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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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Investors’ perception towards investment avenues
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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Investors’ perception towards investment avenues
were classified; tabulated and tested Statistical inferences were drawn by the
use of Hypothesis and Pearson's Chi-square technique.
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Investors’ perception towards investment avenues
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,
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Investors’ perception towards investment avenues
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Investors’ perception towards investment avenues
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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Investors’ perception towards investment avenues
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
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Investors’ perception towards investment avenues
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.
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.
B. Psychological Factors:
There are four important psychological factors affecting the consumer
buying behavior. These are: perception, motivation, learning, beliefs and
attitudes.
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Investors’ perception towards investment avenues
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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Investors’ perception towards investment avenues
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.
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Investors’ perception towards investment avenues
Greed
Hope
Selling on balance
Buying aggressively
Buying on Panic Selling on balance
balance selling
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Investors’ perception towards investment avenues
1. Return Factor:
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Investors’ perception towards investment avenues
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
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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Investors’ perception towards investment avenues
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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Investors’ perception towards investment avenues
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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Investors’ perception towards investment avenues
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.
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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Investors’ perception towards investment avenues
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.
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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Investors’ perception towards investment avenues
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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Investors’ perception towards investment avenues
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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Investors’ perception towards investment avenues
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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Investors’ perception towards investment avenues
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.
goods and services which are used in the production of goods and services
which are used in the production of other goods and services.
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.
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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:
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Investors’ perception towards investment avenues
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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Investors’ perception towards investment avenues
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Investors’ perception towards investment avenues
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,
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Investors’ perception towards investment avenues
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.
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 :
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Investors’ perception towards investment avenues
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
Disability
Critical Illness
Surgeries
Liquidity
Tax planning
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Investors’ perception towards investment avenues
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.
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.
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Investors’ perception towards investment avenues
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
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.
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Investors’ perception towards investment avenues
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%.
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Investors’ perception towards investment avenues
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.
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
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Investors’ perception towards investment avenues
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
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
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Investors’ perception towards investment avenues
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,
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Investors’ perception towards investment avenues
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.
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:
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Investors’ perception towards investment avenues
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,
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.
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Investors’ perception towards investment avenues
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
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.
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
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.
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Investors’ perception towards investment avenues
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
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
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Investors’ perception towards investment avenues
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.
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.
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Investors’ perception towards investment avenues
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.
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.
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Investors’ perception towards investment avenues
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
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Investors’ perception towards investment avenues
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Investors’ perception towards investment avenues
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Investors’ perception towards investment avenues
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Investors’ perception towards investment avenues
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 investor
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.
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Investors’ perception towards investment avenues
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
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
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Investors’ perception towards investment avenues
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Investors’ perception towards investment avenues
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
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Investors’ perception towards investment avenues
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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Investors’ perception towards investment avenues
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Investors’ perception towards investment avenues
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Investors’ perception towards investment avenues
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
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Investors’ perception towards investment avenues
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Investors’ perception towards investment avenues
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
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.
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.
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Investors’ perception towards investment avenues
respondent
Safe/low Risk investment avenues:
96 96%
61 61%
Saving Account
Bank Fixed Deposits 32 32%
Public Provident Fund
23 23%
National Saving Certificate
68 68%
Post office Saving
19 19%
Government securities
Moderate Risk Investment Avenues
Mutual Funds 27 27%
Life Insurance
79 79%
Debentures
Bonds 17 17%
17 17%
High Risk Investment Avenues
Equity Share Market 56 56%
Commodity Market
19 19%
FOREX Market
12 12%
Traditional Investment Avenues:
Real Estate (Property) 56 56%
Gold/ Silver
19 19%
Chit Funds
12 12%
Emerging Investment Avenues
Virtual Real Estate 22 22%
Hedge Funds 10 10%
Private Equity Investments 23 23%
Art and Passion 16 16%
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Investors’ perception towards investment avenues
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.
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.
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Investors’ perception towards investment avenues
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Investors’ perception towards investment avenues
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.
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.
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
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Investors’ perception towards investment avenues
about their investments, some of them forget about the investment for many
years.
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.
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Investors’ perception towards investment avenues
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
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.
Debenture 5 3.2 11
Private equity investment 3 2 12
Virtual real estate 2 1.23 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 10 th and 11th ranks
are given to the mutual funds and debenture respectively.
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
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Investors’ perception towards investment avenues
second rank is given to bank fixed deposits. 4 th rank is given to the National
saving certificate.
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Investors’ perception towards investment avenues
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
Male Female Total
High 35 8 43
Risk
Moderate 19 9 28
tolerance Low 8 21 29
level Total 62 38 100
Source: Primary Data
Chi-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
21.85
ᵡ2
X-squared = 21.851, df = 2, p-value = 0.00001799
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Investors’ perception towards investment avenues
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.
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Investors’ perception towards investment avenues
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
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
42.502
ᵡ2
X-squared = 42.502, df = 8, p-value =0.00000109
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Investors’ perception towards investment avenues
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.
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
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Investors’ perception towards investment avenues
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Investors’ perception towards investment avenues
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
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:
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%).
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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
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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.
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.
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BIBLIOGRAPHY
Books
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
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Journals:
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.
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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.
1 Name (Optional):
2. Gender
Male
Female
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Investors’ perception towards investment avenues
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
14. What do you think are the best option for investing your money?
(Choose from above list)
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