[2012]

An Analysis of Investors behavior towards

various Investment Avenues in India

Dhruv Bahl

16005

Rohit Kirar

16051

Resham Dang 15951

BFIA 3
SHAHEED SUKHDEV COLLEGE OF BUSINESS
STUDIES

Acknowledgement
We extend our sincere gratitude and thanks to Dr. Kumar Bijoy and Ms. Vibhuti Vasisht for their
guidance while making this project.

TABLE OF CONTENTS
o Introduction
o Industry profile
o Description of various investment
o Data analysis and interpretation
o Hypothesis
o Observations & Findings
o Summary

o Conclusion
o

Annexure Questionnaire

o Bibliography

INTRODUCTION
Savings form an important part of the economy of any nation. With the savings invested in

various options available to the people, the money acts as the driver for growth of the country.
Indian financial scene too presents a plethora of avenues to the investors. Though certainly not
the best or deepest of markets in the world, it has reasonable options for an ordinary man to
invest his savings.

One needs to invest and earn return on their idle resources and generate a specified sum of
money for a specific goal in life and make a provision for an uncertain future.
One of the important reasons why one needs to invest wisely is to meet the cost of inflation.
Inflation is the rate at which the cost of living increases.
The cost of living is simply what it cost to buy the goods and services you need to live.
Inflation causes money to lose value because it will not buy the same amount of a good or
service in the future as it does now or did in the past. The sooner one starts investing the better.
By investing early you allow your investments more time to grow, whereby the concept of
compounding increases your income, by accumulating the principal and the interest or
dividend earned on it, year after year.
The three golden rules for all investors are:
Invest early

Invest regularly
Invest for long term and not for short term
The purpose of the analysis is to determine the investment behaviour of investors and
investment preferences for the same.

INDUSTRY PROFILE
Indian financial industry is considered as one of the strongest financial sectors among
the world markets. Many industry experts may give various reasons for such Indian financial

industry reputation, but there is only one answer which no one can deny, is the effective
control and governance of the country s supreme monetary authority the RESERVE BANK OF
INDIA(RBI).

Financial sector in India has experienced a better environment to grow with the

presence of higher competition. The financial system in India is regulated by independent

regulators in the field of banking, insurance, mortgage and capital market.
Government of India plays a significant role in controlling the financial market in India.
Ministry of Finance, Government of India controls the financial sector in India. Every

year the finance ministry presents the annual budget on 28th February. The Reserve Bank of
India is an apex institution in controlling banking system in the country. Its monetary policy
acts

as

major

weapon

in

India's

financial

market.

Various governing bodies in financial sector:

1. RBI - Reserve Bank of India is the supreme authority and regulatory body for all the
monetary transactions in India. RBI is the regulatory body for various Banking and Non
Banking financial institutions in India.
2. SEBI - Securities and Exchange Board of India is one of the regulatory authorities
for

India's capital market.

3. IRDA - Insurance regulatory and development authority in India regulates all the
insurance companies in India.

4. AMFI - Association of mutual funds in India regulates all the mutual fund
companies in
India.

5. FIPB - Foreign investments promotion board regulates all the foreign direct
investments made in India.

Ministry of housing is planning to establish a real estate regulatory and

governing body by the end of financial year 2010 - 11.

Investments in gold is governed by the world gold council, in India we do not

have any regulatory authority for investments in gold. Ministry of Finance, Government of
India has a control over all the financial bodies in India. Government securities, Public

Provident Fund (PPF), National Savings Certificat (NSC), Post Office Savings are all under the
control of the central government.
Investment are normally categorized using the risk involved in it, risk is
dependent on various factors like the past performance, its governing body,
involvement of the government etc., in this scenario Indian investments are
classified in to 3 categories based on risk. They are
1. Low Risk/ No Risk Investments.
2. Medium Risk Investments.
3. High Risk Investments.

Apart from these, there are traditional investment avenues and emerging
investment avenues.

DESCRIPTION OF VARIOUS INVESTMENT

AVENUES
SAVINGS ACCOUNT
As the name denotes, this account is perfect for parking your temporary savings. These
accounts are one of the most popular deposits for individual accounts. These accounts provide
cheque facility and a lot of flexibility for deposits and withdrawal of funds from the account.

Most of the banks have rules for the maximum number of withdrawals in a period and the

maximum amount of withdrawal, but no bank enforces these. However, banks have every right
to enforce such boundaries if it is felt that the account is being misused as a current account. At

present the interest on these accounts is regulated by Reserve Bank of India. Presently Indian
banks

are

offering

3.50%

p.a.

interest

rate

on

such

deposits.

This account gives the customer a nominal rate of interest and he can withdraw money
as and when the need arises. The position of account is depicted in a small book known as 'Pass

Book'. Such accounts should be treated as a temporary parking area because the rate of interest
is much less than Fixed Deposits. As soon as one s savings accumulate to an amount which he

can spare for a certain period of time, shift this money to Fixed Deposit. The returns on the

money kept in Savings Bank account will be less but the freedom to withdraw is the highest.

FIXED DEPOSITS/ TERM DEPOSITS

The term "fixed" in Fixed Deposits denotes the period of maturity or tenor. Fixed

Deposit, therefore, pre plans a length of time for which the depositor decides to keep the money
with the Bank and the rate of interest payable to the depositor is decided by this tenure. Rate of
interest differs from Bank to Bank. Normally, the rate is highest for deposits for 3-5 years. This,
however, does not mean that the depositor loses all his rights over the money for the duration
of the tenor decided. Deposits can be withdrawn before the period is over.

However, the amount of interest payable to the depositor, in such cases goes down.
Every Banks offer fixed deposits schemes with a wide range of tenures for periods from
7 days to 10 years. Therefore, the depositors are supposed to continue such Fixed Deposits for
the duration of time for which the depositor decides to keep the money with the bank.
However, in case of need, the depositor can ask for closing the fixed deposit in advance by

paying a penalty. Soon some banks have even introduced variable interest fixed deposits. The
rate of interest in such deposits will keep on varying with the prevalent market rates i.e. it will
go up if market interest rate goes and it will come down if the market rates fall.
Tax deduction: Banks should deduct tax at source on interest paid in excess of Rs. 5000 per

annum to any depositor. This is not per deposit but per individual. Therefore if an individual
has 5 deposits and the aggregate interest earned on these is Rs. 7000 though in each individual

deposit, interest should not exceed Rs. 2000, tax must be deducted at source.

PUBLIC PROVIDENT FUND (PPF)

PPF is a 30 year old constitutional plan of the Central Government happening with the
objective of providing old age profits security to the unorganized division workers and self

employed persons. Currently, there are almost 30 lakhs PPF account holders in India across

banks

and

post

offices.

Eligibility: Any individual salaried or non-salaried can open a PPF account. He may also

pledge on behalf of a minor, HUF, AOP and BOI. Even NRIs can open PPF account. A person can

contain only one PPF account. Also two adults cannot open a combined PPF account. The
collective annual payment by an individual on account of himself his minor child and

HUF/AOP/BOI (of which individual is member) cannot exceed Rs.70, 000 or else the excess
amount

will

be

returned

without

any

interest.

Subscription: The yearly contribution to PPF account ranges from a least of Rs.500 to a

maximum of Rs.70, 000 payable in multiple of Rs.5 either in lump sum or in convenient
installments,

not

exceeding

12

in

year.

Penalty in case of non-subscription: The account will happen to obsolete if the required
minimum of Rs.500 is not deposited in any year. The amount before now deposited will
continue to earn interest but with no facility of taking loan or making withdrawals. The
account can be regularized by depositing for each year of default, arrears of Rs.500 along with
penalty

of

Rs.100.

Where to open: A PPF account can be opened at any branch of State Bank of India or its
subsidiaries or in few national banks or in post offices. On opening of account a pass book will
be issued wherein all amounts of deposits, withdrawals, loans and repayment together with
interest due shall be entered. The account can also be transferred to any bank or post office in
India.
Interest rate: Deposits in the account earn interest at the rate notify by the Central Govt from
time to time. Interest is designed on the lowest balance among the fifth day and last day of the
calendar month and is attributed to the account on 31st March every year. So to derive the
maximum, the deposits should be made between 1st and 5th day of the month, as it also
enables

you

to

earn

interest

on

your

Savings

Bank

A/c

for

the

previous

month.

Tenure: Even though PPF is 15 year scheme but the effectual period works out to 16 years i.e.
the year of opening the account and adding 15 years to it. The sum made in the 16th financial
year

will

not

earn

any

interest

but

one

can

take

advantage

of

the

tax

rebate.

Withdrawal: The investor is allowable to make one removal every year beginning from the
seventh financial year of an amount not more than 50% of the balance at the end of the fourth
year or the financial year immediately preceding the withdrawal, whichever is less. This facility
of making partial withdrawals provide liquidity and the withdrawn amount can be used for any
purpose.

NATIONAL SAVINGS CERTIFICATE (NSC)

National

Savings

Certificate

(NSC)

is

fixed

interest,

long

term

instrument

for

investment. NSCs are issued by the Department of Post, Government of India. Since they are
backed by the Government of India, NSCs are a practically risk free avenue of investment. They
can be bought from authorized post offices. NSCs have a maturity of 6 years. They offer a rate
of return of 8% per annum. This interest is calculated every six months, and is merged with the
principal. That is, the interest is reinvested, and is paid along with the principal at the time of
maturity. For every Rs. 100 invested, you receive Rs. 160.10 at maturity. NSCs qualify for investment
under Section 80C of the Income Tax Act (IT Act). Even the interest earned every year qualifies under
Sec 80C. This means that investments in NSCs and the interest earned on it every year, up to Rs. 1 Lakh,
are deductible from the income of the investor. There is no tax deducted at source (TDS).
Features of NSC
- Minimum investment Rs. 500/- No maximum limit.
- Rate of interest 8% compounded half yearly.
- Rs. 1000/- grow to Rs. 1601/- in six years.
- Two adults, Individuals, and minor through guardian can purchase.
- Companies, Trusts, Societies and any other Institutions not eligible to purchase.
- Non-resident Indian/HUF cannot purchase.
- No pre-mature encashment.

POST OFFICE SAVINGS

There are various investment schemes available in post offices, like KVP (Kisan Vikas
Patra), MIS (Monthly Income Scheme) and various others. All these schemes are completely
risk-free, and you do not need to have large sum of money to start investing in these post office
schemes. Some schemes offer Tax-saving benefits and some gives tax-free returns. So you need
to

find

out

some

scheme

as

per

your

requirements.

These are some of the safe and secure investments that you can opt for. Though the interest
rates are not so high, but still you must invest some part of your money into any of these

investment instruments. It is your hard-earned money, so better play safe and invests some part
in secure funds also.

GOVERNMENT SECURITIES (G-secs)

Government securities (G-secs) are supreme securities which are issued by the Reserve Bank of
India on behalf of Government of India in lieu of the Central Government's market borrowing
program.

The term Government Securities includes:

Central Government Securities.
State Government Securities
Treasury bills

The Central Government borrows funds to finance its 'fiscal deficit'. The market
borrowing of the Central Government is increased through the issue of dated securities and

364 days treasury bills either by auction or by floatation of loans. In addition to the above,
treasury bills of 91 days are issued for managing the temporary cash mismatches of the

Government. These do not form part of the borrowing program of the Central Government.
Features
- Issued at face value

- No default risk as the securities carry sovereign guarantee.

- Ample liquidity as the investor can sell the security in the secondary market
- Interest payment on a half yearly basis on face value
- No tax deducted at source
- Can be held in Demat form.

- Redeemed at face value on maturity

- Maturity ranges from of 2-30 years.
- Securities qualify as SLR investments (unless otherwise stated).
Benefits of Investing in Government Securities
- No tax deducted at source

- Additional Income Tax benefit u/s 80L of the Income Tax Act for Individuals
- Qualifies for SLR purpose

- Zero default risk being sovereign paper

- Highly liquid.

- Transparency in transactions and simplified settlement procedures through CSGL/NSDL.

MUTUAL FUNDS

A mutual fund is a professionally-managed firm of collective investments that pools

money from many investors and invests it in stocks, bonds, short-term money market
instruments, and/or other securities. In a mutual fund, the fund manager, who is also known as
the portfolio manager, trades the fund's underlying securities, realizing capital gains or losses,

and collects the dividend or interest income. The investment proceeds are then passed along to
the individual investors. The value of a share of the mutual fund, known as the net asset value
per share (NAV), is calculated daily based on the total value of the fund divided by the number
of

shares

currently

issued

and

outstanding.

Advantages of Mutual Funds

1. Diversification

2. Professional Management
3. Regulatory oversight
4. Liquidity
5. Convenience

6. Transparency
7. Flexibility
8. Choice of schemes
9. Tax benefits
10. Well regulated

11. Drawbacks of Mutual Funds

Following are the few drawbacks of Mutual Funds:
1. No Guarantees

2. Fees and commissions

3. Taxes

4. Management risk

LIFE INSURANCE
Life insurance is a contract between the policy owner and the insurer, where the insurer
agrees to pay an amount of money upon the happening of the insured individual's or

individual's death or other event, like terminal illness, critical illness. In return, the policy
owner agrees to pay a fixed amount called a premium at regular intervals or in bulge sum.

Like other insurance policies, life insurance is also a contract between the insurer and
the policy owner whereby a benefit is paid to the nominated beneficiaries if an insured event

occurs which is covered by the policy. The assessment for the policyholder is derived not from
an actual claim event. But to a certain extent it is the value derived from the 'peace of mind'

experienced by the policyholder, because of the negating of adverse financial consequences

caused by the death of the Life Assured. To be a life policy the insured event must be based
upon

the

lives

of

the

people

named

in

the

policy.

Advantages of a Life Insurance Policy

1. Financial Security

2. Helps to divert States Resources for Other Purpose

3. Facilitates Economic Movements
4. Helps to Avail Tax Exemptions

BONDS & DEBENTURES

Bonds & Debentures, these two words can be used interchangeably. In Indian markets,
we use the word bonds to indicate debt securities issued by government, semi-government
bodies and public sector financial institutions and companies. We use the word debenture to
refer

Bonds

to
-

Debentures

the

Debt
-

debt

securities

securities

Debt

issued

securities

issued

by

issued

by

by

Govt.

or

private

sector

companies.

private

sector

companies

Public

sector

companies

In other words we can tell that a bond is a debt security, similar to an I.O.U. When you
purchase a bond, you are lending money to a government, municipality, corporation, or Public

entity known as the issuer. The issuer promises to pay you a specified rate of interest during the
life of the bond, in return for the loan. They also promises to repay the face value of the bond
(the

principal)

when

it

matures.

Following are allowed to issue bonds

Governments

Municipalities
Variety of institutions
Corporations

Buying and Holding of Bonds: Investors can subscribe to primary issues of Corporates and
Financial Institutions (FIs). It is common practice for FIs and Corporates to raise funds for asset
financing or capital expenditure through primary bond issues. Some bonds are also available in
the secondary market. The minimum investment for bonds can either be Rs 5,000 or Rs 10,000.

However, this amount varies from issue to issue. There is no prescribed upper limit to your
investment. The duration of a bond issue usually varies between 5 and 7 years.
Selling of Bonds: Selling bonds in the secondary market has its own drawbacks.

First, there is a liquidity problem which means that it is a tough job to find a buyer. Second,
even if you find a buyer, the prices may be at a sharp discount to its intrinsic value. Third, you
are subject to market forces and, hence, market risk. If interest rates are running high, bond
prices will be down and you may well end up incurring losses. On the other hand, Debentures
are

always

secured.

Debentures
A debenture is similar to a bond except the securitization conditions are different. A

debenture is generally unsecured in the sense that there are no liens or pledges on specific
assets. It is defined as a certificate of agreement of loans which is given under the company's
stamp and carries an undertaking that the debenture holder will get a fixed return (fixed on
the basis of interest rates) and the principal amount whenever the debenture matures.
Debentures vs. Bonds:
Debentures and bonds are similar except for one difference bonds are more secure than
debentures. In case of both, you are paid a guaranteed interest that does not change in value
irrespective of the fortunes of the company. However, bonds are more secure than debentures,
but carry a lower interest rate. The company provides collateral for the loan.

STOCK MARKET

The first step is to understand the stock market. A share of stock is the smallest unit of
ownership in a company. If you own a share of a company s stock, you considered as the part
owner

of

the

company.

Stock Market Trading

Stock market trading consists of buying and selling of company stocks and as well as

stock derivatives. This type of trading usually takes place in a stock exchange, in which
companies need to be listed in order for their shares to be bought and sold. This trading market
provides with substantial earnings potential and is one among the most popular investment
options.

Working of Stock Market

Stock market trading is normally done by brokers. As a result, the first step is to seek a
reliable investment broker. Stock market trading occurs at a physical stock exchange, where
buyers and sellers of company shares meet and agree on the price at which the transactions
would

materialize.

Conventional stock trading entails an investor placing an order for a specific number of
shares of a company with his/her broker present in the physical stock market. The broker
forwards the order to the floor clerk, who then attempts to locate a trader desire to sell those
shares. Bids are then exchanged. The transaction closes only after the buyer agrees on the price
quoted by the seller. This technique is also called open outcry, because it involves traders
crying

out

their

bids.

Stock market trading will also takes place online. This procedure is much quicker and

less complicated than trading in the physical stock market. Online stock market trading
engrosses the real time placement of buying and selling orders for stocks. The transaction is
accomplished when the trading system is capable to match bids and a confirmation is received.
Benefits of Stock Market Trading
1. It promotes economic growth.

2. It helps companies raise capital and handle financial issues.

3. It ensures that money is invested in businesses to enhance profit potential.
4. It helps investors realize substantial profits.
Drawbacks of Stock Market Trading:

1. It proposes lower leverage than other forms of trading, such as Forex trading.
2. The short selling of stocks is hard, because stock prices do not appreciate significantly in a
short span of time. Accordingly, there is a wait period before you can book healthy profits.
3. It is traded for limited hours in a day.

COMMODITY TRADING
The terms commodities and futures are often used to depict commodity trading or
futures trading. It is similar to the way stocks and equities are used when investors talk

about the stock market. Commodities are the actual physical goods like gold, crude oil, corn,
soybeans, etc. Futures are contracts of commodities that are traded at a commodity exchange
like MCX. Apart from numerous regional exchanges, India has three national commodity
exchanges namely, Multi Commodity Exchange (MCX), National Commodity and Derivatives
Exchange (NCDEX) and National Multi-Commodity Exchange (NMCE). Forward Markets
Commission

(FMC)

is

the

regulatory

body

of

commodity

market.

It is one of a few investment areas where an individual with limited capital can make
extraordinary profits in a relatively short period of time. Many people have become very rich
by investing in commodity markets. Commodity trading has a bad name as being too risky for
the average individual. The fact is that commodity trading is only as risky as you want to make
it.
Those who treat trading as a get-rich-quick scheme are likely to lose because they have to take
big risks. If you act carefully, treat your trading like a business and are willing to settle for a
reasonable

return,

the

possibility

of

success

is

very

high.

The course of trading commodities is also known as futures trading. Unlike other kinds
of investments, such as stocks and bonds, when you trade futures, you do not really buy
anything or own anything. You are speculating on the future direction of the price in the

commodity you are trading. This is like a bet on future price direction. The terms "buy" and
"sell" merely indicate the direction you expect future prices will move. If, for example, you were
speculating in wheat, you would buy a futures contract if you thought the price would be

going up in the future. You would sell a futures contract if you thought the price of wheat

would go down. For every trade, there is always a buyer and a seller. Neither person has to own

any wheat to participate. But he has to deposit sufficient capital with a brokerage firm to insure
that he will be able to pay the losses if his trades lose money.

Working of Commodity Market: Commodity Market works Just like stock futures. When you
buy Futures, you don't have to pay the entire amount, just a fixed percentage of the cost. This is
known as the margin. Let's say you are buying a Gold Futures contract. The minimum contract

size for a gold future is 100 Gms. 100 gms of gold may be worth Rs. 1,50,000. The margin for
gold

set

by

MCX

is

3.5%.

So

you

only

end

up

paying

Rs

5,250.

The low margin means that you can buy futures representing a large amount of gold by
paying only a fraction of the price. So you bought the Gold Futures contract when it was Rs.

1,50,000 per 100 gms. The next day, the price of gold rose to Rs 1,60,000 per 100 gms. Rs

10,000 (Rs 1,60,000 - Rs 1,50,000) will be credited to your account. The following day, the
price dips to Rs 1,55,000. Rs 5000 will get debited from your account (Rs 1,60,000 - Rs
1,55,000).

FOREX MARKET
Forex trading is the immediate trade of one currency and the selling of another.
Currencies are traded through an agent or dealer and are traded in pairs. For example Euro
(EUR),

US

dollar

(USD),

British

pound

(GBP)

or

Japanese

Yen

(JPY).

Here you are not buying anything physical; this type of trading is confused. Think of
buying a currency as buying a share of a particular country. When you purchase say Japanese
Yen, you are in effect buying a share in the Japanese financial system, as the price of the
currency is a direct reflection of what the market thinks about the current and future health of

the Japanese economy. In common, the exchange rate of a currency versus other currencies is a
reflection of the condition of that country's financial system compared to the other countries
financial

system.

Unlike other financial markets like the New York Stock Exchange, the Forex spot market
has neither a physical location nor a central exchange. The Forex market is measured an Over-

the-Counter (OTC) or Interbank market, due to the fact that the entire market is run
electronically within a network of banks continuously over a 24-hour period.
Until the late 1990's only the big guys could play this game. The first requirement was
that you could trade only if you had about ten to fifty million bucks to start with Forex.

Forex was initially intended to be used by bankers and large institutions and not by small guys.
However because of the rise of the Internet, online Forex trading firms are now able to offer

trading accounts to 'retail' traders. All you need to get started is a computer, a high-speed
Internet

connection,

and

the

information.

The foreign exchange market is exclusive because of the following reasons;

- Its trading volumes

- The tremendous liquidity of the market

- Its geographical dispersion
- Its long trading hours

- The variety of factors that affect exchange rates.

- The low limits of profit compared with other markets of fixed income but profits
can be high due to very great trading volumes

- The use of leverage

Benefits of Forex Trading
1. Forex is the largest market.
2. No Bulls or Bears!
3. Forex trading online offers great leverage
4. Forex prices are predictable.

5. Forex trading online is commission free

6. Forex trading online is instant.

REAL ESTATE AS AN INVESTMENT OPTION

The growth curve of Indian economy is at an all time high and contributing to the

upswing is the real estate sector in particular. Investments in Indian real estate have been
strongly taking up over other options for domestic as well as foreign investors.

The boom in the sector has been so appealing that real estate has turned out to be a
convincing investment as compared to other investment vehicles such as capital and debt

markets and bullion market. It is attracting investors by offering a possibility of stable income
yields, moderate capital appreciations, tax structuring benefits and higher security in
comparison

to

other

investment

options.

A survey by the Federation of Indian Chambers of Commerce and Industry (FICCI) and
Ernst & Young has predicted that Indian real estate industry is poised to emerge as one of the

most preferred investment destinations for global realty and investment firms in the next few
years. The potential of India's property market has a revolutionizing effect on the overall

economy of India as it transforms the skyline of the Indian cities mobilizing investments
segments ranging from commercial, residential, retail, industrial, hospitality, healthcare etc.
But maximum growth is attributed to its growth from the booming IT sector, since an estimated
70

per

cent

of

the

new

construction

is

for

the

IT

sector.

Real estate industry research has also thrown light on investment opportunities in the

commercial office segment in India. The demand for office space is expected to increase
significantly in the next few years, primarily driven by the IT and ITES industry that requires
an projected office space of more than 367 million sq ft till 2012-13.

INVESTMENT IN GOLD
Gold has got lot of emotional value than monetary value in India. India is the largest
consumer of gold in the world. In western countries, you can find most of their gold in their
central banks. But in India, we use gold mainly as jewels. If you look at gold in a business sense,
you will understand that gold is one of the all time best investment tool. My dear readers,
today

would

like

to

discuss

on

investments

in

gold

and

its

potential.

Indian Gold Market Current Scenario:

Size of the Gold Economy: more than Rs. 30,000 crores
Number of gold jewelry manufacturing units: 1,00,000
Number of people employed: 5,00,000

Gems & Jewellery constitute 25% of Indias exports about 10% of our import bill
constitute gold import.

Number of banks allowed importing gold: 15 (While recently this has been liberalized,
detailed notification is awaited)

Official estimates of the stock of gold in India: 9,000 tons

Unofficial estimates of the stock of gold in India: 12,000 - 14,000 tons

Gold held by the Reserve Bank of India: 358 tons
Gold production in India: 2 tons per annum.
Demand for gold in the Indian Market:

India has the highest demand for gold in the world and more than 90% of this gold is
acquired in the form of jewellery. Following are the factors influencing the demand for gold.
The movement of gold prices is one of the important variables determining demand for gold.

The increase in the irrigation, technological change in agriculture (through mechanization and
high yielding varieties), have generated large marketable surplus and a highly skewed rural

income distribution is another factors contributing to additional demand for gold.

Supply of Gold: The main economic effects that arise from the changes in the supply of gold

can be seen against the quantum of gold that is already in existence in the economy. The supply
of gold is not up to the requirements as the production of gold is also coming down and
demand

for

gold

is

going

up

very

sharply.

Gold as an Investment Option:

Gold as an investment tool always gives good returns, flexibility, safety and liquidity to
the investors. Therefore as a financial consultant my advice to you all is, kindly allocate a

portion of your portfolio for gold investments. Practice the habit of buying at least one gram of
gold every month.

EMERGING INVESTMENT AVENUES

According to a study undertaken jointly by Merrill Lynch, Cap Gemini, and Ernst &
Young, High Net worth Individuals [HNIs] or wealthy investors are proactive in portfolio

management, risk management, consolidation financial assets and use of diversification

strategies as actively as large institutions. HNIs are proactive in identifying new investment
options and take inputs from professional advisors in volatile market conditions.
HNIs are dynamic in modifying their asset allocation and were among the first investors

to move from equities to fixed income during 2001-2002 period of downturn in equity
markets.
They

shifted

back

to

equities

when

they

identified

favorable

market

Investment products and avenues

Managed products: Managed product service is the most popular investment strategy
adopted by wealthy investors globally

Real Estate: Wealthy investors have found this asset class very attractive and have

trends.

invested directly in real estate and indirectly through real estate investment trusts.
Art and passion: Wealthy investors also have their investment in art, wine, antiques,
and collectibles

Precious Metals: Gold and other precious metals are attractive investment options to
balance the asset allocation

Commodities: Wealthy investors have turned to commodities to offset the lower

returns from fixed income securities.
Alternative investments: Hedge funds and Private equity investments such as venture
funds are becoming increasingly popular with wealthy investors to reduce the investment risks
related to stock market fluctuations. This is because these instruments have low correlation
with equity asset class performance. Investment in non correlated assets, such as commodities helps to
improve diversification of the portfolio amidst volatile market conditions.

INVESTMENT IN ART
Today, we find that an increasing number of individuals are looking at alternative

investments, which provide them with a diversification away from a particular asset class.
People are willing to invest and looking for areas other than the stock market for investing.
Investing in the vintage wine, coins, stamps and Art, is now an indulgence which gives them an
opportunity to cash in on their hobbies, without having the level of expertise that is required
for

other

direct

investments.

Art is being incorporated into the investor's overall asset allocation decision. The art
scene around the world is growing significantly. With more and more investors looking at art
as an alternative asset class and a store of a long term value, average annual art valuations
have outpaced average annual stock market valuations by more than three times since 2000.

HEDGE FUNDS
Over the last 15 years, hedge funds have become increasingly popular with high net

worth individuals, as well as institutional investors. The number of hedge funds has risen by
about 20% per year and the rate of growth in hedge fund assets has been even more rapid.
A hedge fund is a private investment fund, charging a performance fee and is open to

only a limited number of investors. These funds are like mutual funds, which collect money
from investors and use the proceeds to buy stocks and bonds. They can invest on almost any

type of opportunity; in any market where in good returns are expected with low risk levels.

Hedge Fund Risks:

- Lack of transparency
- Limited liquidity

- Difficulty accessing quality hedge funds

- Unreliable or incomplete return data
- Valuation risk

- Asymmetrical nature of Hedge fund returns distributions [SKEW]

- Counterparty risk [Leverage]

PRIVATE EQUITY INVESTMENTS

Is the most important funding source in the entrepreneurial marketplace? Private
equity investments contribute to the funding of around 25 times the number of businesses the
venture

capitalists

fund

each

year.

Private equity investments are usually derived from a high net-worth individual who
represents an essential source of funding for early stage, high-risk ventures. It is estimated that

one-seventh of the 300,000 + start/early growth firms in the US receive funding from angel
investors. This translates into over $20 billion of investment in approximately 50,000 deals
each year. This investment group exceeds venture capital sources which are estimated at $5 $7 billion spread over 1,000 venture capital investments each year.
A typical profile of a private equity investor:

- Is someone that prefers to invest within one day of travel?

- Is very well educated
- Tends to invest collectively within a group of other private equity investors
- Usually invests within the dollar range of $10,000 - $500,000, averaging $230,000
- Makes one investment every two years

- Private equity investors have proven to be the single most important players in the
entrepreneurial marketplace. Private capital investors fund thirty to forty times as many
entrepreneurial companies as the entire venture capital industry and estimates put the total
amount between $20 - $60 billion annually.

DATA ANALYSIS &

INTERPRETATION
Analysis in this report:
An analysis is made on the responses received from 100 sample investors. The objective
of the report is to find out the investors behaviour on various investment avenues, to find out
the

needs

of

the

current

and

future

investors.

The questionnaire contains various questions on the investor s financial experience,

based on these experiences an analysis is made to find out a pattern in their investments.
Based on these investment experiences of the 100 sample investors an analysis is made

and interpretations are drawn. Interpretations are made on a rational basis, these
interpretations may be correct or may not be correct but care is taken to draw a valid and
approvable

interpretation.

Analysis is made only from the information collected through questionnaires no other
data or information is taken in to consideration for purpose of the analysis.

Interpretation:
Table above shows, that 58 (58%) of the investors are men and the rest 42(42%) are
females. Generally males bear the financial responsibility in Indian society, and therefore they
have to make investment (and other) decisions to fulfill the financial obligations.
When it comes to age, it was found that 35% are young and significant number under
the age group of 20 30. 35% of them are in the age group of 30 to 40. 30% of them are above
40

years

of

age.

There

are

no

investors

below

20

years

of

age.

Nearly 52% of the investors belong to the salaried class, 22% were business class, 14%
were

professionals,

11%

were

housewives

and

the

rest

were

retired.

It was found that irrespective of annual income they earn all the investors interested in
investments since today s inflated cost of living is forcing everyone to save for their future

needs,

and

invest

those

saved

resources

efficiently.

39(39%) of the individual investors covered in the study are postgraduates; 46(46%)

investors are graduates and 7(7%) of the investors are under-graduates, and 8(8%) investors
are categorized as others who are either illiterates, had less education than under graduation
or who are more qualified than post graduates. It is interesting to note that most investors
(covered in the study) can be said to possess higher education (Bachelor Degree and above),
and this factor will increase the reliability of conclusions drawn about the matters under
investigation.

37(37%) of the investors are earning less than 2 lakhs per annum, 31(31%) investors are

earning between 2 lakhs and 4 lakhs, 18(18%) investors are earning between 4 lakhs and

6Lakhs, 14(14%) investors are earning more than 6 lakhs per annum. Since most of the
investors are below 4 lakhs annual earnings, many of them are non risk takers.
TABLE: INVESTORS WILLING TO LOSE PRINCIPAL AMOUNT

Interpretation: Since many of the investors annual earnings are below 2 lakhs and 4
lakhs,
many of them do not take the risk of losing their principal investment amount. 95% of the

sample investors are not ready to lose their principal investment amount. 5% are ready to take
risk of losing their principal up to certain extent.

Interpretation: It is interesting to know that many of the investors prefer to invest their
money for medium term i.e. from 1 5 yrs, instead of short term or long term. 10% preferred
short term, 60% preferred medium term, and 30% preferred long term.

Interpretation: Due to the busy life schedule, many of the investors are not able to spend
time

in monitoring their investments, only 17% of the investors are monitoring their investments
daily, 35% are monitoring on a monthly basis, 41% , the majority investors are monitoring their
investments occasionally. Many of them who have invested in safe investment avenues do not
bother about their investments, some of them forget about the investments for many years.

Out of the total sample investors only 70% of the investors invest in equity share market
through their DEMAT A/C, 30% of the investors never invested in equity shares. The investors

who invest in equity share market are asked another question, what would they do if the stock
market falls immediately after their investment, many of them replied that they would wait till

the market increases instead of selling them at a loss, very few answered that they would
average the investment by buying some more shares.

73% of the sample investors had a monthly family budget for their daily expenditure.

27% of the investors replied they never thought of having a budget calculation, and few think
of having a budget but never implemented so far. Many people with excess money never cared
to make any family budgets.

It is interesting to know that almost same proportion of investors have different

thoughts, 48% of the investors have an investment target every year, and 52% of the investors
do not go for any targets for investment. On personal questioning many of the investors who

had an investment target every year are not able to reach their targets due to contingent
expenses. Few investors invest regularly but never thought of having a target every year.

77% of the investors never had a financial advisor, they never approached an advisor for their

financial needs, the reason may be inadequate income and excess expenditure, and there
wouldnt be surplus money to worry about. 23 % of the investors have financial advisors, who
manage their investments.

The above table shows the savings objectives of the sample investors, investors are given
option to select one or more savings objectives, since there may be one or more answers,
weights are given for each parameter bases on the votes given by the investors, the maximum
weight age represents many investors have that as main objective. Based on the weights

calculated ranks are given in the order of maximum weightage given by investors. First rank is
given to children s education, many investors feel that, investing money for the future of the

Childs education is very important than any other need. Many of the investors are in the age

group of 20 30 and 30 40 as of now they are thinking of saving for their children s marriage.
So children s marriage is given last rank. After children s education investors are saving for
their own health care. There is a greater need for Indians to save for their health care who are

living a mechanical life. Retirement and home purchase are given subsequent ranks after
health care.

All the investors have very common purposes for investing, they have more than one

purpose for investing their money. Salaried people invest for tax savings, and for future
expenditure, business people invest for the purpose of earning returns. Almost all the investors
have all the 4 purposes behind investing their money.

When the investors are asked about the factors considering before investment many of
them have voted for safety of principal and low risk. First rank is given to safety of principal
and second to low risk. Here there are some contradicting results, some investors expect high
returns at a very low risk, and this is not possible in practical Indian investment avenues.
Investment believes in a proved principle, higher the risk higher the returns, lower the risk
lower the returns . Investors need to know about this principle before investing.

Independent Variables and Dependent Variables

There are total four independent variables
1. Age group

2. Occupation

3. Qualification
4. Annual income

There can be many dependent variables like

1. Level of risk tolerance

2. Percentage of income that can be invested

3. Time period that can be taken for investments

4. Savings objectives

5. Investment preference.

These independent variables can be compared with any dependent variables for finding the
relations

between

the

parameters.

In our analysis we have taken occupation category for comparison with dependent variable

investment preference and age group comparing with the dependent variable level of risk
tolerance.

Below are the demographics of the sample investors based on the category
occupation.

ASSUMPTION
As a part of the analysis we have assumed that preference for investment avenues is dependent
on the occupation of the investor. Hence preferred investment avenue are derived from the
demographics of the sample investor based on occupation.

Since the investor has an option to invest in more than one Investment Avenue, weights are
given on the basis of preference to investment avenues. The avenue which is given maximum
weightage by the investors is ranked first. First Ten ranks are given to the first ten preferred

investment avenues. First preference is given to life insurance, second to investing in gold, third
to bank fixed deposits. Tenth preference is given to bank savings account

Thinking of the business people is almost same to that of salaried people, both are
similar in preferring insurance and bank fixed deposits, but given third preference to real
estate. Gold is given 5th place here. Last place is given to national savings certificates

There is not much difference in the preferences of professionals when compared to salaried
and business people. Professionals does not prefer mutual funds (7th rank), where salaried and

business people prefer at 4th place. Professionals are more interested in post office savings

rather than mutual funds. As business people professionals also prefer bank fixed deposits in
the first place, then life insurance. Professionals does not prefer national saving certificates at
all, eliminated it from the top 10.

Indian housewives love gold as much as themselves. Housewives have given first rank to gold
pushing insurance and bank fixed deposits to second and third place. House wives gave least
preference to mutual funds. They are more attracted to traditional investment avenues like
gold, real estate, post office savings and chit funds.

HYPOTHESIS
Increase in Age decreases the Risk tolerance level.
Relation between Age and risk tolerance

Level of risk tolerance dependent on the age of the investor.

Risk tolerance of an investor shows a negative relation to the age of that investor

Lower the age higher the risk capabilities, higher the age lower the risk capabilities.

LEVEL OF RISK TOLERANCE WITH RESPECT TO AGE GROUP

For the purpose of analysis investors are placed under three categories.
1. Low risk category
2. Medium risk
3. High risk
Classification is done based on three factors
1. Past investments of the investor.
2. Investor experience in investing( level of experience).
3. Investor preference for investments.
First the total sample of 100 is divided in to 3 age groups.
Investors in each age group are classified in to 3 risk categories based on the above factors.

OBSERVATIONS:
Observations from table
We find that 49% of Investors between the age group of 20 30 came under medium risk
category, where as the percentage of investors who came under medium risk in the age group

of 30 40 has decreased to 32%. It still came down in the case of investors in the age group of
40 above, which is only 20%. We can see a decreasing trend in the behaviour of investors
towards

medium

risk

when

their

age

increased.

37% of the investors in the age group of 20 30 are in the low risk category, where as
Investors under the age group 30 40, 57% came under the low risk category, there is a large

increase in the investors who came under low risk category in this age group. It has further
increased, 70% of the investors in the age group above 40 came under the low risk category.

We can see an increasing trend with respect to low risk category as the age increases.
Same observations are arrived at, when comparing the high risk category with respect
to the age groups. As the age increases the level of risk tolerance is coming down. 14% came

under the high risk category under the age group 20 30, when it came to age group above 40
above

only

10%

came

under

the

high

risk

category.

Attributes Risk Tolerance Level Age -0.74

When Karl Pearsons correlation coefficient is calculated, it is found to be -0.74 by which
we can conclude that there is a strong negative correlation between Age and Risk tolerance.

Age accounts for the major differences in risk taking decisions by the investors. The older an
investor, the better seemed his/her performance in comparison to the younger ones. Overconfidence in their own investment ability among the youngsters largely accounts for the
excessive trading among younger investors leading to lower returns and this direct to decline
in the risk tolerance level.

FINDINGS:
1.The study reveals that male investors dominate the investment market in India.
2. Most of the investors possess higher education like graduation and above.

3. Majority of the active and regular Investors belong to accountancy and related
employment, non-financial management and some other occupations are very few.
4. Most investors opt for two or more sources of information to make investment
decisions.

5. Most of the investors discuss with their family and friends before making an investment
decision.

6. Percentage of income that they invest depend on their annual income, more the income
more percentage of income they invest.

7. The investors decisions are based on their own initiative.

8. The investment habit was noted in a majority of the people who participated in the
study.

9. Most Investors prefer to park their funds in avenues like Life insurance, FD, Gold and

Real Estate.
10. Most of the investors get their information related to investment through electronic
media (TV) next to print media (News paper/ Business news paper/ Magazines)
11. Most of the investors are financial illiterates.

12. Increase in age decrease the risk tolerance level.

13. Women are attracted towards investing gold than any other investment avenue.

SUMMARY

This report is a reflection of the behaviour of various categories of investors.

Selection of a perfect investment avenue is a difficult task to any investor. An effort is made to

identify the tastes and preferences of a sample of investors selected randomly out of a large
population. Despite of many limitations to the study I was successful in identifying some

investment patterns, there is some commonness in these investors and many of them
responded

positively

to

the

study.

This report concentrated in identifying the needs of current and future investors,
investor s preference towards various investment avenues are identified based on their

occupation. Investors risk in selecting a particular avenue is dependent on the age of that
investor.

CONCLUSION
This study confirms the earlier findings with regard to the relationship between Age and
risk tolerance level of individual investors. The Present study has important implications for
investment managers as it has come out with certain interesting facets of an individual
investor. The individual investor still prefers to invest in financial products which give risk free

returns. This confirms that Indian investors even if they are of high income, well educated,
salaried, independent are conservative investors prefer to play safe. The investment product
designers can design products which can cater to the investors who are low risk tolerant and
use TV as a marketing media as they seem to spend long time watching TVs.

Questionnaire

1. Are you aware of the following investment avenues? (Tick which ever applicable in the
boxes).

Safe/Low Risk Investment Avenues:

Savings Account.

 Bank Fixed Deposits.

Public Provident Fund.

National Savings Certificates.
Post Office Savings.

Government Securities.

Moderate Risk Investment Avenues:

Mutual Funds.

Life Insurance.
Equity Share Market.
Commodity Market.
FOREX Market.

Traditional Investment Avenues:

Real Estate (property).
Gold/Silver.
Chit Funds.

Emerging Investment Avenues:

Virtual Real Estate.
Hedge Funds.

Private Equity Investments.

Art and Passion. Debentures.

Bonds.

2. What do you think are the best options for investing your money? (choose from above list)

(Rank in the order of preference)

1.___________________________________ 2.___________________________________
3.______________________________________
4.___________________________________ 5.___________________________________
6.______________________________________
3. Reasons for selecting these options :
1_________________________________________________________________________________
2_________________________________________________________________________________
4. In the past, you have invested mostly in (write as many as applicable)
_____________________________________________________________________________________________
_____________________________________________________________________________________________
5. In which sector do you prefer to invest your money?
Private Sector Government Sector Public Sector Foreign Sector
6. What are the important factors guiding your investment decisions? (Return, safety of
principal,diversification, progressive values, etc.)?
____________________________________________________________________________________________
High Risk Investment Avenues:
7. What are your savings objectives?

 Children s Education Retirement Home Purchase Children s Marriage Healthcare

others_______________________________________________________________

8. What is your investment objective?

Income and Capital Preservation Long-term Growth Growth and Income short-term Growth
Others________________________________________________________________________________________
_________

9. What is the purpose behind investment?

Wealth Creation Tax Saving Earn Returns Future Expenses

Others________________________________________________________________________________________
________

10. Have you set aside funds specifically for the education and marriage of your children?
If yes, please give amounts and how the funds are held Education: Amount

Rs.__________________________________ invested in ________________________________ Marriage:

Amount Rs.__________________________________ invested in ________________________________
11. Do you have a formal budget for family expenditure?
Yes No

12. Do you have a savings and investment target amount you aim for each year?

Yes if yes: Amount_______________________________________________________________________ No

13. At which rate do you want your investment to grow?
Steadily At an Average Rate Fast

14. Which factor do you consider before investing?

Safety of Principal Low Risk High Returns Maturity Period

15. Do you invest your money in share market? (through a DEMAT A/C)
Yes No

If yes: Imagine that stock market drops after you invest in it then what will you do?
Withdraw your money Wait to increase Invest more in it
16. How often do you monitor your investment?
Daily Monthly Occasionally

17. What percentage of your income do you invest?

0-15% 15-30% 30-50%

18. What is the time period you prefer to invest?

Short-term (0-1yrs) Medium-term (1-5yrs) Long-term (>5yrs)

19. Can you take the risk of losing your principal investment amount?
Yes No If yes: What percentage ________________________
20. What is your source of investment advice?

Newspapers News Channels Family or Friends Books Internet Magazines Advisors Certified
Market Professional/Financial Planners

BIBILIOGRAPHY
www.tax4India.com
www.economictimes.Indiatimes.com

www.business-standard.com
www.Indiamoney.com

www.moneymanagementideas.com
www.savingwala.co