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MAJOR PROJECT REPORT
ON
A study on Indian investors Investments & analysis
of their behaviour on various investment
avenues in India
By
SUBHASHISH MONDAL
485
In Partial Fulfilment for the award of the degree
Post Graduate Diploma in Management
2016-18
New Delhi Institute of Management
50 (B&C), 60, Tughlakabad Institutional Area, New Delhi-110062
E-mail:placement@ndimdelhi.org Website: www.ndimdelhi.org
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A study on Indian investors Investments & analysis of their
behaviour on various investment avenues in India
MAJOR PROJECT REPORT
ON
A study on Indian investors Investments & analysis
of their behaviour on various investment
avenues in India
Under the supervision
of
Prof. Anil Kamboj
Submitted By - Submitted to -
Subhashish Mondal Prof. Anil Kamboj
Roll No. – 485
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A study on Indian investors Investments & analysis of their
behaviour on various investment avenues in India
Contents
Topics Page No.
• Acknowledgement ………………………………... 5
• Declaration ……………………………………….. 6
• Executive summery ………………………………. 7
• Abstract …………………………………………… 8
• Literature Review ………………………………… 9
• Objectives of the Study …………………………… 10
• Need of the Study …………………………………. 11
• Value Addition ……………………………………. 11-12
• Limitation of the Study …………………………… 12
• Research Methodology …………………………… 13-14
➢ Sampling Unit ………………..................................... 13
➢ Sampling Size ………………………………………. 13
➢ Sampling Ares ………………………………………. 13
➢ Primary Data ..………………………………………. 13
➢ Secondary Data ……………………………………... 14
• Industry Overview ……………………………….. 15-17
• Description of Various Investment Avenues …… 18
➢ Savings Account ……………………………………. 18
➢ Fixed/Term Deposits ……………………………….. 19
➢ Public Provident Fund (PPF) ……………………….. 19
➢ National Savings Certificate (NSC) ………………… 20
➢ Post Office Savings ……………………………….... 22
➢ Government Securities (G-Sec) ……………………. 22
➢ Mutual Fund ….…………………………………….. 23
➢ Life Insurance ……………………………………… 24
➢ Bond & Debentures ………………………………… 25
➢ Equity Trading ….…………………………………. 27
➢ Commodity Trading ……………………………….. 29
➢ Forex Market ……………………………………….. 30
➢ Real Estate ………………..………………………… 32
➢ Investment in Gold …………………………………. 32
• EMERGING INVESTMENT AVENUES ……… 34
➢ Investment in Art …………………………………… 35
➢ Hedge Fund ………………………………………… 35-36
➢ Private Equity ……………………………………… 37
• DATA ANALYSIS & INTERPRETATION …. 38-56
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A study on Indian investors Investments & analysis of their
behaviour on various investment avenues in India
• FINDINGS & SUGGESTIONS ………………….. 57-59
• SUMMARY & CONCLUSION …………………. 60
• BIBLIOGRAPHY ………………………………… 61
• ANNEXURE ………….............................................. 62-65
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A study on Indian investors Investments & analysis of their
behaviour on various investment avenues in India
ACKNOWLEDGEMENT
With candour and pleasure, I take the opportunity to express my sincere thanks and
obligation to my esteemed learned Shri V.M. Bansal, Chairman, NDIM, New Delhi
who allowed me to conduct this project. I would like to thank my faculty mentor, Dr.
Anil Kamboj who was always there to help and guide whenever I needed help.
Also, I would like to thank New Delhi Institute of Management for providing me an
opportunity to write a report on “A study on Indian investors Investments & analysis
of their behaviour on various investment avenues in India” where I got to know
‘Indian Investment Industry’. It is because of their professional guidance and
cooperation, without which it would not have been possible for me to complete my
report.
No significance achievement can be a solo performance, especially when it comes to
preparing a project of this nature, this project has by no means an exception. I believe
that if it were not for the support, confidence and encouragement of many people, this
report would look much different than it looks today.
Finally, I gratefully acknowledge the support, encouragement & patience of my parents
and as always nothing in my life would be possible without God.
Thank You!
Subhashish Mondal
Roll No. - 485
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A study on Indian investors Investments & analysis of their
behaviour on various investment avenues in India
DECLARATION
I, Subhashish Mondal student of New Delhi Institute of Management 2016-18 Batch
declare that every part of the Project Report “A study on Indian investors Investments
& analysis of their behaviour on various investment avenues in India” submitted
by me is original.
I was in regular contact with my faculty guide and contacted 4-5 times for discussing
the project.
Date of project submission: April 4, 2018
Signature of the Student
CERTIFICATE OF AUTHENTICITY
Faculty Mentor’s Comments:
________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________
Signature of the Faculty Mentor
Prof. Anil Kamboj
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A study on Indian investors Investments & analysis of their
behaviour on various investment avenues in India
EXECUTIVE SUMMARY
This report was commissioned to examine why the involvement of common people in
Capital market in India is very low compared to other countries.
The research draws attention to the fact that in 2014-15, there is a huge transformation
in Indian capital market regulation which attract FPI but still for domestic consumers
there is no changes shows in the participation of common people. Though the
participation in Mutual fund is increase significantly.
This research was conduct to analyze the investors need & wants & depending upon the
needs, how could we educate them to not just to relay on traditional investment options
but invest on capital market for investments.
Findings:
• Throughout the research it was observed that most of the rural people fear capital
market;
• People are trapped by local financial pull investments;
• Some people have some myth about capital market;
• People are happy with their traditional investments;
• People are very much conservatives about their investments;
• Risk tolerance level in rural people is very low;
From that research I have learnt that giving proper education to Investors on investment
products either by campaign or mass target advertisement or through social media
platform like YouTube, Facebook etc. is the way to make them participate in Indian
Capital Market.
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A study on Indian investors Investments & analysis of their
behaviour on various investment avenues in India
Abstract
Savings form an important part of the economy of any nation. With the savings
invested in various options available to the people, the money acts as the driver for
growth of the country. Indian financial scene too presents a plethora of avenues to the
investors. Though certainly not the best or deepest of markets in the world, it has
reasonable options for an ordinary man to invest his savings.
One needs to invest and earn return on their idle resources and generate a
specified sum of money for a specific goal in life and make a provision for an uncertain
future. One of the important reasons why one needs to invest wisely is to meet the cost
of inflation. Inflation is the rate at which the cost of living increases.
The cost of living is simply what it cost to buy the goods and services you need
to live. Inflation causes money to lose value because it will not buy the same amount
of a good or service in the future as it does now or did in the past. The sooner one starts
investing the better. By investing early, you allow your investments more time to grow,
whereby the concept of compounding increases your income, by accumulating the
principal and the interest or dividend earned on it, year after year.
The three golden rules for all investors are:
➢ Invest early
➢ Invest regularly
➢ Invest for long term and not for short term
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A study on Indian investors Investments & analysis of their
behaviour on various investment avenues in India
Literature Review
1) Literature suggests that major research in investors' behaviour has been done
by behavioural scientists such as Weber, Shiller and Shefrin. Shiller 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.
2) Horvath and Zuckerman suggested that one's biological, demographic and
socioeconomic characteristics; together with his/her psychological makeup
affects one's risk tolerance level. Malkiel suggested that an individual's risk
tolerance is related to his/her household situation, lifecycle stage and
subjective factors. Mittra discussed factors that were related to individuals risk
tolerance, which included years until retirement, knowledge sophistication,
income and net worth. Guiso, Jappelli and Terlizzese, Bajtelsmit and
VenDerhei, Powell and Ansic, Jianakoplos and Bernasek, Hariharan,
Chapman and Domain, Hartog, Ferrer-I- Carbonell and Jonker concluded that
males are more risk tolerant than females.
3) Wallach and Kogan 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 found that the change in the risky asset
holdings were not uniform. He found individuals to increase their investments
in risky assets throughout their working life time, and decrease their risk
exposure once they retire.
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A study on Indian investors Investments & analysis of their
behaviour on various investment avenues in India
Objectives of the Study
The purpose of the analysis is to determine the investment behaviour of investors
and investment preferences for the same. Investors perception will provide a way to
accurately measure how the investors think about the products and services provided by
the company. Today's trying economic conditions have forced difficult decisions for
companies. Most are making conservative decisions that reflect a survival mode in the
business operations. During these difficult times, understanding what investors on an
ongoing basis is critical for survival. Executives need a third party understanding on
where investor's loyalties stand. More than ever management needs ongoing feedback
from the investors, partners and employees in order to continue to innovate and grow.
The main objective of the project is to find out the needs of the current and future
investors.
For this analysis, customer perception and awareness level will be measured in
important areas such as:
1. To understand in depth about different investment avenues available in India.
2. To find out how investors get information about the various financial
instruments.
3. The type of financial instruments, they would prefer to invest.
4. The duration for which they would prefer to keep their money invested.
5. What are the factors that they consider before investing?
6. To give some recommendations to the investors that where they should invest.
7. To know the risk tolerance level of the individual investor and suggest a
suitable portfolio.
8. To develop a profile of sample Indian individual investor in terms of their
demographics. And demographics based on occupation of the sample investor.
9. To identify the objective of savings of an investor.
10. To study the dependence/independences of the demographic factors (Age) of
the investor and his/her risk tolerance level.
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A study on Indian investors Investments & analysis of their
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Need of the Study
Stock market has been subjected to speculations and inefficiencies, which are
beached to the rationality of the investor. Traditional finance theory is based on the two
assumptions. Firstly, investors' make rational decisions; and secondly investors are
unbiased in their predictions about future returns of the stock. However financial
economist has now realized that the long-held assumptions of traditional finance theory
are wrong and found that investors can be irrational and make predictable errors about
the return on investment on their investments.
This analysis on Individual Investors' Behaviour is an attempt to know the
profile of the investor and know the characteristics of the investors to know their
preference with respect to their investments. The study also tries to unravel the
influence of demographic factors like age on risk tolerance level of the investor.
Value Addition
This analysis will help to strengthen investor involvement to investment products.
This analysis will also throw lighten various investment avenues available in India that
will help in many ways like. The expectations of different types of investors regarding
particular service requirements can be identified.
· The common problem areas faced by the investors can be understood.
· It also enhances new services initiatives.
· This study will help in gaining a better understanding of what an investor looks
for in an investment option.
· It can be used by the financial sector in designing better financial instrument
customized to suit the needs of the investor.
· It will also help the agents and brokers in marketing the existing financial
instruments.
· It will provide knowledge to the investors about the various financial services
provided by the company to their investors.
· It will also help the company to understand what is the requirement and
expectations of different categories of investors.
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A study on Indian investors Investments & analysis of their
behaviour on various investment avenues in India
This analysis will be originated in order to empower the investors with detailed
research on various investments avenues available in India. The awareness lever of the
investors about the various investment options and what is the perception of the
investors with regard to the investments they want to make.
Limitation of the Study
This analysis is based upon investors' behavior for investment preferences during
normal time vis-a-vis recessionary period. This analysis would be focusing on the
information from the investors about their knowledge, perception and behavior on
different financial products.
The various limitations of the study are:
• The total number of financial instruments in the market is so large that it needs
a lot of resources to analyze them all. There are various companies providing
these financial instruments to the public. Handling and analyzing such a varied
and diversified data needs a lot of time and resources.
• As the analysis is based on primary as well as secondary data, possibility of
unauthorized information cannot be avoided.
• Reluctance of the people to provide complete information about them can affect
the validity of the responses.
• The lack of knowledge of customers about the financial instruments can be a
major limitation.
• The information can be biased due to use of questionnaire.
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A study on Indian investors Investments & analysis of their
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Research Methodology
Sampling Technique:
Initially, a rough draft will be prepared keeping in mind the objective of the
research. A pilot study will be undertaken in order to know the accuracy of the
questionnaire. The final questionnaire will be arrived at only after certain important
changes are incorporated. Convenience sampling technique will be used for collecting
the data from different investors. The investors are selected by the convenience
sampling method. The selection of units from the population based on their easy
availability and accessibility to the researcher is known as convenience sampling.
Convenience sampling is at its best in surveys dealing with an exploratory purpose for
generating ideas and hypothesis.
Sampling unit:
The respondents who will be asked to fill out the questionnaires are the sampling
units. These comprise of employees of MNC's, government employees, housewives,
self- employed, professionals and other investors.
Sampling size:
The sample size will be restricted to only 125, which comprised of mainly people
from different regions of Barasat, Kolkata due to time constraints.
Sampling area:
The area of the research is Barasat, Kolkata.
Primary Data:
Information is collected by conducting a survey by distributing a questionnaire
to 100 investors in Barasat, Kolkata. These 100 investors are of different age group,
different occupation, different income levels, and different qualifications. (A copy of
the questionnaire is given in the last as ANNEXURE 1).
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A study on Indian investors Investments & analysis of their
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Secondary Data:
This data is collected by using the following means.
1. Articles in Financial Newspapers ('Economic times' and 'Business
Standard').
2. Investment Magazines, Business Magazines, Financial chronicles.
3. Expert's opinion published in various print media.
4. Books written by various Foreign and Indian authors on Investments.
5. Data available on internet through various websites
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A study on Indian investors Investments & analysis of their
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Industry Overview
Indian financial industry is considered as one of the strongest financial sectors
among the world markets. Many industry experts may give various reasons for such
Indian financial industry reputation, but there is only one answer which no one can deny,
is the effective control and governance of the country's supreme monetary authority the
"RESERVE BANK OF INDIA" (RBI).
Financial sector in India has experienced a better environment to grow with the presence
of higher competition. The financial system in India is regulated by independent
regulators in the field of banking, insurance, mortgage and capital market. Government
of India plays a significant role in controlling the financial market in India.
Ministry of Finance, Government of India controls the financial sector in India. Every
year the finance ministry presents the annual budget on 28th February. The Reserve
Bank of India is an apex institution in controlling banking system in the country. Its
monetary policy acts as a major weapon in India's financial market.
Various governing bodies in financial sector:
1. RBI - Reserve Bank of India is the supreme authority and regulatory body for all
the monetary transactions in India. RBI is the regulatory body for various
Banking and Non-Banking financial institutions in India.
2. SEBI - Securities and Exchange Board of India is one of the regulatory authorities
for India's capital market.
3. IRDA - Insurance regulatory and development authority in India regulates all the
insurance companies in India.
4. AMFI - Association of mutual funds in India regulates all the mutual fund
companies in India.
5. FIPB - Foreign investments promotion board regulates all the foreign direct
investments made in India.
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A study on Indian investors Investments & analysis of their
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✓ Ministry of housing has introduce he Real Estate (Regulation and Development)
Act, 2016 is an Act of the Parliament of India which seeks to protect home-buyers
as well as help boost investments in the real estate industry.
✓ Investments in gold is governed by the world gold council, in India we do not
have any regulatory authority for investments in gold.
✓ Ministry of Finance, Government of India has a control over all the financial
bodies in India.
✓ Government securities, Public Provident Fund (PPF), National Savings
Certificate (NSC), Post Office Savings are all under the control of the central
government.
Investment are normally categorized using the risk involved in it, risk is dependent
on various factors like the past performance, its governing body, involvement of the
government etc., in this scenario Indian investments are classified in to 3 categories
based on risk. They are:
➢ Low Risk/ No Risk Investments.
➢ Medium Risk Investments.
➢ High Risk Investments.
Apart from these, there are traditional investment avenues and emerging
investment avenues. Various Investment avenues available in India
Safe/Low Risk Avenues:
• Savings Account
• Bank Fixed Deposits.
• Public Provident fund.
• National savings certificates.
• Post office savings.
• Government Securities.
Moderate Risk Avenues:
• Mutual Funds.
• Life Insurance.
• Debentures.
• Bonds.
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A study on Indian investors Investments & analysis of their
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High Risk Avenues:
• Equity Share Market.
• Commodity Market.
• FOREX Market.
Traditional Avenues:
• Real Estate (property).
• Gold/Silver.
• Chit Funds.
Emerging Avenues:
• Virtual Real Estate.
• Hedge Funds/Private Equity Investments.
• Art and Passion.
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A study on Indian investors Investments & analysis of their
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Description on Various Investment Avenues
SAVINGS ACCOUNT
As the name denotes, this account is perfect for parking your temporary savings.
These accounts are one of the most popular deposits for individual accounts. These
accounts provide cheque facility and a lot of flexibility for deposits and withdrawal of
funds from the account. Most of the banks have rules for the maximum number of
withdrawals in a period and the maximum amount of withdrawal, but no bank enforces
these. However, banks have every right to enforce such boundaries if it is felt that the
account is being misused as a current account. At present the interest on these accounts
is regulated by Reserve Bank of India. Presently Indian banks are offering 4% p.a.
interest rate on such deposits.
This account gives the customer a nominal rate of interest and he can withdraw
money as and when the need arises. The position of account is depicted in a small book
known as 'Pass Book'. Such accounts should be treated as a temporary parking area
because the rate of interest is much less than Fixed Deposits. As soon as one's savings
accumulate to an amount which he can spare for a certain period of time, shift this
money to Fixed Deposit. The returns on the money kept in Savings Bank account will
be less but the freedom to withdraw is the highest.
FIXED DEPOSITS/ TERM DEPOSITS
The term "fixed" in Fixed Deposits denotes the period of maturity or tenor. Fixed
Deposit, therefore, pre plans a length of time for which the depositor decides to keep
the money with the Bank and the rate of interest payable to the depositor is decided by
this tenure. Rate of interest differs from Bank to Bank. Normally, the rate is highest for
deposits for 3-5 years. This, however, does not mean that the depositor loses all his
rights over the money for the duration of the tenor decided. Deposits can be withdrawn
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A study on Indian investors Investments & analysis of their
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before the period is over. However, the amount of interest payable to the depositor, in
such cases goes down.
Every Banks offer fixed deposits schemes with a wide range of tenures for periods
from 7 days to 10 years. Therefore, the depositors are supposed to continue such Fixed
Deposits for the duration of time for which the depositor decides to keep the money
with the bank. However, in case of need, the depositor can ask for closing the fixed
deposit in advance by paying a penalty. Soon some banks have even introduced variable
interest fixed deposits. The rate of interest in such deposits will keep on varying with
the prevalent market rates i.e. it will go up if market interest rate goes and it will come
down if the market rates fall.
Tax deduction: Banks should deduct tax at source on interest paid more than Rs. 5000
per annum to any depositor. This is not per deposit but per individual. Therefore, if an
individual has 5 deposits and the aggregate interest earned on these is Rs. 7000 though
in each individual deposit, interest should not exceed Rs. 2000, tax must be deducted at
source.
PUBLIC PROVIDENT FUND (PPF)
PPF is a 30-year-old constitutional plan of the Central Government happening
with the objective of providing old age profits security to the unorganized division
workers and self employed persons. Currently, there are almost 30 lakhs PPF account
holders in India across banks and post offices.
Eligibility: Any individual salaried or non-salaried can open a PPF account. He may
also pledge on behalf of a minor, HUF, AOP and BOI. Even NRIs can open PPF
account. A person can contain only one PPF account. Also two adults cannot open a
combined PPF account. The collective annual payment by an individual on account of
himself his minor child and HUF/AOP/BOI (of which individual is member) cannot
exceed Rs.70, 000 or else the excess amount will be returned without any interest.
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A study on Indian investors Investments & analysis of their
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Subscription: The yearly contribution to PPF account ranges from a least of Rs.500 to
a maximum of Rs.70, 000 payable in multiple of Rs.5 either in lump sum or in
convenient instalments, not exceeding 12 in a year.
Penalty in case of non-subscription: The account will happen to obsolete if the
required minimum of Rs.500 is not deposited in any year. The amount before now
deposited will continue to earn interest but with no facility of taking loan or making
withdrawals. The account can be regularized by depositing for each year of default,
arrears of Rs.500 along with penalty of Rs.100.
Where to open: A PPF account can be opened at any branch of State Bank of India or
its subsidiaries or in few national banks or in post offices. On opening of account a pass
book will be issued wherein all amounts of deposits, withdrawals, loans and repayment
together with interest due shall be entered. The account can also be transferred to any
bank or post office in India.
Interest rate: Deposits in the account earn interest at the rate notify by the Central Govt
from time to time. Interest is designed on the lowest balance among the fifth day and
last day of the calendar month and is attributed to the account on 31st March every year.
So to derive the maximum, the deposits should be made between 1st and 5th day of the
month, as it also enables you to earn interest on your Savings Bank A/c for the previous
month.
Tenure: Even though PPF is 15 year scheme but the effectual period works out to 16
years i.e. the year of opening the account and adding 15 years to it. The sum made in
the 16th financial year will not earn any interest but one can take advantage of the tax
rebate.
Withdrawal: The investor is allowable to make one removal every year beginning from
the seventh financial year of an amount not more than 50% of the balance at the end of
the fourth year or the financial year immediately preceding the withdrawal, whichever
is less. This facility of making partial withdrawals provide liquidity and the withdrawn
amount can be used for any purpose.
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A study on Indian investors Investments & analysis of their
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NATIONAL SAVINGS CERTIFICATE (NSC)
National Savings Certificate (NSC) is a fixed interest, long term instrument for
investment. NSCs are issued by the Department of Post, Government of India. Since
they are backed by the Government of India, NSCs are a practically risk-free avenue of
investment. They can be bought from authorized post offices. NSCs have a maturity of
6 years. They offer a rate of return of 8% per annum. This interest is calculated every
six months and is merged with the principal. That is, the interest is reinvested, and is
paid along with the principal at the time of maturity. For every Rs. 100 invested, you
receive Rs. 160.10 at maturity.
NSCs qualify for investment under Section 80C of the Income Tax Act (IT Act).
Even the interest earned every year qualifies under Sec 80C. This means that
investments in NSCs and the interest earned on it every year, up to Rs. 1 Lakh, are
deductible from the income of the investor. There is no tax deducted at source (TDS).
Features of NSC
• Minimum investment Rs. 500/- No maximum limit.
• Rate of interest 8% compounded half yearly.
• Rs. 1000/- grow to Rs. 1601/- in six years.
• Two adults, Individuals, and minor through guardian can purchase.
• Companies, Trusts, Societies and any other Institutions not eligible to purchase.
• Non-resident Indian/HUF cannot purchase.
• No pre-mature encashment.
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POST OFFICE SAVINGS
There are various investment schemes available in post offices, like KVP (Kisan
Vikas Patra), MIS (Monthly Income Scheme) and various others. All these schemes are
completely risk-free, and you do not need to have large sum of money to start investing
in these post office schemes. Some schemes offer Tax-saving benefits and some gives
tax-free returns. So you need to find out some scheme as per your requirements.
These are some of the safe and secure investments that you can opt for. Though
the interest rates are not so high, but still you must invest some part of your money into
any of these investment instruments. It is your hard-earned money, so better play safe
and invests some part in secure funds also.
GOVERNMENT SECURITIES (G-secs)
Government securities (G-secs) are supreme securities which are issued by the
Reserve Bank of India on behalf of Government of India in lieu of the Central
Government's market borrowing program.
The term Government Securities includes:
• Central Government Securities.
• State Government Securities
• Treasury bills
The Central Government borrows funds to finance its 'fiscal deficit'. The market
borrowing of the Central Government is increased through the issue of dated securities
and 364 days treasury bills either by auction or by floatation of loans. In addition to the
above, treasury bills of 91 days are issued for managing the temporary cash mismatches
of the Government. These do not form part of the borrowing program of the Central
Government.
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A study on Indian investors Investments & analysis of their
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Features
• Issued at face value
• No default risk as the securities carry sovereign guarantee.
• Ample liquidity as the investor can sell the security in the secondary market
• Interest payment on a half yearly basis on face value
• No tax deducted at source
• Can be held in Demat form.
• Redeemed at face value on maturity
• Maturity ranges from of 2-30 years.
• Securities qualify as SLR investments (unless otherwise stated).
Benefits of Investing in Government Securities
• No tax deducted at source
• Additional Income Tax benefit u/s 80L of the Income Tax Act for Individuals
• Qualifies for SLR purpose
• Zero default risk being sovereign paper
• Highly liquid.
• Transparency in transactions and simplified settlement procedures through
CSGL/NSDL.
MUTUAL FUNDS
A mutual fund is a professionally-managed firm of collective investments that
pools money from many investors and invests it in stocks, bonds, short-term money
market instruments, and/or other securities. In a mutual fund, the fund manager, who is
also known as the portfolio manager, trades the fund's underlying securities, realizing
capital gains or losses, and collects the dividend or interest income. The investment
proceeds are then passed along to the individual investors. The value of a share of the
mutual fund, known as the net asset value per share (NAV), is calculated daily based on
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the total value of the fund divided by the number of shares currently issued and
outstanding.
Advantages of Mutual Funds
• Diversification
• Professional Management
• Regulatory oversight
• Liquidity
• Convenience
• Transparency
• Flexibility
• Choice of schemes
• Tax benefits
• Well regulated
Following are the few drawbacks of Mutual Funds:
• No Guarantees
• Fees and commissions
• Taxes
• Management risk
LIFE INSURANCE
Life insurance is a contract between the policy owner and the insurer, where the
insurer agrees to pay an amount of money upon the happening of the insured individual's
or individuals' death or other event, like terminal illness, critical illness. In return, the
policy owner agrees to pay a fixed amount called a premium at regular intervals or in
bulge sum.
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Like other insurance policies, life insurance is also a contract between the insurer
and the policy owner whereby a benefit is paid to the nominated beneficiaries if an
insured event occurs which is covered by the policy. The assessment for the
policyholder is derived not from an actual claim event. But to a certain extent it is the
value derived from the 'peace of mind' experienced by the policyholder, because of the
negating of adverse financial consequences caused by the death of the Life Assured. To
be a life policy the insured event must be based upon the lives of the people named in
the policy.
Advantages of a Life Insurance Policy
• Financial Security
• Helps to diverts States Resources for Other Purpose
• Facilitates Economic Movements
• Helps to Avail Tax Exemptions
BONDS & DEBENTURES
Bonds & Debentures, these two words can be used interchangeably. In Indian
markets, we use the word bonds to indicate debt securities issued by government, semi-
government bodies and public sector financial institutions and companies. We use the
word debenture to refer to the debt securities issued by private sector companies.
Bonds - Debt securities issued by Govt. or Public sector companies
Debentures - Debt securities issued by private sector companies
In other words we can tell that a bond is a debt security, similar to an I.O.U. When
you purchase a bond, you are lending money to a government, municipality,
corporation, or Public entity known as the issuer. The issuer promises to pay you a
specified rate of interest during the life of the bond, in return for the loan. They also
promises to repay the face value of the bond (the principal) when it "matures."
Following are allowed to issue bonds
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• Governments
• Municipalities
• Variety of institutions
• Corporations
Buying and Holding of Bonds: Investors can subscribe to primary issues of
Corporates and Financial Institutions (FIs). It is common practice for FIs and Corporates
to raise funds for asset financing or capital expenditure through primary bond issues.
Some bonds are also available in the secondary market. The minimum investment for
bonds can either be Rs 5,000 or Rs 10,000.
However, this amount varies from issue to issue. There is no prescribed upper
limit to your investment. The duration of a bond issue usually varies between 5 and 7
years.
Selling of Bonds: Selling bonds in the secondary market has its own drawbacks.
First, there is a liquidity problem which means that it is a tough job to find a buyer.
Second, even if you find a buyer, the prices may be at a sharp discount to its intrinsic
value. Third, you are subject to market forces and, hence, market risk. If interest rates
are running high, bond prices will be down and you may well end up incurring losses.
On the other hand, Debentures are always secured.
Debentures
A debenture is similar to a bond except the securitization conditions are different. A
debenture is generally unsecured in the sense that there are no liens or pledges on
specific assets. It is defined as a certificate of agreement of loans which is given under
the company's stamp and carries an undertaking that the debenture holder will get a
fixed return (fixed on the basis of interest rates) and the principal amount whenever the
debenture matures.
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Debentures vs. Bonds:
Debentures and bonds are similar except for one difference bonds are more secure
than debentures. In case of both, you are paid a guaranteed interest that does not change
in value irrespective of the fortunes of the company. However, bonds are more secure
than debentures, but carry a lower interest rate. The company provides collateral for the
loan. Moreover, in case of liquidation, bondholders will be paid off before debenture
holders.
STOCK MARKET
The first step is to understand the stock market. A share of stock is the smallest
unit of ownership in a company. If you own a share of a company's stock, you
considered as the part owner of the company.
Stock Market Trading
Stock market trading consists of buying and selling of company stocks and as
well as stock derivatives. This type of trading usually takes place in a stock exchange,
in which companies need to be listed in order for their shares to be bought and sold.
This trading market provides with substantial earnings potential and is one among the
most popular investment options.
Working of Stock Market
Stock market trading is normally done by brokers. As a result, the first step is to
seek a reliable investment broker. Stock market trading occurs at a physical stock
exchange, where buyers and sellers of company shares meet and agree on the price at
which the transactions would materialize.
Conventional stock trading entails an investor placing an order for a specific
number of shares of a company with his/her broker present in the physical stock market.
The broker forwards the order to the floor clerk, who then attempts to locate a trader
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desire to sell those shares. Bids are then exchanged. The transaction closes only after
the buyer agrees on the price quoted by the seller. This technique is also called "open
outcry," because it involves traders crying out their bids.
Stock market trading will also takes place online. This procedure is much quicker
and less complicated than trading in the physical stock market. Online stock market
trading engrosses the real time placement of buying and selling orders for stocks. The
transaction is accomplished when the trading system is capable to match bids and a
confirmation is received.
Benefits of Stock Market Trading
• It promotes economic growth.
• It helps companies raise capital and handle financial issues.
• It ensures that money is invested in businesses to enhance profit potential.
• It helps investors realize substantial profits.
Drawbacks of Stock Market Trading:
• It proposes lower leverage than other forms of trading, such as Forex
trading.
• The short selling of stocks is hard, because stock prices do not appreciate
significantly in a short span of time. Accordingly, there is a wait period
before you can book healthy profits.
• It is traded for limited hours in a day.
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COMMODITY TRADING
The terms "commodities" and "futures" are often used to depict commodity
trading or futures trading. It is similar to the way "stocks" and "equities" are used when
investors talk about the stock market. Commodities are the actual physical goods like
gold, crude oil, corn, soybeans, etc. Futures are contracts of commodities that are traded
at a commodity exchange like MCX. Apart from numerous regional exchanges, India
has three national commodity exchanges namely, Multi Commodity Exchange (MCX),
National Commodity and Derivatives Exchange (NCDEX) and National Multi-
Commodity Exchange (NMCE). Forward Markets Commission (FMC) is the regulatory
body of commodity market.
It is one of a few investment areas where an individual with limited capital can
make extraordinary profits in a relatively short period of time. Many people have
become very rich by investing in commodity markets. Commodity trading has a bad
name as being too risky for the average individual. The fact is that commodity trading
is only as risky as you want to make it. Those who treat trading as a get-rich-quick
scheme are likely to lose because they have to take big risks. If you act carefully, treat
your trading like a business and are willing to settle for a reasonable return, the
possibility of success is very high.
The course of trading commodities is also known as futures trading. Unlike other
kinds of investments, such as stocks and bonds, when you trade futures, you do not
really buy anything or own anything. You are speculating on the future direction of the
price in the commodity you are trading. This is like a bet on future price direction. The
terms "buy" and "sell" merely indicate the direction you expect future prices will move.
If, for example, you were speculating in wheat, you would buy a futures contract if you
thought the price would be going up in the future. You would sell a futures contract if
you thought the price of wheat would go down. For every trade, there is always a buyer
and a seller. Neither person has to own any wheat to participate. But he has to deposit
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sufficient capital with a brokerage firm to insure that he will be able to pay the losses if
his trades lose money.
Working of Commodity Market: Commodity Market works Just like stock
futures. When you buy Futures, you don't have to pay the entire amount, just a fixed
percentage of the cost. This is known as the margin. Let's say you are buying a Gold
Futures contract. The minimum contract size for a gold future is 100 Gms. 100 gms of
gold may be worth Rs. 1,50,000. The margin for gold set by MCX is 3.5%. So you only
end up paying Rs 5,250.
The low margin means that you can buy futures representing a large amount of
gold by paying only a fraction of the price. So you bought the Gold Futures contract
when it was Rs. 1,50,000 per 100 gms. The next day, the price of gold rose to Rs
1,60,000 per 100 gms. Rs 10,000 (Rs 1,60,000 - Rs 1,50,000) will be credited to your
account. The following day, the price dips to Rs 1,55,000. Rs 5000 will get debited from
your account (Rs 1,60,000 - Rs 1,55,000).
FOREX MARKET
Forex trading is the immediate trade of one currency and the selling of
another.
Currencies are traded through an agent or dealer and are traded in pairs. For
example Euro (EUR), US dollar (USD), British pound (GBP) or Japanese Yen (JPY).
Here you are not buying anything physical; this type of trading is confused. Think
of buying a currency as buying a share of a particular country. When you purchase say
Japanese Yen, you are in effect buying a share in the Japanese financial system, as the
price of the currency is a direct reflection of what the market thinks about the current
and future health of the Japanese economy. In common, the exchange rate of a currency
versus other currencies is a reflection of the condition of that country's financial system
compared to the other countries financial system.
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Unlike other financial markets like the New York Stock Exchange, the Forex spot
market has neither a physical location nor a central exchange. The Forex market is
measured an Over- the-Counter (OTC) or Interbank market, due to the fact that the entire
market is run electronically within a network of banks continuously over a 24-hour
period.
Until the late 1990's only the big guys could play this game. The first requirement
was that you could trade only if you had about ten to fifty million bucks to start with
Forex. Forex was initially intended to be used by bankers and large institutions and not
by small guys. However, because of the rise of the Internet, online Forex trading firms
are now able to offer trading accounts to 'retail' traders. All you need to get started is a
computer, a high-speed Internet connection, and the information.
The foreign exchange market is exclusive because of the following reasons;
• Its trading volumes
• The tremendous liquidity of the market
• Its geographical dispersion
• Its long trading hours
• The variety of factors that affect exchange rates.
• The low limits of profit compared with other markets of fixed income, but
profits can be high due to very great trading volumes
• The use of leverage
Benefits of Forex Trading
• Forex is the largest market.
• No Bulls or Bears!
• Forex trading online offers great leverage
• Forex prices are predictable.
• Forex trading online is commission free
• Forex trading online is instant.
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REAL ESTATE AS AN INVESTMENT OPTION
The growth curve of Indian economy is at an all time high and contributing to the
upswing is the real estate sector in particular. Investments in Indian real estate have been
strongly taking up over other options for domestic as well as foreign investors.
The boom in the sector has been so appealing that real estate has turned out to be
a convincing investment as compared to other investment vehicles such as capital and
debt markets and bullion market. It is attracting investors by offering a possibility of
stable income yields, moderate capital appreciations, tax structuring benefits and higher
security in comparison to other investment options.
A survey by the Federation of Indian Chambers of Commerce and Industry
(FICCI) and Ernst & Young has predicted that Indian real estate industry is poised to
emerge as one of the most preferred investment destinations for global realty and
investment firms in the next few years. The potential of India's property market has a
revolutionizing effect on the overall economy of India as it transforms the skyline of the
Indian cities mobilizing investments segments ranging from commercial, residential,
retail, industrial, hospitality, healthcare etc. But maximum growth is attributed to its
growth from the booming IT sector, since an estimated 70 per cent of the new
construction is for the IT sector.
Real estate industry research has also thrown light on investment opportunities in
the commercial office segment in India. The demand for office space is expected to
increase significantly in the next few years, primarily driven by the IT and ITES industry
that requires an projected office space of more than 367 million sq ft till 2012-13.
INVESTMENT IN GOLD
Gold has got lot of emotional value than monetary value in India. India is the
largest consumer of gold in the world. In western countries, you can find most of their
gold in their central banks. But in India, we use gold mainly as jewels. If you look at
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gold in a business sense, you will understand that gold is one of the all time best
investment tool. My dear readers, today I would like to discuss on investments in gold
and its potential.
Indian Gold Market Current Scenario:
• Size of the Gold Economy: more than Rs. 30,000 crores
• Number of gold jewelry manufacturing units: 1,00,000
• Number of people employed: 5,00,000
• Gems & Jewellery constitute 25% of Indiai:s exports about 10% of our import
bill constitute gold import.
• Number of banks allowed importing gold: 15 (While recently this has been
liberalized, detailed notification is awaited)
• Official estimates of the stock of gold in India: 9,000 tons
• Unofficial estimates of the stock of gold in India: 12,000 iV 14,000 tons
• Gold held by the Reserve Bank of India: 358 tons
• Gold production in India: 2 tons per annum.
Demand for gold in the Indian Market:
India has the highest demand for gold in the world and more than 90% of this
gold is acquired in the form of jewellery. Following are the factors influencing the
demand for gold. The movement of gold prices is one of the important variables
determining demand for gold. The increase in the irrigation, technological change in
agriculture (through mechanization and high yielding varieties), have generated large
marketable surplus and a highly skewed rural income distribution is another factors
contributing to additional demand for gold.
Supply of Gold: The main economic effects that arise from the changes in the
supply of gold can be seen against the quantum of gold that is already in existence in
the economy. The supply of gold is not up to the requirements as the production of gold
is also coming down and demand for gold is going up very sharply.
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Gold as an Investment Option:
Gold as an investment tool always gives good returns, flexibility, safety and
liquidity to the investors. Therefore as a financial consultant my advice to you all is,
kindly allocate a portion of your portfolio for gold investments. Practice the habit of
buying at least one gram of gold every month.
EMERGING INVESTMENT AVENUES
According to a study undertaken jointly by Merrill Lynch, Cap Gemini, and Ernst
& Young, High Net worth Individuals [HNIs] or wealthy investors are proactive in
portfolio management, risk management, consolidation financial assets and use of
diversification strategies as actively as large institutions. HNIs are proactive in
identifying new investment options and take inputs from professional advisors in
volatile market conditions.
HNIs are dynamic in modifying their asset allocation and were among the first
investors to move from equities to fixed income during 2001-2002 period of downturn
in equity markets. They shifted back to equities when they identified favorable market
trends.
Investment products and avenues
• Managed products: Managed product service is the most popular investment
strategy adopted by wealthy investors globally
• Real Estate: Wealthy investors have found this asset class very attractive and have
invested directly in real estate and indirectly through real estate investment trusts.
• Art and passion: Wealthy investors also have their investment in art, wine,
antiques, and collectibles
• Precious Metals: Gold and other precious metals are attractive investment options
to balance the asset allocation
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• Commodities: Wealthy investors have turned to commodities to offset the lower
returns from fixed income securities.
• Alternative investments: Hedge funds and Private equity investments such as
venture funds are becoming increasingly popular with wealthy investors to reduce
the investment risks related to stock market fluctuations. This is because these
instruments have low correlation with equity asset class performance. Investment
in non correlated assets, such as commodities helps to improve diversification of
the portfolio amidst volatile market conditions.
INVESTMENT IN ART
Today, we find that an increasing number of individuals are looking at alternative
investments, which provide them with a diversification away from a particular asset
class. People are willing to invest and looking for areas other than the stock market for
investing. Investing in the vintage wine, coins, stamps and Art, is now an indulgence
which gives them an opportunity to cash in on their hobbies, without having the level
of expertise that is required for other direct investments.
Art is being incorporated into the investor's overall asset allocation decision. The art
scene around the world is growing significantly. With more and more investors looking
at art as an alternative asset class and a store of a long term value, average annual art
valuations have outpaced average annual stock market valuations by more than three
times since 2000.
HEDGE FUNDS
Over the last 15 years, hedge funds have become increasingly popular with high
net worth individuals, as well as institutional investors. The number of hedge funds has
risen by about 20% per year and the rate of growth in hedge fund assets has been even
more rapid.
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A hedge fund is a private investment fund, charging a performance fee and is
open to only a limited number of investors. These funds are like mutual funds, which
collect money from investors and use the proceeds to buy stocks and bonds. They can
invest on almost any type of opportunity; in any market where in good returns are
expected with low risk levels.
Hedge Fund Risks:
• Lack of transparency
• Limited liquidity
• Difficulty accessing quality hedge funds
• Unreliable or incomplete return data
• Valuation risk
• Asymmetrical nature of Hedge fund returns distributions [SKEW]
• Counterparty risk [Leverage]
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PRIVATE EQUITY INVESTMENTS
Is the most important funding source in the entrepreneurial marketplace? Private
equity investments contribute to the funding of around 25 times the number of
businesses the venture capitalists fund each year.
Private equity investments are usually derived from a high net-worth individual who
represents an essential source of funding for early stage, high-risk ventures. It is
estimated that one-seventh of the 300,000 + start/early growth firms in the US receive
funding from angel investors. This translates into over $20 billion of investment in
approximately 50,000 deals each year. This investment group exceeds venture capital
sources which are estimated at $5 - $7 billion spread over 1,000 venture capital
investments each year.
A typical profile of a private equity investor:
• Is someone that prefers to invest within one day of travel?
• Is very well educated
• Tends to invest collectively within a group of other private equity investors
• Usually invests within the dollar range of $10,000 - $500,000, averaging
$230,000
• Makes one investment every two years
Private equity investors have proven to be the single most important players in the
entrepreneurial marketplace. Private capital investors fund thirty to forty times as many
entrepreneurial companies as the entire venture capital industry and estimates put the
total amount between $20 - $60 billion annually.
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DATA ANALYSIS & INTERPRETATION
Analysis in this report:
An analysis is made on the responses received from 100 sample investors. The
objective of the report is to find out the investor's behaviour on various investment
avenues, to find out the needs of the current and future investors.
The questionnaire contains various questions on the investor's financial
experience, based on these experiences an analysis is made to find out a pattern in their
investments.
Based on these investment experiences of the 100 sample investors an analysis is
made and interpretations are drawn. Interpretations are made on a rational basis, these
interpretations may be correct or may not be correct but care is taken to draw a valid
and approvable interpretation.
Analysis is made only from the information collected through questionnaires no
other data or information is taken in to consideration for purpose of the analysis.
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Analysis of the Survey:
TABLE 1: DEMOGRAPHICS OF THE SAMPLE INVESTOR
PARAMETER NO: OF INVESTORS PERCENTAGE
GENDER
MALE 58 58%
FEMALE 42 42%
TOTAL 100 100%
AGE GROUP
BELOW 20 0 0%
BETWEEN 20 -30 35 35%
BETWEEN 30 -40 35 35%
ABOVE 40 30 30%
TOTAL 100 100%
QUALIFICATION
UNDER GRADUATES 7 7%
GRADUATES 46 46%
POST GRADUATES 39 39%
OTHERS 8 8%
TOTAL 100 100%
OCCUPATION
SALARIED 52 52%
BUSINESS 22 22%
PROFESSIONAL 14 14%
HOUSE WIFE 11 11%
RETIRED 1 1%
TOTAL 100 100%
ANNUAL INCOME
BELOW Rs. 2,00,000 37 37%
Rs. 2,00,000 - 4,00,000 31 31%
Rs. 4,00,000 - 6,00,000 18 18%
ABOVE Rs, 6,00,000 14 14%
TOTAL 100 100%
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Interpretation: Table 1 above shows, that 58 (58%) of the investors are men and the
rest 42(42%) are females. Generally, males bear the financial responsibility in Indian
society, and therefore they have to make investment (and other) decisions to fulfil the
financial obligations.
When it comes to age, it was found that 35% are young and significant number under
the age group of 20 - 30. 35% of them are in the age group of 30 to 40. 30% of them are
above 40 years of age. There are no investors below 20 years of age.
Nearly 52% of the investors belong to the salaried class, 22% were business class, 14%
were professionals, 11% were housewives and the rest were retired.
It was found that irrespective of annual income they earn all the investors interested in
investments since today's inflated cost of living is forcing everyone to save for their
future needs and invest those saved resources efficiently. 39(39%) of the individual
investors covered in the study are postgraduates; 46(46%) investors are graduates and
7(7%) of the investors are under-graduates, and 8(8%) investors are categorized as
others who are either illiterates, had less education than under graduation or who are
more qualified than post graduates. It is interesting to note that most investors (covered
in the study) can be said to possess higher education (Bachelor’s Degree and above),
and this factor will increase the reliability of conclusions drawn about the matters under
investigation. 37(37%) of the investors are earning less than 2 lakhs per annum,
31(31%) investors are earning between 2 lakhs and 4 lakhs, 18(18%) investors are
earning between 4 lakhs and 6 Lakhs, 14(14%) investors are earning more than 6 lakhs
per annum. Since most of the investors are below 4 lakhs annual earnings, many of them
are non-risk takers.
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TABLE 2 OTHER CHARACTERISTICS OF SAMPLE INVESTOR
Table 2.1 INVESTORS WILLING TO LOSE PRINCIPAL AMOUNT
PARAMETER NO OF INVESTORS PERCENTAGE
YES
NO
5
95
5
95
TOTAL 100 100
Interpretation:
Since many of the investors annual earnings are below 2 lakhs and 4 lakhs, many
of them do not take the risk of losing their principal investment amount. 95% of the
sample investors are not ready to lose their principal investment amount. 5% are ready
to take risk of losing their principal up to certain extent.
Table 2.2 TIME PERIOD PREFERED TO INVEST
PARAMETER NO OF INVESTORS PERCENTAGE
SHORT TERM
MEDIM
LONG TERM
10
60
30
10
60
30
TOTAL 100 100
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Interpretation: It's interesting to know that many of the investors prefer to invest their
money for medium term i.e. from 1 - 5 yrs, instead of short term or long term. 10%
preferred short term, 60% preferred medium term, and 30% preferred long term.
Table 2.3 FREQUENCY OF MONITORING THE INVESTMENT
PARAMETER NO OF INVESTORS PERCENTAGE
DAILY 17 17
MONTHLY 35 35
OCCATIONALLY 41 41
OTHER 7 7
TOTAL 100 100
Interpretation: Due to the busy life schedule, many of the investors are not able to
spend time in monitoring their investments, only 17% of the investors are monitoring
their investments daily, 35% are monitoring on a monthly basis, 41% , the majority
investors are monitoring their investments occasionally. Many of them who have
NO OF INVESTORS
OTHER, 7
DAILY, 17
OCCATIONA
LLY, 41
DAILY
MONTHLY
OCCATIONALLY
OTHER
MONTHLY, 3
5
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invested in safe investment avenues do not bother about their investments, some of them
forget about the investments for many years.
Table 2.4 INVESTMENT IN EQUITY MARKET
PARAMETER NO OF INVESTORS PERCENTAGE
YES
NO
30
70
30
70
TOTAL 100 100
Out of the total sample investors only 70% of the investors invest in equity share
market through their DEMAT A/C, 30% of the investors never invested in equity shares.
The investors who invest in equity share market are asked another question, what would
they do if the stock market falls immediately after their investment, many of them
replied that they would wait till the market increases instead of selling them at a loss,
very few answered that they would average the investment by buying some more shares.
Table 2.5 FAMILY BUDGET
PARAMETER NO OF INVESTORS PERCENTAGE
YES
NO
73
27
73
27
TOTAL 100 100
73% of the sample investors had a monthly family budget for their daily
expenditure. 27% of the investors replied they never thought of having a budget
calculation, and few think of having a budget but never implemented so far. Many
people with excess money never cared to make any family budgets.
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Table 2.6 INVESTMENT TARGET
PARAMETER NO OF INVESTORS PERCENTAGE
YES
NO
48
52
48
52
TOTAL 100 100
It's interesting to know that almost same proportion of investors have different
thoughts, 48% of the investors have an investment target every year, and 52% of the
investors do not go for any targets for investment. On personal questioning many of the
investors who had an investment target every year are not able to reach their targets due
to contingent expenses. Few investors invest regularly but never thought of having a
target every year.
Table 2.7 FINANCIAL ADVISOR
PARAMETER NO OF INVESTORS PERCENTAGE
YES
NO
23
77
23
77
TOTAL 100 100
77% of the investors never had a financial advisor, they never approached an
advisor for their financial needs, the reason may be inadequate income and excess
expenditure, and there wouldn't be surplus money to worry about. 23 % of the investors
have financial advisors, who manage their investments.
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TABLE 3 OBJECTIVES OF INVESTMENT
Table 3.1 SAVINGS OBJECTIVE
PARAMETER VOTES WEIGHTS RANKING
CHILDREN'S EDUCATION 71 29 1
RETIREMENT 47 19 3
HOME PURCHASE 38 15 4
CHILDREN'S MARRIAGE 30 12 5
HEALTHCARE 57 23 2
OTHERS 5 2 6
TOTAL 248 100
Table 3.1 shows the savings objectives of the sample investors, investors are
given option to select one or more savings objectives, since there may be one or more
answers, weights are given for each parameter bases on the votes given by the investors,
the maximum weigthage represents many investors have that as main objective. Based
on the weights calculated ranks are given in the order of maximum weightage given by
investors. First rank is given to children's education, many investors feel that, investing
money for the future of the Childs education is very important than any other need.
Many of the investors are in the age group of 20 - 30 and 30 - 40 as of now they are
thinking of saving for their children's marriage. So children's marriage is given last rank.
After children's education investors are saving for their own health care. There is a
VOTES
OTHERS
HEALTHCARE
CHILDREN'S MARRIAGE
HOME PURCHASE
VOTES
RETIREMENT
CHILDREN'S EDUCATION
0 20 40 60 80
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greater need for Indians to save for their health care who are living a mechanical life.
Retirement and home purchase are given subsequent ranks after health care.
Table 3.2 PURPOSE BEHIND INVESTMENT
PARAMETER VOTES WEIGHTS RANK
WEALTH CREATION 37 22 4
TAX SAVING 43 25 3
EARN RETURNS 45 27 1
FUTURE EXPENDITURE 44 26 2
TOTAL 169 100
All the investors have very common purposes for investing, they have more than
one purpose for investing their money. Salaried people invest for tax savings, and for
future expenditure, business people invest for earning returns. Almost all the investors
have all the 4 purposes behind investing their money.
Table 3.3 FACTORS CONSIDERING BEFORE INVESTING
PARAMETER VOTES WEIGHTS RANKING
SAFETY OF PRINCIPAL 60 43 1
LOW RISK 35 25 2
HIGH RETURNS 27 19 3
MATURITY PERIOD 16 11 4
TOTAL 138 100
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A study on Indian investors Investments & analysis of their
behaviour on various investment avenues in India
When the investors are asked about the factors considering before investment
many of them have voted for safety of principal and low risk. First rank is given to safety
of principal and 2nd
to low risk. Here there are some contradicting results, some investors
expect high returns at a very low risk, and this is not possible in practical Indian
investment avenues. Investment believes in a proved principle, "higher the risk higher
the returns, lower the risk lower the returns". Investors need to know about this principle
before investing.
Independent Variables and Dependent Variables
There are total four independent variables
1. Age group. 2. Occupation. 3. Qualification. 4. Annual income
There can be many dependent variables like
• Level of risk tolerance
• Percentage of income that can be invested
• Time period that can be taken for investments
• Savings objectives
• Investment preference.
48 | P a g e
A study on Indian investors Investments & analysis of their
behaviour on various investment avenues in India
These independent variables can be compared with any dependent variables for
finding the relations between the parameters.
In my analysis I have taken occupation category for comparison with dependent
variable investment preference and age group comparing with the dependent variable
level of risk tolerance.
Below are the demographics of the sample investors based on the category occupation.
TABLE 4 : DEMOGRAPHICS BASED ON OCCUPATION
I. SALARIED
PARAMETER NO: OF - SALARIED PERCENTAGE
AGE GROUP
BELOW 20 0 0%
BETWEEN 20 - 30 22 42%
BETWEEN 30 - 40 18 35%
ABOVE 40 12 23%
TOTAL 52 100%
QUALIFICATION
UNDER GRADUATES 0 0%
GRADUATES 21 40%
POST GRADUATES 25 48%
OTHERS 6 12%
TOTAL 52 100%
ANNUAL INCOME
BELOW Rs. 2,00,000 15 29%
Rs. 2,00,000 - 4,00,000 15 29%
Rs. 4,00,000 - 6,00,000 17 33%
ABOVE Rs, 6,00,000 5 10%
TOTAL 52 100%
49 | P a g e
A study on Indian investors Investments & analysis of their
behaviour on various investment avenues in India
II. BUSINESS
PARAMETER NO: OF - BUSINESS PERCENTAGE
AGE GROUP
BELOW 20 0 0%
BETWEEN 20 - 30 2 9%
BETWEEN 30 - 40 10 45%
ABOVE 40 10 45%
TOTAL 22 100%
QUALIFICATION
UNDER GRADUATES 5 23%
GRADUATES 11 50%
POST GRADUATES 6 27%
OTHERS 0 0%
TOTAL 22 100%
ANNUAL INCOME
BELOW Rs. 2,00,000 11 50%
Rs. 2,00,000 -
4,00,000 5 23%
Rs. 4,00,000 -
6,00,000 1 5%
ABOVE Rs, 6,00,000 5 23%
TOTAL 22 100%
III. PROFESSIONAL
PARAMETER NO: OF - PROFESSIONAL PERCENTAGE
AGE GROUP
BELOW 20 0 0%
BETWEEN 20 - 30 8 57%
BETWEEN 30 - 40 2 14%
ABOVE 40 4 29%
TOTAL 14 100%
QUALIFICATION
UNDER GRADUATES 0 0%
GRADUATES 6 43%
POST GRADUATES 6 43%
OTHERS 2 14%
TOTAL 14 100%
ANNUAL INCOME
BELOW Rs. 2,00,000 2 14%
50 | P a g e
A study on Indian investors Investments & analysis of their
behaviour on various investment avenues in India
Rs. 2,00,000 -
4,00,000 8 57%
Rs. 4,00,000 -
6,00,000 1 7%
ABOVE Rs, 6,00,000 3 21%
TOTAL 14 100%
IV. HOUSEWIFE
PARAMETER NO: OF - HOUSEWIFE PERCENTAGE
AGE GROUP
BELOW 20 0 0%
BETWEEN 20 - 30 4 36%
BETWEEN 30 - 40 3 27%
ABOVE 40 4 36%
TOTAL 11 100%
QUALIFICATION
UNDER GRADUATES 1 9%
GRADUATES 6 55%
POST GRADUATES 2 18%
OTHERS 2 18%
TOTAL 11 100%
ANNUAL INCOME
BELOW Rs. 2,00,000 9 82%
Rs. 2,00,000 -
4,00,000 1 9%
Rs. 4,00,000 -
6,00,000 0 0%
ABOVE Rs, 6,00,000 1 9%
TOTAL 11 100%
ASSUMPTION
As a part of the analysis I assumed that preference for investment avenues is dependent
on the occupation of the investor. Hence preferred investment avenue are derived from
the demographics of the sample investor based on occupation.
51 | P a g e
A study on Indian investors Investments & analysis of their
behaviour on various investment avenues in India
Table 5: INVESTMENT PREFERENCE BASED ON OCCUPATION
Table 5.1 Preferred investment avenues for salaried
INVESTMENT
AVENUES VOTES WEIGHTS RANK
LIFE INSURANCE 35 16 1
GOLD 25 12 2
BANK FIXED DEPOSITS 24 11 3
MUTUAL FUNDS 23 11 4
REAL ESTATE 23 11 5
POST OFFICE SAVINGS 20 9 6
PPF 18 8 7
NSC 17 8 8
EQUITY SHARES 16 7 9
SAVINGS ACCOUNT 14 7 10
TOTAL 215 100
Since the investor has an option to invest in more than one Investment Avenue,
weights are given on the basis of preference to investment avenues. The avenue which
is given maximum weightage by the investors is ranked first. First Ten ranks are given
to the first ten preferred investment avenues. First preference is given to life insurance,
second to investing in gold, third to bank fixed deposits. Tenth preference is given to
bank savings account.
Table 5.2 Preferred investment avenues for business people
INVESTMENT
AVENUES VOTES WEIGHTS RANK
BANK FIXED DEPOSITS 13 16 1
INSURANCE 13 16 2
REAL ESTATE 11 14 3
MUTUAL FUNDS 10 12 4
GOLD 8 10 5
EQUITY SHARES 7 9 6
CHIT FUNDS 6 7 7
POST OFFICE SAVINGS 5 6 8
SAVINGS ACCOUNT 4 5 9
NSC 4 5 10
TOTAL 81 100
52 | P a g e
A study on Indian investors Investments & analysis of their
behaviour on various investment avenues in India
Thinking of the business people is almost same to that of salaried people, both
are similar in preferring insurance and bank fixed deposits, but given third preference
to real estate. Gold is given 5th place here. Last place is given to national savings
certificates.
Table 5.3 Preferred investment avenues for professionals
INVESTMENT
AVENUES VOTES WEIGHTS RANK
BANK FIXED DEPOSITS 10 19 1
INSURANCE 10 18 2
GOLD 6 11 3
REAL ESTATE 6 11 4
POST OFFICE SAVINGS 5 9 5
SAVINGS ACCOUNT 4 7 6
MUTUAL FUNDS 4 7 7
PPF 3 6 8
BONDS 3 6 9
GOVT SECURITIES 3 6 10
TOTAL 54 100
There is no much difference in the preferences of professionals when
compared to salaried and business people. Professionals does not prefer mutual funds
(7th rank), where salaried and business people prefer at 4th place. Professionals are
more interested in post office savings rather than mutual funds. As business people
professionals also prefer bank fixed deposits in the first place, then life insurance.
Professionals does not prefer national saving certificates at all, eliminated it from the
top 10.
53 | P a g e
A study on Indian investors Investments & analysis of their
behaviour on various investment avenues in India
Table 5.4 Preferred investment avenues for housewives
INVESTMENT
AVENUES VOTES WEIGHTS RANK
GOLD 9 18 1
INSURANCE 9 18 2
BANK FIXED DEPOSITS 8 16 3
REAL ESTATE 5 10 4
POST OFFICE SAVINGS 5 10 5
CHIT FUNDS 4 8 6
EQUITY 4 8 7
SAVINGS ACCOUNT 3 6 8
NSC 2 4 9
MUTUAL FUNDS 1 2 10
TOTAL 50 100
Indian housewives love gold as much as themselves. Housewives have given
first rank to gold pushing insurance and bank fixed deposits to second and third place.
House wives gave least preference to mutual funds. They are more attracted to
traditional investment avenues like gold, real estate, post office savings and chit funds.
Table 5.5 Preferred investment avenues – overall
INVESTMENT
AVENUES VOTES WEIGHTS RANK
LIFE INSURANCE 67 17 1
BANK FIXED DEPOSITS 55 14 2
GOLD 50 13 3
REAL ESTATE 45 12 4
MUTUAL FUNDS 38 10 5
POST OFFICE SAVINGS 35 9 6
EQUITY SHARES 29 8 7
SAVINGS ACCOUNT 25 6 8
NSC 25 6 9
PPF 22 5 10
TOTAL 391 100
54 | P a g e
A study on Indian investors Investments & analysis of their
behaviour on various investment avenues in India
HYPOTHESIS - Increase in Age decreases the Risk tolerance level.
• Relation between Age and risk tolerance
• Level of risk tolerance dependent on the age of the investor.
• Risk tolerance of an investor shows a negative relation to the age of that investor
• Lower the age higher the risk capabilities, higher the age lower the risk
capabilities.
LEVEL OF RISK TOLERANCE WITH RESPECT TO AGE GROUP
For the purpose of analysis investors are placed under three categories.
• Low risk category
• Medium risk
• High risk
Classification is done based on three factors
• Past investments of the investor.
• Investor experience in investing( level of experience).
• Investor preference for investments.
First the total sample of 100 is divided in to 3 age groups.
Investors in each age group are classified in to 3 risk categories based on the above
factors.
Table 6: Finding relationship between age group and level of risk tolerance
Table 6.1 risk tolerance of age group 20 – 30
PARAMETER 20 - 30 AGE GROUP
LEVEL OF RISK
NO
INVESTORS
OF
PERCENTAGE
LOW RISK
MEDIUM RISK
13
17
37%
49%
HIGH RISK 5 14%
TOTAL 35 100%
55 | P a g e
A study on Indian investors Investments & analysis of their
behaviour on various investment avenues in India
Table 6.2 risk tolerance of age group 30 – 40
PARAMETER 30 - 40 AGE GROUP
LEVEL OF RISK
NO
INVESTORS
OF
PERCENTAGE
LOW RISK 20 57%
MEDIUM RISK 11 32%
HIGH RISK 4 11%
TOTAL 35 100%
Table 6.3 risk tolerance of age group above 40
PARAMETER ABOVE 40 AGE GROUP
LEVEL OF RISK NO OF INVESTORS PERCENTAGE
LOW RISK 21 70%
MEDIUM RISK 6 20%
HIGH RISK 3 10%
TOTAL 30 100%
OBSERVATIONS:
Observations from table 6.1, 6.2, 6.3
From the table 6.1 we find that 49% of Investors between the age group of 20
- 30 came under medium risk category, where as the percentage of investors who came
under medium risk in the age group of 30 - 40 has decreased to 32%. It still came down
in the case of investors in the age group of 40 above, which is only 20%. We can see a
decreasing trend in the behaviour of investors towards medium risk when their age
increased 37% of the investors in the age group of 20 - 30 are in the low risk category,
where as Investors under the age group 30 - 40, 57% came under the low risk category,
there is a large increase in the investors who came under low risk category in this age
group. It has further increased, 70% of the investors in the age group above 40 came
56 | P a g e
A study on Indian investors Investments & analysis of their
behaviour on various investment avenues in India
under the low risk category. We can see an increasing trend with respect to low risk
category as the age increases.
Same observations are arrived at, when comparing the high risk category with
respect to the age groups. As the age increases the level of risk tolerance is coming
down. 14% came under the high risk category under the age group 20 - 30, when it came
to age group above 40 above only 10% came under the high risk category.
From the above observations we can conclude that there is a strong inverse or
negative relationship between risk tolerance and age group.
Attributes Risk Tolerance Level
Age -0.74
When Karl Pearson's correlation coefficient is calculated, it is found to be -
0.74 by which we can conclude that there is a strong negative correlation between Age
and Risk tolerance. Age accounts for the major differences in risk taking decisions by
the investors. The older an investor, the better seemed his/her performance in
comparison to the younger ones. Over- confidence in their own investment ability
among the youngsters largely accounts for the excessive trading among younger
investors leading to lower returns and this direct to decline in the risk tolerance level.
57 | P a g e
A study on Indian investors Investments & analysis of their
behaviour on various investment avenues in India
FINDINGS & SUGGESTIONS
Findings:
• The study reveals that male investors dominate the investment market in
India.
• Most of the investors possess higher education like graduation and above.
• Majority of the active and regular Investors belong to accountancy and
related employment; non-financial management and some other
occupations are very few.
• Most investors opt for two or more sources of information to make
investment decisions.
• Most of the investors discuss with their family and friends before making
an investment decision.
• Percentage of income that they invest depend on their annual income, more
the income more percentage of income they invest.
• The investors' decisions are based on their own initiative.
• The investment habit was noted in most of the people who participated in
the study.
• Most Investors prefer to park their funds in avenues like Life insurance,
FD, Gold and Real Estate.
• Most of the investors get their information related to investment through
electronic media (TV) next to print media (Newspaper/ Business
newspaper/ Magazines)
• Most of the investors are financial illiterates.
• Increase in age decrease the risk tolerance level.
• Women are attracted towards investing gold than any other investment
avenue.
58 | P a g e
A study on Indian investors Investments & analysis of their
behaviour on various investment avenues in India
Risk tolerance level and Suggestion of Suitable Portfolio to the Investors
The role of uncertainty and the knowledge about the return on Investment Avenue
are important components of any investment. The extent of an investor's ability to
tolerate these uncertainties of return is referred as risk tolerance level of an investor
(Schaefer, 1978). Risk tolerance tends to be subjective rather than objective.
Schaefer described the relation this way: "two persons may very well agree on
the riskiness of a set of gambles, but may nevertheless prefer different gambles, rank
ordering them differently according to their personal tolerance. There are two common
methods of estimating investors' tolerance of risk. The first method is a clear
understanding of the investor and his/her history with investment securities. The second
method is to use a questionnaire designed to elicit feelings about risky assets and the
comfort level of the investor given certain changes in the portfolio or certain investment
scenarios.
The second method is used to know the risk tolerance level of the investors. Based
on the responses to the questionnaire, the cumulative scale is constructed, and scores
are assigned to each investor accordingly to categorize the respondents in to i.e. Low,
Moderate and High-risk tolerance level. The investors are divided into 3 categories i.e.,
A, B and C depending on their risk tolerance starting with Low risk tolerance, Moderate
risk tolerance and High-risk tolerance.
Generally, investors with a low risk tolerance act differently with regard to risk
than individuals with a high-risk tolerance. Investor with a high level of risk tolerance
would be comfortable with market volatility, while low risk-tolerance individuals
require stability and are averse to uncertainties. (MacCrimmon & Wehrung, 1986).
Individuals with low levels of risk tolerance require lower chances of a loss, choose not
to operate in unfamiliar situations and require more information about the performance
of an investment (MacCrimmon & Wehrung).
59 | P a g e
A study on Indian investors Investments & analysis of their
behaviour on various investment avenues in India
Table 7: SUGGESTED PORFOLIO CONSTRUCTION BASED ON AGE GROUP
AND LEVEL OF RISK
PARAMETER
LEVEL OF
APPORTIONE
RISK
D
- PERCENTAGE OF INCOME TO BE
TOTAL
AGE GROUP LOW RISK MEDIUM RISK HIGH RISK
BETWEEN 20 - 30 30% 50% 20% 100%
BETWEEN 30 - 40 50% 35% 15% 100%
ABOVE 40 70% 20% 10% 100%
TOTAL 100% 100% 100%
Portfolio construction:
Step 1: Identify the age group of the investor, check in which age group he comes under.
Suggest suitable portfolio from the above table.
Example: An investor of age 36 working in public sector Company has approached you
to invest his 8 lakhs of money in a suitable investment.
Advice : The investor comes under the age group 30 - 40. His suitable portfolio will be
• 50% invest in low risk investment avenues.
• 35% invest in medium risk avenues.
• 15% invest in high risk avenues.
Step 2: investment preference made from the table 5.5 or based on his occupation.
Since he come under the occupation salaried he can choose the preferred investment
avenues from table 5.1
60 | P a g e
A study on Indian investors Investments & analysis of their
behaviour on various investment avenues in India
SUMMARY & CONCLUSION
Summary
This report reflects the behaviour of various categories of investors.
Selection of a perfect investment avenue is a difficult task to any investor. An
effort is made to identify the tastes and preferences of a sample of investors selected
randomly out of a large population. Despite of many limitations to the study I was
successful in identifying some investment patterns, there is some commonness in these
investors and many of them responded positively to the study.
This report concentrated in identifying the needs of current and future investors,
investor's preference towards various investment avenues are identified based on their
occupation. Investors risk in selecting an avenue is dependent on the age of that investor.
Conclusion
This study confirms the earlier findings with regard to the relationship between
Age and risk tolerance level of individual investors. The Present study has important
implications for investment managers as it has come out with certain interesting facets
of an individual investor. The individual investor still prefers to invest in financial
products which give risk free returns. This confirms that Indian investors even if they
are of high income, well educated, salaried, independent are conservative investors
prefer to play safe. The investment product designers can design products which can
cater to the investors who are low risk tolerant and use TV as a marketing media as they
seem to spend long time watching TVs.
61 | P a g e
A study on Indian investors Investments & analysis of their
behaviour on various investment avenues in India
Bibliography
Books
a) The Mindful Investor, by Maria Gonzalez and Graham Bayron.
b) Understanding Indian Investors, by Jawahar Lal.
c) Security Analysis and Portfolio Management by Ranganatham.
Website
a) www.nseindia.com
b) www.moneycontrol.com
c) www.bseindia.com
d) www.investing.com
62 | P a g e
A study on Indian investors Investments & analysis of their
behaviour on various investment avenues in India
ANNEXTURE I
Questionnaire
1. Are you aware of the following investment avenues? (Tick which ever applicable in the boxesJ.
Safe/Low Risk Investment Avenues:
Savings Account.
Bank Fixed Deposits.
Public Provident Fund.
National Savings Certificates.
Post Office Savings.
Government Securities.
Moderate Risk Investment Avenues:
Mutual Funds.
Life Insurance.
Debentures.
Bonds.
High Risk Investment Avenues:
Equity Share Market.
Commodity Market.
FOREX Market.
Traditional Investment Avenues:
Real Estate (property).
Gold/Silver.
Chit Funds.
Emerging Investment Avenues:
Virtual Real Estate.
Hedge Funds.
Private Equity Investments.
Art and Passion.
2. What do you think are the best options for investing your money? (choose from above listJ (Rank in the order of
preferenceJ
1. 2. 3.
4. 5. 6.
3. Reasons for selecting these options :
1
2
4. In the past, you have invested mostly in (write as many as applicableJ
5. In which sector do you prefer to invest your money?
Private Sector
Government Sector
Public Sector
Foreign Sector
63 | P a g e
A study on Indian investors Investments & analysis of their
behaviour on various investment avenues in India
6. What are the important factors guiding your investment decisions? (Return, safety of principal, diversification,
progressive values, etc.)?
7. What are your savings objectives?
Children's Education
Retirement
Healthcare
Children's Marriage
Others
8. What is your investment objective?
Home Purchase
Income and
Capital
Preservation
Long-term
Growth
Growth and
Income
Others
Short-term
Growth
9. What is the purpose behind investment?
Wealth Creation
Tax Saving
Earn Returns
Future Expenses
Others
10. Have you set aside funds specifically for the education and marriage of your children?
If yes, please give amounts and how the funds are held
Education: (Amount Rs. Invest in)
Marriage: (Amount Rs. Invest in)
11. Do you have a formal budget for family expenditure?
Yes No
12. Do you have a savings and investment target amount you aim for each year?
Yes, if yes: (Amount) No
13. At which rate do you want your investment to grow?
Steadily At an Average
Rate
Fast
14. Which factor do you consider before investing?
Safety of Principal
Low Risk
High Returns
Maturity Period
15. Do you invest your money in share market? (through a DEMAT A/C)
Yes No
15a. If yes: Imagine that stock market drops after you invest in it then what will you do?
Withdraw your money
Wait to increase
Invest more in it
16. How often do you monitor your investment?
Daily Monthly Occasionall
64 | P a g e
A study on Indian investors Investments & analysis of their
behaviour on various investment avenues in India
17. What percentage of your income do you invest?
0-15% 15-30% 30-50%
18. What is the time period you prefer to invest?
Short-term (0-1yrs)
Medium-term (1-5yrs)
Long-term (>5yrs)
19. Can you take the risk of losing your principal investment amount?
Yes, If yes: (What percentage)
No
20. What is your source of investment advice?
Newspapers
News Channels
Family or Friends
Books
Internet
Magazines
Advisors
Certified Market
Professional/Fina
ncial Planners
65 | P a g e
A study on Indian investors Investments & analysis of their
behaviour on various investment avenues in India
Personal Details
(Personal details are kept highly confidential; these details will not be revealed to any third party)
A. Name:
B. Designation:
C. Organization:
D. Age Group:
Below 20
Between 20-30
Between 30-40
Above 40
E. Qualification:
Under Graduate
Graduate
Post Graduate
Other
F. Occupation (what category do you come under):
Salaried
Business
Housewife
Student
Professional
Retired
Other
G. Annual income:
Below Rs. 2,00,000
Rs. 2,00,000- Rs 4,00,000
Rs. 4,00,000-Rs 6,00,000
Above Rs. 6,00,000
H. Do you have a financial advisor?
Yes
No
I. What best describes your investment experience?
Beginning (no investment experience)
Moderate (comfortable with fixed deposits, chit funds, post office)
Knowledgeable (has bought or sold individual shares of stock or bonds)
Experienced (frequently trade in stocks, commodities, options and futures)
Date:
Signature:
You have successfully completed this Questionnaire
Thank you again for your time and support!

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A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India

  • 1. MAJOR PROJECT REPORT ON A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India By SUBHASHISH MONDAL 485 In Partial Fulfilment for the award of the degree Post Graduate Diploma in Management 2016-18 New Delhi Institute of Management 50 (B&C), 60, Tughlakabad Institutional Area, New Delhi-110062 E-mail:placement@ndimdelhi.org Website: www.ndimdelhi.org
  • 2. 2 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India MAJOR PROJECT REPORT ON A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India Under the supervision of Prof. Anil Kamboj Submitted By - Submitted to - Subhashish Mondal Prof. Anil Kamboj Roll No. – 485
  • 3. 3 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India Contents Topics Page No. • Acknowledgement ………………………………... 5 • Declaration ……………………………………….. 6 • Executive summery ………………………………. 7 • Abstract …………………………………………… 8 • Literature Review ………………………………… 9 • Objectives of the Study …………………………… 10 • Need of the Study …………………………………. 11 • Value Addition ……………………………………. 11-12 • Limitation of the Study …………………………… 12 • Research Methodology …………………………… 13-14 ➢ Sampling Unit ………………..................................... 13 ➢ Sampling Size ………………………………………. 13 ➢ Sampling Ares ………………………………………. 13 ➢ Primary Data ..………………………………………. 13 ➢ Secondary Data ……………………………………... 14 • Industry Overview ……………………………….. 15-17 • Description of Various Investment Avenues …… 18 ➢ Savings Account ……………………………………. 18 ➢ Fixed/Term Deposits ……………………………….. 19 ➢ Public Provident Fund (PPF) ……………………….. 19 ➢ National Savings Certificate (NSC) ………………… 20 ➢ Post Office Savings ……………………………….... 22 ➢ Government Securities (G-Sec) ……………………. 22 ➢ Mutual Fund ….…………………………………….. 23 ➢ Life Insurance ……………………………………… 24 ➢ Bond & Debentures ………………………………… 25 ➢ Equity Trading ….…………………………………. 27 ➢ Commodity Trading ……………………………….. 29 ➢ Forex Market ……………………………………….. 30 ➢ Real Estate ………………..………………………… 32 ➢ Investment in Gold …………………………………. 32 • EMERGING INVESTMENT AVENUES ……… 34 ➢ Investment in Art …………………………………… 35 ➢ Hedge Fund ………………………………………… 35-36 ➢ Private Equity ……………………………………… 37 • DATA ANALYSIS & INTERPRETATION …. 38-56
  • 4. 4 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India • FINDINGS & SUGGESTIONS ………………….. 57-59 • SUMMARY & CONCLUSION …………………. 60 • BIBLIOGRAPHY ………………………………… 61 • ANNEXURE ………….............................................. 62-65
  • 5. 5 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India ACKNOWLEDGEMENT With candour and pleasure, I take the opportunity to express my sincere thanks and obligation to my esteemed learned Shri V.M. Bansal, Chairman, NDIM, New Delhi who allowed me to conduct this project. I would like to thank my faculty mentor, Dr. Anil Kamboj who was always there to help and guide whenever I needed help. Also, I would like to thank New Delhi Institute of Management for providing me an opportunity to write a report on “A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India” where I got to know ‘Indian Investment Industry’. It is because of their professional guidance and cooperation, without which it would not have been possible for me to complete my report. No significance achievement can be a solo performance, especially when it comes to preparing a project of this nature, this project has by no means an exception. I believe that if it were not for the support, confidence and encouragement of many people, this report would look much different than it looks today. Finally, I gratefully acknowledge the support, encouragement & patience of my parents and as always nothing in my life would be possible without God. Thank You! Subhashish Mondal Roll No. - 485
  • 6. 6 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India DECLARATION I, Subhashish Mondal student of New Delhi Institute of Management 2016-18 Batch declare that every part of the Project Report “A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India” submitted by me is original. I was in regular contact with my faculty guide and contacted 4-5 times for discussing the project. Date of project submission: April 4, 2018 Signature of the Student CERTIFICATE OF AUTHENTICITY Faculty Mentor’s Comments: ________________________________________________________________________________________ ________________________________________________________________________________________ ________________________________________________________________________________________ ________________________________________________________________________________________ ________________________________________________________________________________________ ________________________________________________________________________________________ Signature of the Faculty Mentor Prof. Anil Kamboj
  • 7. 7 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India EXECUTIVE SUMMARY This report was commissioned to examine why the involvement of common people in Capital market in India is very low compared to other countries. The research draws attention to the fact that in 2014-15, there is a huge transformation in Indian capital market regulation which attract FPI but still for domestic consumers there is no changes shows in the participation of common people. Though the participation in Mutual fund is increase significantly. This research was conduct to analyze the investors need & wants & depending upon the needs, how could we educate them to not just to relay on traditional investment options but invest on capital market for investments. Findings: • Throughout the research it was observed that most of the rural people fear capital market; • People are trapped by local financial pull investments; • Some people have some myth about capital market; • People are happy with their traditional investments; • People are very much conservatives about their investments; • Risk tolerance level in rural people is very low; From that research I have learnt that giving proper education to Investors on investment products either by campaign or mass target advertisement or through social media platform like YouTube, Facebook etc. is the way to make them participate in Indian Capital Market.
  • 8. 8 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India Abstract Savings form an important part of the economy of any nation. With the savings invested in various options available to the people, the money acts as the driver for growth of the country. Indian financial scene too presents a plethora of avenues to the investors. Though certainly not the best or deepest of markets in the world, it has reasonable options for an ordinary man to invest his savings. One needs to invest and earn return on their idle resources and generate a specified sum of money for a specific goal in life and make a provision for an uncertain future. One of the important reasons why one needs to invest wisely is to meet the cost of inflation. Inflation is the rate at which the cost of living increases. The cost of living is simply what it cost to buy the goods and services you need to live. Inflation causes money to lose value because it will not buy the same amount of a good or service in the future as it does now or did in the past. The sooner one starts investing the better. By investing early, you allow your investments more time to grow, whereby the concept of compounding increases your income, by accumulating the principal and the interest or dividend earned on it, year after year. The three golden rules for all investors are: ➢ Invest early ➢ Invest regularly ➢ Invest for long term and not for short term
  • 9. 9 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India Literature Review 1) Literature suggests that major research in investors' behaviour has been done by behavioural scientists such as Weber, Shiller and Shefrin. Shiller 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. 2) Horvath and Zuckerman suggested that one's biological, demographic and socioeconomic characteristics; together with his/her psychological makeup affects one's risk tolerance level. Malkiel suggested that an individual's risk tolerance is related to his/her household situation, lifecycle stage and subjective factors. Mittra discussed factors that were related to individuals risk tolerance, which included years until retirement, knowledge sophistication, income and net worth. Guiso, Jappelli and Terlizzese, Bajtelsmit and VenDerhei, Powell and Ansic, Jianakoplos and Bernasek, Hariharan, Chapman and Domain, Hartog, Ferrer-I- Carbonell and Jonker concluded that males are more risk tolerant than females. 3) Wallach and Kogan 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 found that the change in the risky asset holdings were not uniform. He found individuals to increase their investments in risky assets throughout their working life time, and decrease their risk exposure once they retire.
  • 10. 10 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India Objectives of the Study The purpose of the analysis is to determine the investment behaviour of investors and investment preferences for the same. Investors perception will provide a way to accurately measure how the investors think about the products and services provided by the company. Today's trying economic conditions have forced difficult decisions for companies. Most are making conservative decisions that reflect a survival mode in the business operations. During these difficult times, understanding what investors on an ongoing basis is critical for survival. Executives need a third party understanding on where investor's loyalties stand. More than ever management needs ongoing feedback from the investors, partners and employees in order to continue to innovate and grow. The main objective of the project is to find out the needs of the current and future investors. For this analysis, customer perception and awareness level will be measured in important areas such as: 1. To understand in depth about different investment avenues available in India. 2. To find out how investors get information about the various financial instruments. 3. The type of financial instruments, they would prefer to invest. 4. The duration for which they would prefer to keep their money invested. 5. What are the factors that they consider before investing? 6. To give some recommendations to the investors that where they should invest. 7. To know the risk tolerance level of the individual investor and suggest a suitable portfolio. 8. To develop a profile of sample Indian individual investor in terms of their demographics. And demographics based on occupation of the sample investor. 9. To identify the objective of savings of an investor. 10. To study the dependence/independences of the demographic factors (Age) of the investor and his/her risk tolerance level.
  • 11. 11 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India Need of the Study Stock market has been subjected to speculations and inefficiencies, which are beached to the rationality of the investor. Traditional finance theory is based on the two assumptions. Firstly, investors' make rational decisions; and secondly investors are unbiased in their predictions about future returns of the stock. However financial economist has now realized that the long-held assumptions of traditional finance theory are wrong and found that investors can be irrational and make predictable errors about the return on investment on their investments. This analysis on Individual Investors' Behaviour is an attempt to know the profile of the investor and know the characteristics of the investors to know their preference with respect to their investments. The study also tries to unravel the influence of demographic factors like age on risk tolerance level of the investor. Value Addition This analysis will help to strengthen investor involvement to investment products. This analysis will also throw lighten various investment avenues available in India that will help in many ways like. The expectations of different types of investors regarding particular service requirements can be identified. · The common problem areas faced by the investors can be understood. · It also enhances new services initiatives. · This study will help in gaining a better understanding of what an investor looks for in an investment option. · It can be used by the financial sector in designing better financial instrument customized to suit the needs of the investor. · It will also help the agents and brokers in marketing the existing financial instruments. · It will provide knowledge to the investors about the various financial services provided by the company to their investors. · It will also help the company to understand what is the requirement and expectations of different categories of investors.
  • 12. 12 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India This analysis will be originated in order to empower the investors with detailed research on various investments avenues available in India. The awareness lever of the investors about the various investment options and what is the perception of the investors with regard to the investments they want to make. Limitation of the Study This analysis is based upon investors' behavior for investment preferences during normal time vis-a-vis recessionary period. This analysis would be focusing on the information from the investors about their knowledge, perception and behavior on different financial products. The various limitations of the study are: • The total number of financial instruments in the market is so large that it needs a lot of resources to analyze them all. There are various companies providing these financial instruments to the public. Handling and analyzing such a varied and diversified data needs a lot of time and resources. • As the analysis is based on primary as well as secondary data, possibility of unauthorized information cannot be avoided. • Reluctance of the people to provide complete information about them can affect the validity of the responses. • The lack of knowledge of customers about the financial instruments can be a major limitation. • The information can be biased due to use of questionnaire.
  • 13. 13 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India Research Methodology Sampling Technique: Initially, a rough draft will be prepared keeping in mind the objective of the research. A pilot study will be undertaken in order to know the accuracy of the questionnaire. The final questionnaire will be arrived at only after certain important changes are incorporated. Convenience sampling technique will be used for collecting the data from different investors. The investors are selected by the convenience sampling method. The selection of units from the population based on their easy availability and accessibility to the researcher is known as convenience sampling. Convenience sampling is at its best in surveys dealing with an exploratory purpose for generating ideas and hypothesis. Sampling unit: The respondents who will be asked to fill out the questionnaires are the sampling units. These comprise of employees of MNC's, government employees, housewives, self- employed, professionals and other investors. Sampling size: The sample size will be restricted to only 125, which comprised of mainly people from different regions of Barasat, Kolkata due to time constraints. Sampling area: The area of the research is Barasat, Kolkata. Primary Data: Information is collected by conducting a survey by distributing a questionnaire to 100 investors in Barasat, Kolkata. These 100 investors are of different age group, different occupation, different income levels, and different qualifications. (A copy of the questionnaire is given in the last as ANNEXURE 1).
  • 14. 14 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India Secondary Data: This data is collected by using the following means. 1. Articles in Financial Newspapers ('Economic times' and 'Business Standard'). 2. Investment Magazines, Business Magazines, Financial chronicles. 3. Expert's opinion published in various print media. 4. Books written by various Foreign and Indian authors on Investments. 5. Data available on internet through various websites
  • 15. 15 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India Industry Overview Indian financial industry is considered as one of the strongest financial sectors among the world markets. Many industry experts may give various reasons for such Indian financial industry reputation, but there is only one answer which no one can deny, is the effective control and governance of the country's supreme monetary authority the "RESERVE BANK OF INDIA" (RBI). Financial sector in India has experienced a better environment to grow with the presence of higher competition. The financial system in India is regulated by independent regulators in the field of banking, insurance, mortgage and capital market. Government of India plays a significant role in controlling the financial market in India. Ministry of Finance, Government of India controls the financial sector in India. Every year the finance ministry presents the annual budget on 28th February. The Reserve Bank of India is an apex institution in controlling banking system in the country. Its monetary policy acts as a major weapon in India's financial market. Various governing bodies in financial sector: 1. RBI - Reserve Bank of India is the supreme authority and regulatory body for all the monetary transactions in India. RBI is the regulatory body for various Banking and Non-Banking financial institutions in India. 2. SEBI - Securities and Exchange Board of India is one of the regulatory authorities for India's capital market. 3. IRDA - Insurance regulatory and development authority in India regulates all the insurance companies in India. 4. AMFI - Association of mutual funds in India regulates all the mutual fund companies in India. 5. FIPB - Foreign investments promotion board regulates all the foreign direct investments made in India.
  • 16. 16 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India ✓ Ministry of housing has introduce he Real Estate (Regulation and Development) Act, 2016 is an Act of the Parliament of India which seeks to protect home-buyers as well as help boost investments in the real estate industry. ✓ Investments in gold is governed by the world gold council, in India we do not have any regulatory authority for investments in gold. ✓ Ministry of Finance, Government of India has a control over all the financial bodies in India. ✓ Government securities, Public Provident Fund (PPF), National Savings Certificate (NSC), Post Office Savings are all under the control of the central government. Investment are normally categorized using the risk involved in it, risk is dependent on various factors like the past performance, its governing body, involvement of the government etc., in this scenario Indian investments are classified in to 3 categories based on risk. They are: ➢ Low Risk/ No Risk Investments. ➢ Medium Risk Investments. ➢ High Risk Investments. Apart from these, there are traditional investment avenues and emerging investment avenues. Various Investment avenues available in India Safe/Low Risk Avenues: • Savings Account • Bank Fixed Deposits. • Public Provident fund. • National savings certificates. • Post office savings. • Government Securities. Moderate Risk Avenues: • Mutual Funds. • Life Insurance. • Debentures. • Bonds.
  • 17. 17 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India High Risk Avenues: • Equity Share Market. • Commodity Market. • FOREX Market. Traditional Avenues: • Real Estate (property). • Gold/Silver. • Chit Funds. Emerging Avenues: • Virtual Real Estate. • Hedge Funds/Private Equity Investments. • Art and Passion.
  • 18. 18 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India Description on Various Investment Avenues SAVINGS ACCOUNT As the name denotes, this account is perfect for parking your temporary savings. These accounts are one of the most popular deposits for individual accounts. These accounts provide cheque facility and a lot of flexibility for deposits and withdrawal of funds from the account. Most of the banks have rules for the maximum number of withdrawals in a period and the maximum amount of withdrawal, but no bank enforces these. However, banks have every right to enforce such boundaries if it is felt that the account is being misused as a current account. At present the interest on these accounts is regulated by Reserve Bank of India. Presently Indian banks are offering 4% p.a. interest rate on such deposits. This account gives the customer a nominal rate of interest and he can withdraw money as and when the need arises. The position of account is depicted in a small book known as 'Pass Book'. Such accounts should be treated as a temporary parking area because the rate of interest is much less than Fixed Deposits. As soon as one's savings accumulate to an amount which he can spare for a certain period of time, shift this money to Fixed Deposit. The returns on the money kept in Savings Bank account will be less but the freedom to withdraw is the highest. FIXED DEPOSITS/ TERM DEPOSITS The term "fixed" in Fixed Deposits denotes the period of maturity or tenor. Fixed Deposit, therefore, pre plans a length of time for which the depositor decides to keep the money with the Bank and the rate of interest payable to the depositor is decided by this tenure. Rate of interest differs from Bank to Bank. Normally, the rate is highest for deposits for 3-5 years. This, however, does not mean that the depositor loses all his rights over the money for the duration of the tenor decided. Deposits can be withdrawn
  • 19. 19 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India before the period is over. However, the amount of interest payable to the depositor, in such cases goes down. Every Banks offer fixed deposits schemes with a wide range of tenures for periods from 7 days to 10 years. Therefore, the depositors are supposed to continue such Fixed Deposits for the duration of time for which the depositor decides to keep the money with the bank. However, in case of need, the depositor can ask for closing the fixed deposit in advance by paying a penalty. Soon some banks have even introduced variable interest fixed deposits. The rate of interest in such deposits will keep on varying with the prevalent market rates i.e. it will go up if market interest rate goes and it will come down if the market rates fall. Tax deduction: Banks should deduct tax at source on interest paid more than Rs. 5000 per annum to any depositor. This is not per deposit but per individual. Therefore, if an individual has 5 deposits and the aggregate interest earned on these is Rs. 7000 though in each individual deposit, interest should not exceed Rs. 2000, tax must be deducted at source. PUBLIC PROVIDENT FUND (PPF) PPF is a 30-year-old constitutional plan of the Central Government happening with the objective of providing old age profits security to the unorganized division workers and self employed persons. Currently, there are almost 30 lakhs PPF account holders in India across banks and post offices. Eligibility: Any individual salaried or non-salaried can open a PPF account. He may also pledge on behalf of a minor, HUF, AOP and BOI. Even NRIs can open PPF account. A person can contain only one PPF account. Also two adults cannot open a combined PPF account. The collective annual payment by an individual on account of himself his minor child and HUF/AOP/BOI (of which individual is member) cannot exceed Rs.70, 000 or else the excess amount will be returned without any interest.
  • 20. 20 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India Subscription: The yearly contribution to PPF account ranges from a least of Rs.500 to a maximum of Rs.70, 000 payable in multiple of Rs.5 either in lump sum or in convenient instalments, not exceeding 12 in a year. Penalty in case of non-subscription: The account will happen to obsolete if the required minimum of Rs.500 is not deposited in any year. The amount before now deposited will continue to earn interest but with no facility of taking loan or making withdrawals. The account can be regularized by depositing for each year of default, arrears of Rs.500 along with penalty of Rs.100. Where to open: A PPF account can be opened at any branch of State Bank of India or its subsidiaries or in few national banks or in post offices. On opening of account a pass book will be issued wherein all amounts of deposits, withdrawals, loans and repayment together with interest due shall be entered. The account can also be transferred to any bank or post office in India. Interest rate: Deposits in the account earn interest at the rate notify by the Central Govt from time to time. Interest is designed on the lowest balance among the fifth day and last day of the calendar month and is attributed to the account on 31st March every year. So to derive the maximum, the deposits should be made between 1st and 5th day of the month, as it also enables you to earn interest on your Savings Bank A/c for the previous month. Tenure: Even though PPF is 15 year scheme but the effectual period works out to 16 years i.e. the year of opening the account and adding 15 years to it. The sum made in the 16th financial year will not earn any interest but one can take advantage of the tax rebate. Withdrawal: The investor is allowable to make one removal every year beginning from the seventh financial year of an amount not more than 50% of the balance at the end of the fourth year or the financial year immediately preceding the withdrawal, whichever is less. This facility of making partial withdrawals provide liquidity and the withdrawn amount can be used for any purpose.
  • 21. 21 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India NATIONAL SAVINGS CERTIFICATE (NSC) National Savings Certificate (NSC) is a fixed interest, long term instrument for investment. NSCs are issued by the Department of Post, Government of India. Since they are backed by the Government of India, NSCs are a practically risk-free avenue of investment. They can be bought from authorized post offices. NSCs have a maturity of 6 years. They offer a rate of return of 8% per annum. This interest is calculated every six months and is merged with the principal. That is, the interest is reinvested, and is paid along with the principal at the time of maturity. For every Rs. 100 invested, you receive Rs. 160.10 at maturity. NSCs qualify for investment under Section 80C of the Income Tax Act (IT Act). Even the interest earned every year qualifies under Sec 80C. This means that investments in NSCs and the interest earned on it every year, up to Rs. 1 Lakh, are deductible from the income of the investor. There is no tax deducted at source (TDS). Features of NSC • Minimum investment Rs. 500/- No maximum limit. • Rate of interest 8% compounded half yearly. • Rs. 1000/- grow to Rs. 1601/- in six years. • Two adults, Individuals, and minor through guardian can purchase. • Companies, Trusts, Societies and any other Institutions not eligible to purchase. • Non-resident Indian/HUF cannot purchase. • No pre-mature encashment.
  • 22. 22 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India POST OFFICE SAVINGS There are various investment schemes available in post offices, like KVP (Kisan Vikas Patra), MIS (Monthly Income Scheme) and various others. All these schemes are completely risk-free, and you do not need to have large sum of money to start investing in these post office schemes. Some schemes offer Tax-saving benefits and some gives tax-free returns. So you need to find out some scheme as per your requirements. These are some of the safe and secure investments that you can opt for. Though the interest rates are not so high, but still you must invest some part of your money into any of these investment instruments. It is your hard-earned money, so better play safe and invests some part in secure funds also. GOVERNMENT SECURITIES (G-secs) Government securities (G-secs) are supreme securities which are issued by the Reserve Bank of India on behalf of Government of India in lieu of the Central Government's market borrowing program. The term Government Securities includes: • Central Government Securities. • State Government Securities • Treasury bills The Central Government borrows funds to finance its 'fiscal deficit'. The market borrowing of the Central Government is increased through the issue of dated securities and 364 days treasury bills either by auction or by floatation of loans. In addition to the above, treasury bills of 91 days are issued for managing the temporary cash mismatches of the Government. These do not form part of the borrowing program of the Central Government.
  • 23. 23 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India Features • Issued at face value • No default risk as the securities carry sovereign guarantee. • Ample liquidity as the investor can sell the security in the secondary market • Interest payment on a half yearly basis on face value • No tax deducted at source • Can be held in Demat form. • Redeemed at face value on maturity • Maturity ranges from of 2-30 years. • Securities qualify as SLR investments (unless otherwise stated). Benefits of Investing in Government Securities • No tax deducted at source • Additional Income Tax benefit u/s 80L of the Income Tax Act for Individuals • Qualifies for SLR purpose • Zero default risk being sovereign paper • Highly liquid. • Transparency in transactions and simplified settlement procedures through CSGL/NSDL. MUTUAL FUNDS A mutual fund is a professionally-managed firm of collective investments that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities. In a mutual fund, the fund manager, who is also known as the portfolio manager, trades the fund's underlying securities, realizing capital gains or losses, and collects the dividend or interest income. The investment proceeds are then passed along to the individual investors. The value of a share of the mutual fund, known as the net asset value per share (NAV), is calculated daily based on
  • 24. 24 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India the total value of the fund divided by the number of shares currently issued and outstanding. Advantages of Mutual Funds • Diversification • Professional Management • Regulatory oversight • Liquidity • Convenience • Transparency • Flexibility • Choice of schemes • Tax benefits • Well regulated Following are the few drawbacks of Mutual Funds: • No Guarantees • Fees and commissions • Taxes • Management risk LIFE INSURANCE Life insurance is a contract between the policy owner and the insurer, where the insurer agrees to pay an amount of money upon the happening of the insured individual's or individuals' death or other event, like terminal illness, critical illness. In return, the policy owner agrees to pay a fixed amount called a premium at regular intervals or in bulge sum.
  • 25. 25 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India Like other insurance policies, life insurance is also a contract between the insurer and the policy owner whereby a benefit is paid to the nominated beneficiaries if an insured event occurs which is covered by the policy. The assessment for the policyholder is derived not from an actual claim event. But to a certain extent it is the value derived from the 'peace of mind' experienced by the policyholder, because of the negating of adverse financial consequences caused by the death of the Life Assured. To be a life policy the insured event must be based upon the lives of the people named in the policy. Advantages of a Life Insurance Policy • Financial Security • Helps to diverts States Resources for Other Purpose • Facilitates Economic Movements • Helps to Avail Tax Exemptions BONDS & DEBENTURES Bonds & Debentures, these two words can be used interchangeably. In Indian markets, we use the word bonds to indicate debt securities issued by government, semi- government bodies and public sector financial institutions and companies. We use the word debenture to refer to the debt securities issued by private sector companies. Bonds - Debt securities issued by Govt. or Public sector companies Debentures - Debt securities issued by private sector companies In other words we can tell that a bond is a debt security, similar to an I.O.U. When you purchase a bond, you are lending money to a government, municipality, corporation, or Public entity known as the issuer. The issuer promises to pay you a specified rate of interest during the life of the bond, in return for the loan. They also promises to repay the face value of the bond (the principal) when it "matures." Following are allowed to issue bonds
  • 26. 26 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India • Governments • Municipalities • Variety of institutions • Corporations Buying and Holding of Bonds: Investors can subscribe to primary issues of Corporates and Financial Institutions (FIs). It is common practice for FIs and Corporates to raise funds for asset financing or capital expenditure through primary bond issues. Some bonds are also available in the secondary market. The minimum investment for bonds can either be Rs 5,000 or Rs 10,000. However, this amount varies from issue to issue. There is no prescribed upper limit to your investment. The duration of a bond issue usually varies between 5 and 7 years. Selling of Bonds: Selling bonds in the secondary market has its own drawbacks. First, there is a liquidity problem which means that it is a tough job to find a buyer. Second, even if you find a buyer, the prices may be at a sharp discount to its intrinsic value. Third, you are subject to market forces and, hence, market risk. If interest rates are running high, bond prices will be down and you may well end up incurring losses. On the other hand, Debentures are always secured. Debentures A debenture is similar to a bond except the securitization conditions are different. A debenture is generally unsecured in the sense that there are no liens or pledges on specific assets. It is defined as a certificate of agreement of loans which is given under the company's stamp and carries an undertaking that the debenture holder will get a fixed return (fixed on the basis of interest rates) and the principal amount whenever the debenture matures.
  • 27. 27 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India Debentures vs. Bonds: Debentures and bonds are similar except for one difference bonds are more secure than debentures. In case of both, you are paid a guaranteed interest that does not change in value irrespective of the fortunes of the company. However, bonds are more secure than debentures, but carry a lower interest rate. The company provides collateral for the loan. Moreover, in case of liquidation, bondholders will be paid off before debenture holders. STOCK MARKET The first step is to understand the stock market. A share of stock is the smallest unit of ownership in a company. If you own a share of a company's stock, you considered as the part owner of the company. Stock Market Trading Stock market trading consists of buying and selling of company stocks and as well as stock derivatives. This type of trading usually takes place in a stock exchange, in which companies need to be listed in order for their shares to be bought and sold. This trading market provides with substantial earnings potential and is one among the most popular investment options. Working of Stock Market Stock market trading is normally done by brokers. As a result, the first step is to seek a reliable investment broker. Stock market trading occurs at a physical stock exchange, where buyers and sellers of company shares meet and agree on the price at which the transactions would materialize. Conventional stock trading entails an investor placing an order for a specific number of shares of a company with his/her broker present in the physical stock market. The broker forwards the order to the floor clerk, who then attempts to locate a trader
  • 28. 28 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India desire to sell those shares. Bids are then exchanged. The transaction closes only after the buyer agrees on the price quoted by the seller. This technique is also called "open outcry," because it involves traders crying out their bids. Stock market trading will also takes place online. This procedure is much quicker and less complicated than trading in the physical stock market. Online stock market trading engrosses the real time placement of buying and selling orders for stocks. The transaction is accomplished when the trading system is capable to match bids and a confirmation is received. Benefits of Stock Market Trading • It promotes economic growth. • It helps companies raise capital and handle financial issues. • It ensures that money is invested in businesses to enhance profit potential. • It helps investors realize substantial profits. Drawbacks of Stock Market Trading: • It proposes lower leverage than other forms of trading, such as Forex trading. • The short selling of stocks is hard, because stock prices do not appreciate significantly in a short span of time. Accordingly, there is a wait period before you can book healthy profits. • It is traded for limited hours in a day.
  • 29. 29 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India COMMODITY TRADING The terms "commodities" and "futures" are often used to depict commodity trading or futures trading. It is similar to the way "stocks" and "equities" are used when investors talk about the stock market. Commodities are the actual physical goods like gold, crude oil, corn, soybeans, etc. Futures are contracts of commodities that are traded at a commodity exchange like MCX. Apart from numerous regional exchanges, India has three national commodity exchanges namely, Multi Commodity Exchange (MCX), National Commodity and Derivatives Exchange (NCDEX) and National Multi- Commodity Exchange (NMCE). Forward Markets Commission (FMC) is the regulatory body of commodity market. It is one of a few investment areas where an individual with limited capital can make extraordinary profits in a relatively short period of time. Many people have become very rich by investing in commodity markets. Commodity trading has a bad name as being too risky for the average individual. The fact is that commodity trading is only as risky as you want to make it. Those who treat trading as a get-rich-quick scheme are likely to lose because they have to take big risks. If you act carefully, treat your trading like a business and are willing to settle for a reasonable return, the possibility of success is very high. The course of trading commodities is also known as futures trading. Unlike other kinds of investments, such as stocks and bonds, when you trade futures, you do not really buy anything or own anything. You are speculating on the future direction of the price in the commodity you are trading. This is like a bet on future price direction. The terms "buy" and "sell" merely indicate the direction you expect future prices will move. If, for example, you were speculating in wheat, you would buy a futures contract if you thought the price would be going up in the future. You would sell a futures contract if you thought the price of wheat would go down. For every trade, there is always a buyer and a seller. Neither person has to own any wheat to participate. But he has to deposit
  • 30. 30 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India sufficient capital with a brokerage firm to insure that he will be able to pay the losses if his trades lose money. Working of Commodity Market: Commodity Market works Just like stock futures. When you buy Futures, you don't have to pay the entire amount, just a fixed percentage of the cost. This is known as the margin. Let's say you are buying a Gold Futures contract. The minimum contract size for a gold future is 100 Gms. 100 gms of gold may be worth Rs. 1,50,000. The margin for gold set by MCX is 3.5%. So you only end up paying Rs 5,250. The low margin means that you can buy futures representing a large amount of gold by paying only a fraction of the price. So you bought the Gold Futures contract when it was Rs. 1,50,000 per 100 gms. The next day, the price of gold rose to Rs 1,60,000 per 100 gms. Rs 10,000 (Rs 1,60,000 - Rs 1,50,000) will be credited to your account. The following day, the price dips to Rs 1,55,000. Rs 5000 will get debited from your account (Rs 1,60,000 - Rs 1,55,000). FOREX MARKET Forex trading is the immediate trade of one currency and the selling of another. Currencies are traded through an agent or dealer and are traded in pairs. For example Euro (EUR), US dollar (USD), British pound (GBP) or Japanese Yen (JPY). Here you are not buying anything physical; this type of trading is confused. Think of buying a currency as buying a share of a particular country. When you purchase say Japanese Yen, you are in effect buying a share in the Japanese financial system, as the price of the currency is a direct reflection of what the market thinks about the current and future health of the Japanese economy. In common, the exchange rate of a currency versus other currencies is a reflection of the condition of that country's financial system compared to the other countries financial system.
  • 31. 31 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India Unlike other financial markets like the New York Stock Exchange, the Forex spot market has neither a physical location nor a central exchange. The Forex market is measured an Over- the-Counter (OTC) or Interbank market, due to the fact that the entire market is run electronically within a network of banks continuously over a 24-hour period. Until the late 1990's only the big guys could play this game. The first requirement was that you could trade only if you had about ten to fifty million bucks to start with Forex. Forex was initially intended to be used by bankers and large institutions and not by small guys. However, because of the rise of the Internet, online Forex trading firms are now able to offer trading accounts to 'retail' traders. All you need to get started is a computer, a high-speed Internet connection, and the information. The foreign exchange market is exclusive because of the following reasons; • Its trading volumes • The tremendous liquidity of the market • Its geographical dispersion • Its long trading hours • The variety of factors that affect exchange rates. • The low limits of profit compared with other markets of fixed income, but profits can be high due to very great trading volumes • The use of leverage Benefits of Forex Trading • Forex is the largest market. • No Bulls or Bears! • Forex trading online offers great leverage • Forex prices are predictable. • Forex trading online is commission free • Forex trading online is instant.
  • 32. 32 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India REAL ESTATE AS AN INVESTMENT OPTION The growth curve of Indian economy is at an all time high and contributing to the upswing is the real estate sector in particular. Investments in Indian real estate have been strongly taking up over other options for domestic as well as foreign investors. The boom in the sector has been so appealing that real estate has turned out to be a convincing investment as compared to other investment vehicles such as capital and debt markets and bullion market. It is attracting investors by offering a possibility of stable income yields, moderate capital appreciations, tax structuring benefits and higher security in comparison to other investment options. A survey by the Federation of Indian Chambers of Commerce and Industry (FICCI) and Ernst & Young has predicted that Indian real estate industry is poised to emerge as one of the most preferred investment destinations for global realty and investment firms in the next few years. The potential of India's property market has a revolutionizing effect on the overall economy of India as it transforms the skyline of the Indian cities mobilizing investments segments ranging from commercial, residential, retail, industrial, hospitality, healthcare etc. But maximum growth is attributed to its growth from the booming IT sector, since an estimated 70 per cent of the new construction is for the IT sector. Real estate industry research has also thrown light on investment opportunities in the commercial office segment in India. The demand for office space is expected to increase significantly in the next few years, primarily driven by the IT and ITES industry that requires an projected office space of more than 367 million sq ft till 2012-13. INVESTMENT IN GOLD Gold has got lot of emotional value than monetary value in India. India is the largest consumer of gold in the world. In western countries, you can find most of their gold in their central banks. But in India, we use gold mainly as jewels. If you look at
  • 33. 33 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India gold in a business sense, you will understand that gold is one of the all time best investment tool. My dear readers, today I would like to discuss on investments in gold and its potential. Indian Gold Market Current Scenario: • Size of the Gold Economy: more than Rs. 30,000 crores • Number of gold jewelry manufacturing units: 1,00,000 • Number of people employed: 5,00,000 • Gems & Jewellery constitute 25% of Indiai:s exports about 10% of our import bill constitute gold import. • Number of banks allowed importing gold: 15 (While recently this has been liberalized, detailed notification is awaited) • Official estimates of the stock of gold in India: 9,000 tons • Unofficial estimates of the stock of gold in India: 12,000 iV 14,000 tons • Gold held by the Reserve Bank of India: 358 tons • Gold production in India: 2 tons per annum. Demand for gold in the Indian Market: India has the highest demand for gold in the world and more than 90% of this gold is acquired in the form of jewellery. Following are the factors influencing the demand for gold. The movement of gold prices is one of the important variables determining demand for gold. The increase in the irrigation, technological change in agriculture (through mechanization and high yielding varieties), have generated large marketable surplus and a highly skewed rural income distribution is another factors contributing to additional demand for gold. Supply of Gold: The main economic effects that arise from the changes in the supply of gold can be seen against the quantum of gold that is already in existence in the economy. The supply of gold is not up to the requirements as the production of gold is also coming down and demand for gold is going up very sharply.
  • 34. 34 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India Gold as an Investment Option: Gold as an investment tool always gives good returns, flexibility, safety and liquidity to the investors. Therefore as a financial consultant my advice to you all is, kindly allocate a portion of your portfolio for gold investments. Practice the habit of buying at least one gram of gold every month. EMERGING INVESTMENT AVENUES According to a study undertaken jointly by Merrill Lynch, Cap Gemini, and Ernst & Young, High Net worth Individuals [HNIs] or wealthy investors are proactive in portfolio management, risk management, consolidation financial assets and use of diversification strategies as actively as large institutions. HNIs are proactive in identifying new investment options and take inputs from professional advisors in volatile market conditions. HNIs are dynamic in modifying their asset allocation and were among the first investors to move from equities to fixed income during 2001-2002 period of downturn in equity markets. They shifted back to equities when they identified favorable market trends. Investment products and avenues • Managed products: Managed product service is the most popular investment strategy adopted by wealthy investors globally • Real Estate: Wealthy investors have found this asset class very attractive and have invested directly in real estate and indirectly through real estate investment trusts. • Art and passion: Wealthy investors also have their investment in art, wine, antiques, and collectibles • Precious Metals: Gold and other precious metals are attractive investment options to balance the asset allocation
  • 35. 35 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India • Commodities: Wealthy investors have turned to commodities to offset the lower returns from fixed income securities. • Alternative investments: Hedge funds and Private equity investments such as venture funds are becoming increasingly popular with wealthy investors to reduce the investment risks related to stock market fluctuations. This is because these instruments have low correlation with equity asset class performance. Investment in non correlated assets, such as commodities helps to improve diversification of the portfolio amidst volatile market conditions. INVESTMENT IN ART Today, we find that an increasing number of individuals are looking at alternative investments, which provide them with a diversification away from a particular asset class. People are willing to invest and looking for areas other than the stock market for investing. Investing in the vintage wine, coins, stamps and Art, is now an indulgence which gives them an opportunity to cash in on their hobbies, without having the level of expertise that is required for other direct investments. Art is being incorporated into the investor's overall asset allocation decision. The art scene around the world is growing significantly. With more and more investors looking at art as an alternative asset class and a store of a long term value, average annual art valuations have outpaced average annual stock market valuations by more than three times since 2000. HEDGE FUNDS Over the last 15 years, hedge funds have become increasingly popular with high net worth individuals, as well as institutional investors. The number of hedge funds has risen by about 20% per year and the rate of growth in hedge fund assets has been even more rapid.
  • 36. 36 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India A hedge fund is a private investment fund, charging a performance fee and is open to only a limited number of investors. These funds are like mutual funds, which collect money from investors and use the proceeds to buy stocks and bonds. They can invest on almost any type of opportunity; in any market where in good returns are expected with low risk levels. Hedge Fund Risks: • Lack of transparency • Limited liquidity • Difficulty accessing quality hedge funds • Unreliable or incomplete return data • Valuation risk • Asymmetrical nature of Hedge fund returns distributions [SKEW] • Counterparty risk [Leverage]
  • 37. 37 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India PRIVATE EQUITY INVESTMENTS Is the most important funding source in the entrepreneurial marketplace? Private equity investments contribute to the funding of around 25 times the number of businesses the venture capitalists fund each year. Private equity investments are usually derived from a high net-worth individual who represents an essential source of funding for early stage, high-risk ventures. It is estimated that one-seventh of the 300,000 + start/early growth firms in the US receive funding from angel investors. This translates into over $20 billion of investment in approximately 50,000 deals each year. This investment group exceeds venture capital sources which are estimated at $5 - $7 billion spread over 1,000 venture capital investments each year. A typical profile of a private equity investor: • Is someone that prefers to invest within one day of travel? • Is very well educated • Tends to invest collectively within a group of other private equity investors • Usually invests within the dollar range of $10,000 - $500,000, averaging $230,000 • Makes one investment every two years Private equity investors have proven to be the single most important players in the entrepreneurial marketplace. Private capital investors fund thirty to forty times as many entrepreneurial companies as the entire venture capital industry and estimates put the total amount between $20 - $60 billion annually.
  • 38. 38 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India DATA ANALYSIS & INTERPRETATION Analysis in this report: An analysis is made on the responses received from 100 sample investors. The objective of the report is to find out the investor's behaviour on various investment avenues, to find out the needs of the current and future investors. The questionnaire contains various questions on the investor's financial experience, based on these experiences an analysis is made to find out a pattern in their investments. Based on these investment experiences of the 100 sample investors an analysis is made and interpretations are drawn. Interpretations are made on a rational basis, these interpretations may be correct or may not be correct but care is taken to draw a valid and approvable interpretation. Analysis is made only from the information collected through questionnaires no other data or information is taken in to consideration for purpose of the analysis.
  • 39. 39 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India Analysis of the Survey: TABLE 1: DEMOGRAPHICS OF THE SAMPLE INVESTOR PARAMETER NO: OF INVESTORS PERCENTAGE GENDER MALE 58 58% FEMALE 42 42% TOTAL 100 100% AGE GROUP BELOW 20 0 0% BETWEEN 20 -30 35 35% BETWEEN 30 -40 35 35% ABOVE 40 30 30% TOTAL 100 100% QUALIFICATION UNDER GRADUATES 7 7% GRADUATES 46 46% POST GRADUATES 39 39% OTHERS 8 8% TOTAL 100 100% OCCUPATION SALARIED 52 52% BUSINESS 22 22% PROFESSIONAL 14 14% HOUSE WIFE 11 11% RETIRED 1 1% TOTAL 100 100% ANNUAL INCOME BELOW Rs. 2,00,000 37 37% Rs. 2,00,000 - 4,00,000 31 31% Rs. 4,00,000 - 6,00,000 18 18% ABOVE Rs, 6,00,000 14 14% TOTAL 100 100%
  • 40. 40 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India Interpretation: Table 1 above shows, that 58 (58%) of the investors are men and the rest 42(42%) are females. Generally, males bear the financial responsibility in Indian society, and therefore they have to make investment (and other) decisions to fulfil the financial obligations. When it comes to age, it was found that 35% are young and significant number under the age group of 20 - 30. 35% of them are in the age group of 30 to 40. 30% of them are above 40 years of age. There are no investors below 20 years of age. Nearly 52% of the investors belong to the salaried class, 22% were business class, 14% were professionals, 11% were housewives and the rest were retired. It was found that irrespective of annual income they earn all the investors interested in investments since today's inflated cost of living is forcing everyone to save for their future needs and invest those saved resources efficiently. 39(39%) of the individual investors covered in the study are postgraduates; 46(46%) investors are graduates and 7(7%) of the investors are under-graduates, and 8(8%) investors are categorized as others who are either illiterates, had less education than under graduation or who are more qualified than post graduates. It is interesting to note that most investors (covered in the study) can be said to possess higher education (Bachelor’s Degree and above), and this factor will increase the reliability of conclusions drawn about the matters under investigation. 37(37%) of the investors are earning less than 2 lakhs per annum, 31(31%) investors are earning between 2 lakhs and 4 lakhs, 18(18%) investors are earning between 4 lakhs and 6 Lakhs, 14(14%) investors are earning more than 6 lakhs per annum. Since most of the investors are below 4 lakhs annual earnings, many of them are non-risk takers.
  • 41. 41 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India TABLE 2 OTHER CHARACTERISTICS OF SAMPLE INVESTOR Table 2.1 INVESTORS WILLING TO LOSE PRINCIPAL AMOUNT PARAMETER NO OF INVESTORS PERCENTAGE YES NO 5 95 5 95 TOTAL 100 100 Interpretation: Since many of the investors annual earnings are below 2 lakhs and 4 lakhs, many of them do not take the risk of losing their principal investment amount. 95% of the sample investors are not ready to lose their principal investment amount. 5% are ready to take risk of losing their principal up to certain extent. Table 2.2 TIME PERIOD PREFERED TO INVEST PARAMETER NO OF INVESTORS PERCENTAGE SHORT TERM MEDIM LONG TERM 10 60 30 10 60 30 TOTAL 100 100
  • 42. 42 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India Interpretation: It's interesting to know that many of the investors prefer to invest their money for medium term i.e. from 1 - 5 yrs, instead of short term or long term. 10% preferred short term, 60% preferred medium term, and 30% preferred long term. Table 2.3 FREQUENCY OF MONITORING THE INVESTMENT PARAMETER NO OF INVESTORS PERCENTAGE DAILY 17 17 MONTHLY 35 35 OCCATIONALLY 41 41 OTHER 7 7 TOTAL 100 100 Interpretation: Due to the busy life schedule, many of the investors are not able to spend time in monitoring their investments, only 17% of the investors are monitoring their investments daily, 35% are monitoring on a monthly basis, 41% , the majority investors are monitoring their investments occasionally. Many of them who have NO OF INVESTORS OTHER, 7 DAILY, 17 OCCATIONA LLY, 41 DAILY MONTHLY OCCATIONALLY OTHER MONTHLY, 3 5
  • 43. 43 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India invested in safe investment avenues do not bother about their investments, some of them forget about the investments for many years. Table 2.4 INVESTMENT IN EQUITY MARKET PARAMETER NO OF INVESTORS PERCENTAGE YES NO 30 70 30 70 TOTAL 100 100 Out of the total sample investors only 70% of the investors invest in equity share market through their DEMAT A/C, 30% of the investors never invested in equity shares. The investors who invest in equity share market are asked another question, what would they do if the stock market falls immediately after their investment, many of them replied that they would wait till the market increases instead of selling them at a loss, very few answered that they would average the investment by buying some more shares. Table 2.5 FAMILY BUDGET PARAMETER NO OF INVESTORS PERCENTAGE YES NO 73 27 73 27 TOTAL 100 100 73% of the sample investors had a monthly family budget for their daily expenditure. 27% of the investors replied they never thought of having a budget calculation, and few think of having a budget but never implemented so far. Many people with excess money never cared to make any family budgets.
  • 44. 44 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India Table 2.6 INVESTMENT TARGET PARAMETER NO OF INVESTORS PERCENTAGE YES NO 48 52 48 52 TOTAL 100 100 It's interesting to know that almost same proportion of investors have different thoughts, 48% of the investors have an investment target every year, and 52% of the investors do not go for any targets for investment. On personal questioning many of the investors who had an investment target every year are not able to reach their targets due to contingent expenses. Few investors invest regularly but never thought of having a target every year. Table 2.7 FINANCIAL ADVISOR PARAMETER NO OF INVESTORS PERCENTAGE YES NO 23 77 23 77 TOTAL 100 100 77% of the investors never had a financial advisor, they never approached an advisor for their financial needs, the reason may be inadequate income and excess expenditure, and there wouldn't be surplus money to worry about. 23 % of the investors have financial advisors, who manage their investments.
  • 45. 45 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India TABLE 3 OBJECTIVES OF INVESTMENT Table 3.1 SAVINGS OBJECTIVE PARAMETER VOTES WEIGHTS RANKING CHILDREN'S EDUCATION 71 29 1 RETIREMENT 47 19 3 HOME PURCHASE 38 15 4 CHILDREN'S MARRIAGE 30 12 5 HEALTHCARE 57 23 2 OTHERS 5 2 6 TOTAL 248 100 Table 3.1 shows the savings objectives of the sample investors, investors are given option to select one or more savings objectives, since there may be one or more answers, weights are given for each parameter bases on the votes given by the investors, the maximum weigthage represents many investors have that as main objective. Based on the weights calculated ranks are given in the order of maximum weightage given by investors. First rank is given to children's education, many investors feel that, investing money for the future of the Childs education is very important than any other need. Many of the investors are in the age group of 20 - 30 and 30 - 40 as of now they are thinking of saving for their children's marriage. So children's marriage is given last rank. After children's education investors are saving for their own health care. There is a VOTES OTHERS HEALTHCARE CHILDREN'S MARRIAGE HOME PURCHASE VOTES RETIREMENT CHILDREN'S EDUCATION 0 20 40 60 80
  • 46. 46 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India greater need for Indians to save for their health care who are living a mechanical life. Retirement and home purchase are given subsequent ranks after health care. Table 3.2 PURPOSE BEHIND INVESTMENT PARAMETER VOTES WEIGHTS RANK WEALTH CREATION 37 22 4 TAX SAVING 43 25 3 EARN RETURNS 45 27 1 FUTURE EXPENDITURE 44 26 2 TOTAL 169 100 All the investors have very common purposes for investing, they have more than one purpose for investing their money. Salaried people invest for tax savings, and for future expenditure, business people invest for earning returns. Almost all the investors have all the 4 purposes behind investing their money. Table 3.3 FACTORS CONSIDERING BEFORE INVESTING PARAMETER VOTES WEIGHTS RANKING SAFETY OF PRINCIPAL 60 43 1 LOW RISK 35 25 2 HIGH RETURNS 27 19 3 MATURITY PERIOD 16 11 4 TOTAL 138 100
  • 47. 47 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India When the investors are asked about the factors considering before investment many of them have voted for safety of principal and low risk. First rank is given to safety of principal and 2nd to low risk. Here there are some contradicting results, some investors expect high returns at a very low risk, and this is not possible in practical Indian investment avenues. Investment believes in a proved principle, "higher the risk higher the returns, lower the risk lower the returns". Investors need to know about this principle before investing. Independent Variables and Dependent Variables There are total four independent variables 1. Age group. 2. Occupation. 3. Qualification. 4. Annual income There can be many dependent variables like • Level of risk tolerance • Percentage of income that can be invested • Time period that can be taken for investments • Savings objectives • Investment preference.
  • 48. 48 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India These independent variables can be compared with any dependent variables for finding the relations between the parameters. In my analysis I have taken occupation category for comparison with dependent variable investment preference and age group comparing with the dependent variable level of risk tolerance. Below are the demographics of the sample investors based on the category occupation. TABLE 4 : DEMOGRAPHICS BASED ON OCCUPATION I. SALARIED PARAMETER NO: OF - SALARIED PERCENTAGE AGE GROUP BELOW 20 0 0% BETWEEN 20 - 30 22 42% BETWEEN 30 - 40 18 35% ABOVE 40 12 23% TOTAL 52 100% QUALIFICATION UNDER GRADUATES 0 0% GRADUATES 21 40% POST GRADUATES 25 48% OTHERS 6 12% TOTAL 52 100% ANNUAL INCOME BELOW Rs. 2,00,000 15 29% Rs. 2,00,000 - 4,00,000 15 29% Rs. 4,00,000 - 6,00,000 17 33% ABOVE Rs, 6,00,000 5 10% TOTAL 52 100%
  • 49. 49 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India II. BUSINESS PARAMETER NO: OF - BUSINESS PERCENTAGE AGE GROUP BELOW 20 0 0% BETWEEN 20 - 30 2 9% BETWEEN 30 - 40 10 45% ABOVE 40 10 45% TOTAL 22 100% QUALIFICATION UNDER GRADUATES 5 23% GRADUATES 11 50% POST GRADUATES 6 27% OTHERS 0 0% TOTAL 22 100% ANNUAL INCOME BELOW Rs. 2,00,000 11 50% Rs. 2,00,000 - 4,00,000 5 23% Rs. 4,00,000 - 6,00,000 1 5% ABOVE Rs, 6,00,000 5 23% TOTAL 22 100% III. PROFESSIONAL PARAMETER NO: OF - PROFESSIONAL PERCENTAGE AGE GROUP BELOW 20 0 0% BETWEEN 20 - 30 8 57% BETWEEN 30 - 40 2 14% ABOVE 40 4 29% TOTAL 14 100% QUALIFICATION UNDER GRADUATES 0 0% GRADUATES 6 43% POST GRADUATES 6 43% OTHERS 2 14% TOTAL 14 100% ANNUAL INCOME BELOW Rs. 2,00,000 2 14%
  • 50. 50 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India Rs. 2,00,000 - 4,00,000 8 57% Rs. 4,00,000 - 6,00,000 1 7% ABOVE Rs, 6,00,000 3 21% TOTAL 14 100% IV. HOUSEWIFE PARAMETER NO: OF - HOUSEWIFE PERCENTAGE AGE GROUP BELOW 20 0 0% BETWEEN 20 - 30 4 36% BETWEEN 30 - 40 3 27% ABOVE 40 4 36% TOTAL 11 100% QUALIFICATION UNDER GRADUATES 1 9% GRADUATES 6 55% POST GRADUATES 2 18% OTHERS 2 18% TOTAL 11 100% ANNUAL INCOME BELOW Rs. 2,00,000 9 82% Rs. 2,00,000 - 4,00,000 1 9% Rs. 4,00,000 - 6,00,000 0 0% ABOVE Rs, 6,00,000 1 9% TOTAL 11 100% ASSUMPTION As a part of the analysis I assumed that preference for investment avenues is dependent on the occupation of the investor. Hence preferred investment avenue are derived from the demographics of the sample investor based on occupation.
  • 51. 51 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India Table 5: INVESTMENT PREFERENCE BASED ON OCCUPATION Table 5.1 Preferred investment avenues for salaried INVESTMENT AVENUES VOTES WEIGHTS RANK LIFE INSURANCE 35 16 1 GOLD 25 12 2 BANK FIXED DEPOSITS 24 11 3 MUTUAL FUNDS 23 11 4 REAL ESTATE 23 11 5 POST OFFICE SAVINGS 20 9 6 PPF 18 8 7 NSC 17 8 8 EQUITY SHARES 16 7 9 SAVINGS ACCOUNT 14 7 10 TOTAL 215 100 Since the investor has an option to invest in more than one Investment Avenue, weights are given on the basis of preference to investment avenues. The avenue which is given maximum weightage by the investors is ranked first. First Ten ranks are given to the first ten preferred investment avenues. First preference is given to life insurance, second to investing in gold, third to bank fixed deposits. Tenth preference is given to bank savings account. Table 5.2 Preferred investment avenues for business people INVESTMENT AVENUES VOTES WEIGHTS RANK BANK FIXED DEPOSITS 13 16 1 INSURANCE 13 16 2 REAL ESTATE 11 14 3 MUTUAL FUNDS 10 12 4 GOLD 8 10 5 EQUITY SHARES 7 9 6 CHIT FUNDS 6 7 7 POST OFFICE SAVINGS 5 6 8 SAVINGS ACCOUNT 4 5 9 NSC 4 5 10 TOTAL 81 100
  • 52. 52 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India Thinking of the business people is almost same to that of salaried people, both are similar in preferring insurance and bank fixed deposits, but given third preference to real estate. Gold is given 5th place here. Last place is given to national savings certificates. Table 5.3 Preferred investment avenues for professionals INVESTMENT AVENUES VOTES WEIGHTS RANK BANK FIXED DEPOSITS 10 19 1 INSURANCE 10 18 2 GOLD 6 11 3 REAL ESTATE 6 11 4 POST OFFICE SAVINGS 5 9 5 SAVINGS ACCOUNT 4 7 6 MUTUAL FUNDS 4 7 7 PPF 3 6 8 BONDS 3 6 9 GOVT SECURITIES 3 6 10 TOTAL 54 100 There is no much difference in the preferences of professionals when compared to salaried and business people. Professionals does not prefer mutual funds (7th rank), where salaried and business people prefer at 4th place. Professionals are more interested in post office savings rather than mutual funds. As business people professionals also prefer bank fixed deposits in the first place, then life insurance. Professionals does not prefer national saving certificates at all, eliminated it from the top 10.
  • 53. 53 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India Table 5.4 Preferred investment avenues for housewives INVESTMENT AVENUES VOTES WEIGHTS RANK GOLD 9 18 1 INSURANCE 9 18 2 BANK FIXED DEPOSITS 8 16 3 REAL ESTATE 5 10 4 POST OFFICE SAVINGS 5 10 5 CHIT FUNDS 4 8 6 EQUITY 4 8 7 SAVINGS ACCOUNT 3 6 8 NSC 2 4 9 MUTUAL FUNDS 1 2 10 TOTAL 50 100 Indian housewives love gold as much as themselves. Housewives have given first rank to gold pushing insurance and bank fixed deposits to second and third place. House wives gave least preference to mutual funds. They are more attracted to traditional investment avenues like gold, real estate, post office savings and chit funds. Table 5.5 Preferred investment avenues – overall INVESTMENT AVENUES VOTES WEIGHTS RANK LIFE INSURANCE 67 17 1 BANK FIXED DEPOSITS 55 14 2 GOLD 50 13 3 REAL ESTATE 45 12 4 MUTUAL FUNDS 38 10 5 POST OFFICE SAVINGS 35 9 6 EQUITY SHARES 29 8 7 SAVINGS ACCOUNT 25 6 8 NSC 25 6 9 PPF 22 5 10 TOTAL 391 100
  • 54. 54 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India HYPOTHESIS - Increase in Age decreases the Risk tolerance level. • Relation between Age and risk tolerance • Level of risk tolerance dependent on the age of the investor. • Risk tolerance of an investor shows a negative relation to the age of that investor • Lower the age higher the risk capabilities, higher the age lower the risk capabilities. LEVEL OF RISK TOLERANCE WITH RESPECT TO AGE GROUP For the purpose of analysis investors are placed under three categories. • Low risk category • Medium risk • High risk Classification is done based on three factors • Past investments of the investor. • Investor experience in investing( level of experience). • Investor preference for investments. First the total sample of 100 is divided in to 3 age groups. Investors in each age group are classified in to 3 risk categories based on the above factors. Table 6: Finding relationship between age group and level of risk tolerance Table 6.1 risk tolerance of age group 20 – 30 PARAMETER 20 - 30 AGE GROUP LEVEL OF RISK NO INVESTORS OF PERCENTAGE LOW RISK MEDIUM RISK 13 17 37% 49% HIGH RISK 5 14% TOTAL 35 100%
  • 55. 55 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India Table 6.2 risk tolerance of age group 30 – 40 PARAMETER 30 - 40 AGE GROUP LEVEL OF RISK NO INVESTORS OF PERCENTAGE LOW RISK 20 57% MEDIUM RISK 11 32% HIGH RISK 4 11% TOTAL 35 100% Table 6.3 risk tolerance of age group above 40 PARAMETER ABOVE 40 AGE GROUP LEVEL OF RISK NO OF INVESTORS PERCENTAGE LOW RISK 21 70% MEDIUM RISK 6 20% HIGH RISK 3 10% TOTAL 30 100% OBSERVATIONS: Observations from table 6.1, 6.2, 6.3 From the table 6.1 we find that 49% of Investors between the age group of 20 - 30 came under medium risk category, where as the percentage of investors who came under medium risk in the age group of 30 - 40 has decreased to 32%. It still came down in the case of investors in the age group of 40 above, which is only 20%. We can see a decreasing trend in the behaviour of investors towards medium risk when their age increased 37% of the investors in the age group of 20 - 30 are in the low risk category, where as Investors under the age group 30 - 40, 57% came under the low risk category, there is a large increase in the investors who came under low risk category in this age group. It has further increased, 70% of the investors in the age group above 40 came
  • 56. 56 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India under the low risk category. We can see an increasing trend with respect to low risk category as the age increases. Same observations are arrived at, when comparing the high risk category with respect to the age groups. As the age increases the level of risk tolerance is coming down. 14% came under the high risk category under the age group 20 - 30, when it came to age group above 40 above only 10% came under the high risk category. From the above observations we can conclude that there is a strong inverse or negative relationship between risk tolerance and age group. Attributes Risk Tolerance Level Age -0.74 When Karl Pearson's correlation coefficient is calculated, it is found to be - 0.74 by which we can conclude that there is a strong negative correlation between Age and Risk tolerance. Age accounts for the major differences in risk taking decisions by the investors. The older an investor, the better seemed his/her performance in comparison to the younger ones. Over- confidence in their own investment ability among the youngsters largely accounts for the excessive trading among younger investors leading to lower returns and this direct to decline in the risk tolerance level.
  • 57. 57 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India FINDINGS & SUGGESTIONS Findings: • The study reveals that male investors dominate the investment market in India. • Most of the investors possess higher education like graduation and above. • Majority of the active and regular Investors belong to accountancy and related employment; non-financial management and some other occupations are very few. • Most investors opt for two or more sources of information to make investment decisions. • Most of the investors discuss with their family and friends before making an investment decision. • Percentage of income that they invest depend on their annual income, more the income more percentage of income they invest. • The investors' decisions are based on their own initiative. • The investment habit was noted in most of the people who participated in the study. • Most Investors prefer to park their funds in avenues like Life insurance, FD, Gold and Real Estate. • Most of the investors get their information related to investment through electronic media (TV) next to print media (Newspaper/ Business newspaper/ Magazines) • Most of the investors are financial illiterates. • Increase in age decrease the risk tolerance level. • Women are attracted towards investing gold than any other investment avenue.
  • 58. 58 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India Risk tolerance level and Suggestion of Suitable Portfolio to the Investors The role of uncertainty and the knowledge about the return on Investment Avenue are important components of any investment. The extent of an investor's ability to tolerate these uncertainties of return is referred as risk tolerance level of an investor (Schaefer, 1978). Risk tolerance tends to be subjective rather than objective. Schaefer described the relation this way: "two persons may very well agree on the riskiness of a set of gambles, but may nevertheless prefer different gambles, rank ordering them differently according to their personal tolerance. There are two common methods of estimating investors' tolerance of risk. The first method is a clear understanding of the investor and his/her history with investment securities. The second method is to use a questionnaire designed to elicit feelings about risky assets and the comfort level of the investor given certain changes in the portfolio or certain investment scenarios. The second method is used to know the risk tolerance level of the investors. Based on the responses to the questionnaire, the cumulative scale is constructed, and scores are assigned to each investor accordingly to categorize the respondents in to i.e. Low, Moderate and High-risk tolerance level. The investors are divided into 3 categories i.e., A, B and C depending on their risk tolerance starting with Low risk tolerance, Moderate risk tolerance and High-risk tolerance. Generally, investors with a low risk tolerance act differently with regard to risk than individuals with a high-risk tolerance. Investor with a high level of risk tolerance would be comfortable with market volatility, while low risk-tolerance individuals require stability and are averse to uncertainties. (MacCrimmon & Wehrung, 1986). Individuals with low levels of risk tolerance require lower chances of a loss, choose not to operate in unfamiliar situations and require more information about the performance of an investment (MacCrimmon & Wehrung).
  • 59. 59 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India Table 7: SUGGESTED PORFOLIO CONSTRUCTION BASED ON AGE GROUP AND LEVEL OF RISK PARAMETER LEVEL OF APPORTIONE RISK D - PERCENTAGE OF INCOME TO BE TOTAL AGE GROUP LOW RISK MEDIUM RISK HIGH RISK BETWEEN 20 - 30 30% 50% 20% 100% BETWEEN 30 - 40 50% 35% 15% 100% ABOVE 40 70% 20% 10% 100% TOTAL 100% 100% 100% Portfolio construction: Step 1: Identify the age group of the investor, check in which age group he comes under. Suggest suitable portfolio from the above table. Example: An investor of age 36 working in public sector Company has approached you to invest his 8 lakhs of money in a suitable investment. Advice : The investor comes under the age group 30 - 40. His suitable portfolio will be • 50% invest in low risk investment avenues. • 35% invest in medium risk avenues. • 15% invest in high risk avenues. Step 2: investment preference made from the table 5.5 or based on his occupation. Since he come under the occupation salaried he can choose the preferred investment avenues from table 5.1
  • 60. 60 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India SUMMARY & CONCLUSION Summary This report reflects the behaviour of various categories of investors. Selection of a perfect investment avenue is a difficult task to any investor. An effort is made to identify the tastes and preferences of a sample of investors selected randomly out of a large population. Despite of many limitations to the study I was successful in identifying some investment patterns, there is some commonness in these investors and many of them responded positively to the study. This report concentrated in identifying the needs of current and future investors, investor's preference towards various investment avenues are identified based on their occupation. Investors risk in selecting an avenue is dependent on the age of that investor. Conclusion This study confirms the earlier findings with regard to the relationship between Age and risk tolerance level of individual investors. The Present study has important implications for investment managers as it has come out with certain interesting facets of an individual investor. The individual investor still prefers to invest in financial products which give risk free returns. This confirms that Indian investors even if they are of high income, well educated, salaried, independent are conservative investors prefer to play safe. The investment product designers can design products which can cater to the investors who are low risk tolerant and use TV as a marketing media as they seem to spend long time watching TVs.
  • 61. 61 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India Bibliography Books a) The Mindful Investor, by Maria Gonzalez and Graham Bayron. b) Understanding Indian Investors, by Jawahar Lal. c) Security Analysis and Portfolio Management by Ranganatham. Website a) www.nseindia.com b) www.moneycontrol.com c) www.bseindia.com d) www.investing.com
  • 62. 62 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India ANNEXTURE I Questionnaire 1. Are you aware of the following investment avenues? (Tick which ever applicable in the boxesJ. Safe/Low Risk Investment Avenues: Savings Account. Bank Fixed Deposits. Public Provident Fund. National Savings Certificates. Post Office Savings. Government Securities. Moderate Risk Investment Avenues: Mutual Funds. Life Insurance. Debentures. Bonds. High Risk Investment Avenues: Equity Share Market. Commodity Market. FOREX Market. Traditional Investment Avenues: Real Estate (property). Gold/Silver. Chit Funds. Emerging Investment Avenues: Virtual Real Estate. Hedge Funds. Private Equity Investments. Art and Passion. 2. What do you think are the best options for investing your money? (choose from above listJ (Rank in the order of preferenceJ 1. 2. 3. 4. 5. 6. 3. Reasons for selecting these options : 1 2 4. In the past, you have invested mostly in (write as many as applicableJ 5. In which sector do you prefer to invest your money? Private Sector Government Sector Public Sector Foreign Sector
  • 63. 63 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India 6. What are the important factors guiding your investment decisions? (Return, safety of principal, diversification, progressive values, etc.)? 7. What are your savings objectives? Children's Education Retirement Healthcare Children's Marriage Others 8. What is your investment objective? Home Purchase Income and Capital Preservation Long-term Growth Growth and Income Others Short-term Growth 9. What is the purpose behind investment? Wealth Creation Tax Saving Earn Returns Future Expenses Others 10. Have you set aside funds specifically for the education and marriage of your children? If yes, please give amounts and how the funds are held Education: (Amount Rs. Invest in) Marriage: (Amount Rs. Invest in) 11. Do you have a formal budget for family expenditure? Yes No 12. Do you have a savings and investment target amount you aim for each year? Yes, if yes: (Amount) No 13. At which rate do you want your investment to grow? Steadily At an Average Rate Fast 14. Which factor do you consider before investing? Safety of Principal Low Risk High Returns Maturity Period 15. Do you invest your money in share market? (through a DEMAT A/C) Yes No 15a. If yes: Imagine that stock market drops after you invest in it then what will you do? Withdraw your money Wait to increase Invest more in it 16. How often do you monitor your investment? Daily Monthly Occasionall
  • 64. 64 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India 17. What percentage of your income do you invest? 0-15% 15-30% 30-50% 18. What is the time period you prefer to invest? Short-term (0-1yrs) Medium-term (1-5yrs) Long-term (>5yrs) 19. Can you take the risk of losing your principal investment amount? Yes, If yes: (What percentage) No 20. What is your source of investment advice? Newspapers News Channels Family or Friends Books Internet Magazines Advisors Certified Market Professional/Fina ncial Planners
  • 65. 65 | P a g e A study on Indian investors Investments & analysis of their behaviour on various investment avenues in India Personal Details (Personal details are kept highly confidential; these details will not be revealed to any third party) A. Name: B. Designation: C. Organization: D. Age Group: Below 20 Between 20-30 Between 30-40 Above 40 E. Qualification: Under Graduate Graduate Post Graduate Other F. Occupation (what category do you come under): Salaried Business Housewife Student Professional Retired Other G. Annual income: Below Rs. 2,00,000 Rs. 2,00,000- Rs 4,00,000 Rs. 4,00,000-Rs 6,00,000 Above Rs. 6,00,000 H. Do you have a financial advisor? Yes No I. What best describes your investment experience? Beginning (no investment experience) Moderate (comfortable with fixed deposits, chit funds, post office) Knowledgeable (has bought or sold individual shares of stock or bonds) Experienced (frequently trade in stocks, commodities, options and futures) Date: Signature: You have successfully completed this Questionnaire Thank you again for your time and support!