the value of their securities increases and
their bargaining power in collective ventures, mergers, etc. is
enhanced.
The companies have the convenience to decide upon the
size, price and timing of the issue.
(b) To the Investors:
The investors enjoy the ready availability of facility and
convenience of buying and selling the securities at will and
at an opportune time. Because of the assured safety in
dealings at the stock exchange the investors are free from
any anxiety about the delivery and payment problems.
Availability of regular information on prices of securities
Page51
traded at the stock exchanges helps them in deciding on the
timing of their purchase and sale.
It becomes easier for them to raise loans from banks against
their holdings in securities traded at the stock exchange
because banks prefer them as collateral on account of their
liquidity and convenient valuation.
(c) To the Society
The availability of lucrative avenues of investment and the
liquidity thereof induces people to save and invest in long-
term securities. This leads to increased capital formation in
the country.
The facility for convenient purchase and sale of securities at
the stock exchange provides support to new issue market.
This helps in promotion and expansion of industrial activity,
which in turn contributes, to increase in the rate of industrial
growth.
The Stock exchanges facilitate realisation of financial
resources to more profitable and growing industrial units
where investors can easily increase their investment
substantially.
The volume of activity at the stock exchanges and the
movement of share prices reflect the changing economic
health.
Since government securities are also traded at the stock
7uexchanges, the government borrowing is highly
facilitated. The bonds issued by governments, electricity
boards; municipal corporations and public sector
undertakings (PSUs) are found to be on offer quite
frequently and are generally successful.
3.7.3 LIMITATIONS OF STOCK EXCHANGES
Like any other institutions, the stock exchanges too have their
limitations. One of the common evils associated with stock
exchange operations is the excessive speculation. You know that
speculation implies buying or selling securities to take advantage
of price differential at different times. The speculators generally do
not take or give delivery and pay or receive full payment. They
Page52
settle their transactions just by paying the difference in prices.
Normally, speculation is considered a healthy practice and is
necessary for successful operation of stock exchange activity. But,
when it becomes excessive, it leads to wide fluctuations in prices
and various malpractices by the vested interests. In the process,
genuine investors suffer and are driven out of the market.
Another shortcoming of stock exchange operations is that security
prices may fluctuate due to unpredictable political, social and
economic factors as well as on account of rumours spread by
interested parties. This makes it difficult to assess the movement of
prices in future and build appropriate strategies for investment in
securities. However, these days good amount of vigilance is
exercised by stock exchange authorities and SEBI to control
activities at the stock exchange and ensure their healthy
functioning.
Page53
respects, in practice it is difficult to say who is a genuine investor
and who is a pure speculator. Sometimes even a person who has
purchased the shares as a long- term investment may suddenly
decide to sell to reap the benefit if the price of the share goes up
too high or do it to avoid heavy loss if the prices starts declining
steeply. But he cannot be called a speculator because his basic
intention has been to invest. It is only when a person's basic
intention is to take advantage of a change in prices, and not to
invest, then the transaction may be termed as speculation.
In strict technical terms, however, the transaction is
regarded as speculative only if it is settled by receiving or paying
the difference in prices without involving the delivery of securities.
It is so because, in practice, it is quite difficult to ascertain the
intention. Some people regard speculation as nothing gambling and
consider it as an evil. But it is not true because while speculation is
based on foresight and hard calculation, gambling is a kind of blind
and reckless activity involving high degree of chance element Not
only that, speculation is a legal activity duly recognised as a
prerequisite for the success of stock exchange operations while
gambling is regarded as an evil and z punishable activity.
However, reckless speculation may take the form of
gambling and should be avoided.
3.9 STOCK EXCHANGES IN INDIA
The first organised stock exchange in India was started in Mumbai
known as Bombay Stock Exchange (BSE). It was followed by
Ahmedabad Stock Exchange in 1894 and Kolkata Stock Exchange
in 1908. The number of exchanges in India went up to 7 by 1939
and it increased to 21 by 1945 on account of heavy speculation
activity during Second World War. A number of unorganised stock
exchanges also functioned in the county without arty formal set-up
and were known as kerb market The Security Contracts
(Regulation) Act was passed in 1956 for recognition and regulation
of Stock Exchanges in India. At present we have 23 stock
exchanges in the country. Of these, the most prominent stock
exchange that came up is National Stock Exchange (NSE). It is
also based in Mumbai and was promoted by the leading financial
institutors in India. It was incorporated in 1992 and commenced
Page54
operations in 1994. This stock exchange has a corporate structure,
fully automated screen-based trading and nation-wide coverage.
Another stock exchange that needs special mention is Over
the Counter Exchange of India (OTCEI). It was also promoted by
the financial institutors bike UT', ICICI, IDBI, IFCI, LIC etc. in
September 1992 specialty to cater to small and medium sized
companies with equity capital of more than Rs.30 Lakhs and less
than Rs.25 Crores. It helps entrepreneurs in raising finances for
their new projects in a cost effective manner. It provides for
nationwide online ring less trading with 20 plus representative
offices in all major cities of the country. On this stock exchange,
securities of those companies can be traded which are exclusively
listed on OTCEI only. In addition, certain shares and debentures
listed with other stock exchanges in India and the units of UTI and
other mutual funds are also allowed to be traded on OTCEI as
permitted securities. It has been noticed that, of late, the turnover at
this stock exchange has considerably reduced and steps have been
afoot to revitalise it. In fact, as of now, BSE and NSE are the two
Stock Exchanges, which enjoy nation-wide coverage and handle
most of the business in securities in the country.
Page55
followed for recognition of the stock exchanges, submission of
periodical returns and annual returns by recognised stock
exchanges, inquiry into the affairs of recognised stock exchanges
and their members, and requirements for listing of securities.
Page56
public issue. All issue documents are to be vetted by SEBI to
ensure that the disclosures are not only adequate but also authentic
and accurate. SEBI has also introduced a code of advertisement for
public issues for ensuring fair and truthful disclosures.
Merchant bankers and all mutual funds including UTI have
been brought under the regulatory framework of SEBI. A code of
conduct has been issued specifying a high degree of responsibility
towards investors in respect of pricing and premium fixation of
issues. To reduce cost of issue, underwriting of issues has been
made optional subject to the condition that the issue is not under-
subscribed. In case the issue is under-subscribed i.e., it was not
able to collect 90% of the amount offered to the public, the entire
amount would be refunded to the investors. The practice of
preferential allotment of shares to promoters at prices unrelated to
the prevailing market prices has been stopped and private
placements have been made more restrictive. All primary issues
have now to be made through depository mode. The initial public
offers (IPOs) can go for book building for which the price band and
issue size have to be disclosed. Companies with dematerialized
shares can alter the par value as and when they so desire.
As for measures in the secondary market, it should be noted that all
statutory powers to regulate stock exchanges under the Securities
Contracts (Regulation) Act have now been vested with SEBI
through the passage of securities law (Amendment) Act in 1995.
SEB! has duly notified rules and a code of conduct to regulate the
activities of intermediaries in the securities market and then
registration in the securities market and then registration with SEBI
is made compulsory. It has issued guidelines for composition of the
governing bodies of stock exchanges so as to include more public
representatives. Corporate membership has also been introduced at
the stock exchanges. It has notified the regulations on insider
trading to protect and preserve the integrity of stock markets and
issued guidelines for mergers and acquisitions. SEBI has constantly
reviewed the traditional trading systems of Indian stock exchanges
and tried to simplify the procedure, achieve transparency in
transactions and reduce their costs.
3.12 EMERGENCE OF FINANCIAL SERVICES INDUSTRY
Page57
IN INDIA
Services sector industry has started gaining large scale
momentum since the process of liberalization in 1991 .Prior to its
contribution to GDP was around 40 percent, but since 1992 it has
been grown rapidly and reached a value of 51 percent GDP.
Contribution of service sector to GNP in advanced counties like
USA is as high as 75%. ln India many innovative financial
products and services like credit cards, ATMs, consumer finance,
venture financing have been emerging since 1980s And these
financial services have become an integral component of Indian
financial system. This integration is largely attributed to the
liberalization of economic policies and deregulation that led to
economic changes, development and contemporary evolution of
capital market and financial disintermediation.
The far reaching changes in the Indian economy since
liberalization in the early 1990s have had a deep impact on the
Indian financial sector. The financial sector has gone through a
complex and sometimes painful process of restructuring,
capitalizing on new opportunities as well as responding to new
Challenges. During the last decade, there has been a broadening
and deepening of financial markets. Several new instruments and
products have been introduced.
Existing sectors have been opened to new private players.
This has given a strong impetus to the development and
modernization of the financial sector.
New players have adopted international best practices and
modern technology to offer a more sophisticated range of financial
services to corporate and retail customers. This process has clearly
improved the range of financial services and service providers
available to Indian customers. The entry of new players has led to
even existing players upgrading their product offerings and
distribution channels. This continued to be witnessed in 2002-03
across key sectors like commercial banking and insurance, where
private players achieved significant success.
These changes have taken place against a wider systemic
Page58
backdrop of easing of controls on interest rates and their
realignment with market rates. Gradual reduction in resource pre-
emption by the government, relaxation of stipulations on
concessional lending and removal of access to concessional
resources for financial institutions. Over the past few years, the
sector has also witnessed substantial progress in regulation and
supervision. Financial intermediaries have gradually moved to
internationally acceptable norms for income recognition, asset
classification, and provisioning and capital adequacy.
Page59
into the system over time. The financial sector has kept pace with
the growing needs of corporate and other borrowers. Banks, capital
market participants and insurers have developed a wide range of
products and services to suit varied customer requirements. The
Reserve Bank of India (RBI) has successfully introduced a regime
where interest rates are more in line with market forces.
Financial institutions have combated the reduction in interest
rates and pressure on their margins by constantly innovating and
targeting attractive consumer segments. Banks and trade financiers
have also played an important role in promoting foreign trade of
the country. Here we will study the three industries with respect to
India.
Page60
Chapter 4
Analysis
&
Interpretation
Table 4.1: classification of respondents on basis of age
Page61
1. Age Group That You Belong
Below 35 Years
36 50 Years
51 60 Years
Above 60 Years
AGE(IN YEARS) RESPONSES
Below 35 Years 52
3650 Years 38
5160 Years 9
Above60 Years 2
below 35 yrs
36-50
below 35 yrs; 52% 51-60
36-50; 39%
Above 60 yrs
Page62
Interpretation:
Table no.4.1 shows the age wise classification of respondents. It
was found that 52% are young i.e. of age below 35years and 38 %
investors are comes under 36 to 50 yrs. after the age of 50 most of
the investor are not willing to invest in any security. Due to risk
factor associated with the investment.
single
married
76%
Interpretation:
Table 4.2 shows classification of respondents on the basis of their
marital status of 76% of the respondents was found to be unmarried
and the rest 24% are married. This is because a married individual
is considered to have dependent so they are not taking as much risk
as single individuals can take. But most of the married are go for
the wealth appreciation.
18%
Govt. employee
self employed
private sector
student
24% other
32%
Interpretation:
Table 4.3 shows classification of respondent on basis of
occupation. Form the above graph indicate that 32% of the
respondents are working in private sector, 19% of them are
government employees, 24% of them self-employed,18% of them
are students and rest are working in other sector. Respondent who
work in private sectors are involved in investment as the income
would be lesser in private sector.
Table 4.4: classification of respondents on basis of
annual income
4. What Is Your Annual Income?
Below 2 Lakhs
24 Lakhs
45 Lakhs
Above 6 Lakhs
Page65
Annual income RESPONSES
Below 2 lakhs 17
2 4 lakhs 8
4 6 lakhs 36
Above 6 lakhs 39
17%
36%
Interpretation:
Table 4.4 shows the classification on the basis of annual
income. It was found that 39% investors are belong to
above 6 lakhs annual income and 36%of them are earning
4-6 lakh annually such investors had enough money to
invest in equity or in the real state but rest of the investors
are go for risk-free investment or speculation.
Page66
Graduate
Post Graduate
Above Post Graduate (Researcher)
5%
12%
U.G
45% GRADUATE
P.G
ABOVE P.G
38%
Interpretation:
Table 4.5 shows the classification of respondent on the basis of
education level. It indicate that 45% of the respondents are above
post graduate , 38 % of them are post graduate ,rest of the investors
are under graduate there for we can say all the investors are doing
investment on education level.
Table 4.6: classification of respondents on basis of
preferred investment avenues.
6. Which Of The Following Investment You Have Invested In?
Page67
Fixed Deposit
Insurance Schemes
Equities
Mutual Fund Schemes
Real estate
Commodities/Derivatives
Investment avenues RESPONSES
F.D 28
INSURANCE 23
Equity 12
Mutual fund 15
Real estate 13
Commodities/derivative 9
s
28
30
23
25
20 15
12 13
15
9
10
Interpretation:
Table 4.6 shows classification of respondents on the basis of
preferred investment avenues. We can easily say that most of the
investors are doing investment on the basis of risk associated with.
Therefore fixed deposit and insurance schemes are first preference
of investors.
Table 4.7: classification of respondents on basis of
Page68
objective of investment plan.
7. Which Of The Following Statement Best Describes Your Main
Objective Of Investment?
To Preserve Capital And Generate Income
To Generate Moderate Capital Growth With Some Income
To Generate Aggressive Capital Growth Over Long-Term
To Generate Long-Term Capital Growth
45
40
35
30
25
20
15
10
5
0
Interpretation:
Table 4.7 shows classification of respondents on the basis of
objective of investment plan. Based on this chart, we can conclude
that the investors objective is capital appreciation or balance of
capital appreciation and current income. It is clear that investors
invest to accumulate wealth rather as an avenue to supplement their
Page69
income.
Table 4.8: classification of respondents on basis of
knowledge about financial terms.
8. Your Knowledge About Financial Term Or Aspect Of Investmen
ts Is:
42
28
16
10
4
excellent very good good average satisfactory
Excellent 1 2 3 4 5 Satisfactory
Knowledge about financial term RESPONSES
Excellent 42
Very good 28
good 16
Average 10
Satisfactory 4
Interpretation
Table 4.8 shows the classification of respondents on the basis of
knowledge about financial terms. Majority of the respondents have
excellent knowledge of financial terms, rest of the investors are
having good knowledge, few investors having few knowledge
about financial terms.
Page70
Table 4.9: classification of respondents on basis of
investment time horizon.
9. What Is Your Investment Time Horizon?
Below 1 Year
13 Years
49 Years
Above 10 Years
Time horizon RESPONSES
Below 1 year 6
1-3 years 34
4-9 years 51
Above 10 years 9
60
51
50
40
34
30
20
9
10 6
0
below 1 year 1-3 years 4-9 years above 10 years
Sales
Interpretation:
Table no. 4.9 shows classification of respondents on the basis of
investment horizon. Most of the investors are investing for 4-9
years and rest of the investor 34% go for 1-3 year, 9% go for above
10 years like real estate other 6% are invest in stock & money
market for one year or less than one year
Page71
Table 4.10: classification of respondents on basis of
investment decision.
11. How Regularly Do You Make Investment Decision?
Frequently
Often
Regularity of Investment decision RESPONSES
Frequently 59
Often 41
41%
frequently
often
59%
Interpretation:
Table no. 4.10 shows the classification of respondents on the
basis of regularity in making investment decision. Most of the
respondents i.e. 59% of total sample make investment decision on
a regular basis while rest 41% doesnt invest regularly.
Page72
Table 4.11: classification of respondents on basis of
source of investment information
13. Which Source Do You Prefer To Get Investment Information?
Newspaper/Magazines
Electronic Media (TV)
Peer Group/Friends
Broker /Financial Advisor
Internet
Others
Source of investment information RESPONSES
Newspaper/Magazines 15
Electronic Media (TV) 11
Peer Group/Friends 10
Broker /Financial Advisor 21
Internet 20
Others 18
Page73
21
20
18
15
11
10
Own initiative 58
Own initiative but with the help of an expert 34
Made by expert on your behalf 8
Page74
58
34
1.4
Interpretation:
TABLE 4.13 shows the classification of respondents on the basis
of investment decision making .most of the investors are invest on
own initiative because they are investing own savings rest of the
investors are go with the experts ideas and few organisations are
giving the authority to do the investment on behalf of the
organisation.
High 27
Medium 23
Low 42
No risk /safe investment 8
Page75
45
40
35
30
25
20
15
10
0
high medium low no risk/safe investment
Interpretation:
FINDINGS
In the present project, an attempt is made to study the
investment characteristics of Indian investors. Based on the data
collected and analysed about the investment preferences of the
investors, the following findings are given.
The study reveals that male investors dominate the
investment market in India.
It is found that most of the investors belong to the age
Page77
group of below 35 years and 35 to 50 years indicating
youngsters and the middle aged people are predominant in
the financial investment sector.
Most of the investors possess higher education qualification
like graduation and above.
Majority of respondents are working in private sector
organisations as compared to government organisations.
As per the general perception, it is found respondents with
higher income groups like income above 8 Lakhs were
found to invest more because of their large portions of
savings.
Specific investment pattern was noted in a majority of the
people who participated in the study.
Respondents usually prefer to invest frequently.
The objective of investment was either capital appreciation
or balance of capital appreciation and current income.
Investors usually invest their funds so as to earn wealth.
Investors prefer to invest their funds in avenues like
PPF/FD/Bonds next to insurance and mutual funds scheme.
With reference to the objective of investment, most of the
respondents preferred high returns, followed by risk, tax
shelter, convenience and marketability.
Most of the investors get their information related to
investment through print media like business newspapers
and magazines while others prefer to get information from
brokers and electronic media like TV.
Most of the investors prefer to invest in to less risky
investments. Very less proportion of respondents preferred
risky portfolios.
Indian investors are conservative in nature and prefer to
invest in less risky avenues.
Majority of the investors have moderate knowledge about
financial terms related to investment
5.2 SUGGESTIONS
The traditional finance theories assume that investors are
Page78
rational but they are unable to explain the behaviour and pricing of
the stock market completely.
Despite loads of information popping from all directions, it is not
the calculations of financial wizards, or company's performance or
widely accepted criterion of stock performance but the investor's
irrational emotions like overconfidence, fear, risk aversion, etc.,
seem to decisively drive and dictate the fortunes of the market.
Many research studies have validated the relationship between a
dependent variable i.e., risk tolerance level and independent
variables such as demographic characteristics of an investor.
Hence, in the present project report an attempt has been made to
study the relationship between risk tolerance level and
demographic characteristics of Indian investors. Based on the
analysis of data, the following suggestions are given.
It is evident from the study that investors' lack knowledge of
the pros and cons of various investment avenues. Hence it is
suggested that investors are to be educated about various
investment avenues, selection of schemes based on their
objectives, their risk tolerance, importance of diversification
and so on to which will in turn help in efficient investment
rather impulsive.
The analysis of data clearly indicates that the investors'
investment behaviour is independent of their demographic
factors. Therefore it is suggested that the schemes can be
designed based on matching the objectives of the investment
rather based on demographic factors in order to motivate
investors.
The primary objective of most of the respondents is
maximise return through capital appreciation as well as
regular returns. Hence, the investment avenues that offer
capital appreciation and dividend income like equity shares
are more attractive to the investors. Therefore various
schemes can be designed that includes equity investment.
Most of the respondents hesitate to invest their money
through online mode, so it is preferred to contact the
investors through the distributors and financial advisers
Page79
besides online services.
All the investors prefer to maximise their returns and
minimise the risk. Even now fixed deposits and insurance
schemes are more famous among Indian investors. It is
suggested that the investors have carefully construct their
portfolios after doing fundamental analysis and through
proper diversification.
It always better that the investors follow a systematic
investment process to invest their money. Investment
avenues are to be chosen based on their objectives and risk
preferences which would result in risk return trade off.
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Chapter-6
Conclusion
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CONCLUSION
Investment is putting money into something with the
expectation of profit. More specifically, investment is the
commitment of money or capital to the purchase of financial
instruments or other assets so as to gain profitable returns in the
form of interest, dividends, or appreciation of the value of the
instrument. Investment is involved in many areas of the economy,
such as business management and finance whether for households,
firms, or governments. Investment comes with the risk of the loss
of the principal sum. The investment that has not been thoroughly
analysed can be highly risky with respect to the investment owner
because the possibility of losing money is not within the owner's
control.
This study has tried addressing the "Investment
characteristics of Indian investors". Because of time limit only 125
respondents are taken for the study. A survey was conducted to get
knowledge of factors which influence Indian investor's investment
decisions. This study was an attempt to understand the
characteristics of Indian investors.
This study is limited to Indian investors only but the study
can be extended to other investors also. The study can be extended
to global investor's investment behaviour. There is also a scope of a
comparative study which can be done between Indian investors
investment behaviour with the global investors behaviour. Due to
time limitation this study was restricted to only demographic
characteristics but the study can be done with considering other
factors also.
Page82
BIBLIOGRAPHY
Books
C K Kothari, Research Methodology, Wishwa Prakashan
Publishing,
1996, Second Edition
Herbert B. Mayo, investments, Chennai Micro Print pvt. Ltd
Chennai. 2006
Punithavathi Pandyan, Security Analysis and Portfolio
Management, Tata Mc Graw-Hill Publishing Company Ltd ,
New Delhi,2008 Third Edition
Prasanna Chandra, Investment Analysis And Port Folio
Management, Tata Mc Graw-Hill Publishing Company Ltd ,
New Delhi,2008
Prasanna Chandra, Financial Management, Tata Mc Graw
Hill Publishing Company Ltd , New Delhi2007
Websites Reference
www.indiafinance&investmentguide.com
www.wikipedia.orq
www.nseindia.com
www.capitalmarkets.com
www.bseindia.com
www.financeindia.orq/article
Page83
ANNEXURE
QUESTIONNAIRE:
I, Atul Kumar student of MBA from Aligarh Muslim
University Murshidabad Centre (WB), conducting survey on "A
study on the investment avenues Indian investors" as a part of my
dissertation. I would request you to fill in this questionnaire and the
information given by you will be kept highly confidential.
1. Age Group That You Belong
Below 35 Years
36 50 Years
51 60 Years
Above 60 Years
2. Please Specify Your Marital Status?
Unmarried
Married
3. What Is Your Occupation?
Government Employee
Self Employed
Private Sector
Student
Other...
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4. What Is Your Annual Income?
Below 2 Lakhs
24 Lakhs
45 Lakhs
Above 6 Lakhs
5. Please Mention Education Level.
Under Graduate
Graduate
Post Graduate
Above Post Graduate (Researcher)
6. Which Of The Following Investment You Have Invested In?
Fixed Deposit
Insurance Schemes
Equities Mutual Fund Schemes
Real State
Commodities/Derivatives
7. Which Of The Following Statement Best Describes Your Main
Objective Of Investment?
To Preserve Capital And Generate Income
To Generate Moderate Capital Growth With Some Income
To Generate Aggressive Capital Growth Over Long-Term
To Generate Long-Term Capital Growth
8. Your Knowledge About Financial Term Or Aspect Of Investmen
ts Is:
Excellent 1 2 3 4 5 Satisfactory
9. What Is Your Investment Time Horizon?
Below 1 Year
13 Years
49 Years
Above 10 Years
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11. How Regularly Do You Make Investment Decision?
Frequently
Often
12. Your Investment Decision Are
Taken On Own Initiative
Taken On Own Initiative But With Help From An Expert
Made By Expert On Your Behalf