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International J ournal for Management ResearchVol.1.No.2, J uly 2011, pp. 22-39
Analysis of Retail Investors Behaviour in Belgaum District,
Karnataka State.
Dr. Arifur Rehman Shaikh,Dr. Anil B. Kalkundarikar
______________________________________________________
ABSTRACT:Since the economic liberalization there is an increase in number of investment avenues availablefor retail investors, depending upon their risk appetite they can chose between bank deposits,government / private bonds, shares and stocks, exchange traded funds (ETF), mutual funds,insurance, derivatives, gold, silver, currencies, real estate, etc. Most of the retail investorsprimary objective of investment is to earn regular income and expected rate of return differs fromindividual to individual based on their level of market knowledge and risk taking ability. Thepresent paper assesses the behavior of retail investors in Belgaum district of Karnataka state and itreveals that knowledge level significantly leverages the returns on the investments and there is anegative correlation between the occupation of retail investor and the level of risk. This has beenidentified on the basis of cross analysis by applying Correlation analysis.
KEYWORDS: Retail Investors, expected rate of return, level of risk, knowledge level,
Occupation.
BIOGRAPHICAL NOTE:Dr. Arifur Rehman Shaikh is currently working as Asst. Professor in KLS- Institute ofManagement Education and Research, Belgaum.He can be reached at [email protected]
Dr. Anil B. Kalkundarikar is currently working as Professor in the MBA Department at Rani
Chennama University, Belgaum.
______________________________________________________________________________Introduction
The economic development of any country depends upon the existence of a well-developed
financial system. It is the financial system which supplies the necessary financial inputs for the
production of goods and services that in turn promote the well being and standard of living of the
people of a country. The major assets traded on the financial system are money and monetary
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assets. The responsibility of the financial system is to mobilize savings in the form of money and
monetary assets and invest them in productive ventures.
A successful investor is not the one who makes huge profits but one who studies the market,
understands his risk taking ability, sets the clear cut investment objectives, determines the
expected rate of return and also decides the time and period of investment.
Review of Literature:
L.C.Gupta (1991) argues that designing portfolio for a client is much more than merely picking
up securities for investment. The portfolio manager needs to understand the psyche of his client
while designing his portfolio. According to Gupta, investors in India regard equity, debentures
and company deposits as being in more or less the same risk category and consider including all
mutual funds, including all equity funds, almost as safe as bank deposits.
K.S. Chalapati Rao, M.R. Murthy and K.V.K Ranganathan(1999) in their research article Some
aspects of the Indian Stock Market in the post liberalization period evaluates that as a part of the
process of economic liberalization, the stock market has been assign an important place in
financing the Indian corporate sector. Besides enabling mobilizing resources for investment,directly from the investors, providing liquidity for the investors and monitoring and disciplining
company management are the principal functions of the stock market. This paper examines the
development in the Indian stock markets during the nineties in terms of these three roles.
Kevin James (2000), in his research article The Price of Retail Investing in the UK evaluates
the financial wealth services provided by investment funds in UK, the study identifies that the
retail investors largely delegate the management of their wealth to investment funds. These funds
in turn charge retail investors for the portfolio and risk management services they provide, sparing
retail investors the burdensome task of performing these various services themselves. So in order
to choose a sensible fund (a fund that meets his or her requirements), a retail investor must be able
to ascertain the services provided and the price charged by each of the funds he or she may
consider.
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Dr. K Santi Swarup (2003) in her research article Measures for improving common investor
confidence in Indian primary market a survey, concentrates on the decisions taken by the
investors while investing in primary markets, the study indicates that the sample investors give
importance to their own analysis as compared to brokers advice. They also consider market price
as a better indicator than analyst recommendations. The study also identifies factors that are
affecting primary market situation in India. Issue price, information availability, market price
after listing and liquidity emerge as important factors. This study suggests that investors need to
be assured of some return and current level of risk associated with investment in the market is
very high. They have had bad experience in terms of lower market price after listing and high
issue price. Accordingly number of measures in terms of regulatory, policy level and marketoriented were suggested to improve the investor confidence in equity primary markets. However,
this paper does not highlight the measures for improving investor confidence in secondary
market.
C. S. Shylajan and Sushama Marathe (2006) in their research article A study of attitudes and
trading behaviour of stock market investors, identify the major factors responsible for
determining the attitudes and trading behavior of stock market investors. Based on their shared
investing attitude and behaviour, the stock market investors are classified into two categories i.e.
aggressive investors and non aggressive investors.
John Graham and Alok Kumar (2006) in their study Do dividend clienteles exist? evidence on
dividend preferences of retail investors evaluates portfolio holdings of retail investors of older
and low income category, this study suggests that these investors prefer dividend paying stocks,
the study also highlights the trading behaviour of retail investors and indicates that the investor
trades around dividend events are consistent with clientele behaviour. Further, it also points out
that old and low income investor exhibits abnormal buying behaviour following dividend
announcements.
.Objectives of the Study:
1)To understand the awareness among retail investors about various investment alternativesavailable.
2)To identify the objectives of investments of retail investors.
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3)To assess the time horizon of investment of retail investors.4)To identify the expected rate of return on investment5)To verify the correlation between the knowledge level and with the level of return
expected by the retail investors.
6)To verify the correlation between the occupation of the respondent and level of risk.Hypothesis of the Study:
For the purpose of analyzing the set objectives, this study has adopted the following hypothesis
H0 - There is no correlation between the level of investment knowledge and the expected rate of
returns of retail investors.
H1 - There is a correlation between the level of investment knowledge and the expected rate ofreturns of retail investors.
H0- There is no correlation between the occupation and the level of risk assumed by the retail
investor.
H1- There is a correlation between the occupation and the level of risk assumed by the retail
investor.
RESEARCH METHODOLOGY:
This study is based entirely on primary data collected through a well designed and structured
questionnaire. The data was collected from investors spread over Belgaum district of Karnataka
State. Questionnaires were distributed and collected during the period from January 2008 to July
2009 by using random sampling technique. The total population (universe) of retail investors is
3500 for the purpose of the study, 20% population is taken as sample i.e. 700 retail investors. The
data so collected with the help of primary sources are analyzed by using Statistical Package for
Social Science (SPSS).
AREA AND PERIOD OF THE STUDY:
The study is conducted to understand the Retail Investors Behaviour in Belgaum. district of
Karnataka state and the study covers a period from January2008 to July2009.
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700
353
217186 183 174
150
0
100
200
300
400
500
600
700
800
Shares Stock / Index
Futures
Stock / Index
Options
ETF SIP / ULIP Real Estate Commodities
LIMITATIONS OF THE STUDY :
The study does not cover the entire population of the retail investors in Belgaum district due to
the limitation of time and resources.
The results of the analysis are based on the data about the sample population of retail investors in
Belgaum district only, the results need to be generalized with caution and may not be entirely
valid for population of other districts or regions.
Data Analysis:
Table 1: Awareness among respondents about various investment instruments
INVESTMENT INSTRUMENTS NO. OF RESPONDENTSShares 700Stock / Index Futures 353Stock / Index Options 217ETF 186SIP / ULIP 183Real Estate 174Commodities 150Source Primary Data from Survey
Study indicates that out of 700 respondents 353 of them are aware of stock / index future, 217 are
aware of stock / options, 186 respondents are aware of exchange traded funds [ETF], 183 are
aware of systematic investment plan [SIP] and unit linked insurance plan [ULIP], 174 of them are
aware of investment in real estates, whereas 150 of the respondents are aware of commodities
trading.
Graph 1: Awareness among respondents about various investment instruments
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Qualification Frequency81356
463
143
17
Table 2: Qualification of respondents / retail investors
Qualification Frequency Percent Cumulative PercentNon Matriculate 8 1.14 1.14Matriculate 13 1.86 310 +2 56 8 11Graduate 463 66.14 77.14PG 143 20.43 97.57Other 17 2.43 100
Total 700 100Source Primary research data
Educational profile of the respondents indicates that 66.14percent are Graduates, 20.43percent are
Post Graduate, 8percent with 10 +2 qualification, around 3percent had school level education and
2.43percent possess other qualifications like Diploma etc.
Graph 2: Qualification of respondents / retail investors
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5 & above
3 - 5
1 - 3
0 - 1
Table 3: TIME HORIZON OF INVESTMENT
Years Frequency Percent Valid PercentCumulative
Percent0 1 143 20.4 20.4 20.41 3 207 29.6 29.6 50.03 5 284 40.6 40.6 90.6
5 and above 66 9.4 9.4 100.0Total 700 100.0 100.0Source - Primary Data from Survey
The study indicates that 40.57percent of the respondents have a holding period of investments in
stock markets for a time horizon of 3 to 5 years, 29.57percent for a period of 1 to 3 years,
20.43percent for less than 1 year and 9.43percent for more than 5 years.
Graph 3: TIME HORIZON OF INVESTMENT
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Extensive
Good
Moderate
Some
Little
Table 4: Level of Investment knowledge
Level ofKnowledge
Frequency Percent Valid PercentCumulative
PercentLittle 155 22.1 22.1 22.1Some 252 36.0 36.0 58.1Moderate 166 23.7 23.7 81.9Good 85 12.1 12.1 94.0Extensive 42 6.0 6.0 100.0
Total 700 100.0 100.0Source - Primary Data from Survey
Survey highlights that 22.14percent of the retail investors have very little knowledge of the
market 36percent have some knowledge, 23.71percent have moderate level of market knowledge
12.14percent have good and only 6percent have extensive market knowledge.
Graph 4: Level of Investment knowledge
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20 & above
16 - 20
12 - 16
8 -12
Table 5: EXPECTED RATE OF RETURN ON INVESTMENTS
Expected Rate ofReturn Frequency Percent Valid Percent CumulativePercent8 -12 89 12.7 12.7 12.712 16 202 28.9 28.9 41.616 20 159 22.7 22.7 64.320 and above 250 35.7 35.7 100.0
Total 700 100.0 100.0Source - Primary Data from Survey
The survey indicates that 35.27 percent of respondent expects 20percent and above returns on
their investments, 29percent of respondents expects 12percent to 16percent, 22.86percent of retail
investors expects 16 to 20 percent of returns and 12.57 percent of respondents expects nominalreturns i.e. 8 percent to 12 percent on their investment from their investments in market.
Graph 5: EXPECTED RATE OF RETURN ON INVESTMENTS
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Table 6 Investment objectives of retail investors
Particulars PercentEarn regular Income 41.29Achieve investment goal 18Safety of capital 15.86Earn capital gain 12.85Wealth for retirement 5.43Other 0.71Multiple objective 5.86
Total 100Source - primary data from survey
Graph 6 - Investment objectives of retail investors
Most of the retail investors primary objective of investment is to earn regular income which
accounts for 41.29 percent, 18 percent invest to achieve particular investment goals, 15.86 percent
invest to assure safety of capital, 12.86 percent of respondents primary objectives of investment is
to earn capital gains, 5.43 percent objective is to accumulate wealth for after retirement security,
0.71 percent have other objectives which are not specified and 5.86 percent of the retail investors
have multiple objectives.
Correlation analysis between the level of knowledge and with the expected rate of return by
the retail investors
41%
18%
16%
13%
5%1%
6%
Earn regular Income Achive investment goal Safety of capitalEarn capital gain Wealth for retirement OtherMultiple objective
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Table 7: Frequency distribution showing cross tabulation between retail investor level ofknowledge and the expected rate of return
LEVEL OF KNOWLEDGE TotalLittle Some Moderate Good Extensive
RETURN
8 -1229 33 18 8 1 89
18.7% 13.1% 10.8% 9.4% 2.4% 12.7%
12 - 1637 87 46 26 6 202
23.9% 34.5% 27.7% 30.6% 14.3% 28.9%
16 - 2023 62 32 34 8 159
14.8% 24.6% 19.3% 40.0% 19.0% 22.7%20 andabove
66 70 70 17 27 25042.6% 27.8% 42.2% 20.0% 64.3% 35.7%
Total 155 252 166 85 42 700100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Table 7 (a) Correlation analysis between the level of knowledge and the expected rateof return by the retail investors
EXPECTEDRETURN
KNOWLEDGE
EXPECTED
RETURNPearson Correlation 1 .096
Sig. (2-tailed) . .011N 700 700
KNOWLEDGE Pearson Correlation .096 1Sig. (2-tailed) .011 .
N 700 700* Correlation is significant at the 0.05 level (2-tailed).
ANALYSIS AND INTERPRETATION
The research also makes a pertinent revelation that the knowledge level significantly
leverages the returns on the investments. From the calculated correlation analysis data it can be
observed that 0.096 point change in knowledge boosts investors return expectation by 1 point.
Investors having extensive knowledge has the return expectation of multifold when compared to
other knowledge categories. The primary rational behind this phenomenon is that small investors
put small investments in long range investments with rational expectation on the other hand the
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investors with extensive knowledge use their awareness to read the market trend and swap their
investments to achieve optimum returns.
Graph 7: Level of Investment Knowledge and the expected rate of return.
Table 8: Respondents / retail investor occupation
Occupation Frequency Percent Cumulative
percentService 135 19.29 19.29Professional 83 11.86 31.15Student 44 6.29 37.44House Wife 58 8.29 45.73Agriculture 24 3.43 49.16Business 330 47.14 96.3Other 26 3.70 100
Total 700 100.00Source - Primary Data from Survey
Information pertaining to occupational categories reveals that most of the respondents i.e.
47.14percent belong to Business Class, 19.29percent are in Service, and 11.86percent are
Professionals like Doctors, Chartered Accountants etc. 8.29percent of the respondents are
housewives, 6.29percent are Students, 3.43percent are agriculturist and balance 3.71percent
belongs to other categories of occupations.
RETURN
20 & above16 - 2012 - 168 -12
Percent
70
60
50
40
30
20
10
0
KNOWLEDGE
Little
Some
Moderate
Good
Extensive
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Occupation Frequency
135
83
44
5824
330
26
Graph 8: Respondents occupation
Table 9: LEVEL OF RISK ASSUMED BY RETAIL INVESTORS
Level of Risk Frequency Percent Valid Percent
Cumulative
PercenLow 127 18.1 18.1 18.1Moderate 446 63.7 63.7 81.9High 89 12.7 12.7 94.6Very High 38 5.4 5.4 100.0
Total 700 100.0 100.0Source - Primary Data from Survey
Study indicates that 18.14percent of the respondents undertake low risk, a very high portion of the
respondents i.e. 63.57percent undertakes moderate risk, 12.71percent undertakes high risk andonly 5.57 percent of the respondent undertakes very high risk.
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Very High
High
Moderate
Low
Graph 9: LEVEL OF RISK ASSUMED BY RETAIL INVESTORS
Table 10: Frequency distribution showing cross tabulation between occupation of
respondents and level of risk assumed.
LEVEL OF RISK TotalLow Moderate High Very High
OCCUPATION
Service34 87 13 1 135
26.8% 19.5% 14.6% 2.6% 19.3%
Professional11 30 14 28 83
8.7% 6.7% 15.7% 73.7% 11.9%
Student14 20 10 44
11.0% 4.5% 11.2% 6.3%
Housewife
5 50 2 1 58
3.9% 11.2% 2.2% 2.6% 8.3%
Agriculture5 19 24
3.9% 4.3% 3.4%
Business51 224 48 7 330
40.2% 50.2% 53.9% 18.4% 47.1%
Other7 16 2 1 26
5.5% 3.6% 2.2% 2.6% 3.7%Total 127 446 89 38 700
100.0% 100.0% 100.0% 100.0% 100.0%Source Primary Data from Survey
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Table 10 (a) Correlation analysis between the occupation and the level of riskassumed
RISK OCCUPATIONRISK Pearson Correlation 1 -.053
Sig. (2-tailed) . .160N 700 700
OCCUPATION Pearson Correlation -.053 1Sig. (2-tailed) .160 .
N 700 700
ANALYSIS AND INTERPRETATION
Thecorrelation analysis between the occupation of investors and the level of risk taken as
indicated inTable 7 and 7 (a) shows that there is a negative correlation between these two.
Except in case of professionals the level of risk taken has skewed at very high category otherwise
correlation analysis shows that a 1 point change in occupation will lead to negative change of
0.053 in the level of risk taken by the investors.
Graph 10: Occupation of respondents and the level of risk
RISK
Very HighHighModerateLow
Percent
100
80
60
40
20
0
OCCUPATION
Service
Professional
Student
Housewife
Agriculture
Business
Other
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Conclusion:
The research makes a pertinent revelation that the level of investment knowledge significantly
leverages the returns on the investments. From the calculated correlation analysis data it can be
observed that 0.096 point change in knowledge boosts investors return expectation by 1 point.
Investors having extensive investment knowledge has the return expectation of multifold when
compared to other knowledge categories and the correlation analysis between the occupation of
investor and the level of risk assume shows that there is a negative correlation between these two
variables, analysis shows that a 1 point change in occupation will lead to negative change of
0.053 in the level of risk taken by the investors.
References:
Gupta L.C., Share Holders Survey: Geographic Distribution, Manas Publications, NewDelhi, P. 86
Rao Chalapati K.S., M.R. Murthy and K.V.K Ranganathan, 1999, Some aspects of theIndian Stock Market in the post liberalization period, Journal of Indian School of Political
Economy
John Graham and Alok Kumar, 2006, Do Dividend Clienteles Exist? Evidence onDividend Preferences of Retail Investors, [Online], Social Science Research Network,
Available from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=482563
Kevin James, 2000, The Price of Retail investing in the UK, [Online], Social ScienceResearch Network, Available fromhttp://papers.ssrn.com/sol3/papers.cfm?abstract_id=428041
K Santi Swarup, 2003, Measures For Improving Common Investor Confidence In IndianPrimary Market A Survey, [Online], National Stock Exchange India Limited, Available
from http://www.nseindia.com/content/research/Paper64.pdf
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Shylajan C. S. and Marathe Sushama, 2006, A Study of Attitudes and Trading Behaviourof Stock Market Investors,The ICFAI Journal of Financial Economics, Vol. 4, No. 3, pp.
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