Factors affecting individual investment behavior

FACTORS AFFECTING INDIVIDUAL INVESTMENT BEHAVIOR

Vicky Saini

About Investment

Investment is the commitment of money or capital to purchase financial instruments or other assets in order to gain profitable returns in the form of interest, income, or appreciation of the value of the instrument. Investment is related to saving or deferring consumption.

An investment involves the choice by an individual or an organization such as a pension fund, after some analysis or thought, to place or lend money in a vehicle, instrument or asset, such as property, commodity, stock, bond, financial derivatives (e.g. futures or options), or the foreign asset denominated in foreign currency, that has certain level of risk and provides the possibility of generating returns over a period of time.

Investment Avenues

The Investment Avenues I have considered in my project are:

Shares Insurance Mutual Funds Fixed Deposits Government Securities

More Avenues (not considered in my project):

Gold Real Estate Postal Saving Schemes Bonds, Chit Funds & Company FDs

Factors Affecting Investment

The factors which affect the investment decisions (considered in my project as well):

Risk Tolerance: Risk refers to the volatility of portfolio’s value. The amount of risk the investor is willing to take on is an extremely important factor.

Return Needs: This refers to whether the investor needs to emphasize growth or income.

Investment Horizon: The time horizon starts when the investment portfolio is implemented and ends when the investor will need to take the money out.

Tax Exposure: Investors in higher tax brackets prefer such investments where the return is tax exempt, others will have no such preference.

Market Trends: You need to understand how various asset classes have performed in the past before planning your finances.

Investment Needs: How much money do you need at the time of maturity?

Risk Coverage: A type of insurance coverage that can exclude only risks that have been specifically outlined in the contract.

Dependents: People who relies on another person, especially a family member, for financial support.

About The Project

The objective of the project was to understand respondent’s perception about the various investment avenues available to them while making investment and its impact on the investment behavior of people. While understanding the customer’s investment behavior, I got encouraged to do in-depth research on the weight of various factors influencing the customer’s decision to invest in the Investment Avenues.

The study aims to look at various factors that affect the investment decision. I tried to

analyze this by conducting graphical analyses.

Through this study we also aim to test the following hypothesis:

H1.1: Return is the main factor which affects the investment decision of investor. H1.2: The main for not investing is the unexpected fluctuations in the market.

Research & Outcomes

• Avenue Type Classification

• Income Type Classification

• Reasons For Not Investing

• Preferred Investment

• Assumptions

Middle Income

Risk Ta

king C

apaci

ty

Depen

dents

Return

s

Tax E

xemption

Investm

ent H

orizon

Market

Trends

Investm

ent N

eeds

Risk Cove

rage

0

1

2

3

4

5

Risk Ta

king C

apaci

ty

Depen

dents

Return

s

Tax E

xemption

Investm

ent H

orizon

Market

Trends

Investm

ent N

eeds

Risk Cove

rage

0

1

2

3

4

5 High Income

Risk Ta

king C

apaci

ty

Depen

dents

Return

s

Tax E

xemption

Investm

ent H

orizon

Market

Trends

Investm

ent N

eeds

Risk Cove

rage

0

1

2

3

4

5 Low Income

Combined

Shares

Middle Income

High IncomeLow Income

Insurance

0

1

2

3

4

5

0

1

2

3

4

5

0

1

2

3

4

5

Combined

Insurance

Middle Income

High IncomeLow Income

Mutual Funds

0

1

2

3

4

5

Mutual Funds

Risk T

akin

g Cap

acity

Depen

dent

s

Retur

ns

Tax

Exem

ptio

n

Inve

stm

ent H

orizon

Marke

t Tre

nds

Inve

stm

ent N

eeds

Risk C

over

age

0

1

2

3

4

5

Risk T

akin

g Cap

acity

Depen

dent

s

Retur

ns

Tax

Exem

ptio

n

Inve

stm

ent H

orizon

Marke

t Tre

nds

Inve

stm

ent N

eeds

Risk C

over

age

0

1

2

3

4

Combined

Mutual Funds

Middle Income

High IncomeLow Income

Fixed Deposits

Risk T

akin

g Cap

acity

Depen

dent

s

Retur

ns

Tax

Exem

ptio

n

Inve

stm

ent H

orizon

Marke

t Tre

nds

Inve

stm

ent N

eeds

Risk C

over

age

0

1

2

3

4

5

0

1

2

3

4

5

0

1

2

3

4

Combined

Risk T

akin

g Cap

acity

Depen

dent

s

Retur

ns

Tax

Exem

ptio

n

Inve

stm

ent H

orizon

Marke

t Tre

nds

Inve

stm

ent N

eeds

Risk C

over

age

Fixed Deposits

Middle Income

High IncomeLow Income

Government Securities

Risk T

akin

g Cap

acity

Depen

dent

s

Retur

ns

Tax

Exem

ptio

n

Inve

stm

ent H

orizon

Marke

t Tre

nds

Inve

stm

ent N

eeds

Risk C

over

age

0

1

2

3

4

5

Risk

Taki

ng C

apa.

..

Depen

dent

s

Retur

ns

Tax

Exem

ptio

n

Inve

stm

ent H

or...

Mar

ket T

rend

s

Inve

stm

ent N

eeds

Risk

Cover

age

0

1

2

3

4

5

0

1

2

3

4

5

Combined

Risk T

akin

g Cap

acity

Depen

dent

s

Retur

ns

Tax

Exem

ptio

n

Inve

stm

ent H

orizon

Marke

t Tre

nds

Inve

stm

ent N

eeds

Risk C

over

age

Government Securities

• Security Type Classification

• Income Type Classification

• Reasons For Not Investing

• Preferred Investment

• Assumptions

Research & Outcomes

Risk Taking

Capacity

Dependents

Returns

Tax Exemptio

n

Investment Horizon

Market Trends

Investment Needs

Risk Coverage

Income Groups Outcome

Lower Middle Upper

Hypothesis 1.1 Proved

True

3.09 3.05

3.68

3.02 3.09

2.9

3.61

3.4

3.2

3.4

3.85

3.2

3.47

3.17

3.42

3.68

3.183

3.8

3.62

3.42

3.04

3.43.29

• Security Type Classification

• Income Type Classification

• Reasons For Not Investing

• Preferred Investment

• Assumptions

Research & Outcomes

Reasons for Not Investing

64

14

4

10 112

1

4 1

1

Lower Middle Upper

42%

58%

Respondents Who Don’t Invest Their Reasons for Not Investing

Hypothesis 1.2 Proved Wrong

• Security Type Classification

• Income Type Classification

• Reasons For Not Investing

• Preferred Investment

• Assumptions

Research & Outcomes

Shares Insurance Mutual Funds Fixed Deposits Govt. Securities

1

1413 13

1

Preferred Investment

• Security Type Classification

• Income Type Classification

• Reasons For Not Investing

• Preferred Investment

• Assumptions

Research & Outcomes

Assumptions

Below are the assumptions considered during the project:

•The interest rates & economic conditions are same in last six months

•Each investment factor used in the avenues has the importance

•The employees are from different places in India, hence the thinking of each respondent varies

Thank You…