1 ABSRTACTEach investment alternative has its own strengths and weaknesses. Some options seek to achieve superior returns but with corresponding higher risk. Other provide safety but at the expense of liquidity and growth. Other options such as FDs offer safety and liquidity, but at the cost of return. Mutual funds seek to combine the advantages of investing in arch of these alternatives while dispensing with the shortcomings. Indian stock market is semi-efficient by nature and, is considered as one of the most respected stock markets, where information is quickly and widely disseminated, thereby allowing each security's price to adjust rapidly in an unbiased manner to new information so that, it reflects the nearest investment value.Savings form an important part of the economy of any nation. With the savings invested in various options available to the people, the money acts as the driver for growth of the country. Indian financial scene too presents a plethora of avenues to the investors. Though certainly not the best or deepest of markets in the world, it has reasonable options for an ordinary man to invest his savings.One needs to invest and earn return on their idle resources and generate a specified Sum of money for a specific goal in life and make a provision for an uncertain future. One of the important reasons why one needs to invest wisely is to meet the cost of inflation. Inflation is the rate at which the cost of living increases.The cost of living is simply what it cost to buy the goods and services you need to live. Inflation causes money to lose value because it will not buy the same amount of a good or service in the future as it does now or did in the past. The sooner one starts investing the better. By investing early you allow your investments more time to grow, whereby the concept of compounding increases your income, by accumulating the principal and the interest or dividend earned on it, year after year.The three golden rules for all investors are: Invest early Invest regularly Invest for long term and not for short term1.1 INTRODUCTION: The developing countries like India face the enormous task of finding sufficient capital in their development efforts. Most of these countries find it difficult to get out of the vicious circle of poverty of low income, low saving, low investment, low employment etc. With high capital output ratio, India needs very high rates of investments to make a leap forward in her efforts of attaining high levels of growth. Since the beginning of planning, the emphasis was on investment as the primary instruments of economic growth and increase in national income. In order to have production as per target, investment was considered the crucial determinant and capital formation had to be supported by appropriate volume of saving. 1.2. INVESTMENT OPTIONS AVAILABLE There are a large number of investment instruments available today. To make our lives easier we would classify or group them. In India, numbers of investment avenues are available for the investors. Some of them are marketable and liquid while others are non marketable and some of them also highly risky while others are almost risk less. The people has to choose Proper Avenue among them, depending upon his specific need, risk preference, and return expected Investment avenues can broadly categories under the following heads. 1. Equity 2. FI Bonds 3. Corporate Debenture 4. Company Fixed 5. Bank Fixed 6. PPF 7. Life Insurance 8. Post Office-NSC 9. Gold/Sliver 10. Real Estate 11. Mutual Fund 12. Others Equity: Equity is one of the most risky areas. But, at the same time this is also a place where an investor can earn high rates of returns that will push up the returns of the entire portfolio. There is a need for the investor to separate the speculation from the investment. Investment in equities can be made directly by the purchase of shares from the market or it can be done through the mutual fund route, whereby the investor buys the mutual fund units and the fund in turn buys equity shares for its portfolio. There are various benefits as well as risks associated with both these routes and it is up to the individual to make up his mind. Debt: Debt is a route that most people will know and have the necessary experience of. There is a wide range of debt instruments that are present from bank fixed deposits to company fixed deposits. Debt is simple as the investor ill earn at a fixed percentage of the investment, which will then be returned to the investor at the time of maturity or redemption of the investment. Mutual Funds: This is an emerging area for investment and there is a large variety of schemes in the market to suit the requirements of a large number of people. In finance, in general, you can think of equity as ownership in any asset after all debts associated with that asset are paid off. For example, a car or house with no outstanding debt is considered the owner's equity because he or she can readily sell the item for cash. Stocks are equity because they represent ownership in a company. Corporate Debenture: Corporate debentures are normally backed by the reputation and general credit worthiness of the issuing company. It is a type of debt instrument that is not covered by the security of physical assets or collateral. Debentures are a method of raising credit for the company and although the money thus raised is considered a part of the company's capital structure, it is not part of the share capital. Company Fixed Deposit: Company fixed deposit is the deposit placed by investors with companies for a fixed term carrying a prescribed rate of interest. Company FDs are primarily meant for conservative investors who don't wish to take the risk of vagaries of the stock market. But The 2013 IBEA, International Conference on Business, Economics, and Accounting 20 23 March 2013, Bangkok - Thailand experts say the due diligence that an investor should undertake is similar to that before buying shares. Getting lured by the high interest rate alone is not advisable. Fixed Deposits: Fixed Deposits with Banks are also referred to as term deposits. Minimum investment period for bank FDs is 30 days. Deposits in banks are very safe because of the regulations of RBI and the guarantee provided by the deposit insurance corporation. The interest rate on fixed deposits varies with term of the deposits Bank deposits enjoy exceptionally high liquidity. Loans can raised against bank deposits. Post Office Savings: Post Office Monthly Income Scheme is a low risk saving instrument, which can be availed through any Post Office. The interest rate on deposits is slightly higher than banks. The interest is calculated half yearly and paid yearly Life Insurance Policies: Insurance companies offer many investment schemes to investors. These schemes promote saving and additionally provide insurance cover. L1C is the largest life insurance company in India. Some of its schemes include - -Life policies, -Convertible whole life assurance policy, -Endowment assurance policy, -Jeevan Saathi, -Money back policy -Unit linked plan -Term assurance -Immediate annuity -Deferred annuity -Riders etc. Insurance policies, while catering to the risk compensation to be faced in the future by investor, also have the advantage of earning a reasonable interest on their investment insurance premiums. Public Provident Fund (Ppf): A long term savings instrument with a maturity of 15 years. A PPF account can be opened through a nationalized bank at anytime during the year and is open all through the year for depositing money. Tax benefits can be availed for the amount invested and interest accrued is tax-free. A withdrawal is permissible every year from the seventh financial year of the date of opening of the account Real Estate: Investment in real estate also made when the expected returns are very attractive. Buying property is an equally strenuous investment decisions. Real estate investment is often linked with the future development plans of the location. At present investment in real assets is booming there are various investment source are available for investment which are directly or indirectly investing real estate. In addition to this, the more affluent investors are likely to be interested in other type of real estate, like commercial property, agricultural land, semi urban land, and resorts. Gold/Silver /Others: The bullion offers investment opportunity in the form of gold, silver, art objects (paintings ,antiques), precious stones and other metals (precious objects), specific categories of metals are traded in the metal exchange1.3 Behavioral Finance Approach: Retail investors are an important segment in the stock market and their prudent presence is very essential for a healthy growth of stock market . The long belief of the Efficient Market Hypothesis is gradually being eroded. Empirical studies have time and again proved that the irrational behaviors have caused stock market bubbles and crashes. The knowledge so developed through the studies would provide a framework of behavioral principles within which the investors can critically inspect their investing decisions and if need be ,take corrective actions to hopefully make their future financial decisions a bit more rational and a lot more lucrative as well. Theoretical and empirical evidence suggested that Capital Asset Pricing Model , Efficient Market Hypothesis and other rational financial theories did a respectable job of predicting and explaining certain events (Robert J.Shiller ,2003). However, the real world is altogether different and in which, market participants often behave very unpredictably. The fact is, investors frequently behave irrationally. The January Effect (Michael and William,1976),The Winners Curse (Robert Thaler,1988) and The Equity Premium Puzzle are the stock market anomalies that remained unexplained by the traditional theories. These anomalies prompted academics to look to cognitive psychology to account for the irrational and illogical behaviors(Albert Phung,2002). Investors trade for both cognitive and emotional reasons. They trade because they think they have information when they have nothing but noise, and they trade because trading can bring the joy of pride. Trading brings pride when decisions turn out well, but it brings regret when decisions do not turn out well.Now, let us look in to some of the most prominent behavioral biases that cause irrational decisions:Prospect theory explains the occurrence of the disposition effect, which is the tendency for investors to hold on to losing stocks for too long and sell winning stocks too soon. The most logical course of action would be to hold on to winning stocks in order to further gains and to sell losing stocks in order to prevent escalating losses.Anchoring Bias: Kahneman and Tversky(1974) have provided an academic evidence of the presence of strong anchoring effect even in random cases. According to them, investors have the tendency to attach or "anchor" their thoughts around a reference point despite the fact that it may not have any logical relevance to the decision at hand.Mental Accounting :Some Investors have the tendency of separating the found money and the earned money from the standpoint of the purpose for which it is utilized. Found money is recklessly spent where as extra caution is used to spend earned money , though there is no logical reason to distinguish.Confirmation Bias :The investors would be more likely to look for information that supports his or her original idea about an investment rather than seek out information that contradicts it.As a result, this bias can often result in faulty decision making.Hindsight Bias: The belief that they can easily predict the future based on the past events may result in incorrect oversimplifications and disastrous investment decision.Gamblers Fallacy :Often, Investors erroneously believe that the onset of a certain random event is less likely to happen following an event or a series of events. Investors can easily fall prey to this gambler's fallacy.Herd behavior: Investors have the tendency to mimic the actions (rational or irrational) of a larger group. Researchers have theorized that investors follow the crowd and conventional wisdom to avoid the possibility of feeling regret in the event that their decisions prove to be incorrect. The Crowd effects have resulted in nasty turbulences in the stock market(Showry&Tabassum,2007)Over Confidence :Investors are consistently overconfident in their ability to outperform the market, however, most fail to do so (James Montier,2006). At the height of optimism ,greed moves the stocks beyond their intrinsic value ,creating an overpriced market. At other times ,fear moves prices below intrinsic value, creating an undervalued market.In recent years it has been experienced that the market frequently mispriced the stocks. This is most often caused by human emotions of fear and greed (Meir Statman,1988). Following are some of the tips to avoid being trapped by the investors biases:(1)It is possible to minimize the disposition effect by using a concept called Hedonic Framing to change investors mental approach. If investors try these methods of framing, their thoughts should make their experience more positive. (2) Anchoring can be avoided by a rigorous critical thinking about the figures that are used for the evaluation of a stocks potential. (3) Mental accounting bias can be avoided if the investors think that the money is fungible.(4) A solution to overcoming confirmation bias would be finding someone to act as a "dissenting voice of reason". That way investors will be confronted with a contrary viewpoint to examine.(5) Just because everyone is jumping on a certain investment "bandwagon" doesn't necessarily mean the strategy is correct. Therefore, it is necessary for an investor to always do proper homework before following any trend.(6)Availability bias can be avoided if the investors retain a sense of perspective.1.4 INDUSTRY PROFILEIndian financial industry is considered as one of the strongest financial sectors among the world markets. Many industry experts may give various reasons for such Indian financial industry reputation, but there is only one answer which no one can deny, is the effective control and governance of the country s supreme monetary authority the RESERVE BANK OF INDIA (RBI). Financial sector in India has experienced a better environment to grow with the presence of higher competition. The financial system in India is regulated by independent regulators in the field of banking, insurance, and mortgage and capital market. Government of India plays a significant role in controlling the financial market in India. Ministry of Finance, Government of India controls the financial sector in India. Every year the finance ministry presents the annual budget on 28th February. The Reserve Bank of India is an apex institution in controlling banking system in the country. Its monetary policy acts as a major weapon in India's financial market.Various governing bodies in financial sector:1. RBI - Reserve Bank of India is the supreme authority and regulatory body for all the monetary transactions in India. RBI is the regulatory body for various Banking and Non Banking financial institutions in India.2. SEBI - Securities and Exchange Board of India is one of the regulatory authorities for India's capital market.3. IRDA Insurance regulatory and development authority in India regulates all the insurance companies in India. 4. AMFI Association of mutual funds in India regulates all the mutual fund companies in India. 5. FIPB Foreign investments promotion board regulates all the foreign direct investments made in India. 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 OfficeSavings 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 are1.Low Risk/ No Risk Investments. 2.Medium Risk Investments. 3.High Risk Investments. Apart from these, there are traditional investment avenues and emerging investment avenues.Various Investment avenues available in India1.1 Safe/Low Risk Avenues: Savings Account Bank Fixed Deposits. Public Provident fund. National savings certificates. Post office savings. Government Securities. 1.2 Moderate Risk Avenues: Mutual Funds. Life Insurance. Debentures. Bonds. 1.3High Risk Avenues: Equity Share Market. Commodity Market. FOREX Market. 1.4Traditional Avenues: Real Estate (property). Gold/Silver. Chit Funds. 1.5Emerging Avenues: Virtual Real Estate. Hedge Funds/Private Equity Investments. Art and Passion. CHAPTER 2: REVIEW OF LITERATURE 1.Behavioral finance is a new emerging science that studies the irrational behavior of the people. Avinash Kumar Singh (2006) The study entitled "Investment Pattern of People" has been undertaken with the objective, to analyze the investment pattern of people in diversified city analysis of the study was undertaken with the help of survey conducted .After analysis and interpretation of data it is concluded that investors are more aware about various investment avenues & the risk associated with that. All the age groups give more important to invest in equity & except people those who are above 50 give important to insurance, fixed deposits and tax saving benefits. Generally those investors who are invested in equity, are personally follow the stock market frequently i.e. in daily basis. But those who are invested in mutual funds are watch stock market weekly or fortnightly. Major investors are more aware about various investment avenues and the risk associated with that. But many investors are more conservative in nature and they prefer to invest in those avenues where risk is less like bank deposits, small savings, post office savings etc.2.Sudalaimuthu and senthil Kumar (2008) Mutual fund is the one of investment avenues the researcher research in this area about investors perception towards mutual fund investments has been analyzed effectively taking into account the investors reference towards the mutual fund sector, scheme type, purchase of mutual fund units, level of risks undertaken by investors, source of information about the market value of the units, investors opinion on factors influenced to invest in mutual funds, the investors satisfaction level towards various motivating factors, source of awareness of mutual fund schemes, types of plan held by the investors, awareness of risk category by investors, problems faced by mutual fund investors. Running a successful mutual fund requires complete understanding of the peculiarities of the Indian Stock Market and also the awareness of the small investor. The study has made an attempt to understand the financial behavior of mutual fund investors in connection with the scheme preference and selection. An important element in the success of a marketing strategy is the ability to fulfill investor expectation. The result of these studies through satisfactory on the investors perception about the mutual funds and the factors determining their investment decisions and preferences. The study will be useful to the mutual fund industry to understand the investors perception towards mutual funds investments and the study would also be informative to the investors.3.Sunil Gupta (2008) the investment pattern among different groups in city had revealed a clear as well as a complex picture. The complex picture means that the people are not aware about the different investment avenues and they did not respond positively, probably it was difficult for them to understand the different avenues. The study showed that the more investors in the city prefer to deposit their surplus in banks, post offices, fixed deposits, saving accounts and different UTI schemes, etc. The attitude of the investors towards the securities in general was bleak, though service and professional class is going in for investment in shares, debentures and in different mutual fund schemes. As far as the investments are concerned, people put their surplus in banks, past offices and other government agencies. Most of the cities though being rich have a tendency of investing then surpluses in fixed deposits of banks, provident funds, Post Office savings, real estates, etc. for want of safety and suitability of returns.4.Manish Mittal and Vyas (2008) Investors have certain cognitive and emotional weaknesses which come in the way of their investment decisions. Over the past few years, behavioral finance researchers have scientifically shown that investors do not always act rationally. They have behavioral biases that lead to systematic errors in the way they process information for investment decision. Many researchers have tried to classify the investors on the basis of their relative risk taking capacity and the type of investment they make. Empirical evidence also suggests that factors such as age, income, education and marital status affect an individual's investment decision. This paper classifies Indian investors into different personality types and explores the relationship between various demographic factors and the investment personality exhibited by the investors. 5.Babajida and Adetiloye (2012) examined the effects of behavior biases in performance of stock market in Nigeria of last twenty years and the variables they studied were overconfidence, loss aversion, framing, anchoring and status quo bias. The research has been conducted through administrating a questionnaire by targeting 300 respondents. . The Pearson product moment coefficient method was used to analyze the survey, this paper concluded that every investor must engage in the service of investor advisor that may reduce the personal biases of management decision process, also found that there is negative relation between independent and dependent variables due to indirect involvement in trade activity. 6.Chira, Adams & Thornton (2008) studied how cognitive biases and heuristics make distortion in the decision making of the business students. In this paper student behavior was investigated through questionnaire that included 45 questions which were presented to limited graduate and undergraduate students of Jacksonville University in United States of America and design to check the behavior mistakes that they make during both financial and non-financial decision making. There were number of biases and heuristics found after getting the questionnaire but this paper focuses on overconfidence, excessive optimism, loss aversion, familiarity, sunk cost, illusion of control and confirmation biases. This paper found that generally student rationality is bounded in their decision making behavior, when they are asked to show driving ability and school performance they react overconfident and extremely optimistic on the other hand they are less optimistic about investment ability and athletic ability. 7.Poluch (2011) analyzed the impact of overconfidence biases on different level of management and also that cognitive ability can explore the relationship between overconfidence biases and level of management. The managers of professional services organizations of South Africa used as sample. Online survey was conducted and some individuals were also personally approached and 30 managers were targeted at each level. This study concluded that middle managers has the least level of overconfidence due to difficulties faced by them and lower level managers feel more overconfidence due to unique and specific task required by middle managers. The upper level managers are more overconfident due to authority and self independency. 8.Bogan and Just (2008) investigated the existence of confirmation bias in mergers particularly in the behavior of actual corporate executives. For this purpose he did experimental study at Ivy League University used frequency technique that included observations from 2333 respondents i.e. 2034 students and 299 higher executives. This research concluded that higher executives were less likely to absorb the new information in contrast to non-executives. 9. Park and Konana et. al. (2010) analyzed the impact of stock message boards on investors trading decision and investment performance. This research included 502 respondents from the largest message board operator in South Korea. The data set came from a field experiment on the participants of the largest online portal website Naver stock message boards. The frequency technique used in this research paper and concluded that the investors exhibit the confirmation bias when they get information from the message board. 10. According to Thaler (1999) mantel accounting was used by the individual to managing, evaluating and financial activities in household. Investor of Indonesia tend to be neutral choosing a positive frame, if turn into negative frame then it would be risky. Indonesian investors mostly choose risky alternatives as compare to less risky. Mental accounting suggested to Indonesian investors, they are not able to incorporate financial information separately. 11. Seppala (2009) examined the effects of three behavioral biases hindsight, overconfidence and self-attribution. This paper examined the effect of individual thinking style and cognitive ability on investment advisors. The survey was created by three separate groups of people, financial professionals, university students and employees of engineering company and also creates two-pronged structure for recollect and repeat the issues. Asset selection effect, sign of return effect, drift of return effect and strange of views were used to analyze the hindsight biases. Commonly behavior biases were shown by people but it varies individual to individual due to experience and characteristics. They found that all people including investment advisors are suffered to hindsight bias. Findings on overconfidence indicated that people are confident and results on self attribution bias also showed that people suffer from it. 12.Ofir and Wiener (2011) investigated the performance of behavior biases among professional investors in the case of structured products investment for this purpose they picked a population of 573 subjects as a sample out of which 75% were investment advisors and 25% portfolio managers by using the logic probit model and linear probability model. The purpose of this study was to test the possible impact of each behavior bias on decisions pertaining to investments in structured products. They found that even professional investors make major systematic errors even they were not immune to behavioral biases. 13. Moore, Kurtzburg et. Al (1999) examined the portfolio allocation decisions of 80 business students through a computer based investing simulation. The purpose of study was to better understand why investors spend so much time and money on actively managed mutual funds. They created a simulated market based on the real performance data of nine largest mutual funds in 1985 plus and S&P 500 index fund. An experiment was conducted for this and the data was organized into a computer based environment in which investors were able to invest a set amount of money over the 10-year period. Every participant could review the performance of its investment and could move it to new mutual fund. Investor could allocate its investment in 10 mutual funds. They concluded that investment decisions are susceptible to positive illusions and overestimation of inter temporal consistency. These biases influence judgment, satisfaction and behavior in some consistent ways that can cost investor dearly. 14. Chen, A. Kim et. al (2010) studied investment decision making in an emerging market. They found that Chinese investors make poor trading decisions suffering from three behavioral biases (i) They tend to sell stocks that have appreciated in prices, but not those that have depreciated (ii) they seem to be overconfident (iii) they seem to believe that past returns are the indicative of future returns. For this purpose they selected the Chinese market and investors. The dataset came from a brokerage firm of SHSE & SZSE in China. The complete dataset included 74960 investor accounts out of which 27779 were deleted due to some reasons leaving a final sample of 46969 individual investors and 212 institutional investors. They used regression relation for this purpose and concluded that Chinese investors make trading mistakes, they are reluctant to realize their losses, they tend to be overconfident and they exhibit a representativeness bias. 15.Charness and Gneezy (2003) studied basic intuition during decision: how investment split between risky lottery and assets having fix return by using three biases ambiguity aversion, illusion if control and myopic loss aversion. This paper replicated the previous result related to basic intuition and then tests the participants by paying small sum of money with line of bias (less ambiguity, more perceived control). The experimental research is conducted in University of California and graduates school of business in University of Chicago, which included 275 students, pages that having 10 treatments one of them is given to each student. This paper studied how portfolio choice depends on above biases and concluded the illusion of control was eliminated when investors want to gain more control, in less or more control investors always face fractions if they invest in risky options. This paper discussed there was no influence on investment against the level of ambiguity but people always want to pay for less ambiguity. In loss aversion people less invested where more freedom to change their investment. 16.Bashir and Rasheed, et. Al (2013) investigated the influence of behavioral biases on investment decisions. The study was conducted through questionnaire. About 100 respondents were targeted out of them 55% were employees and the remaining students. They took female and male as dependent variable and confirmation biases, illusion of control, overconfidence, loss aversion as independent. The methodology used in this study was chi-square. The finding concluded that there is no significant difference between decision making regarding overconfidence bias of male and female. San and Phuachan investigated whether loss aversion affects the investment or not? Questionnaire and non-parametric tests were applied on the employees of Stock exchange of Thailand for this purpose. The results showed that SETs employees mostly use media reports for their decisions on stock trades. It was also discovered that some personal factors like gender, education and investment experience are related to loss aversion. The targeted sample of the study was 260. Non-parametric and Chi square test were used to find out the relationship. And significant relationship was found between them. 17.Yahyazadehfar and Shams et. al (2012) investigated people who are subject to a Status quo bias (SQB) tend to choose an alternative that they have chosen previously even if that is not a right option for them anymore. The purpose of this study was to investigate Status Quo Bias (SQB) in behavioral finance. SQB in this study was investigated using Ruenzi & Kempf model & Stata 10.0 software package from the companies listed in Tehran Stock Exchange from 2003-2010. The data was collected quarterly from investment companies. They concluded that people who are subject to a SQB tend to choose an alternative that was chosen previously even if it is not optimal choice anymore. 18. Shiller (1997) explained that investors place their investments into haphazardly separate mental compartments, and in different ways to the investment based on which compartment they are in. In the study researcher investigated that people of India save money for some specific purpose, like for children education and they borrow money from other people for other needs and desires of their lives like for buy car. Even the interest rate on the borrowed money was higher that the interest rate which they receive on saving for the education purpose of childrens. Ultimately this bias of people effect their decision making process. 19.Thaler (1999) reported that mental accounting was consisted on three components. The first section of mental accounting was how outcomes were experienced and perceived, how decisions were made and evaluation of decisions. The second components of mental accounting assigned the actions to specific accounts. It maintained the way how inflow and outflow of funds was done from each specific activity. The third component was concerned with the rate at which account were evaluated. Investors were can be balanced accounts on a daily, weekly, monthly, or yearly basis. Each component of mental accounting violated the economic principle of balance. Due to the mental accounting the decision of investors were influenced. 20.Kosnik (2007) investigated the confirmatory bias behavior in tax policy and established effect on aggregate outputs. Primary data was collected from 284 participants through confidential survey in the United State. The Descriptive state and Frequency distribution technique was used to investigate the confirmatory bias behavior within investors decision making. The study concluded that the confirmatory bias affected the evidence related losses strongly as compared to evidence related gains. 21. Hong et al., (2001) conducted a study wherein they proposed that stock market participation is influenced by social interaction. According to them any given social investor finds the market more attractive when more of his peers participate. They tested this theory and found that social households those who interact withtheir neighbors, or attend church are substantially more likely to invest in the market than non social households, controlling for wealth, race, education and risk tolerance. 22.Another study conducted by Barberis and Huang (2001) suggests that loss aversion the tendency to be more sensitive to losses than to gains and narrow framing the tendency to focus on narrowly defined gains and losses 13 play an important role in determining how people evaluate risky gambles. 23.Kahneman and Tversky (1979) found that contrary to expected utility theory, people placed different weights on gains and losses and on different ranges of probability. They found that individuals are much more distressed by prospective losses than they are happy by equivalent gains. 24.Wood R (2004) studied attitudes and trading behavior of stock market investors by conducting a study among 90 individual investors and identified four main segments of individual investors as: risk-intolerant traders, confident traders, less risk-averse young traders and conservative long-term investors. His cluster segmentation analysis shows that each segment purchases different types of stock and had different levels of trading behaviour. 25.another study, Meng Chen Gong et al. (2004) tested how investor experience influence investing behaviour and trading performance. The study shoes that experienced investors are more inclined toward making trading mistakes and suffering from the representativeness bias. 26.Barber and Odean (2001) by examining the personal characteristics of investors argued that investing is traditionally a masculine task in the U.S and therefore, as a group, men can be considered to be more in tune to investing than women. Their study also shows that men do show more overconfident characteristics, such as excessive trading and higher risk trading. 27.DeBondt and Thaler (1985, 1987) find that investors overreact to drastic or unexpected events or information. They find that portfolios of prior losers outperform that of prior winners in the long run. Since investors count on the representative heuristic, they become too optimistic about recent winners and too pessimistic about recent losers. 28. Kahneman and Riepe (1998) noted that the human mind is a pattern seeking device, and it is strongly biased to adopt the hypothesis that a causal factor is at work behind any notable sequence of events. As a result, investors tend to over interpret patterns that are coincidental and unlikely to persist. They react to recent history and their own experiences, without paying enough attention to events that were not directly experienced or retained in memory. 29.TheBarberis et al. (1998) theory states that extrapolation from random sequences, wherein agents expect patterns in small samples to continue, creates overreaction (and subsequent reversals), whereas conservatism, the opposite of extrapolation, creates momentum through under reaction. 30. Hong and Stein (1999) suggest that gradual diffusion of news causes momentum, and feedback traders who buy based on past returns create overreaction because they attribute the actions of past momentum traders to news and hence end up purchasing too much stock, which, when positions are reversed, causes momentum. CHAPTER 3: RESEARCH METHODOLOGY3.1 NEED FOR THE STUDY:This study will help to the investors on his investment decision makingThis study will help to understand in depth about different investment avenues 3.2 OBJECTIVES OF THE STUDY:To know the factors that influences the investors for investment.To find out how investors get information about the various financial instruments.To identify the objective of savings of an investor. To know the risk tolerance level of the individual investor. 3.3 HYPOTHESIS: Hypothesis is proposition that is stated as testable form and that predictParticular relationship two or more variables.H0: There is no significant impact of factors that influences the behavior of investors in investment.H1: There is significant impact of factors that influences the behavior of investors in investment. 3.4 SCOPE OF THE STUDY: This study is focusing on the financial behavioral of people and it will be helpful to identify the better investment options in the market.3.5 RESEARCH DESIGNSample Technique:Initially, a rough draft was prepared by keeping in mind the objective of the research. A pilot study was undertaken in order to know the accuracy of the questionnaire. The final questionnaire was arrived at only after certain important changes are incorporated. Convenience sampling technique has used for collecting the data from different investors. The investors are selected by the convenience sampling method. The selection of units from the population based on their easy availability and its best in surveys dealing with an exploratory purpose for generating ideas and hypothesis.Sample Unit:The respondents who asked to fill out the questionnaires are the sampling units. These comprise of employees of MNC s, government employees, housewives, self employed, professionals and other investors.Sample Size:The sample size was around more than 50, which comprised of people from different regions. But around 50 respondents (Investors) filled up the form.Primary Data:Information is collected by conducting a survey by distributing a questionnaire to more than 50 investors in diversified area. These investors are of different age group, different occupation, different income levels, and different qualifications. Secondary Data:This data is collected by using the following means.1. Investment Magazines, Business Magazines, Financial chronicles.2. Experts opinion published in various print media.3. Data available on internet through various websites3.6 Limitations of the study The study is limited only to the investors behavior towards various investment avenues.It also states that different investors thinks in different manner. The data is available in various websites and business magazines. CHAPTER 4: DATA ANALYSIS & INTERPRETATIONAn analysis is made on the responses received from 50 sample investors. The objective of the report is to find out the investors behavior on various investment avenues, to find out the needs of the current and future investors.The questionnaire contains various questions on the investors financial experience, based on these experiences an analysis is made to find out a pattern in their investments.Based on these investment experiences of the 50 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.4.1 ANALYSIS OF THE SURVEY:TABLE NO: 1 DEMOGRAPHICS OF THE SAMPLE INVESTORPARAMETERFREQUENCYPERCENTAGEGENDERMale3060%Female2040%TOTAL50100%AGE GROUPBelow 2000Between 20-302040%Between 31-401734%Above 411326%TOTAL50100%QUALIFICATIONUnder Graduate48%Graduate2346%Post Graduate1938%Others48%TOTAL50100%OCCUPATIONSalaried2754%Business1020%Professional714%House Wife510%Retired12%TOTAL50100%Interpretation:Table 1 above shows, that 30 (60%) of the investors are men and the rest 20(40%) are females. Generally males bear the financial responsibility in Indian society, and therefore they have to make investment (and other) decisions to fulfill the financial obligations.When it comes to age, it was found that 40% are young and significant number under the age group of 20-30. 34% of them are in the age group of 31-40. 26% of them are above 40 years of age. There are no investors below 20 years of age.Nearly 54% of the investors belong to the salaried class, 20% were business class, 14% were professionals, 10% were housewives and the rest 2% were retired.It was found that irrespective of annual income they earn all the investors interested in investments since todays inflated cost of living is forcing everyone to save for their future needs, and invest those saved resources efficiently.19(38%) of the individual investors covered in the study are postgraduates; 23(46%) investors are graduates and 4(8%) of the investors are under-graduates, and 4(8%) investors are categorized as others who are either illiterates, had less education than under graduation or who are more qualified than post graduates. It is interesting to note that most investors (covered in the study) can be said to possess higher education (Bachelor Degree and above), and this factor will increase the reliability of conclusions drawn about the matters under investigation.TABLE 2 OTHER CHARACTERISTICS OF SAMPLE INVESTORS TABLE NO:2.1 INVESTORS TOTAL INCOMEFrequencyPercentValid PercentCumulative PercentValid11326.026.026.021326.026.052.031224.024.076.041224.024.0100.0Total50100.0100.0Interpretation:Above table shows that 13(26%) of the investors are earning less than 20k per month, 13(26%) investors are earning between 20k and 30k, 12(24%) investors are earning between 30k and 40k, 12(24%) investors are earning more than 40k P.m. All are equally earning income.TABLE NO: 2.2 TIME PERIOD PREFERRED TO INVESTMENTFrequencyPercentValid PercentCumulative PercentValid1918.018.018.022448.048.066.031632.032.098.03212.02.0100.0Total50100.0100.0Interpretation:It is interesting to know that many investors prefer to invest their money for medium term i.e. from 1 - 5 years, instead of short term and long term.18% preferred short term, 48% preferred medium term and 32% preferred long term.TABLE NO: 2.3 THE PORTION OF INCOME TOWARDS INVESTMENTFrequencyPercentValid PercentCumulative PercentValid11530.030.030.021020.020.050.031734.034.084.04816.016.0100.0Total50100.0100.0Interpretation: 15(30%) of the investors prefer to invest their income between10%to20%,10(20%) of the respondents prefer to divert their income between 20-30percent,and 17(34%) most of the peoples would like to divert 30-40 percent of their income, and the minimum of 8(16%) respondents would like invest 40% aboveTABLE NO: 2.4 FREQUENCY OF MONITORING THE INVESTMENT FrequencyPercentValid PercentCumulative PercentValid1816.016.016.021530.044.060.032244.030.090.04510.010.0100.0Total50100.0100.0Interpretation:Due to the busy life schedule, many of the investors are not able to spend time in monitoring their investments, only 16% of the investors are monitoring their investments daily,30% are monitoring on a monthly basis, 44% , the majority investors are monitoring their Investments quarterly. Many of them who have invested in safe investment avenues do not bother about their investments, some of them forget about the investments for many years.TABLE NUMBER 3 FACTORS INFLUENCE ON INVESTMENT TABLE NO:3.1 ANCHORINGFrequencyPercentValid PercentCumulative PercentValid12448.075.075.02816.025.0100.0Total3264.0100.0MissingSystem1836.0Total50100.0Interpretation: The above table shows that 48% of respondents partially go by anchoring concept and the 16% of peoples go by fully. remaining 36% respondent won't be adapt. TABLE NO: 3.2 MENTAL ACCOUNTING FrequencyPercentValid PercentCumulative PercentValid12856.082.482.42612.017.6100.0Total3468.0100.0MissingSystem1632.0Total50100.0Interpretation: The above table shows that 56% of respondents partially go by mental accounting and the 12% of peoples go by fully. remaining 32% respondent won't be adapt. TABLE NO: 3.3 GAMBLER FALLACYFrequencyPercentValid PercentCumulative PercentValid12856.096.696.6212.03.4100.0Total2958.0100.0MissingSystem2142.0Total50100.0Interpretation: The above table shows that 56% of respondents partially go by gambler concept and the 2% of peoples go by fully. remaining 42% respondent won't be adapt. TABLE NO: 3.4 HERD BEHAVIORFrequencyPercentValid PercentCumulative PercentValid12142.075.075.02612.021.496.4312.03.6100.0Total2856.0100.0MissingSystem2244.0Total50100.0Interpretation: The above table shows that 42% of respondents partially go by anchoring concept and the 12% of peoples go by fully. remaining 44% respondent won't be adapt. TABLE NO: 3.5 OVER CONFIDENCEFrequencyPercentValid PercentCumulative PercentValid12754.096.496.4212.03.6100.0Total2856.0100.0MissingSystem2244.0Total50100.0Interpretation: The above table shows that 54% of respondents partially go by anchoring concept and the 2% of peoples go by fully. remaining 44% respondent won't be adapt. TABLE NO: 3.6 OVER REACTIONFrequencyPercentValid PercentCumulative PercentValid12448.096.096.0212.04.0100.0Total2550.0100.0MissingSystem2550.0Total50100.0Interpretation: The above table shows that 48% of respondents partially go by anchoring concept and the 2% of peoples go by fully. remaining 50% respondent won't be adapt. TABLE NO: 3.7 PROSPECT THEORYFrequencyPercentValid PercentCumulative PercentValid12448.085.785.7248.014.3100.0Total2856.0100.0MissingSystem2244.0Total50100.0Interpretation: The above table shows that 48% of respondents partially go by anchoring concept and the 8% of peoples go by fully. remaining 44% respondent won't be adapt. TABLE NUMBER: 4 OBJECTIVES OF INVESTMENT TABLE NO: 4.1 SAVING OBJECTIVESFrequencyPercentValid PercentCumulative PercentValid11122.022.022.021122.022.044.03918.018.062.041938.038.0100.0Total50100.0100.0Interpretation: Table shows the savings objectives of the sample investors, investors are given option to select one or more savings objectives, since there may be one or more answers, weights are given for each parameter bases on the votes given by the investors, the maximum weightage represents many investors have that as main objective. Based on the weights calculated ranks are given in the order of maximum weightage given by investors. First rank is given to childrens 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 31- 40 as of now they are thinking of saving for their childrens marriage. So children s marriage is given last rank. After children s education investors are saving for their own health care. There is a greater need for Indians to save for their health care who are living a mechanical life. Retirement and home purchase are given subsequent ranks after health care. TABLE NO: 4.2 PURPOSE BEHIND INVESTMENTFrequencyPercentValid PercentCumulative PercentValid1816.016.016.021530.030.046.031020.020.066.041734.034.0100.0Total50100.0100.0Interpretation:All the investors have very common purposes for investing; they have more than one purpose for investing their money. Salaried people invest for tax savings, and for future expenditure, business people invest for the purpose of earning returns. Almost all the investors have all the 4 purposes behind investing their money. TABLE NO: 4.3 FACTORS CONSIDER BEFORE INVESTINGFrequencyPercentValid PercentCumulative PercentValid11224.024.024.021326.026.050.031530.030.080.041020.020.0100.0Total50100.0100.0Interpretation:When the investors are asked about the factors considering before investment many of them have voted for safety of principal and low risk. First rank is given to safety of principal and 2nd to low risk. Here there are some contradicting results, some investors expect high returns at a very low risk, and this is not possible in practical Indian investment avenues. Investment believes in a proved principle, higher the risk higher the returns, lower the risk lowers the returns. Investors need to know about this principle before investing.TABLE 5 RISK TOLERANCE LEVELS OF INVESTORS: TABLE NO: 5.1 RISK TOLERANCEFrequencyPercentValid PercentCumulative PercentValid136.06.06.023672.072.078.03816.016.094.0436.06.0100.0Total50100.0100.0Interpretation: In the case of risk meaning of investors 6% of the respondents are thinking risk means loss,72% of the investors are considering it is a uncertainty,16%of the investors are accepting as opportunity, and the 6% of the investors are feeling thrill. TABLE NO: 5.2 RISK TOLERANCE1FrequencyPercentValid PercentCumulative PercentValid11632.032.032.022244.044.076.031224.024.0100.0Total50100.0100.0Interpretation: The above table shows the risk tolerance levels of investors, 44% of the investors mostly invest it in safe high quality bonds or bond mutual funds,32% of the investors deposit it in bank a account, money market account, or an insured CD.24% of the investors invest it stocks or stock mutual funds. TABLE NO: 5.3 COMFORTABLE BY INVESTINGFrequencyPercentValid PercentCumulative PercentValid12040.040.040.021938.038.078.03918.018.096.0424.04.0100.0Total50100.0100.0Interpretation The above table shows the 40% of the investors are not at all comfortable with the investment of stocks or mutual funds,38% of the investors somewhat comfortable with that,18% of the investors are very comfortable. TABLE NO: 5.4 RISK TOLERANCE2FrequencyPercentValid PercentCumulative PercentValid11122.022.022.022652.052.074.0336.06.080.041020.020.0100.0Total50100.0100.0Interpretation: The above table shows the 22% of the investors are choosing risk less option and the 52%of the investors are choosing the 50-50 percent chance of the winning option 6% of the investors are looking for risk bear, and 20% of the people risk takers. TABLE NO: 5.5 RISK TOLERANCE3FrequencyPercentValid PercentCumulative PercentValid11122.022.022.022346.046.068.031020.020.088.04612.012.0100.0Total50100.0100.0Interpretation: The above table shows the 22% of the investors are choosing risk less option and the 46% of the investors are choosing the 50-50 percent chance of the winning option 20% of the investors are looking for risk bear, and 12% of the people risk takers.CHAPTER 5: FINDINGS, CONCLUSION & SUGGESTIONS5.1Findings: The study reveals that male investors dominate the investment market in India. 46% and 38% of the investors possess higher education like graduation and above. 54% of the active and regular Investors belong to accountancy and relate employment, 14% of non-financial management and some other occupations are very few.Investors opt for two or more sources of information to make investment decisions. 65% 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 a majority of the people who participated in the study.75% of the investors get their information related to investment through electronic media (TV) next to print media (News paper/ Business news paper/ MagazinesIncrease in age decrease the risk tolerance level. Women are attracted towards investing gold than any other investment avenue. H1: There is significant impact of factors that influence the behavior of investors in Investment..is accepted5.2: SUGGESTIONSThis report is a reflection of the behavior of various categories of investors. Selection of a perfect investment avenue is a difficult task to any investor. An effort is made to identify the tastes and preferences of a sample of investors selected randomly out of a large population. Despite of many limitations to the study I was successful in identifying some investment patterns, there is some commonness in these investors and many of them responded positively to the study.This report concentrated in identifying the needs of current and future investors, investor s preference towards various investment avenues are identified based on their occupation. Investors risk in selecting a particular avenue is dependent on the age of that investor.5.3 Conclusion:This study confirms the earlier findings with regard to the relationship betweenAge and risk tolerance level of individual investors. The Present study has important implications for investment managers as it has come out with certain interesting facts of an individual investor.The individual investor still prefers to invest in financial products which give risk free returns. This confirms that Indian investors even if they are of high income, well educated, salaried, independent are conservative investors prefer to play safe.The investment product designers can design products which can cater to the investors who are low risk tolerant and use TV as a marketing media as they seem to spend long time watching TVs.ANNEXURE 1 QUESTIONNAIREQUESTIONNAIREDEMOGRAPICS:Name :Age : Se :Education:Occupation:Married:What is the total income p.m.?10000-20000 b. 20000-3000030000-40000 d. 40000-Abovewhat is the time period you preferred to invest?a. short-term(0-1yrs) b. medium-term (1-5yrs) c. long-term(>5yrs) What portion of your income is diverting to words investment (%)?10%-20% b.20%-30% c. 30%-40% d.40%-AboveWho are the initiatives to take decisions in investment?a.Parents b. Friends c. Relatives c. Employees 11.How often do you monitor your investment? a.Daily b.Monthly c.Quarterly d. Occasionally12. Which are the following factors influence your investments? CONCEPTSPARTIALLYFULLYAnchoring.Mental accounting.Confirmation and hindsight bias.Gamblers fallacy.Herd behavior.Over confidence.Over reaction and availability bias. Prospect theory.12.What are your savings objectives?a. Childrens educations b. Retirement planc. Home purpose d. Childrens marriagee. Health care13.What are your investment objectives?a.Income and capital preservation b. Long-term growthC. Growth and income d. Short-term growth14.What is the purpose behind investment?a. Wealth creation b. Tax savingc.Earn returns d. Future expenses15.Which factor do you consider before investing?a.safety b.Low riskc. High returns d. Maturity period16. When you think of the word risk which of the following words comes to mind first?a. loss b. uncertaintyc. opportunity d. thrill17. If you unexpectedly received $2, 0000 to invest, what would you do?a. deposit it in bank a account ,money market account ,or an insured CDb. invest it in safe high quality bonds or bond mutual fundsc. invest it in stocks or stock mutual funds18. in terms of experience, how comfortable are you investing in stocks or stock mutual funds?a. not at all comfortable b. somewhat comfortablec. very comfortable19. You are on a TV game show and can choose one of the following. which would you take?a. $1,000 in cash b. A 50% chance at winning $ 5,000c. A 25% chance at winning $10,000d. A 5% chance at winning $100,00020. Given the best and worst case returns of the four investment choices below ,which would you prefer?a. $200 gain best case;$ gain/loss worst casec.$ 800 gain best case;$200 loss worst casec. $2,600 gain best case; $800 loss worst case d.$4,800 gain best case; $2,400 loss worst case BIBILIOGRAPHYBooks:Investment Analysis and Portfolio Management, by Prasanna Chandra. Research PaperAn Empirical study on Indian individual investors behavior, by Syed Tabassum Sultana. Web Siteswww.economictimes.Indiatimes.comwww.business-standard.comwww.Indiamoney.comwww.moneymanagementideas.comhttp://www.ijbarr.com/downloads/3001201511.pdf