investors' perception towards investment avenues with reference to mangalore city

Investors’ perception towards investment avenues

INTRODUCTION:

Capital is a crucial factor in the development of an economy. The pace of

economic development is conditioned, among other things, by the rate of

capital formation. And capital formation is conditioned by the mobilization

and channelization of investible funds. The role of the financial system is to

channel funds from surplus sectors to deficit sectors. Facilitating such flows

on a national level increases the level of investment and effective demand

and thus accelerates economic development.

Capital market development has been closely related to an economy's

overall development. At low levels of development, commercial banks tend

to dominate the financial system. As an economy develops, the indirect

lending by savers to investors tends to become more efficient. As economy

grows further, specialialised financial intermediaries and securities markets

develop. As securities markets mature, investors, especially individual

investors, can invest their funds directly in financial assets issued by firms.

There are number of financial assets or investment avenues are available

in India. Each 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

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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.

PROBLEM STATEMENT:

This project attempts to know the preferences and analyze the

significance of demographic factors that influence the investor's decision

towards making investments. This study attempts to find out the significance

of demographic factors of population such as gender, age, education,

occupation, income, savings and family size over several elements of

investment decisions like priorities based on characteristics of investments,

period of investment, reach of information source, frequency of investment

and analytical abilities. The hypotheses have been developed considering its

relevancy to the research objectives. Investment decision making behavior in

risky situation has been taken as dependent variable. Demographic factors

(age and gender) are considered as independent variables. Risk perception

considered as mediators. Individuals’ risk preferences are taken as an

intervening variable between demographic factors and risk perception. Data

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were classified; tabulated and tested Statistical inferences were drawn by the

use of Hypothesis and Pearson's Chi-square technique.

OBJECTIVE OF THE PROJECT:

The purpose of the analysis is to determine the investment behavior 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 has 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. To know the awareness about the different avenues among the

investor.

5. To give a recommendations to the investors that where they should

invest.

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HYPOTHESIS:

There is no significant relation between risk tolerance level and

gender.

There is no significant relation between risk tolerance level and age

group.

There is no significant relation between risk tolerance level and

income level.

LITERATURE REVIEW:

Behavioral finance is a new emerging science that studies the irrational

behavior of the people. Vanish 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 those 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, and post office savings etc.

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, Page 4


scheme type, purchase of mutual fund units, level of risks undertaken by

investors, source of information about the market value of the units,

investor’s opinion on factors influenced to invest in mutual funds, the

investor’s 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 investor’s 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 investor’s perception towards mutual funds

investments and the study would also be informative to the investors.

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

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then surpluses in fixed deposits of banks, provident funds, Post Office

savings, real estates, etc. for want of safety and suitability of returns.

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.

Madhumathi.R (1998) in her study entitled “Risk Perception of

Individual Investors and its Impact on their Investment Decisions” examined

the risk perception of 450 individual investors, selected at random from

major metropolitan cities in India, dividing them into three groups as risk

seekers, risk bearers and risk avoiders. The major findings of the study

revealed that majority of the investors were risk bearers and they had the

tendency to use the company’s performance as a basic factor to take

investment decisions. They also depend on the advice of share brokers and

investment consultants. The risk seekers generally took decisions based on

market conditions, industrial positions and social changes. They relied on

newspapers and reports for information. Risk avoiders did not have any

specific traits. They were very objective and looked for facts and certainty in

their investment decisions. They relied on the advice of their friends and

relatives.

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Nayak, M. K. (2010), analyze the significance of difference between the

various demographic variable and investor`s knowledge of grievances,

awareness of functions of redressed agencies, loading of complain are some

of the factors which affect their satisfaction level. He concludes that

professionals and servicemen being more educated are expected to be more

rational in their decisions, where as business man are more daring, risk

bearing, and instinctively investment-minded. Agriculturists are generally

less informed and passive to making investment so that they suffer from all

the traits of being prone to grievances.

RESEARCH DESIGN AND METHODOLOGY:

The present study consists of all those individuals who invest and those

who intend to invest in financial instrumentin near future. This study is

based on sample survey method. This study mainly assesses the level of

awareness, to know the perceived opinion and to measure the attitude of

individual investors toward financial instruments.

The study of research method provides you with the knowledge and

skills you need to solve the problem and meet the challenges of the fast-

based decision. Marketing environment we define Business Research as a

systematic inquiry whose objective is to provide information to solve

managerial problem.

Definition of the population:

Since the study is mainly related to know the investors’ perception

toward various investment avenues specially in Mangalore City, therefore

here population means investor of Mangalore City.

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Sample Technique:

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 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.

Sample Unit:

The respondents who asked to fill out the questionnaires are the sampling

units. These comprise of students, salaried employees, Business people,

Home Maker, Professionals, Retired persons and other investor in

Mangalore city.

Sample Size:

The sample size was 100, which comprised of people from Mangalore

city.

Primary Data:

Information is collected by conducting a survey by distributing a

questionnaire to 100 investor in Mangalore city. These investors are of

different age group, different occupation, different income levels, and

different status (Married or not)

Secondary Data:

This data is collected by using the following means.

1. Investment Magazines, Business Magazines, Financial chronicles.

2. Expert’s opinion published in various print media.

3. Data available on internet through various websites

4. Books

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SCOPE OF THE STUDY:

In a developing country like India, the emphasis on domestic savings and

its mobilization by the organized sector cannot be belittled and is an

important one not only from the individual point of view but also from the

point of view of the economic development of the nation. But many agencies

both private and government such as bank, NBFCs,Private financial

instructor, chit funds, mutual fund compete with each other for mobilizing

the household savings through various attractive schemes. Hence

Government of India have also introduced certain financial instrument like

shares debenture and bonds etc, to mobilize the saving.

The present study is a beginning towards this end and in this study an

attempt has been made to find out the level of awareness and attitude of the

individual towards investment in various financial instruments, besides

eliciting their opinion about the features of the various saving instruments.

Further an attempt has also been made to suggest an effective mechanism to

government for executing the schemes more effectively and to the fullest

satisfaction of individual saving in financial instrument.

The study is derived from an assortment of attributes considered by the

investors towards their investments on shares of different companies. The

age categories of the investors, educational qualification of the investors,

Occupation of the investors, Income of the investors and frequency of

investments have been studied to explore the relationship among them.

Besides, the opinions of investors towards risks and return on investments on

shares are also examined. The area of study is confined to Mangalore city

only.

Finally it would also make an evaluation on the trend of saving

instruments, so as to relate the same to the opinion of individual investor to

draw some useful conclusions. It is hoped that discussion made in this study

would not only help the Government, but also the official agents and public

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in understanding the problems faced by the individual investors. Such an

understanding will to a larger extent be useful in the removal of investment

problems and for the better and effective operation on the part of official and

agents. Some of the suggestions given at the end will help the smooth growth

of the savings through various financial instruments in future. Besides, it will

also provide chances for further research work in this field.

Limitations of the study:

This analysis is based upon investors’ perception toward various

investments avenues during normal time vis-à-vis recessionary period .This

analysis would be focusing on the information from the investor about their

knowledge, perception and behaviour on different financial products.

The various limitations of the study are:

Only 100 investors have been considered for this study.

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 instrument to the public.Handling

and analyzing such a varied and diversified data needs a lot of time

and resources.

A few respondents might have furnished the required information

from their momentary memory and invented temper and hence the

collected data might be subject to bias.

As the analysis is based on primary as well as secondary data,

possibility of unauthorized information cannot be avoided.

The size of the sample compared to the population is small and hence

it might not signify the ideas of entire population.

The geographical area of this study is confined to Mangalore city

alone.

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Few respondents are not willing to express their opinion and views on

their investment and have expressed common view on investment

practices.

The lack of knowledge of customer about the financial instrument can

be a major limitation

Scheme of the study:

Chapter 1 covers the core areas of the report: The introduction,

Objectives, Literature review, Scope of the study, limitations and

research design and Methodology.

Chapter 2 covers the Concept and related issues of the study.

Chapter 3 covers the industry profile.

Chapter 4 covers data analysis and interpretation part. Analysis is

made from the data obtained through questionnaires.

Chapter 5 covers the findings and suggestions drawn from the data

analysis and interpretations.

Chapter 6 covers the summary and conclusion of the report.

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Concept and Related issues:

An efficient allocation of capital is the most important finance function

in the modern items. It involves decisions to commit the firm’s funds to the

long term. Capital budgeting decisions are of considerable importance to the

firm since they tend to determine its value by influencing its growth,

profitability and risk. The capital budgeting decisions of a firm are generally

known as the investment appraisal, or capital expenditure decisions. A

capital budgeting decision may be define as the firm’s decisions to invest its

current funds most efficiently in the long term assets in anticipation of an

expected flow of benefits over a series of years.

Investor’s Behaviour:

Investor’s behavior refers to the selection, purchase and consumption of

goods and services for the satisfaction of their wants. There are different

processes involved in the investor behavior. Initially the investor tries to find

what securities he would like to consume, then he selects only those security

that promise greater utility. After selecting the security, the investor makes

an estimate of the available money which he can spend. Lastly, the investor

analyzes the prevailing prices of security and takes the decision about the

security he should consume.

Impact of Demographic Factors on Investors’ Investment Decisions:

An investment is saving of current money and other resources for the

future benefit. There are various investment avenues available for retail

investors and depending upon ones' risk appetite, he/she can choose between

bank deposits, government /private bonds, shares and stocks, exchange

traded funds (ETF), mutual funds,insurance, commodities, currencies, etc.

Risk is an important factor to be considered while making an investment in Page 12


the stock markets. This paper reveals that demographic factors have an

impact on retail investors' investment decisions. Consumer behavior is

deeply influenced by cultural factors such as: buyer culture, sub culture, and

social class.

Culture: Basically, culture is the part of every society and is the important

cause of person wants and behavior. The influence of culture on buying

behavior varies from country to country therefore marketers have to be very

careful in analyzing the culture of different groups, regions.

A. Social Factors: There are important factors affecting the consumer

buying behavior.

Age: Age and life-cycle have potential impact on the consumer buying

behavior. It is obvious that the consumers change the purchase of goods and

services with the passage of time.

Occupation: The occupation of a person has significant impact on his

buying behavior. For example a marketing manager of an organization will

try to purchase business suits, whereas a low level worker in the same

organization will purchase rugged work clothes.

B. Psychological Factors:

There are four important psychological factors affecting the consumer

buying behavior. These are: perception, motivation, learning, beliefs and

attitudes.

Motivation: The level of motivation also affects the buying behavior

of customers. Every person has different needs such as physiological

needs, biological needs, social needs etc.

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Perception: Selecting, organizing and interpreting information in a

way to produce a meaningful experience of the world is called

perception.

INVESTORS’ PERCEPTION:

Perception is the process of attaining awareness or understanding of the

environment by organizing and interpreting sensory information. All

perception involves signals in the nervous system, which in turn result from

physical stimulation of the sense organs. Investor perception about an

investment would mean how the investor envisions or sees the different

investment avenues. Knowledge of Investor Perception is important because

the perceptions of investors can influence the investment pattern and his

investment behavior like risk tolerance level, investment preference on the

basis of occupation, marital status etc. So in order to know the perception of

individual investor we have to know the behavior of individual investor and

what risk is and factors which influence investment decision.

Even though the fundamental investment rules and principles remain the

same, investment climate and investor behavior change from time to time

and place to place. Individual investor behavior in the capital market is

factored by their income, education, reading habits, cognition levels, etc.

Investor preferences differ with respect to alternative investment avenues,

assets and market segments in the securities market. The track records of

companies and of the promoters have a telling influence on investment

decisions. The investment motives also vary through capital gains,

dividends, bonus, rights, tax benefits and other relevant factors.

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Investor Behaviour:

Economists have developed behavioral models to explain the decision-

making process of individuals. The interdependence of the inherent risk and

uncertainty about any course of action are provided by the theory of games.

Game theorists call the stock market a `positive sum game'. But the money

game of the stock market may not yield uniform returns to all its

participants. There are various investment avenues. When one investment

opportunity is chosen, other opportunities may be given up. So, opportunity

cost of an investment is the possible income from the next best alternative.

Rational decision-making demands technical knowledge and practical

experience. Investor behaviour approaches investing as a rational decision -

making process in which the investor attempts to select a portfolio of

securities. Rational investors form rational expectations about asset returns,

motivated by the maximising principle. They collect available and relevant

information for making decisions. Some investors make decisions on

inadequate information and such decisions may go wrong.

Behaviour of Individual Investors:

Greed and fear have been recognised as the two dominant emotions that

characterise market behaviour. Greed makes individuals grasp and grab

when they buy shares, and fear leads to panic (Jawaharlal 202).

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Behavioral Phases of Individual Investors:

When share prices increase, small individual investors become sellers on

balance. When share prices are at peak, they become greedy and buy

securities aggressively. At the point of decline, they do not give up hope and

tend to buy more shares than they sell. But when the market depresses and

reaches the bottom, small investors develop fear and sell most of their

securities.

In totality, small investors occasionally make right decisions, and they try

to earn profit by selling securities when share prices are rising and by buying

securities when their prices are declining. Most often, small investors make

incorrect decisions at turning points and other crucial junctures in share price

movements.

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Caution

Greed

Hope

Fear Caution

Selling on balance

Buying aggressively

Buying on balance

Panic selling

Selling on balance


Factors Influencing Investment Decisions:

The investor has various alternative avenues of investment for his savings

to flow, in accordance with his preferences. Savings are invested in assets

depending mainly on their return, liquidity and risk characteristics. The

prime objective of the investor is to minimise the risk involved in investment

and maximise the return. A security market exists to provide the facilities of

a market place where potential investors can put their money to work,

purchasing securities and those who already own securities can equally

freely and speedily turn them into cash. An effective security market requires

qualities like choice, efficiency and regulation in order attract investors.

A security market exists to provide the facilities of a market place where

potential investors can put their money to work, purchasing securities and

those who already own securities can equally freely and speedily turn them

into cash. An effective security market requires qualities like choice,

efficiency and regulation in order attract investors.

Every individual is different from others due to various factors which

include demographic factors, age, race and sex, education level, social and

economic background; same is the situation with the investors. The most

critical challenge faced by them is the investment decision; they act in a

rational manner and usually follow their instincts and emotional biases while

making investment decisions. The investigation of previous studies reveals

the importance of various psychological factors which affect their

investment decision. Keeping this in view, a study model has been

developed to describe the how the investor takes the various investment

avenues available in market. While taking investment decision he has to

consider certain important factor they are;

1. Return Factor:

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Genuine investors are those who always try to seek equilibrium between

risk and return. How do investors make an assessment about the return on

securities? What return is expected on an average? It is the expected value of

the return, which is the sum of each possible return multiplied by the chance

of its occurrence. The sum of the chances must add up to one. (Barua, et al

227)

If the return on a security is expected to be r, with a chance of p1 with a

chance of p2, and rn, with a chance of pn, then the overall assessment of

investors is based on the expected value of returns, which is computed as:

Expected Return, E = P1 r1 + P2 r2 +...+ Pn rn

Whereas the overall portfolio return would be the weighted average of

expected return on securities and is computed as:

EP =W, xEl +W2 xE2+...+WnxEn

Where, EP is the expected portfolio return

W1, is the proportion of money invested in security I

E1 is the expected return on security I

W2 is the proportion of money invested in security 2

E2 is the expected return on security 2

Genuine investors, by and large, hold medium and long- term investments

and the return aspect assumes larger importance. There are two types of

security analysis, namely, Technical Analysis and Fundamental Analysis.

The technical analysts believe that important information about future

stock price movements can be obtained by studying the historical price

movement of stock prices. Financial data are recorded on graph paper and

the data are scrutinized in search of respective patterns and then deduced

from that pictured history the probable future trend.

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Fundamental analysts believe that the true intrinsic value of a security can

be ascertained by studying such items as the company's earnings, its

products, its management, financial statements and other fundamental facts.

The present value of future dividends, computed at an appropriate discount

rate to reflect the real return from the share, is called the intrinsic or

fundamental value of the share. The analysts attempt to find under-priced or

over-priced shares for the investors' investment decisions.

2. Liquidity Factor

A security must possess the attribute of liquidity to be attractive as an

investment for the ordinary investors. Liquidity refers to easy convertibility

without loss. Liquidity of an investment is measured in terms of the speed

and ease with which an investment can be converted in to cash whenever the

investor wants it. Liquid investments give the investor a feeling of security

because they enable one to change one's mind and correct one's mistakes.

A genuine investor is supposed to invest for a relatively long period for

the sake of income as distinguished from a purely trading profit arising from

short-run price fluctuations induced by shifts in market sentiments. A

prudent long term investor would have provided for his immediate cash

needs by holding cash balances and near cash assets like fixed deposits and

only if he has surplus of cash, would he consider it wise to hold long term

investment such as equities. This assumption is in argument with the usual

threefold classification of the motives of holding liquid cash viz., the

transaction motive, the precautionary motive and the speculative motive. If

so, a genuine investor would normally expect moderate liquidity and not

'instant' liquidity.

A prudent investor should be prepared to tide over prolonged periods of

stock market depression, which no amount of liquidity can eliminate. It is the

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speculator, who wants instant liquidity because he wants to be in and out of a

security during the same day.

3. Risk Factor:

The words 'risk' and ‘uncertainty’ are used inter - changeably. But

technically their meanings are different. Risk suggests that a decision- maker

know possible consequences of a decision and their likelihood at the time he

makes the decision. Uncertainly on the other hand, involves a situation about

which the likelihood of the possible outcomes is not known. On the basis of

the degree of risk perception, investors could be classified into risk takers,

risk averters and risk neutrals.

The risk takers pay more than the expected value of an asset or an

uncertain future and mostly invest in common stocks and convertible

securities. Risk averters show their preference for investments of low risk

and prefer Government securities, insurance policies, unit trust certificates,

etc. Risk neutrals are willing to pay for making an investment provided they

get a return of an equal value. The majority of the investors accept medium

risk.

Securities that have risk and return characteristics of their-own, in

combination makes up a portfolio. Portfolio selection entails choosing the

one best portfolio to suit the risk-return preferences of the investor. And

portfolio management is the dynamic function of evaluating and revising the

portfolio in terms of stated investor objectives (Fischer &Jordan 2).

In academic parlance, the mathematical measure of investment risk is

called ‘beta’. The market as a whole has a `beta ' of one. If a particular stock

has a ‘beta’ of two then it is twice as risky as the market. It means that if the

market goes up by 20 per cent, the stock price rises by 40 per cent, and if the

market falls by 20 per cent, the stock price falls by 40 per cent. High `beta'

stocks are considered more risky than low beta stocks.

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People who believe that `beta' measures risk, disdain examining what a

company produces or may even prefer not to know the company's name .

The true investor is risk averse but may welcome volatility. The more

volatile a market becomes, the more the opportunities to the value oriented

investor (Bakshi 36).

4. Investment Horizon:

Investment horizon is the total length of time that an investor expects to

hold a security or portfolio. The investment horizon is used to determine the

investor’s income needs and desired risk exposure, which is then used to aid

in security selection.

5. Tax Exposure:

Investors in higher tax brackets prefer such investments where the return

is tax exempt, others will have no such preference.

6. Market Trends:

You need to understand how various asset classes have performed in the

past before planning your finances.

7. Investment Needs:

How much money do you need at the time of maturity? Purpose of

investment also influences the investment decision of investor. Some people

invest their funds in such avenues where they can get tax benefits.

8. Risk Coverage:

A type of insurance coverage that can exclude only risks that have been

specifically outlined in the contract.

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9. Dependents:

People who relies on another person, especially a family member, for

financial support. More number of dependents have more responsibility

therefore they invest in such avenues which have low risk.

Risk:

The word ‘risk’ has a definite financial meaning. It refers to possibility of

incurring a loss in a financial transaction. In a broad sense, investment is

considered to involve limited risk and is confined to those avenues where the

principal is safe. ‘Speculation’ is considered as an involvement of funds of

high risk. An example may be cited of stock brokers’ lists of securities which

labels and recommends securities separately for investment and speculation

purposes. Risk, however, is a matter of degree and no-clear-cut lines of

demarcation can be drawn between high risk and low risk and sometimes

these distinctions are purely arbitrary. No investments are completely risk

free. Even if it safety of principal and interest are considered, there are

certain non manageable risk which are beyond the scope of personal power.

These are (a) the purchasing power risk-In other words, it is the fall in real

value of the interest and the principal and (b) the money rate risk or the fall

in market value when interest rate rises.

These risks affect both the speculator and the investor. High risk and low

risk are, therefore, general indicators to help and understanding between the

terms investments and speculation.

What causes the risks?

The risks are caused by the following factors:

1) Wrong decision of what to invest in.

2) Wrong timing of investment.

3) Nature of the instrument invested say, the category of assets like Page 22


corporate shares or bonds, Chit funds, Niches; Benefit funds etc. are

highly risky, as they are in the unorganized sector. Some instruments

as bank deposits or P.O Certificates are less risky, due to their certainty

of payment of principal and interest.

4) Creditworthiness of the issuer: The securities of Government end

semi-Government bodies are more credit worthy than those issued by

the corporate sector and much less secure are those in the unorganized

sector like indigenous bankers, shroffs,chit funds etc, Private limited

companies share and shares of unlisted companies are more risky.

5) Maturity period are length of investment: The longer the period, the

more risky is the investment normally.

6) Amount of investment: The higher the amount invested in any security

the larger is the risk, while a judicious mix of investment in small

quantities may be less risky.

7) Method of investment, namely, secured by collateral or not.

8) Terms of lending such as periodicity of servicing, redemption periods

etc.

9) Nature of the industry or business in which the company is operating.

10) National and international factors, acts of god etc.

Generally there are two types of investment risk they are as follows,

Systematic Risks

Unsystematic Risk

I. Systematic Risk:

Systematic Risk is out of external and uncontrollable factors, arising out

of the market, nature of the industry and state of the economy and a host of

other factors. In other words systematic risk refers to that portion of the total

variability of the return caused by common factor affecting the prices of all

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securities alike through economic, political and social factors.

II. Unsystematic Risks:

Unsystematic Risks emerge out of the known and controllable factors,

internal to the issuer of the securities or companies. In other words

unsystematic risk refers to that portion of the total variability of the return

caused due to unique factors, relating that firm or industry, through such

factors as management failure, labour management failure, labour strikes,

raw material scarcity etc.

While the systematic risk is common to all companies and has to be

borne by the investor and compensated by the risk premium, the systematic

risk can be reduced by the investor through proper diversification and

planning a proper investment strategy for the purpose.

Examples of systemic risk

Market risk:

This arises out of changes in demand and supply pressures in the

markets, following the changing flow of the information or

expectation. The totality of the investor perception and subjective

factors influence the events in the market which are unpredictable and

give rise to risk, which is not controllable.

Interest rate risk:

The return on investment depends on the interest rate promised on it

and changes in market rates of interest from time to time. The cost of

funds borrowed by companies or stock broker depends on interest

rates. The market activity and investor perceptions change with the

changes in interest rates. This interest rate depend on nature of

instruments, stocks, bonds, loaned etc maturity of the periods and

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credit worthryness of the issuer of securities. But basically the

monitory and credit policy, which is not controllable by investor,

affects the riskiness of investments due their effects on returns,

expectations, and the total principal due to be refunded.

Purchasing power risk:

Inflation or rise in prices led to rise in cost production, lower margins,

wage rises and profit squeezing etc. the expected by the investor will

change due to change in real value of returns. Cost pushed inflation is

caused by rise in the cost, due to wage rise or rise in input prices.

Demand-pull forces operate to increase prices due to inadequate

supplies and rising demand. The increase in demand may be caused by

changing expectation of future interest rates and inflation or due to

increase in money supply or creation of currency to finance deficits of

the government. This element of purchasing power risk is inherent in

all investment and cannot be controlled by him.

Example of unsystemic risks

Business risk:

This relates to variability of business, sales income, profits etc, which

in turn depend on the market conditions for the product mix, input

supplies, strength of competitors etc. this business risk is some time

external to the company due to changes in government policy or

strategy of competitors or unforeseen market conditions. They may be

internal due to fall in production, labour problem, row material

problem or inadequate supply of electricity etc the internal business

risk leads to fall in revenues and in profits of the company, but can be

corrected by certain changes in the company’s polices.

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Financial risk:

This relates to method of financing, adopted by company, high

leverage leading to larger debt serving problems or short term liquidity

problems due to bad debts, delayed receivables and fall in current

asserts or rise in current liabilities. These problems could no doubt to

be solved, but they m may lead to fluctuations in earnings, profits and

dividends to share holders. Sometimes, if the company runs in two

losses or reduced profits, these may lead to fall in returns to investors

or negative returns. Proper financial planning and other financial

adjustments can be used to correct this risk and as such it is

controllable.

Default or insolvency risk:

The barrower or issuer of securities may become insolvent, or may

default, or delay the payments due, such as interest installments or

principal repayments the barrower’s credit rating might have fallen

suddenly he became default prone and he needs extreme form it may

lead to insolvency or bankruptcies. In such cases the investor may get

no return or negative return. And investment in a healthy company’s

share might turn out to be a waste paper, if within a short span, but the

deliberate mistakes of management or acts of God, the company

became sick and its share price tumbled below its face value.

Other risk:

In addition to the above major risks both in controllable and

uncontrollable categories, there are many more risks, which can be

listed, but in actual practices, they may vary in form, size and effect.

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Some of such identifiable risks are:

Political risks:

Political risks, following the changes in government, or its policy

shown in fiscal or budgetary aspects etc., through changes in tax rates,

imposition of controls are administrative regulations etc.

Management risks:

Management risks, due to errors are inefficiencies of management,

causing losses to the company.

Marketability risks:

Marketability risks, involving loss of liquidity or loss of value in

conversions from one asset to another say, from stocks to bonds, or

vice versa. Such risky may arise due to some feature of securities,

such as capability; or lack of sinking fund or debenture redemption

reserve fund,, for repayment of principal or due to conversion terms,

attached to security, which may go adverse to the investor.

All the above types of risks are of varying degrees, resulting in

uncertainty or variability of return, loss of income and capital losses,

or erosion of real value of income and wealth of the investor.

Normally the higher risk taken, the higher is the return. But sometimes

the risk is caused by acts of God and there may be no return at all.

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Investor:

Investor is a person or an organization that money in various investment

sources for specific objective. Attitude of investment is different in each

alternative. E.g. financial market have different attitude towards risk and

return. Some investor is averse, while some have an affinity of risk. The risk

bearing capacity of investor is a function of personal, econopmical,

environment, and situational factors such as income, family size, expenditure

pattern, and age. A person with higher income is assumed to have higher

risk-bearing capacity. Thus investor can be classified as risk skiers, risk

avoiders, or risk bearers.

Categories of investors:

While there are as many investing style as there are investors, most

people fall more or less into one of three broad categories: Conservative,

moderate, aggressive.

Conservative investors:

Generally, conservative investor feel that safeguarding what they have is

their top priority. These investors want to avoid risk-particularly the risk of

losing any principal (their original investment)- even if that means they’ll

have to settle for very modest returns.

Conservative investors allocate most of their portfolios to bonds, such as

treasury notes or high-rated municipal bonds, and cash equivalents, such as

CDs and money market accounts. They’re generally reluctant to invest in

stocks, which may lose value, especially over the short term. When

conservative investors do venture into stocks they’re often inclined to choose

blue chips or other large-cap stocks with well-known brands because they

tend to change value more slowly than other types of stock and often pay

dividend income.

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Moderate investors:

Moderate investor wants to increase the value of their portfolios while

protecting g their assets from the risk of major losses.

For example, a moderate investor might use an allocation model that has

60% in stock, 30% in bonds, and 10% in cash equivalents. While they will

tend to favor blue chip and other large-cap stocks, they may be willing to

invest a modest portion of their principal in higher risk securities-such as

international stock, small-caps, and volatile sector funds-in order to increase

their potential for higher returns.

Aggressive investors:

Aggressive investors concentrate on investments that have the potential

for significant growth. They are willing to take the risk of losing some of

their principal, with the expectation that they will realize greater returns.

Aggressive investors might allocate from 75 to 95% of their portfolios to

individual stocks and stock mutual funds. While large and small-cap stocks

and funds may make a long-term commitment to the stocks they buy. But

history has shown that an aggressive investing approach, combined with a

well diversified portfolio, and the patience to stick to a long-term buy-and-

hold investing strategy through inevitable market downturns, can be the most

profitable in the long run.

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INVESTMENT AVENUES IN INDIA:

Saving means not spending all of your current income on consumption.

Investing on the other hand is choosing what assets to hold. We may choose

to invest in safe assets, risk assets, or a combination of both. In the common

usage, however, the term saving is often take to mean investing in safe asset

such as an insured bank account. It is easy to confuse saving with safe

investing. An investor’s portfolio is simply his collection of investment

assets. Once the portfolio is established, it is updated or rebalanced by

selling existing securities and using the proceeds to buy new securities, by

investing additional funds to increase the overall size of the portfolio, or by

selling securities to decrease the size of the portfolio.

Investment is the sacrifice of certain present value for the uncertain

future reward. It entails arriving at numerous decisions such as type, mix,

amount, timing, grade etc. of investment and disinvestment. Further, such

decision making has not only to be continuous but rational too. Broadly

speaking, an investment decision is a tradeoff between risk and return. All

investment choices are made at points of time in accordance with the

personal investment ends and in contemplation of an uncertain future. Since

investments in securities are revocable, investment ends are transient and

investment environment is fluid, the reliable bases for reasoned expectations

become more and vaguer as one conceives of the distant future. Investors

insecurities will, therefore, from time to time, reappraise and re-evaluate

their various investment commitments in the light of new information,

changed expectations and ends.

Traditionally, investment is defined as the current commitment of

resources in order to achieve later benefits. If resources and benefits take the

form of money, investment is the present commitment of money for the

purpose of receiving money later. In some cases, such as the purchase of a

bank certificate of deposit, the amount of money to be obtained later is

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known exactly. However, in most situations the amount of money to be

obtained later is uncertain. There is no broader view point of investment –

based on the idea of flows of expenditures and receipts spanning a period of

time. From this view point, the objective of investment is to tailor the pattern

of these flows over time to be as desirable as possible. When expenditures

and receipts are denominated in cash, the net receipts at any time period are

termed cash flow, and the series of flows over several periods is termed a

cash flow stream.

The investment objective is that of tailoring this cash flow stream to be

more desirable than it would be otherwise. There is also an art to investment.

Part of this art knows what to analyse and how to go about it. However, there

is also an intuitive art of being able to evaluate an investment from an

assortment of qualitative information, such as personality characteristics of

the people involved, whether a proposed new product will sell well and so

forth.

The word investment has many interpretations. It means different things

to different persons. For a person who has lent money to another, it may be

an investment for a return. Similarly, if a person purchases shares of a

company, bullion or real estate for the purpose of price appreciation, it is

also an investment for him. Likewise, an insurance plan or a pension plan is

an investment to its purchaser. From these illustrations, it is clear that

investment is a commitment of funds for earning additional income. In other

words, investment is considered the sacrifice of certain present value of

money in anticipation of reward.

Investment is parting with one’s fund, to be used by another party or user

of fund for productive activity. It can mean giving an advance or loan or

contributing to the equity (ownership capital) or debt capital of a corporate

or non corporate business unit. Generalized, investment means conversion of

savings, parting with saving or liquidity and lastly taking a risk involving

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uncertainty about the actual return, time of waiting and cost of getting back

funds, safety of funds, and risk of the variability of return. For making

proper investment involving both risk and return, the investor has to make a

study of the alternative avenues of investment their risk and return

characteristics and make proper projection or expectations of his preferences.

Investing is a term with several closely-related meanings in business

management, finance and economics, related to saving or deferring

consumption. An asset is usually purchased, or equivalently a deposit made

in a bank, in hopes of getting a future return or interest from it.

“An investment is a commitment of funds made in the expectation of

some positive return. If the investment is properly undertaken, the returns

will be commensurate with the risk the investor assumes” – (Donald

E.Fischer and Ronald J.Jordon).

Investment is “the purchase by an individual or institutional investor of a

financial or real asset that produces a return in proportion to the risk assumed

over some future investment period” – (F.Amling).

Classification of Investments:

Investment can be classified as financial investment and economic

investment.

Financial Investment: It means employment of funds in the form of assets

with the object of earning additional income or appreciation in the value of

investment in future. Assets which are the subject matter of investment may

be varying between safe and risky ones.

Economic Investment: Economic investment is different from financial

investment. The term ‘economic investment’ signifies net additions to the

capital stock of the society. Capital stock of the society in turn, means those Page 32


goods and services which are used in the production of goods and services

which are used in the production of other goods and services.

FACTORS DETERMINING INVESTMENT:

The activities related to investment consist of acquisition of assets, their

maintenance and the liquidation of assets. A good investment should

facilitate these investment activities and foster their growth. There are certain

factors which are conducive to the growth of investment. As investment is

the result of savings, the government should introduce adequate measures to

encourage savings accumulation. The rights of the investors who have

invested their surplus in assets should be protected against any possible

infringement.

a) Well organized monetary system:

The existence of a well organized monetary system is essential for the

growth of the investment market. Investment consists of channelization of

surplus funds in specific form of assets. Payment for these assets in terms of

currency of the country calls for the existence of a proper monetary policy.

Such a policy should protect the investments against the evil effects of

inflation. In fact, it should generate a stable price level, which in turn will

contribute to a disciplined investment market.

b) Role of financial institutions:

Financial institutions mobilize savings and channelize them for

productive use in industry. There are two types of financial institutions in the

Indian capital market, namely developmental institutions and investment

institutions. Developmental institutions include IDBI, IFCI, ICICI, etc.,

which have been organized on an all India basis and state level bodies such

as State Finance and Development Corporations. The national level bodies

Page 33


provide assistance to all India projects and regional projects. The state level

bodies promote industrial growth in the respective states. Investment

institutions include UTI, LIC, and GIC etc. Apart from these, commercial

banks accept deposits from the public and make them available for

productive use. These financial institutions encourage capital formation

which is essential for savings and investment.

c) Forms of business organization:

Most of the businesses are organized in the form of joint stock

companies. Perhaps the public limited companies are regarded as the most

useful form for the perpetual succession and free transferability of shares.

Other forms of organizations such as sole proprietorship carry unlimited

liability. Further, the life of sole proprietary concerns and partnership firms

are comparatively short. Proprietary concern may come to an end on the

death of the proprietor. Similarly, events such as death, retirement and

insanity of partners may result in dissolution of the firm. So, investors do not

wish to invest in these unstable forms of business. The partnership firms are

unstable, they also restrict free transferability of investment in them from

one person to another. In view of these constraints in these forms of

organization, investors prefer to invest in the wide range of securities offered

by joint stock companies.

d) Macro – Household Savings and Investment:

As per the RBI data, published from time to time total financial savings

and physical assets held by households are available for discussion. During

recent years the data shows that the net investments in financial assets and

net physical assets are in the ratio of about 45% and 55%, respectively.

Page 34


e) Modes of Investment:

There are different types of securities conferring different sets of rights

on the investors and different sets of conditions under which these rights can

be exercised. The various avenues for investment, ranging from risk less to

high risk investment opportunities consist of both security and non security

forms of investment. All securities listed below are marketable.

1. Private Sector

2. Life Insurance Policies

3. Post Office savings bank accounts:

a) Recurring

b) Time

c) Monthly Income Scheme

d) Senior citizen savings scheme

4. Real Estate Investment

5. Gold, Silver

6. Others:

a) Kisan Vikas Patra

b) Chits, Nidhis etc

f) Objectives of Investment:

The options for investing and savings are continually increasing, yet

every single investment vehicle can be easily categorized according to three

fundamental characteristics - safety, income and growth - which also

correspond to types of investment objectives. While it is possible for an

investor to have more than one of these objectives, the success of one must

come at the expense of others. The objectives of investment are listed below:

Page 35


i) Safety:

Perhaps there is truth in the axiom that there is no such thing as a

completely safe and secure investment. Yet one can get close to ultimate

safety for our investment funds through the purchase of government-issued

securities in stable economic systems, or through the purchase of the highest

quality corporate bonds issued by the economy's top companies. Such

securities are arguably the best means of preserving principal while receiving

a specified rate of return. The safest investments are usually found in the

money market and include such securities as Treasury bills (T-bills),

certificates of deposit, commercial paper or bankers' acceptance slips; or in

the fixed income (bond) market in the form of municipal and other

government bonds, and in corporate bonds. The securities listed above are

ordered according to the typical spectrum of increasing risk and, in turn,

increasing potential yield. To compensate for their higher risk, corporate

bonds return a greater yield than T-bills.

ii) Income:

However, the safest investments are also the ones that are likely to have

the lowest rate of income return or yield. Investors must inevitably sacrifice

a degree of safety if they want to increase their yields. Here is an inverse

relationship between safety and yield: as yield increases, safety generally

goes down, and vice versa. Most investors, even the most conservative-

minded ones want some level of income generation in their portfolios, even

if it's just to keep up with the economy's rate of inflation. But maximizing

income return can be an overarching principle for a portfolio, especially for

individuals who require a fixed sum from their portfolio every month. A

retired person who requires a certain amount of money every month is well

served by holding reasonably safe assets that provide funds over and above

other income-generating assets, such as pension plans.

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iii) Growth of Capital:

This refers to the considered the potential of assets to provide a rate of

return from an increase in value, often referred to as a capital gain. Capital

gains are entirely different from yield in that they are only realized when the

security is sold for a price that is higher than the price at which it was

originally purchased. (Selling at a lower price is referred to as a capital loss.)

Therefore, investors seeking capital gains are most likely not those who need

a fixed, ongoing source of investment returns from their portfolio, but rather

those who seek the possibility of longer-term growth. Growth of capital is

most closely associated with the purchase of common stock, particularly

growth securities, which offer low yields but considerable opportunity for

increase in value. For this reason, common stock generally ranks among the

most speculative investments, as their return depends on what will happen in

an unpredictable future. Blue-chip stocks, by contrast, can potentially offer

the best of all worlds by possessing reasonable safety, modest income and

potential for growth in capital generated by long-term increases in corporate

revenues and earnings as the company matures. Yet rarely is any common

stock able to provide the near-absolute safety and Income-generation of

government bonds.

iv) Tax Minimization:

An investor may pursue certain investments in order to adopt tax

minimize taxes as part of his or her investment strategy. A highly paid

executive, for example, may want to seek investments with favorable tax

benefits in order to lessen his or her overall income tax burden. Making

contributions to tax-sheltered retirement plan can be an effective tax

minimization strategy.

v) Marketability/Liquidity:

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Many of the investments discussed are reasonably illiquid, which means

they cannot be immediately sold and easily converted into cash. Achieving a

degree of liquidity, however, requires the sacrifice of a certain level of

income or potential for capital gains. Common stock is often considered the

most liquid of investments, since it can usually be sold within a day or two

of the decision to sell. Bonds can also be fairly marketable, but some bonds

are highly illiquid, or non-tradable, possessing a fixed term. Similarly,

money market instruments may only be redeemable on the precise date at

which the fixed term ends. If an investor seeks liquidity, money market

assets and nontradable bonds aren't likely to be held in his or her portfolio. In

brief, choosing a single strategic objective and assigning weightings to all

other possible objectives is a process that depends on such factors as the

investor's temperament, his or her stage of life, marital status, family

situation, and so forth. Out of the multitude of possibilities out there, each

investor is sure to find an appropriate mix of investment opportunities.

g) Sources of Investment Information:

A lookout for new investment opportunities helps investors to beat the

market. Investors can gather the required information from many sources.

Most often investment information is available from the following categories

Institutions floating financial securities: Corporate houses,

Government bodies and mutual funds are the main sources of

investment information. Many of these enterprises have their own

websites and post investment related information on the site.

Financial markets: Stock exchanges and regulatory bodies also

provide information useful for making their investment decisions.

With reference to the secondary market, the SEBI uses various modes

to promote investor education and takes great efforts to achieve an

investor friendly secondary market in India. The RBI also provides

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useful information relating to the prevalent interest rates on non-

banking financial intermediaries that mobilize money through deposit

scheme.

Financial service intermediaries: Intermediaries promote securities

among the public.Many of these intermediaries are agencies of

specific instruments, especially tax savings instruments. These

intermediaries offer to share their commission from the concerned

organization with the individual investors. Thus, investors get an

additional advantage while investing through intermediaries.

Media: Press sources, such as financial newspapers, financial

magazines, internet web sites, and so on, provide investment

information to the public. In addition to information on securities,

these sources also provide, to some extent, an analysis of information

and, in certain instances, suggest suitable investment decisions to be

made by the investors. Investment advices, especially in media, tend

to behave erratically and might result in herd behavior in the market.

Herd behavior does not lead to profitable investment decisions,

especially to small investors, who would benefit a lot by

understanding and analyzing information on their own.

h) Investment Process:

Generally the investment process can be analysed in four stages namely,

i) Investment Policy ii) Investment analysis iii) Valuation of securities and

iv) Portfolio construction.

i) Investment policy: The first and foremost stage in the investment process

is the preparation of a suitable investment policy. Before investing, the

investor should carefully decide the objectives of investment. The objectives

of investment may relate to return, capital appreciation, safety, liquidity,

Page 39


hedge against inflation and tax planning. So, the investor should be aware of

the available options and their potential to fulfil his investment objectives.

Practically, no two investments are totally identical in their capacity to fulfil

an investor’s expectations. Only through an evaluation of objectives, the

investor can realize his objectives. If the investor stresses liquidity and safety

of investment, he should compromise on potential return. When investor’s

wealth is growing and when he also becomes liable to taxation, tax saving

investments are advisable for him.

ii) Investment analysis: After formulating the investment policy and

deciding on the securities to be bough, the investor should take up an

investment analysis. He should scrutinize the securities by anlaysing the

securities, the investor should take into consideration a) the type of industry,

b) kind of security c) the nature of income from security. The investment

analysis also involves a detailed study on the future behavioural pattern of

prices and stock, expected returns and risks.

iii) Valuation of securities: The third important step in the process of

investments is valuation of securities. Valuation helps the investor to know

more about the return and risk expected from an investment. The valuation

of securities is done in terms of future benefits from investments. Future

value of securities may be determined with the help of a simple statistical

technique such as trend analysis. The analysis of behaviour of price in the

past helps predict the future value. However, the intrinsic value of securities

such as shares is determined through the book value of shares and price

earnings ratio. Recently, the stock market analysts have developed certain

advance models to value the shares. Only after valuing each asset on its

individual merit, the portfolio can be constructed.

iv) Construction of Portfolio: Generally speaking, a portfolio is a

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combination of securities. The objective of portfolio construction is to realize

the investor’s goals and objectives. Construction of portfolio calls for a

thorough knowledge of securities. Modern portfolio theory involves a more

scientific approach. It is based on estimates of risk and returns of portfolio

and the attitude of the investor towards a risk return pattern.

INVESTMENT AVENUES FOR EMPLOYEES:

Many individuals find investments to be fascinating because they can

participate in the decision making process and see the results of their

choices. Not all investments will be profitable, as investors do not always

make the correct investment decisions. Investing is not a game but a serious

subject that can have a major impact on the investor's future well

being.virtually everyone makes investments. Even if the individual does not

select specific assets such as stock, investments are still made through

participation in pension plan, and employee saving programme or through

purchase of life insurance or a home or plot. All these investments have

common characteristics such as potential return and risk. The future is

uncertain, and one must determine how much risk a person is willing to bear

since higher returns are associated with accepting more risk.

The individual should start by specifying investment goals. Once these

goals are established, one should be aware of the mechanics of investing and

the environment in which investment decisions are made. These include the

process by which securities are issued and subsequently bought and sold, the

regulations and tax laws that have been enacted by various levels of

government, and the sources of information concerning investment avenues

that are available to the individual. An understanding of this financial

background leads to three important general financial concepts that apply to

investing. Today the field of investment is even more dynamic than it was a

decade ago. World events rapidly change and alter the value of specific

Page 41


assets. The individual has so many assets to choose from, and the amount of

information available to the investors is staggering and continually growing.

Furthermore, inflation has served to increase awareness of the importance of

financial planning and wise investing. Important fallout one can expect due

to rising inflation is higher interest rates. The central banks aims to reduce

demand in the economy by raising the cost of money. When making fresh

investments or evaluating existing holdings in potentially inflationary times

one has to keep two things in mind, the possibility of higher interest rates

and the erosion in the value of the currency. It is an added advantage that

conventional investments help us save on tax. Section 80C and 80CCF and

that we provide for tax deduction on certain investments such as the

Employees' Provident Fund (EPF), Public Provident Fund (PPF), Unit

Linked Insurance Plan (ULIP), National Savings Certificate (NSC), Tax

saver Bank Deposits (FD) and Equity Linked Saving Scheme (ELSS)

Insurance products and the like. Apart from providing decent and stable

returns these savings options also help to plan and save tax. However, the

aggregate of deductions under section 80C and 80CCC cannot exceed

Rs.100,000. There are number of investment avenues available. They are as

follows :

I. Employees Provident fund:

It includes the following benefits.

a) PF Benefits

b) Pension Benefits

a) Provident Fund benefits:

Employer also contributes to Members PF @ 12% (10% in case of

certain companies).

EPFO guarantees the Employer contribution and credits interest at

such rates as determined by the Central Government.

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Member can withdraw from these accumulations to cater to financial

exigencies in life - No need to refund unless misused.

On resignation, the member can settle the account. i.e., the member

gets his PF contribution, Employer Contribution and Interest.

b) Pension Benefits:

i. Pension to Member

ii. Pension to Family (on death of member)

iii. Scheme Certificate:

This Certificate shows the service & family details of a member

This is issued if the member has not attained the age of retirement

while leaving an establishment and applies for this certificate

Member can surrender this certificate while joining another

establishment and the service stated in the certificate is added with the

service one is gaining from the new establishment.

After attaining the age of 50 or above, the member can apply for

Pension by surrendering this scheme certificate (if total service is

atleast 10 years).

This is a better choice than Withdrawal Benefit, as members dies

holding a valid scheme certificate, his or her family will get pension

(Death when not in service).

iv. Withdrawal Benefit

Member may withdraw the amount accumulated in his or her pension

account subject to certain conditions.

The calculation of this amount is based only on (i) Last average salary

and (ii) Service (Not based on actual amount available in Pension

Fund Account).

II. Public Provident Fund: (PPF)

Under PPF the duration is 15 years, the rate of interest for investment is

Page 43


8%. It can be done in any Head post office or selection grade sub post office

or in any nationalized bank. Any individual above 18 years can invest in PPF

schemes. The amount invested must be minimum of Rs.500/- and maximum

of Rs.70, 000 p.a. One can avail loan from the 3rd year to 6th year upto 25%

of the amount available in the preceeding second year, one withdrawal

during any one year at any time after 6 years. The amount of withdrawal is

limited upto the 50% of the balance on credit. Nomination facility is

available. Interest is fully exempted from tax. Balance in the PPF account is

completely exempted from wealth tax. The account can be extended for any

block period of 5 years; the entire interest income earned is exempt from tax.

Investment in EPF can be made by way of a monthly contribution from

salary. The amount contributed is 12% of the total of basic salary and

dearness allowance. Over and above this 12%, some companies allow their

employees, with certain ceilings (a certain amount above which money can't

be invested), to contribute an additional amount towards EPF. EPF serves as

a retirement planning tool for many of those who do not have any structured

pension plan covering them. The account can be opened by an individual in

his own name, on behalf of a minor of whom he is a guardian, or by a Hindu

Undivided Family. Maximum number of deposits is twelve in a financial

year. The account matures for closure after 15 years. Account can be

continued with or without subscriptions after maturity for block periods of

five years. Premature withdrawal is permissible every year after completion

of 5 years from the end of the year of opening the account. Loans from the

amount at credit in PPF amount can be taken after completion of one year

from the end of the financial year of opening the account and before

completion of the 5th year.

III. Unit Linked Insurance Plan:

Unit linked insurance plan (ULIP) is a life insurance solution that

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provides for the benefits of protection and flexibility in investment. The

investment is denoted as units and is represented by the value that it has

attained called as Net Asset Value (NAV). The policy value at any time

varies according to the value of the underlying assets at the time. There are a

variety of insurance products available. The traditional plans such as money

back, cash back, endowment, whole life, children’s plans are considered

relatively safe. However, the returns thereon vary between 4% per annum to

6% per annum. For most of these plans premium has to be paid monthly,

quarterly, semi-annually or annually during the term of the policy. The risk

categorization of ULIPs depends on the type of fund opted for. The fund that

invests its corpus mainly in equity (stocks) is considered riskier while the

one investing chiefly in bonds/debentures is considered relatively safer. The

riskier funds offer potential for high returns while safe funds offer moderate

returns. Tax deduction can be claimed on the premium paid in respect of life

insurance policy of self, spouse or children. If the annual life insurance

premium were more than 20% of the sum assured then the deduction would

be restricted to 20% of the sum assured. The death benefits of the life

insurance policy are exempt from tax. If the annual insurance premium does

not exceed 20% of the sum assured, the survival benefits are also exempt

from tax under section 10(10D) of the Income Tax Act. ULIP provides

multiple benefits to the consumer. The benefits include:

Life protection

Investment and Savings

Flexibility

Adjustable Life Cover

Investment Options

Transparency

Options to take additional cover against

Death due to accident

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Disability

Critical Illness

Surgeries

Liquidity

Tax planning

IV. Life Insurance:

Life insurance is a contract for payment of a sum of money to the person

who is insured with the insurance company on the happening of even insured

against. Generally, it is a contract between the insurance company and the

insured for a number of years. Though the primary aim of taking a life

insurance policy is coverage of risk, of late, the policy partakes all the

characteristics of an investment. The annual bonus which is accruing to the

policy holders gets accumulated into a substantial amount over a period of

time. The important advantages of life insurance are,

i) Protection: The contract for life insurance provides for the payment of an

amount on the date of maturity or on the death of policy holder, which ever

is earlier. Thus, life insurance provides a protection against risk of early

death. If a person dies before the maturity of the policy, the insurance

corporation undertakes to pay the assured sum to the representative of the

deceased.

ii) Facility for savings: Life insurance contract facilitates mobilization of

savings from among the investors. The insured pay the premium in easy

installments such as monthly, quarterly, half yearly or yearly. To ensure

convenience to the salaried class, the insurance company offers the salary

savings scheme. Provision for easy payment of premium encourages people

to take insurance cover.

iii) Liquidity: The investment in the form of insurance policy is considered

to be liquid as it can be surrendered with the insurance company at a pre

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determined value, depending upon the amount of insurance premium paid so

far. However, such a surrender of policy with the insurance company results

in loss to the policy holder. Another advantage is that a policy holder can

avail a loan against the policy from the insurance company. The interest

charged by the company for such a loan is nominal.

iv) Tax benefits: The assessees who are liable to pay income tax can reduce

their tax liability by making investments in the form of insurance policies.

The premium paid by the policy holder qualifies for rebate from income tax

under section 88. Moreover, the amount deposited under an annuity plan of

the Life Insurance Corporation by the individual tax payer is deductible from

gross total income, subject to a maximum of Rs.10, 000.

V. Post Office Schemes:

Generally, post office schemes are also like the commercial bank

schemes. Originally institutions called trustee savings banks were operating

the savings bank account. These institutions became extinct gradually and

the postal department took up the task of providing a facility to save through

their post savings accounts. As this account became popular, the Government

of India could collect crores of rupees through this account. Apart from this

savings bank account, post office offers various schemes which prove to be

attractive for the investors who attach utmost importance to safety aspect.

i) Post Office Monthly Income Scheme (POMIS): Under the post office

monthly income scheme, an individual can invest between Rs.1, 000 and

Rs.3, 00,000 or jointly by two individual’s upto Rs.6, 00,000. The period

of deposit is 6 years and this scheme carries benefit in the form of

interest at 8% and 10% bonus at the time of maturity of deposit amount.

The investor is also entitled to tax benefit in the form of deduction under

section 80L in respect of interest earned by him.

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ii) National Savings Certificates: National Savings Certificates, popularly

known as NSC, is a time-tested tax saving instrument that combines

adequate returns with high safety. National Savings Certificates can be

purchased by the following:

An adult in his own name or on behalf of a minor,

A minor,

A trust

Two adults jointly,

Hindu Undivided Family

National Savings Certificates are available in the denominations of Rs.

100, Rs500, Rs. 1000, Rs. 5000, & Rs. 10,000. There is no maximum limit

on the purchase of the certificates. Period of maturity of a certificate was six

years. Presently, maturity value of a certificate of Rs. 100 denomination is

Rs. 160.10. Maturity value of a certificate of any other denomination is at a

proportionate rate. Premature encashment of the certificate is not permissible

except at a discount in the case of death of the holder(s), forfeiture by a

pledge and when ordered by a court of law. National Savings Certificates

(NSC) is also a very safe investment avenue. The certificate has a maturity

period of 6 years. The current interest rate is 8.16% per annum. The interest

rate is fixed in a sense that subsequent changes to the interest rates do not

affect the investment. That is, any increase/decrease in interest rates will not

have any impact on investment or interest earned. One major drawback of

NSC is that the interest is taxable. If a person is in the highest tax bracket

then the post-tax return could be as less as 5.44% per annum instead of

8.16%. NSCs’ can be purchased at any post office. Section 80C also allows

deduction on earned interest on NSC during the first five years. However, no

deduction on accrued interest is available in the year in which the NSC

matures. Interest accrued on the certificates every year is liable to income tax

but is deemed to have been reinvested. Income Tax rebate is available on the

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amount invested and interest accruing under Section 88 of Income Tax Act,

as amended from time to time.

iii) Recurring Deposit: The Recurring deposit account can be opened at any

post office Period of maturity of account is 5 years. Sixty equal monthly

deposits shall be made in an account in multiples of Rs. 5 subject to a

minimum of ten rupees. Premature closure of accounts is permissible after

expiry of three years. In case of premature closure of account, the interest at

the rate applicable to post office savings account shall be payable.

iv) Kisan Vikas Patra (KVP): It is a popular scheme operated by post

offices. This has a face value of Rs.100, Rs.1, 000, Rs.5, 000 and Rs.10, 000

and gives compound interest. The investment doubles in 8 years and 7

months. The encashment of the Kisan Vikas Patra is permitted after the

holding period of 2 years and 6 months. Individuals and trusts can purchase

these investments and these instruments are not transferable from one person

to another.

v) Post Office Time Depostis (POTD): Fixed deposits are accepted by Post

offices for a period varying between 1 and 5 years. Depending upon the

period of deposit, the interest offered by the POTD varies between 6.25%

and 7.50%. (1st year 6.25%, 2nd year 6.50%, 3rd year 7.25% and 4th year

7.50%).

vi) Deposit schemes for retired Govt. employees or Public sector

undertaking (DSRGE /DSRPSU): Under the above scheme, the retired

employees from Govt. Service and Public sector undertakings can open an

account in certain nationalized banks like SBI, situated in the district

headquarters. It carries an interest of 7% and Retirement benefits can be

invested within 3 years from the date of retirement.

Savings schemes for Senior Citizens: The Government of India has

introduced a new Savings scheme for senior citizens. The salient features of

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the scheme are as follow:

a) Person who have attained 60 years of age are eligible to join the

scheme.

b) Person who have availed voluntary retirement scheme (VRS) are also

eligible to join the scheme.

c) The amount of investment may vary between Rs. 1,000 and Rs.

15,00,000.

d) The scheme carries a rate of interest of 9% per annum. The due dates

for payment of interests are March 31, June 30, September 30 and

December 31,

e) The deposit amount matures after the expiry of 5 years. However, the

period of deposit can be further extended by another 3 years.

f) The deposit account is transferable from one post office to another.

VI. Equity Linked Savings Schemes:

Investing in ELSSs gets investors a tax rebate for the amount invested.

ELSSs are growth mutual funds, with a lock in period of three years. ELSSs

have a risk higher than PPF and NSC’s; however, they have the potential to

yield higher returns5. Equity Linked Saving Schemes (ELSS) is an

investment option that provides tax saving benefits as well as capital gains.

Now, the investor can invest in ELSS Rs.1, 00,000/- under Section 80C.

These schemes have a lock-in period of three years. Hence the investor is

benefited the most as he gets good returns by investing periodically. The

reasons for choosing ELSS were money is invested over a longer period as

the ELSS funds have a lock-in period of three years.

Better returns are achieved as the investment in equity is over a long-

term and it prevents unnecessary withdrawals.

Apart from tax savings, the investor receives Capital gains or high

returns.

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Small amounts even Rs.500 can be invested in ELSS through

Systematic Investments plan.

Involves less risk - Investing in ELSS, one cannot run away from

equity market risk as equity market is very volatile and fluctuating.

One option to minimize risk is to invest in Diversified funds and

another option is to trust the fund manager for Systematic Investments

Plan.

Dividends that are earned are tax free.

Systematic Investment Plan in ELSS:

There are very beneficial for an investor as one can invest as low as

Rs.500/- per month in ELSS through the Systematic Investment Plan. The

theory of SIP is that it makes sure that the investor buys more when the

market is declining and buys less when the market value is rising. The main

reason behind the success of SIP route is that if an investor does not want to

buy when the market is falling, he cannot back out from the market. The

investor who has faith in SIP always lands up in profit. Normally, one will

not buy when the market is falling and he or she might end up buying more

when the market is at peak. This results in his or her buying at high rate and

selling at low rate and thus he or she ends up in loss. So one should continue

with SIP irrespective of the market rise or fall.

Mutual Fund Problem - The Fund Manager is a human being and so

liable mistakes he might not always select the best stocks.

Commissions - Fund Manager is trying to help the investor so he will

charge some commission. Even if the Fund Manager makes the

investor invest in the best funds, the investor has to pay high

commissions and this reduces the profits of the investor.

A Fund Manager cannot perform better than the market, hence might

miss out on one year and if that happens to be the last year, the

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maturity value will be reduced. Investor might invest fewer amounts

every year but has to pay commission to the Fund manager and there

is no guarantee that it will perform better next year.

Apart from the Fund Manager the Investor also has to learn the

market changes, and then alone he will be able to do profit and loss

calculations.

The investor might land up in the worst performing ELS Scheme. In

that case the investor might not be interested in tax savings and

capital gain, and would want the principal amount to be given back.

There is always a risk involved when the market goes down.

Advantages of ELSS:

Maturity period of NSC is 6 years and PPF is 15 years while that of

ELSS is 3 years. So with a lesser lock-in period, one can withdraw the

amount

Earning potential is very high as it is an equity linked scheme.

Investor gains money during the lock-in period and also has the

option of dividend.

Systematic Investment Plan is a part of ELSS.

Accident death cover insurance is offered in some ELSS funds.

NSC and PPF gives return of 8% and ELSS gives return of 30-40%.

VII. Savings bank account:

Commercial banks like ICICI, HDFC, co-operative banks like

COSMOS, public sector banks like SBI, IOB etc and postal

departments accept deposits by way of opening savings bank account

with them. The savings account is generally opened in bank by

salaried persons or by the persons who have a fixed regular income.

This facility is also given to students, senior citizens, pensioners, and

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so on. Savings accounts are opened to encourage the people to save

money and collect their savings. In India, savings account can be

opened by depositing Rs.100 to Rs.5000. The savings account holder

is allowed to withdraw money from the account as and when required.

The interest which is given on savings account is sometime attractive,

but often nominal. At present, the rate of interest ranges between 4 to

6% per annum in India. The interest rates vary as per the amount of

money deposited in the savings bank account, scheme opted, and its

maturity range. It is also subject to current trend of banking policies in

the country. The features of savings account are

The main objective of savings account is to promote savings.

There is no restriction on the number and amount of deposits.

However in India, mandatory PAN details are required to be furnished

for doing cash transactions exceeding Rs.50, 000.

Withdrawals are allowed subject to certain restrictions.

The money can be withdrawn either by cheque or withdrawal slip of

the respective bank.

The rate of interest payable is very nominal on savings accounts.

Savings account is of continuing nature. There is no maximum period

of holding.

A minimum amount has to be kept in savings account to keep it

functioning.

No loan facility is provided against savings account.

Electronic clearing system (ECS) or e-banking are available to pay

electricity bill, telephone bill, and other routing household expenses.

Generally equated monthly installments (EMI) for housing loan,

personal loan, car loan etc., are paid through savings bank account.

The advantages of savings account are as follows:

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Savings account encourages savings habit among salary earners and

others who have fixed income.

It enables the depositor to earn income by way of savings bank

interest.

Savings account helps the depositor to make payment by way of

issuing cheques.

It shows income of salaried and other persons earned during the year.

Savings account passbook acts as an identity and residential proof of

the account holder.

It provides a facility such as Electronic fund transfer (EFT) to other

people’s accounts.

It helps to do online shopping via facility like internet banking.

It aids to keep records of all online transactions carried on by the

account holder.

It provides immediate funds as and when required through ATM.

The bank offers number of services to the savings account holders.

VIII. Fixed Deposits:

A fixed deposit is meant for those investors who want to deposit a lump

sum of money for a fixed period starting from a minimum period of 15 days

to five years and above, thereby earning a higher rate of interest in return.

The investor gets a lump sum (principal + interest) on the maturity of the

deposit. Bank fixed deposits are one of the most common savings scheme

open to an average investor. Fixed deposits also give a higher rate of interest

than a savings bank account. The facilities vary from bank to bank. Some of

the facilities offered by banks are overdraft facility on the amount deposited,

premature withdrawal before maturity period (which involves a loss of

interest) etc. Bank deposits are fairly safe because banks are subject to the

control of the Reserve Bank of India.

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Features:

Bank deposits are fairly safe because banks are subject to the control of

the Reserve Bank of India (RBI) with regard to several policy and

operational parameters. The banks are free to offer varying interests on fixed

deposits of different maturities. Interest is compounded once in a quarter,

leading to a somewhat higher effective rate. The minimum deposit amount

varies with each bank. It can range from as low as Rs.100 to an unlimited

amount with some banks. Deposits can be made in multiples of Rs.100/-.

Before opening a FD account, it is good to check the rates of interest in

different banks for different periods. It is advisable to keep the amount in

five or ten small deposits instead of making one big deposit. In case of any

need for premature withdrawal then only one or two deposits need be

prematurely encashed. The loss sustained in interest will, thus, be less than if

one big deposit were to be encashed or it is better to borrow. Check deposit

receipts carefully to see that all particulars have been properly and accurately

filled in. The thing to consider before investing in an FD is the rate of

interest and the inflation rate. A high inflation rate can simply chip away real

returns.

Returns:

The rate of interest for Bank Fixed Deposits varies between 4 and 11 per

cent, depending onthe maturity period (duration) of the FD and the amount

invested. Interest rate also varies between banks. A Bank FD does not

provide regular interest income, but a lump-sum amount on maturity. Some

banks have facility to pay interest every quarter or every month, but the

interest paid may be at a discounted rate in case of monthly interest. The

Interest payable on Fixed Deposit can also be transferred to the Savings

Bank or Current Account of the customer. The deposit period can vary from

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15days to 10 years.

Advantages:

Bank deposits are the safest investment after Post office savings because

all bank deposits are insured under the Deposit Insurance & Credit

Guarantee Scheme of India. It is possible to get loan up to 75- 90% of the

deposit amount from banks against fixed deposit receipts. The interest

charged will be 2% more than the rate of interest earned by the deposit, with

effect from A.Y. 1998-99, investment on bank deposits, along with other

specified incomes, is exempt from income tax up to a limit of Rs.12, 000/-

under Section 80L. Also, from A.Y. 1993-94, bank deposits are totally

exempt from wealth tax. The 1995 Finance Bill Proposals introduced tax

deduction at source (TDS) on fixed deposits on interest incomes of Rs.5000/-

and above per annum.

Procedure:

One can open a FD account at any bank, be it nationalised, private, or

foreign. However, some banks insist that the customers must maintain a

savings account with them to operate a FD. When a depositor opens an FD

account with a bank, a deposit receipt or an account statement is issued to

him or her, which can be updated from time to time, depending on the

duration of the FD and the frequency of the interest calculation.

IX. Company Fixed Deposits:

Many companies have come up with fixed deposit schemes to mobilize

money for their needs. The company fixed deposit market is a risky market

and ought to be looked at with caution. The RBI has issued various

regulations to monitor the company fixed deposit market. However, credit

rating services available to rate the risk of company fixed deposit schemes.

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The maturity period varies from three to five years. Fixed deposits in

companies have a high risk because they are unsecured; however they

promise higher returns than bank deposits. Fixed deposit in non banking

financial companies is another investment avenue open to savers. NBFC, s

includes leasing companies, hire purchase companies, investment

companies, chit funds and so on. Deposits in NBFC’s carry higher returns

with higher risk compared to bank deposits.

X. Shares:

The capital of the company can be divided into different units with

definite value called shares. Holders of these shares are called shareholders

or members of the company. There are two types of shares which a company

may issue (i) Preference Shares (ii) Equity shares.

(i) Preferences Shares:

Shares which enjoy the preferential rights as to dividend and repayment

of capital in the event of winding up of the company over the equity shares

are called preference shares. The holder of preference shares will get a fixed

rate of dividend. Preference shares may be,

Cumulative Preference Shares: If the company does no earn adequate

profit in any year, dividends on preference shares may not be paid for that

year. But if the preference shares are cumulative such unpaid dividends on

these shares go on accumulating and become payable out of the profits of the

company, in subsequent years. Only after such arrears have been paid off,

any dividend can be paid to the holder of quality shares. Thus a cumulative

preference shareholder is sure to receive dividend on his shares for all the

years our of the earnings of the company.

Non-cumulative Preference Shares: The holders of non-cumulative

preference shares no doubt will get a preferential right in getting a fixed

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dividend it is distributed to quality shareholders. The fixed dividend is to be

paid only out of the divisible profits but if in a particular year there is no

profit as to distribute it among the shareholders, the non-cumulative

preference shareholders, will not get any dividend for that year and they

cannot claim it in the next year during which period there might be profits. If

it is not paid, it cannot be carried forward. These shares will be treated on the

same footing as other preference shareholders as regards payment of capital

in concerned.

Redeemable Preference Shares: Capital raised by issuing shares, is not to

be repaid to the shareholders (except buy back of shares in certain

conditions) but capital raised through the issue of redeemable preference

shares is to be paid back by the raised thought the issue of redeemable

preference shares is to be paid back to the company to such shareholders

after the expiry of a stipulated period, whether the company is wound up or

not. As per section (80) 5a, a company after the commencement of the

Companies (Amendment) Act, 1988 cannot issue any preference shares

which are irredeemable or redeemable after the expiry of a period of 10

years from the date of its issue. It means a company can issue redeemable

preference share which are redeemable within 10 years from the date of their

issue.

Participating Preference Shares: The preference shares which are entitled

to a share in the surplus profit of the company in addition to the fixed rate of

preference dividend are known as participating preference shares. After the

payment of the dividend a part of surplus is distributed as dividend among

the quality shareholders at a particulate rate. The balance may be shared both

by equity shareholders at a particular rate. The balance may be shared both

by equity and participating preference shares. Thus participating preference

shareholders obtain return on their capital in two forms (i) fixed dividend (ii)

share in excess of profits.

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Non Participating Preference Shares: Those preference shares which do

not carry the right of share in excess profits are known as non-participating

preference shares.

(ii) Equity Shares:

Equity shares will get dividend and repayment of capital after meeting

the claims of preference shareholders. There will be no fixed rate of dividend

to be paid to the equity shareholders and this rate may vary form year to

year. This rate of dividend is determined by directors and in case of larger

profits; it may even be more than the rate attached to preference shares. Such

shareholders may go without any dividend if no profit is made.

XI. Bond/Debentures:

A debt investment in which an investor loans money to an entity

(corporate or governmental) that borrows the funds for a defined period of

time at a fixed interest rate. Debentures are divided into different categories

on the basis of: (i) Convertibility of the instrument (ii) Security.

i) On the basis of convertibility debentures can be classified into:

Non Convertible Debentures (NCD): These instruments retain the debt

character and cannot be converted in to equity shares.

Partly Convertible Debentures (PCD): A part of these instruments are

converted into equity shares in the future at notice of the issuer. The

issuer decides the ratio for conversion. This is normally decided at the

time of subscription.

Fully convertible Debentures (FCD): These are fully convertible into

Equity shares at the issuer's notice. The ratio of conversion is decided

by the issuer. Upon conversion the investors enjoy the same status as

ordinary shareholders of the company.

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Optionally Convertible Debentures (OCD): The investor has the

option to either convert these debentures into shares at price decided

by the issuer/agreed upon at the time of issue.

ii) On basis of Security, debentures are classified into:

Secured Debentures: These instruments are secured by a charge on

the fixed assets of the issuer company. So if the issuer fails on

payment of either the principal or interest amount, his assets can be

sold to repay the liability to the investors.

iii) Unsecured Debentures: These instrument are unsecured in the sense

that if the issuer defaults on payment of the interest or principal

amount, the investor has to be along with other unsecured creditors of

the company.

XII. Mutual Funds:

Recently, mutual funds have become popular all over the world, mutual

funds carry benefits in the form of safety of principal, capital appreciation

and interest or dividend. Under mutual fund scheme an investor even with a

little money can be a participant in investing in big companies, which are

otherwise inaccessible to him because of his small investment. Mutual funds

collect the savings of small investors, invest them in Government and other

corporate securities and earn income in the form of interest and dividend.

The income and capital appreciation arising out of investment are shared

among the investors by careful selection of securities over a diversified

portfolio, covering large number of companies and industries. Mutual funds

are able to perform better than an individual investor. When mutual funds

select a large share of equities, the investment in mutual funds select a large

share of equities, the investment in mutual funds is exposed to greater risks.

So, the investor should be aware of the risks of these growth schemes while

making an investment decision. When mutual funds have income schemes,

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then investment is made in securities of a guaranteed return. Under income

schemes, mutual funds select a large share of fixed income securities like

debentures and bonds. A mutual fund is an investment that spreads its money

across a diversified portfolio of securities including stocks, bonds, or money

market instruments. Shareholders who invest in a fund each own a

representative portion of those investments, less any expenses charged by the

fund. Mutual fund investors make money either by receiving dividends and

interest from their investments, or by the rise in value of the securities.

Dividends, interest and profits from the sale of any securities (capital gains)

are passed on to the shareholders in the form of distributions. And

shareholders generally are allowed to sell their shares at any time for the

closing market price of the fund on that day.

There are a variety of of reasons why investors might choose mutual funds

over other investments, such as individual stocks and bonds. The number

one reason is diversity, which can both increase potential returns and

decrease overall risk. Mutual funds allow an investor to spread out his or her

money across many companies. Funds can be especially advantageous for

small investors who would be forced to pay enormous transaction fees if

they bought the securities individually, and for investors who either don't

have the time to research their own investments or who don't trust their own

investment expertise. Mutual funds aren't necessarily low-cost investments.

Many of them charge one-time "load fees" to new purchasers that cannot

exceed 5 percent of the investment, and all mutual funds take on an average

1.3 percent of assets a year for operating expenses, expressed as the

"expense ratio." As a result, "index" funds have surged in popularity in

recent years because, on an average, they provide a much lower expense

ratio than managed funds. Also an index fund's risk is limited to that of the

benchmark index that it tracks, such as the Standard & Poor 500.

Professional management can be both a benefit and a liability of actively

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managed mutual funds. Several studies show that, over time, the average,

actively managed fund has under performed the overall stock market. Still,

by picking funds with good long-term track records, managers trust and low

expenses, investors can build a portfolio with the potential for steady, long-

term returns that match their own investment goals and tolerance for risk.

Liquidity – the ability to readily access your money -- is another benefit of

mutual funds. Funds can be sold on any business day at that day's closing

price – or at the following day’s close if the sell order is placed after the

market closes. The price per share at any given time is known as the net asset

value, or NAV, which is the current market value of all the fund's assets,

minus liabilities, divided by the total number of outstanding shares. As new

investors buy into a fund, the number of outstanding shares goes up, as does

the market value of assets, but the NAV remains the same.

Types of Mutual Fund Investment in India:

There are varieties of funds available for investment. Some of them are:

1. Closed-end funds: A closed-end mutual fund bears a number of shares

which are issued to the public by an initial public offering (IPO).

2. Open-end funds: Open end funds are managed by mutual fund houses

for raising money from shareholders and they invest in a group of

assets.

3. Large cap funds: Large cap funds are those mutual funds, which look

for capital appreciation by way of investing in blue chip stocks.

4. Mid-cap funds: Mid cap funds invest in small/medium sized

companies, but with no proper definition of classifying a company.

5. Equity funds: Equity mutual funds, also known as stock mutual funds

invest pooled amounts of money in public company stocks.

6. Balanced funds: Balanced funds are also known as hybrid fund,

buying a combination of common stock, preferred stock, bonds, and

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short-term bonds.

7. Growth funds: Growth funds are mutual funds that target at capital

appreciation by investing in growth stocks.

8. Exchange traded funds: Exchange Traded Funds (ETFs) are a basket

of securities being traded on an exchange, just similar to that of a

stock. They are not like the conventional mutual funds.

9. Sector funds: These funds are funds that restrict the investments to a

specific segment or sector.

10. Index funds: An index fund aims to replicate the actions of an index

of a specific financial market.

XIII. Real Estate Investment:

Real estate includes land and house property. It is true to say that real

estate offer a rate of return which is superior to avenues such as company

deposits on a long term basis. Now-a daysmore and more investments are

made in the form of real estates for the following reasons:

Real estate ensures high capital appreciation as compared against gold

and silver particularly in the urban area.

Loans are available on liberal terms for purchase of land site and

construction of houses. In India, apex banks like Housing and Urban

Development Bank encourage mortgage loans in the form of housing

loans. The rates of interest are not only cheaper but also the payment

of interest and principal sum qualify in the form of tax concessions to

the assessees.

Ownership of a house gives an investor a secured feeling and

enhances his/her status in the society.

Real Estate Investment is now treated as a major case of capital budgeting

on the basis of the income it may generate and the associated risk

adjustments. It has been the highlight of the investment literature since the

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1970’s when investment theorists extended techniques such as probability,

time value of money and utility into its analysis. Real estate is basically

defined as immovable property such as land and everything permanently

attached to it like buildings. Real property as opposed to personal or

movable property is characterized by the right to transfer the title to the land

whereas title to personal property can be retained. The investment in real

estate essentially depends on the risks associated with it, and the alternative

investment opportunities. Real estate investment can be attractive if viewed

as a business opportunity; it can generate rental income, using it as collateral

to secure a loan for a business venture, to offset otherwise taxable income

through cash savings on tax-deductible interest rate losses, or simply from

the profits garnered from its resale. Notable, in this context is the gains

reaped by real estate speculators who trade in real estate futures. Common

examples of real estate investment are individuals owning multiple pieces of

real estate’s one of which is his primary residence and others are occupied by

tenants from where the rental income accrues. Real estate investment is also

associated with appreciation in the value of property thereby having the

potential for capital gains. Tax implications differ for real estate investment

and residential real estates. Real estate investment is long term in nature and

investment professionals routinely maintain that one’s investment portfolio

should have at least 5%-20%. A Real Estate Investment Trust (REIT) is a

corporation or body investing in real estate that has the property to reduce or

eliminate corporate income taxes. In return, REIT’s are required to distribute

90% of their income among the investors. These incomes are often taxable.

REIT’s perform a similar function as do that Mutual Funds provide for

stocks in the share market. The key statistics to study about the REIT’s are

the NAV (Net Asset Value) and AFFO (Adjusted Funds from Operation).

using state-of-the-art investment analysis which incorporates the future

stream. The Indian Government is yet to introduce REIT’s in the country.

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The government and the SEBI (Securities and Exchange Board of India) are

planning to bring in legislations for the smooth functioning of the real estate

market in India. With Initial Public Offers (IPO’s) streaming in from various

listed real estate companies, it will be the best time to have REIT which can

help capture the current boom in the real estate market. Various online real

estate investment sites have also emerged in the last decade as fallout of the

surge in realty business. Real estate investing involves the purchase,

ownership, management, rental and/or sale of real estate for profit.

Improvement of realty property as part of a real estate investment strategy is

generally considered to be a sub-specialty of real estate investing called real

estate development. Real estate is an asset form with limited liquidity

relative to other investments, it is also capital intensive (although capital may

be gained through mortgage leverage) and is highly cash flow dependent. If

these factors are not well understood and managed by the investor, real estate

becomes a risky investment. The primary cause of investment failure for real

estate is that the investor goes into negative cash flow for a period of time

that is not sustainable, often forcing them to resell the property at a loss or go

into insolvency. A similar practice known as flipping is another reason for

failure as the nature of the investment is often associated with short term

profit with less effort. Real estate markets in most countries are not as

organized or efficient as markets for, more liquid investment instruments.

Individual properties are unique to themselves and not directly

interchangeable, which presents a major challenge to an investor seeking to

evaluate prices and investment opportunities. For this reason, locating

properties in which to invest can involve substantial work and competition

among investors to purchase individual properties may be highly variable

depending on knowledge of availability. Information asymmetries are

commonplace in real estate markets. This increases transactional risk, but

also provides many opportunities for investors to obtain properties at bargain

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prices. Real estate investors typically use a variety of appraisal techniques to

determine the value of properties prior to purchase.Once an investment

property has been located, and preliminary due diligence (investigation and

verification of the condition and status of the property) completed, the

investor will have to negotiate a sale price and sale terms with the seller, then

execute a contract for sale. Most investors employ real estate agents and real

estate attorneys to assist with the acquisition process, as it can be quite

complex and improperly executed transactions can be very costly. During the

acquisition of a property, an investor will typically make a formal offer to

buy including payment of "earnest money" to the seller at the start of

negotiation to reserve the investor's rights to complete the transaction if price

and terms can be satisfactorily negotiated. This earnest money may or may

not be refundable, and is considered to be a signal of the seriousness of the

investor to purchase. The terms of the offer will also usually include a

number of contingencies which allow the investor time to complete due

diligence and obtain financing among other requirements prior to final

purchase. Within the contingency period, the investor usually has the right to

rescind the offer with no penalty and obtain a refund of earnest money

deposits. Once contingencies have expired, rescinding the offer will usually

require forfeit of earnest money deposits and may involve other penalties as

well. Though investment in real estate ensures speedy capital appreciation,

investors do not invest in more than one or two houses. The reasons being to

purchase a house or land in the urban area, investor needs money not in

thousands but in lakhs. But it is easy for them to buy equity, gold or other

forms of investment which do not require much investment.

Investors have to be very cautious while purchasing land. They may

be cheated in the purchase of land for want of a clear title.

The Land Ceiling Act restricts the purchase of agricultural land

beyond a limit.

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The investor who has invested his money in the form of real estate

cannot immediately realize his money.

In view of these limitations, investor while buying the real estate should

take the following precautions:

The investor should ensure that the plots which he intends to buy are

approved by the local authority.

The investor should be convinced that there is a possibility of capital

appreciation in real estate.

The investor should seek proper legal advice with regard to the title

deeds of the real estate. To ensure that it is free from encumbrances,

he should get an encumbrance certificate for the latest 15 years from

the Registrar office.

The investor should verify the correctness of the plinth area in the

case of a flat.

Tax savings for investment in house property:

Deduction under section 80C of the Income tax Act is available up to

Rs.1,00,000 for investment in house property subject to the satisfaction of

the conditions of that section in regard to qualifying amounts in the

following circumstances to the individuals/Hindu undivided families.

Payments made towards the cost of purchase/construction of new residential

house property during the previous year are eligible for deduction under

section 80C and Sec.54 also. Section 80C provides that in computing the

total income of an assessee, deduction shall be provided in respect of various

payments/investments made as included in the aforesaid Section subject to a

ceiling of Rs.1 lakh on the aggregate amount of such payments/investments.

Section 80C(5) stipulates that in case an assessee transfers the house

property referred to above before the expiry of five years from the end of the

financial year in which possession of such property is obtained by him, or

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receives back, whether by way of refund or otherwise, any sum specified

above, then no deduction shall be allowed with reference to any of the sums

referred to above and the aggregate amount of deductions of income already

allowed in respect of the previous year or years shall be deemed to be the

income of the assessee of such previous year and shall be liable to tax in the

assessment year relevant to such previous year.

Real estate investment law in India:

Transfer of Property Act

Indian Registration Act, 1908

Indian Urban Land (Ceiling & Regulation) Act, 1976

Stamp Duty

Property Tax

XIV. Depository Receipts:

Global Depository Receipts (GDR) are instruments in the form of a

depositary receipt or certificate created by the overseas depository bank

outside India and issued to non-resident investors against ordinary shares or

Foreign Currency Convertible Bonds (FCCB) of an issuing company. A

GDR issued in America is an American Depository Receipt (ADR). Indian

companies are permitted to raise resources in foreign currency through the

issue of FCCBs and/or issue of ordinary equity shares through GDR/ADR to

foreign investors. – institutional investors or individuals residing abroad.

GDR’s are designated in US Dollars and are not subject to any ceilings on

investment. There is no restriction on the number of euro issues that can be

floated by a company or a group of companies in a financial year. The

proceeds of GDR can be used for financing capital goods imports; capital

expenditure including domestic purchase or installation of plant, equipment

and building and investment in software development, prepayment or

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scheduled repayment of earlier external borrowings; equity investment in

joint ventures or wholly owned subsidiaries in India. Companies may retain

the proceeds abroad or may remit the funds into India in anticipation of the

approved end uses. Among Indian companies, Reliance Industries Limited

was the first company to raise funds through a GDR issue. In addition to

GDR’s ADR are also popular in the capital market.

XV. Gold:

Of all the precious metals, gold is the most popular as an investment.

Investors generally buy gold as a hedge or harbor against economic,

political, or social fiat currency crises (including investment market declines,

burgeoning national debt, currency failure, inflation, war and social unrest).

The gold market is subject to speculation as are other markets, especially

through the use of futures contracts and derivatives. The history of the gold

standard, the role of gold reserves in central banking, gold's low correlation

with other commodity prices, and its pricing in relation to fiat currencies

during the 2007–2012 global financial crisis, suggest that gold behaves more

like a currency than a commodity. Gold has been used throughout history as

money and has been a relative standard for currency equivalents specific to

economic regions or countries, until recent times. Many European countries

implemented gold standards in the latter part of the 19th century until these

were temporarily suspended in the financial crises involving World War I.

After World War II, the Bretton Woods system pegged the United States

dollar to gold at a rate of US$35 per troy ounce. The system existed until the

1971 Nixon Shock, when the US unilaterally suspended the direct

convertibility of the United States dollar to gold and made the transition to a

fiat currency system. The last currency to be divorced from gold was the

Swiss Franc in 200012. Gold is the oldest currency in the world and is

coveted across continents and cultures for a variety of reasons.

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Maintains long term value: Market cycles have their ups and downs,

but gold has maintained its long term value. Paper currencies may rise

and fall but gold always endures. Gold has demonstrated its capacity

to store value for centuries.

Safe refuge: During times of calamities like war or economic crisis,

there may be a negative effect on investments like currencies, bonds

and equities, but may have an opposite effect on the value of gold.

Also gold is not a liability of any Government or corporation and

hence it does not run a risk of becoming worthless due to unexpected

events.

Inflation hedge: The value of gold, in terms of real goods and services

that it can buy, has remained remarkably stable whereas the

purchasing power of many currencies has generally declined.

Effective diversifier: Diverse investments help protect the portfolio

against fluctuations in the value of any single asset class. Gold is an

excellent portfolio diversifier because its performance tends to move

independently of other investments and key economic factors.

Both tangible and liquid: Gold is an asset that is both tangible and

liquid, unlike real estate which is tangible but not liquid, or company

shares and bonds which are liquid but not tangible.

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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 behavior on

various investment avenues, to find out the investors’ perception towards

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.

Page 71


Analysis of the survey:

4.1 Gender Profile

In Mangalore city males are highest in number than females. This

tendency is also show in the present study. The Male population of the

present study exceeds to female population. The following table illustrates

the gender distribution of the respondents of the study.

Table 4.1 Gender Profile

Gender No. of respondents Percentage of respondents

Male

Female

62

38

62%

38%

Total 100 100%

Figure 4.1 Gender profile

The above chart and table shows gender wise distribution. Out of 100

sample investors 62% males and 38% 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.

4.2 Age group profile of sample investorPage 72


Information was collected from all age group of investor. The age group

of investor is also major factor which influence investment decision. The

following table illustrates the age profile of the respondents of the study.

Table 4.2 Age Group sample investor

Age group No. of respondents Percentage of respondents

Less than 20 years

Between 20- 30 years

Between 30-40 years

Between 40-50 years

Above 50 years

5

53

17

11

14

5%

53%

17%

11%

14%

Total 100 100%

Figure 4.2 Age group

Above table and chart shows the age group profile of investor. 5% of

investor are below 20 years age and majority of investors (53%) are between

20-30 years age group.17% of investors are between 30-40 years and 11% of

investors are between 40-50 years.14% of investors are above 50 years.

4.3 Occupation

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Here occupation means position of the investor in the society. It may be

students, home maker, self employed or business people and other

occupations like peasants etc. The following table shows the occupation of

sample investor.

Table 4.3 Occupation of sample investor

Occupation No. of respondents Percentage of

respondents

Student

Home Maker

Self employed (Business/profession)

Employee (Government/Private)

Retired

Other

22

10

23

21

8

16

22%

10%

23%

21%

8%

16%

Total 100 100%

Figure 4.3 Occupation of sample investor

Occupation also influences investment decisions of individual investor.

The preferred investment avenues of students are differ from home maker

and preferred investment avenues self employed persons differ from retired

persons. The above table shows the occupation of sample investor.22% 0f

investors were students and 10% of investors were home maker and 23% of Page 74


investors were self employed and 21% of employers were employees either

private or government institution and 8% of investors were retired persons

and remaining investors are other occupations like cooley, agriculture etc.

4.4 Status of sample investor:

Table 4.4 Status of sample investor

Status No. of respondents Percentage of respondents

Single

Married

58

42

58%

42%

Total 100 100%

Figure 4.4 Status of sample investor

Above chart and table shows that 42% of employees are married and

58% of investors are not married. The marital status of individual influences

the perception of individual investor. We might observe that married people

have more responsibility than non married people. So their investment

pattern also differs.

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4.5 Children

A person who relies on another person, especially a family member, for

financial support is influence investment decision or perception of individual

investor. Here in order to know the preference of investment avenues of

investor those having children and investor those who are not having

children.

Table 4.5 Children

Having children No. of respondents Percentage of respondents

Yes

No

34

66

58%

42%

Total 100 100%

Figure 4.5 Children

The above chart and table shows that 66% of investors are not having

children and 34% of investors are having children.

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4.6 Income level of sample investor:

The important factor which influences the whole investment decisions

and attitude of individual investor is income level of investor. When level of

income increases the risk tolerance level of investor also increases. The

following table shows the income distribution among sample investor.

Table 4.6 Income distribution of Investor

Annual Income No. of respondents Percentage of respondents

Below 100000

Between 1 lakhs and 2 lakhs

Between 2 lakhs and 3 lakhs

Above 3 lakhs

50

21

17

12

50%

21%

17%

12%

Total 100 100%

Figure 4.6 Income distribution of sample investor

Above table shows that 50% of investors are below 100000 income level

and 21% of investors are between 1lakhs and 2lakhs income level and 17%

Page 77


of investors are between 2 lakhs and 3 lakhs income level and 12% of

investors are above 3 lakhs income level.

4.7 Percentage of savings from total income

Investors are asked to state their percentage of savings from total income.

Because this factor explains the savings attitude of investor therefore the

investigator asked percentage of savings from their total income. The

following table and chart shows the percentage of savings from total income.

Table 4.7: Percentage of savings from total income

Percentage of savings

from total income

No. of respondents Percentage of respondents

Below 20%

Between 20-40%

Between 40-60%

Above 60%

47

40

11

2

47%

40%

11%

2%

Total 100 100%

Figure 4.7 Percentage of savings from total income

The above table and charts shows that 47% of investors were saved 20%

of their total income and 40% of investors are saved between 20-40% of

Page 78


their total income. 11% of investors were saved between 40-60% of their

total income. Only 2% of investors were saves more than 60% of their total

income.

4.8 Percentage of investment in different investment avenues from

savings

Saving is different from investment because in savings investor may or

may not get return but in investment investor will get return either positive

or negative. For this reason the investigator asked the question about

percentage of investment in different investment avenues from their total

savings. The following table and chart shows the percentage of investment

from total savings.

Table 4.8: Percentage of investment from total savings

Percentage of

investment from savings

No. of respondents Percentage of respondents

Below 20%

Between 20-40%

Between 40-60%

Above 60%

60

21

12

7

60%

21%

12%

7%

Total 100 100%

Page 79


Figure 4.8 Percentage of investment from savings

From the above table and charts we can easily analyze that 60% of

respondents were invested less than 20% of their savings. 21% of

respondents were invested between 20-40% of their savings and 12% of

respondents are invested between 40-60% of their savings. 7% of

respondents invested more than 60% of their savings.

4.9 Purpose of investment:

There is some specific purpose to investor to invest their savings. There

are many purposes to investor to invest their savings like education purpose,

home purchase, healthcare, marriage and retirement planning etc. For this

purpose investigator asked to specify their main purpose of their investment.

Table 4.9: Purpose of investment

Purpose of investment No. of respondents Percentage of respondents

Education

Home Purchase

Healthcare

Marriage

25

20

18

9

25%

20%

18%

9%

Page 80


Retirement Planning

Other

14

14

14%

14%

Total 100 100%

Figure 4.9 Purpose of investment

From the above table and chart we can analyze that 25% of respondents

were invested for the purpose of education either for themselves or for their

children or other family member. 20% of investor invested their savings for

the purpose of purchase of house and 18% of respondents invest their

savings for the purpose healthcare that is to insure their health. 9% of

respondents are invested for the purpose of getting the money at the time of

marriage and 14% of respondents were invested for the purpose of

retirement planning.

4.10 Objectives of investments:

The main objective of investment is to get better return. But return is not

only the objective of investment, there are some other objectives are there

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which motivate investors to invest their funds they are safety, liquidity and

tax benefits.

Table 4.10: Objectives of investments

Objectives of investments No. of respondents Percentage of

respondents

High return

Moderate return

Safety of investment principle

Liquidity

Tax benefits

34

18

30

10

8

34%

18%

30%

10%

8%

Total 100 100%

Figure 4.10 Objectives of investment

As indicated above chart and table 30% of investors were invested with

the objective of safety principle and 34% of investors were invested with the

objectives of get higher return.18% of respondents were invested with the

Page 82


objective of get moderate return. 10% of respondents were invested with

objective of liquidity that means invested in such avenues which can be

easily converted into cash. 8% of investor were invested with the objective

of getting tax benefits.

4.11 Period of investments

Duration of investment is called period of investment. Time horizon of

investment is important factor which influence the investment decision of

investor. There are two types in duration of investment that is short period

and long period. The following table and chart shows the period of

investment of the investor.

Table 4.11: Period of investment

Period of investment No. of respondents Percentage of respondents

Short term

Long term

Both

37

25

38

37%

25%

38%

Total 100 100%

Figure 4.11 Period of investment

Page 83


It’s interesting to know that many of the investors prefer to invest their

money for medium term (both) i.e. from 1-5 yrs, instead of short term or

long term.37% of investor preferred short term, 25% preferred long term.

4.12 Awareness about different investment avenues available in the

market among the sample investor

In market there are number of investment avenues are available. So in

order to know the awareness of investment avenues investigator asked about

their knowledge or awareness of some particular investment avenues. The

fallowing table shows the investors’ awareness about different investment

avenues.

Table 4.12: Awareness about different investment avenues

Investment avenues No. of respondent Percentage of

respondent

Safe/low Risk investment avenues:

Saving Account

Bank Fixed Deposits

Public Provident Fund

National Saving Certificate

Post office Saving

Government securities

96

61

32

23

68

19

96%

61%

32%

23%

68%

19%

Moderate Risk Investment Avenues

Mutual Funds

Life Insurance

Debentures

Bonds

27

79

17

17

27%

79%

17%

17%

Page 84


High Risk Investment Avenues

Equity Share Market

Commodity Market

FOREX Market

56

19

12

56%

19%

12%

Traditional Investment Avenues:

Real Estate (Property)

Gold/ Silver

Chit Funds

56

19

12

56%

19%

12%

Emerging Investment Avenues

Virtual Real Estate

Hedge Funds

Private Equity Investments

Art and Passion

22

10

23

16

22%

10%

23%

16%

The above table shows that awareness of sample investor about

investment avenues available in the market. Among the safe investment

avenues 96% of sample investor have aware about saving account and 61%

of sample investor are aware about bank fixed deposits. 32% of investors are

aware about public provident fund.

Among the moderate risk investment avenues 79% of investors have aware

about life insurance and 27% of investors are aware about mutual funds.

17% of investors are aware about the debentures and bonds.

Among the high risk investment avenues 56% of investors are aware

about the equity share market and 19% of investors are aware about

commodity market. Only 12% of investors are aware about FOREX market.

Among Traditional investment avenues 56% of investors have awareness

about real estate and 19% of investors are aware about investment in gold or

silver. Only 12% of investors have awareness about chit funds.

Page 85


Among emerging investment avenues 22% of investor are aware about

virtual real estate and 10% of investors are aware about hedge funds and

23% of investors are aware about private equity investments.16% of

investors have knowledge about art and passion.

4.13 Preferable investment sector

Generally investors are very much concerned about in which sector

should invest their funds. In market there are many sectors are there for

investment like banking sector, Insurance sector, IT sector and FMCG sector

and other sector. Investors were invested their fund by considering trend in

different sector. In order to know the preference of investor in different

investment sector investigator asked about their preference in different

sector.

Table 4.13: Investors’ preferable investment sector

Investment Sector No. of respondent Weights Ranking

Banking Sector

Insurance Sector

IT Sector

FMCG Sector

Other Sector

90

38

22

10

6

54.22

22.89

13.25

6.02

3.62

1

2

3

4

5

Total 166 100

Page 86


Figure 4.12 Preferable investment sectors

Table 4.13 shows the preferable investment sector of sample investors,

investors are given option to select one or more preferable investment sector,

since there may be one or more answers, weights are given for each

parameter bases on the votes given by investors, the maximum weightage

represents many investor have that as preferable investment sector. Based on

the weights calculated ranks are given in the order of maximum weightage

given by investors. First rank given to banking sector because majority

investor opinions that investment in banking sector is safer. Here majority of

sample investors are come under below 1lakh annual income so their first

preference is safety therefore they preferred for banking sector. The second

preference is given by the investor is given to insurance sector. Investor may

be planning for life insurance and health insurance therefore their second

preference is given to insurance sector. IT sector and FMCG sector are

occupied third and fourth ranks in the minds of sample investor.

From the above chart it clearly understood that 90 respondent showed

interest in invest their fund in banking sector and 38 investors and 22

investors were preferred to invest insurance and IT sector respectively.10

Page 87


investors were preferred to invest in FMCG sector and 6 investors were

preferred invest other sectors.

4.14: Factor influencing the investment decision

The investor has various alternative avenues of investment for his

savings to flow, in accordance with his preferences. Savings are invested in

assets depending mainly on their return, liquidity and risk characteristics.

There are some factor which influences their investment decision like return,

safety, diversification, progressive value and maturity period etc. To know

the major factor which influences the investment decision investigator asked

about factors which guide investment decision.

Table 4.14: Factors guiding investment decision

Factors which influence

investment decision

No. of respondents Weights Ranking

Return

Safety of principle

Diversification

Progressive value

Maturity period

Other factors

57

76

12

13

12

8

32.02

42.70

6.74

7.30

6.74

4.49

2

1

4

3

4

5

Total 178 100

Page 88


Figure 4.13 Factors guiding investment decision

When the investor asked about the factors considering before investment

many of them have voted for more than one factor therefore weights are

given for each parameter bases on the votes given by investors the maximum

weightage represents many investor influenced by many factor before

investing. Based on the weights calculated ranks are given in the order of

maximum weightage given by investors. First rank (with 42.70%weights) is

given to safety of principal and 2nd to return (with 32.02% weights).This data

shows that the sample investor give preference to safety and return which is

contradictory in nature. 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. 3rd and 4th rank is given to

progressive value and diversification and maturity period respectively. Few

investors’ investment decisions were influenced by other factors.

4.15 Frequency of investment

Frequency of investment means how often investment was made by the

investor. Generally the frequency of investment is depending on various Page 89


factor like total income, time and other factor. So in order to know the

frequency of investment the investigator asked about the frequency of

investment.

Table 4.15: Frequency of investment.

Frequency of investment No. of respondent Percentage of

respondent

Daily

Monthly

Occasionally

7

36

57

7%

36%

57%

Total 100 100%

Figure 4.14 Frequency of Investment

Due to the busy life schedule, many of the investors are not able to spend

time in monitoring their investments, only 7% of the investors are

monitoring their investments daily, 36% are monitoring on a monthly basis,

57%, the majority investors are monitoring their investment occasionally.

Many of them who have invested in safe investment avenues do not bother

Page 90


about their investments, some of them forget about the investment for many

years.

4.16: Risk tolerance level of investor

Risk tolerance is the degree of variability in investment returns that an

individual is willing to withstand. Risk tolerance is an important component

in investing. An individual should have a realistic understanding of his or her

ability and willingness to stomach large swings in the value of his or her

investments. So in order to know the risk tolerance level a question was

asked about their risk tolerance level.

Table 4.16: Risk tolerance level of investor

Risk tolerance level No. of respondent Percentage of respondent

High

Moderate

Low

43

28

29

43%

28%

29%

Total 100 100%

Page 91

http://www.investopedia.com/terms/s/swing.asp

http://www.investopedia.com/terms/i/investing.asp

http://www.investopedia.com/terms/v/variability.asp


Figure 4.15 Risk tolerance level of investor

The above chart shows that 43% of investors are ready to take high risk

and 28% of investors have moderate risk tolerance level and 29% of

investors have low risk tolerance level.

4.17 Sources of investment advice

With a bit of information, you can gather a wealth of knowledge. So it is

necessary to investor to have the knowledge about investment avenues

before investing particular investment avenue. For this purpose investor goes

for various sources in order get best investment advice. So in order to know

the sources of investment advice investigator asked about their sources of

investment advice.

Table 4.17: Sources of investment advice

Sources of investment

advice

No. of respondent Percentage of respondent

Media

Advisor

Family or Friend

14

19

15

14%

19%

15%

Page 92


Internet

Financial Planners

7

45

7%

45%

Total 100 100%

Figure 4.16 Sources of investment advice

“Stock market discount everything” therefore investors have to get

information or advice in order to survive in the market; therefore they get

advice from various sources. 45% of investors were getting the advice from

financial planners because they don’t want take any risk therefore they go for

financial experts. 19% of investors were getting the investment advice from

the advisor. 15% of investors are getting investment advice from their family

or friends because of easy availability. 14% of investors are getting

investment advice from the media. 7% of investors were getting advice from

internet.

4.18 Satisfaction level about their investment

An investment satisfaction means how investment of individual investor

meets or surpasses his or her expectation in terms of return or growth. To

know the satisfaction level of individual investor investigator asked about in

Page 93


what level they satisfied with their investment. The following table and chart

shows the satisfaction level of individual investor.

Table 4.18: Satisfaction level about their investment

Satisfaction level No. of respondent Percentage of respondent

Satisfied

Partially satisfied

Dissatisfied

55

40

5

55%

40%

5%

Total 100 100%

Figure 4.17 Satisfaction level of Investments

From the above table and chart it clearly shows that 55% of investors

were satisfied with their investment. 40% of investors were partially satisfied

with their investment and 5% of investors were dissatisfied with their

investment.

I. INVESTMENT PREFERENCE BASED ON OCCUPATION

Table 4.19: Preferred investment avenues of students

Investment avenues Votes Weights Rank

Page 94


Savings Bank account

Bank Fixed Deposits

Post office saving

Life insurance

Gold/ Silver

Real estate

Equity share market


Mutual Funds


22

11

20

16

16

12

9

14

10

6

16.18

8.09

14.71

11.76

11.76

8.82

6.6

10.29

7.35

4.44

1

7

2

3

4

6

9

5

8

10

Total 136 100

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 investor is ranked

first. First ten ranks are given to the first ten preferred investment avenues.

First preference is given to Savings and second preference is given to the

bank fixed deposits. Tenth preference is given to National saving certificate.

Table 4.20: Preferred investment avenues of Home maker

Investment avenues Votes Weights RankPage 95


Gold/Silver

Life insurance


Bank Fixed Deposits


Post office saving

Real estate

Government Securities

National Saving certificate

Mutual Fund

Equity Share market

Debenture

9

7

6

6

5

5

5

4

3

2

1

1

16.67

12.96

11.11

11.11

9.26

9.26

9.26

7.41

5.55

3.70

1.85

1.85

1

2

3

4

5

6

7

8

9

10

11

12

54 100

Here home maker voted many investments as their preference according

highest vote certain weights are assigned. On the basis weights ranks are

given which states their preference. First ranks are given to investment in

gold and second ranks given to life insurance and 8 th ranks are given to

govern securities. Here important point which we should noted that they

invested in safest or low risk avenues.

Table 4.21: Preferred investment avenues of Self employed/ Business

people

Investment avenues Votes Weights RankPage 96


Life insurance

Bank fixed deposits

Real estate


Gold/ Silver

Equity share market

Public Provident fund

Post office saving

Government securities

Mutual funds

Debenture

Private equity investment

Virtual real estate

21

19

17

16

15

14

12

12

11

9

5

3

2

13.46

12.18

10.90

10.26

9.6

8.97

7.69

7.69

7.05

5.77

3.2

2

1.23

1

2

3

4

5

6

7

8

9

10

11

12

13

156 100

Even though business people were rich and risk taker but from the above

table we can observed that they invested in life insurance, bank fixed

deposits. Real estate is one of the oldest investment avenues which acquired

3rd rank in the preferable investment avenues of self employed or business

people. 6th rank is given to the public provident fund and 10th and 11th ranks

are given to the mutual funds and debenture respectively.

Table 4.22: Preferred investment avenues of employees

Page 97



Equity Share market


Real estate

Life insurance

Gold / Silver

Bank fixed deposits


Public Provident fund

Bonds

Debenture

Mutual funds

National Savings certificate


17

16

16

14

12

9

9

8

6

5

4

2

2

14.16

13.33

13.33

11.67

10

7.5

7.5

6.67

5

4.17

3.33

1.67

1.67

1

2

3

4

5

6

7

8

9

10

11

12

13

120 100

Employees are earning regular income therefore they invested in some

risky investment avenues and expected higher return. First rank is given to

the equity share market and 7th rank is given to the private equity investment.

10th and 11th ranks are given to bonds and debenture. 13th rank is given to the

government securities which is more safety investment avenues.

Table 4.23: Preferred investment avenues of retired persons

Page 98



Life insurance

Bank fixed deposits

Public provident fund

National saving certificate

Saving bank account

Post office saving

Gold/Silver

8

7

5

5

4

2

1

25

21.875

15.625

15.625

12.5

6.25

3.125

1

2

3

4

5

6

7

Total 32 100

Retired persons always planned for their old age life. So in order to lead

the old age life with comfort they invested in such investment avenues which

gives benefits after retirement. So first rank is given to life insurance and

second rank is given to bank fixed deposits. 4 th rank is given to the National

saving certificate.

Table 4.24: Preferred investment avenues of overall


Life insurance

Saving Account

Gold/Silver

Bank fixed deposits

Real estate


Equity Share Market

Post Office Savings

Mutual Funds


66

64

53

52

50

44

41

39

25

17

13.25

12.85

10.64

10.44

10.04

8.83

8.23

7.83

5.02

3.41

1

2

3

4

5

6

7

8

9

10

Page 99




Debenture

Bonds

Virtual Real estate

16

12

11

6

2

3.21

2.41

2.02

1.20

0.62

11

12

13

14

15

Total 498 100

While considering overall votes of sample investor the preferable

investment avenues were as the above. Interestingly the first rank is given to

the life insurance because everybody much cares about their life. The second

preference was given to the saving account. Even though real estate is

traditional investment avenues it positioned 5th rank in preferable investment

avenues. Majority of sample investor were below income level so debenture

positioned 13th rank in preferable investment avenues. Government securities

which are less risky and less return when compared to the equity and it

positioned 10th rank in preferable investment avenues. Public provident fund

positioned 6th rank in preferable investment avenues.

II. Investment preference based on marital status

Page 100


Table 4.25 Preferred investment avenues of married people


Saving account 28 15.38 1

Public provident fund 26 14.29 2

Life insurance 26 14.29 3

Post office saving 22 12.08 4

Gold/Silver 21 11.54 5

Bank Fixed deposits 20 10.99 6

Debentures 14 7.69 7

National Saving Certificate 12 6.59 8

Government securities 9 4.95 9

Equity share market 4 2.20 10

182 100

The above table shows that preferred investment avenues of married

people.28 investors preferred to invest in saving account and 26 investors

preferred to invest in public provident fund. Investment in gold/silver

occupied 5th rank in preferable investment avenues of married people.

National saving Certificate positioned 8th rank and government securities

positioned 9th rank in preferable investment avenues of married people.

Equity share market investment positioned 10th rank in preferable investment

avenues of married people.

Table 4.26 Preferred investment avenues of unmarried peoplePage 101



Life insurance

Saving Account

Gold/Silver

Bank fixed deposits

Real estate


Equity Share Market

Post Office Savings

Mutual Funds


40

38

32

32

30

18

17

17

16

13

15.81

15.02

12.65

12.65

11.86

7.11

6.72

6.72

6.32

5.14

1

2

3

4

5

6

7

8

9

10

Total 253 100

The above table shows that first rank positioned by life insurance and

second rank positioned by saving account. Gold/silver occupied 3rd rank in

the preferred investment avenues of unmarried people. Mutual funds and

Government securities positioned last two places from the point of view of

unmarried people as preferable investment avenues.

Table 4.27 Preferred investment avenues of investor those who having

children




Gold /silver 28 20 3

Post office saving 26 18.57 4


Total 140 100

Page 102


The above table shows that preferred investment avenues of investor

those who having children. First rank is given to the life insurance and

second position occupied by saving account. 4th and 5th rank are given to the

post office saving and public provident fund respectively.

Table 4.28 Preferred investment avenues of investor those not having

children




Bank fixed deposits 26 17.93 3

Real estate 21 14.48 4


Total 145 100

The above table shows that preferred investment avenues of investor

those not having children. The preferred investment avenues of married

people and unmarried people are more or less similar. The first rank

positioned by life insurance and second rank positioned by saving account.

3rd rank occupied by bank fixed deposits. 4th and 5th ranks are given to real

estate and public provident fund.

Page 103


HYPOTHESIS TESTING:

1. Ho : There is no significant relation between risk tolerance level and

gender

H1 : There is significant relation between risk tolerance level and

gender

Table 4.29 Hypothesis Testing

Gender

Risk

tolerance

level

Male Female Total

High 35 8 43

Moderate 19 9 28

Low 8 21 29

Total 62 38 100

Source: Primary DataChi-Square Test

O E O-E ( O-E)2 ( O-E)2/E

35 26.56 8.34 69.5 2.61

19 17.36 1.64 2.69 0.15

8 17.98 -9.98 99.60 5.54

8 16.34 -8.34 69.56 4.26

9 10.64 -1.64 2.69 0.25

21 11.02 9.98 99.6004 9.04

ᵡ2 21.85

X-squared = 21.851, df = 2, p-value = 0.00001799

Interpretation: Tabulated value of chi square at 5% level of significance

and 2 degree of freedom is 5.991 and the calculated value is 42.502. On the

other hand the p-value is 0.00001799 with level of significance 0.05; here p-

value is less than level of significance.

Page 104


Result: Calculated value is more than tabulated value therefore null

hypothesis is rejected.

Conclusion: There is significant relationship between gender and risk

tolerance level.

GRAPHICAL REPRESENTATION OF THE DATA

Figure 4.18 Risk tolerance level and gender

Above chart clearly explains that male investors (35) take high risk when

compared to female investor (8) .In additions to these male investors (19)

also take moderate risk. Female investors are low risk takers may be because

of earning low income or other economical problems. And important point is

that there is significant relationship between risk tolerance level and gender.

Male investors were take high risk than the female investor.

Page 105


2. H0 : There is no significant relation between risk tolerance level and age

group.

H1 : There is significant relation between risk tolerance level and age

group.


Age group ( in years )

Below

20

Between

20-30

Between

30-40

Between

40-50

Above

50

Total

Risk

Toleranc

e

Level

High 4 32 4 1 2 43

Moderate 1 13 10 1 3 28

Low 0 8 3 9 9 29

Total 5 53 17 11 14 100

Source: Primary Data

Chi-Square Test

O E O-E ( O-E)2 ( O-E)2/E

4 2.15 1.85 3.42 1.59

1 1.4 -0.4 0.16 0.11

0 1.45 -1.45 2.10 1.45

32 22.79 9.21 84.82 3.72

13 14.84 -1.84 3.39 0.23

8 15.37 -7.37 54.32 3.53

4 7.31 -3.31 10.96 1.50

10 4.76 5.24 27.46 5.77

3 4.93 -1.93 3.72 0.75

1 4.73 -3.73 13.91 2.99

Page 106


1 3.08 -2.08 4.33 1.41

9 3.19 5.81 33.76 10.58

2 6.02 -4.02 16.16 2.68

3 3.92 -0.92 0.85 0.22

9 4.06 4.94 24.40 6.01

ᵡ2 42.502

X-squared = 42.502, df = 8, p-value =0.00000109







Conclusion: There is significant relationship between age group and risk

tolerance level.


Page 107


Figure 4.19 Risk tolerance level and age group

From the above chart we can understood that there is significant

relationship between age group and risk tolerance level and age group. Age

group below 20 years were take less risk because more of this class people

were not earning their own money and also they were not much knowledge

about investment avenues. So they don’t go for risky investment avenues

they invested in savings bank account and post office savings account. Age

group between 20-30 years were very much risk takers because they are

young and earning their own income and they have capacity to bear any

losses occurred from their investment .Age group between 40-50years were

risk avoiders. Important point is that there is significant relationship between

risk tolerance level and age group. When age group increases the risk

tolerance level decreases.

3. H0 : There is no significant relation between risk tolerance level and

income level.

H1 : There is significant relation between risk tolerance level and income

level.Page 108



Income level (Rs.)

Below

1lakh

Between

2lakh-3lakh

Between

3lakh-5lakh

Above

5lakh

Total

Risk

Tolerance

Level

High 21 4 9 9 43

Moderate 7 15 4 2 28

Low 22 2 4 1 29

Total 50 21 17 12 100

Chi-Square Test

O E O-E (O-E)2 ( O-E)2/E

21 21.5 -0.5 0.25 0.0116

7 14 -7 49 3.5

22 14.5 7.5 56.25 3.88

4 9.03 -5.03 25.3009 2.802

15 5.88 9.12 83.17 14.14

2 6.09 -4.09 16.73 0.027

9 7.31 1.69 2.86 0.39

4 4.76 -0.76 0.5776 0.121

4 4.93 -0.93 0.8649 0.175

9 5.16 3.84 14.7456 2.86

2 3.36 -1.36 1.8496 0.55

1 3.48 -2.48 6.1504 1.767

30.223

X-squared = 30.223, df = 6, p-value =0.00001073

Page 109








Conclusion: There is significant relationship between income level and risk

tolerance level.


Figure 4.20 Risk tolerance level and Income level

The above chart shows that there is mix opinion in risk tolerance level of

investor those come under below one lakh income level. But chi-square test

proved that there is significant relationship between income level and risk

Page 110


tolerance level. Therefore as and when income level increases the risk

tolerance level also increases. But in this case there is opposite opinion that

low income people take high risk. This may be because number of low

income group people is higher than high income people. But p-value proved

that happening of these type of circumstances are minor and negligible.

Above 5 lakh income level people take higher risk when compared to people

come under between 3lakh-5lakh income level group and between 2lakh and

3 lakh income levels.

Note: In chi-square test expected frequency is calculated with the fallowing

formula,

Expected frequency = (Total of the correspondent column X Total of the

correspondent row) / Grand total

FINDINGS, SUGGESTIONS AND CONCLUSION

FINDINGS:

After the analysis of collected data investigator has listed the major

findings are study is listed below:

1. Majority of the respondents (62%) are male.

2. Most of the respondents (53%) are of the age group 20-30years.

3. Most of the respondents are self employed (23%) and fallowed by

students (22%).

4. Most of the respondents (50%) are having an Income level below 1lakh

followed by respondents having income level 1lakh-2lakhs (21%).

5. 42% of respondents are married and 58% of respondents are

unmarried.

6. 34% of respondents are having children.

7. Majority of the respondents (47%) are saves only 20% of their total

Page 111


income and 40% of respondents are saves between 20-40% of their

total income.

8. Interesting point found that majority of respondents (60%) is investing

only 20% of their savings.

9. Most investors opt for two or more sources of information to make

investment decisions.

10.The main purpose of sample investors is to finance the education either

for self or for their family member.

11.Most of the investors discuss with their family and friends before

making an investment decision.

12.Most Investors prefer to park their funds in avenues like Savings

account, Life insurance, FD, Gold and Real Estate.

13.Most of the investors get their information related to investment

through electronic media (TV) next to print media (News paper/

Business news paper/ Magazines)

14.Percentage of income that they invest depend on their annual income,

more the income more percentage of income they invest.

15.Majority of respondents (38%) preferred to invest both short term and

long term period of investment.

16.96% of respondents are aware about the savings account and only 12%

of respondents are aware about the FOREX market.

17.27% of respondents are aware about mutual funds and 56% of

respondents have the knowledge about equity share market.

18.Majority of respondents (90%) are preferred to invest in banking

sector.

19.Majority of respondents are opinions that safety of principle is main

factors guiding investment decision.

20.Majority of investors (57%) are like to invest on occasionally.

21.Majority of respondents (55%) are satisfied with their investment.

Page 112


22.Women are attracted towards investing gold than any other investment

avenue. Students are interested towards investing in saving account and

employees preferred to invest in equity share market. Retired people

preferred to invest in life insurance.

23.Investment preference of married people different from investment

preference of unmarried people. Married people invest on low and

moderate risk avenues but unmarried people invest on high and

moderate risk avenues.

24.Investment preference of investors those who having children are more

similar to the preference of investor those who are not having children.

25.There is significant relation between gender and risk tolerance level.

26.There is significant relation between age group and risk tolerance level.

27.There is significant relation between income level and risk tolerance

level.

SUGGESTIONS:

The following suggestions are based on the individual investors’

response which may be considered by the policy markers, the finance

institutions and the investors.

1. While investing on shares, the investors must consider a variety of

factors comprise of appropriate portfolio constructions to maximize

the return and minimize the risk. Thus, the investors should always

invest their money in different companies by subscribing its shares

rather than investing in a particular company.

2. Some business people know the awareness about investment avenues

but most of the respondents they don’t have sufficient knowledge.

Financial institutions should create awareness about available avenues

for investment and have to tell the people what is the meaning of risk

and how it could be mitigated.

Page 113


3. Government should stress the financial institutions to conduct investor

guidance workshops about available avenues for investment.

4. Financial sector i.e., banking, financial services and life insurance

industries will have to work with government.

5. There is a need for financial literacy and instilling confidence among

investors.

6. Industry associations and NGOs to educate the investor on the need

for savings and savings wisely

7. They should also educate the Indian population both on ways of

meeting their financial objectives through financial protection and

wealth creation.

8. To overcome the problem faced by the investors, adequate policy

reforms in financial sector is the need of the hour.

9. Government should introduce special investment avenues especially

for the students and organize investment awareness programmes in

colleges.

10.The investors who want to avoid risk should invest in treasury notes or

high rated municipal bonds and debentures etc.

CONCLUSIONS:

The study concludes that investment done in various investment avenues

with the expectation of capital appreciation and short and long term earnings.

The basic idea behind investment of all government, private, self-employed

and retired person in this study is to utilize the surplus money in favorable

plans so that the money will be rolled back as well as it will give high returns

also. When a common men thinks about investment he will never go for any

risky plan. In the present scenario the share and gold market is highly

uncertain and unpredictable, so the investor should analyze the market

cautiously and then make investment decision.Page 114


In order to understand irrational behaviors of investors in the investment

decisions, a risk perception mediated model has been developed to test the

impact of different behavioral variables on the investment decisions. On the

basis of previous studies it can be concluded that the asymmetry of

information, risk taking behavior and decision context affect the perceptions

of risk associated in a particular investment situation.

Considering risk propensity as an influential factor, it is valid to believe

that a risk-averse individual is more likely to avoid risky decisions than a

risk-seeking individual, who is more likely to make risky decisions.

Psychological studies have shown that risk perception can be greatly

influenced by the framework in which investors are when they make

investment decisions. Thus it can be said that stock market and investment

situation influences the perceived risk of the investor; especially, information

asymmetry is retained as an important explanatory factor of risk perception.

Flow of information like decisions made by government bodies, media news

etc. causes the stock prices to move up or down. Due to this behavior of

stock market and due to new information, stock investors make their

investment decisions. The study can be further expanded in the future by

using various other behavioral and psychological factors such as heuristics,

emotional biases etc which may have behavior.

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.

Page 115


BIBLIOGRAPHYBooks

1. Avadhani, V.A. (2007), “Investment Management”, Himalayan

Publishing Publication House, New Delhi.

2. Bhole, L.M. (2005), “Financial Institutions & Markets structure,

Growth & Innovations”, Tata McGraw- Hill Publishing Co. Ltd., New

Delhi.

3. Dr. Preeti Singh, Investment Management, Himalaya Publishing

House, sixteenth edition, 2008

4. Prasanna Chandra, Investment analysis and portfolio management, 3rd

edition, Tata McGraw-hill publication, 2010

Journals:

Page 116


1. Ajmi Jy. A. (2008), “Risk Tolerance of Individual Investors in an

Emerging Markets”, International Research Journal of Finance and

Economics, Issue 17, 15-26.

2. Al-Tamimi, H. A. (2006). Individual Investor Behaviour: An

empirical study of the UAE Financial Markets”,. The Business

Review, Cambridge, 5(2), 225 - 232.

3. Desigan et al. (2006), “Women Investor’s Perception towards

Investment: An empirical study”, Indian Journal of Marketing.

Retrieved from: http://www. google.com.(accessed on 22nd May

2010)

4. Dohmen, T. F. (2005). Individual Risk, attitudes. New evidence from

a large representative, experimentally - validated survey,. discussion

paper, institute of economic research, DIW Berlin 511, Berlin.

5. Sahoo J. Shankar (2012)., “Customer Perception Towards Secondary

Market Trading In India”, International Journal of Business and

Management Tomorrow, Vol. 2 No. 3,

6. Shafi, H. et al. (2011), “Relationship between Risk Perception and

Employed Investment Behavior”, Journal of Economics and

Behavioral Studies, Vol. 3, No. 6, December 2011, pp 345-355

7. Singh, B. K. and Jha, A.K. 2009, “An empirical study on awareness &

acceptability of mutual fund”, Regional Students Conference, ICWAI,

49-55.

8. Singh, R. and A. Bhowal, 2008. Risk Perception.The Theoretical

Kaleidoscope. Vanijya, 18: 54-63.

9. Singh, R. and A. Bhowal, 2010. Risk Situations Perception of

Employees with Respect to Journal of Finance, Equity Shares. Journal

of Behavioral Finance,. 11(3): 177-183.

Page 117


10.Sultana Syed Tabbassum (2010) “An empirical study of Indian

Individual Investor Behaviour,” Global Journal of Finance and Mgt.”

Vol 2 No.1, 19-33

Websites:

1. www.business-standard.com

2. www.investopedia.com

3. www.investorguide.com

4. www.moneycontrol.com

5. www.moneymanagementideas.com

6. www.msnmoney.com

QUESTIONNAIRE

Respected Respondent,I Abhinandan, student of M.Com studying in Mangalore University.

As a part of my curriculum I am doing project on “A study on investors’ perception towards investment avenues with reference to Mangalore city”. So please take some time out of your schedule to fill this questionnaire.

Kindly fill up the following questionnaire.

1 Name (Optional):

2. Gender

Male

FemalePage 118

http://www.msnmoney.com/

http://www.moneymanagementideas.com/

http://www.moneycontrol.com/

http://www.investorguide.com/

http://www.investopedia.com/

http://www.business-standard.com/


3. Age Group :( in years)

Below 20

Between 20-30

Between 30-40

Between 40-50

Above 50

4. Status

Single

Married

5. Children

Yes

No

6. Occupation (what category do you come under)StudentHome MakerSelf employed(Business/profession)Employee (Government/Private)RetiredOther(please specify)

7. Annual Incomes

< 1,00,000

1-2 Lakhs

2-3 Lakhs

Above 3 Lakhs

8. Percentage of savings from your total income:

Below 20%

Between 20-40%

Between 40-60%

Above 60%

9. Percentage of investment in different avenues from your saving:

Page 119


Below 20%

Between 20-40%

Between 40-60%

Above 60%

10. Purpose of your Investment:

Education

Home Purchase

Healthcare

Marriage

Retirement Planning

Other (please specify)…………………………………………

11. Main objective of your Investment:

High return

Moderate return

Safety of investment principle

Liquidity

Tax benefits

12. Preferable period of investment?

Short term

Long term

Both

13. Are you aware of the fallowing investment avenues? (Tick which ever

applicable in the boxes)

Page 120

Safe/low Risk investment avenues :Saving AccountBank Fixed DepositsPublic Provident FundNational Saving CertificatePost Office savingGovernment Securities.

Moderate Risk Investment Avenues:Mutual Funds Life InsuranceDebenturesBonds

High Risk Investment AvenuesEquity Share MarketCommodity MarketFOREX Market

Traditional Investment Avenues:Real Estate (Property)Gold/ SilverChit Funds

Emerging Investment Avenues :Virtual Real EstateHedge FundsPrivate Equity InvestmentsArt and Passion


14. What do you think are the best option for investing your money?

(Choose from above list)

(Rank in the order of preference)

1…………………… 2…………………… 3………………………

4…………………… 5…………………… 6 ………………………

15. In which sector do you prefer to invest your money?

Banking Sector

Insurance Sector

IT Sector

FMCG Sector

Other (please specify)……………………………………….

16. Important factor guiding your investment decisions:

Return

Safety of principle

Diversification

Progressive value

Maturity period

Other…………………………..

17. How often do you monitor your investment?

Daily

Monthly

Page 121


Occasionally

18. Tolerance for risk is:

High

Moderate

Low

19. Sources of your investment advice:

Media

Advisor

Family or Friend

Internet

Financial Planners

20. Are you satisfied with your investment?

Satisfied

Partially satisfied

Dissatisfied

Page 122

Investor Relations

investors' perception towards investment avenues with reference to mangalore city