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CHAPTER-1

INTRODUCTION
There are many ways for individual investors to buy stocks, each with advantages and
disadvantages. If you want low fees, you might have to put more time managing your
investments. If you wish to outperform the market, you may pay higher fees. If you want a lot
of advice, you'll probably have to pay more as well. If you don't have much time or interest,
you might have to settle for lower results.
Perhaps the most risk is from the emotional aspect of investing. Most stock buyers get
greedy when the market is doing well. Unfortunately, this makes them buy stocks when they
are the most expensive. A poorly performing market triggers fear. That makes most investors
sell when the prices are low.
Selecting which way to invest is a personal decision. It mostly depends on your comfort
with risk It also depends on your ability (and willingness) to spend time learning about the
stock market.
MEANING
An investor is any person who commits capital with the expectation of financial returns.
Investors utilize investments in order to grow their money and/or provide an income during
retirement, such as with an annuity. A wide variety of investment vehicles exist including (but
not limited to) stocks, bonds, commodities, mutual funds, exchange-traded funds (ETFs),
options, futures, foreign exchange, gold, silver, retirement plans and real estate. Investors
typically perform technical and/or fundamental analysis to determine favorable investment
opportunities, and generally prefer to minimize risk while maximizing returns.

Definition:
An investor is an entity that commits money to a venture with an expectation of
generating a return. The type of commitment made can be in many forms, such as a guarantee
to pay creditors, a loan, an equity investment, tangible assets, or even the contribution of
labor. An investor typically makes a commitment in exchange for either a fixed return (such

as dividends or interest) or the prospect of being able to sell its investment to a third party at a
later date for a higher price than the amount of the original investment.
An investor can be an individual or a corporate entity. For example, a corporation could
contribute funds to a joint venture, in which case the corporation is an investor in the joint
venture.
Meaning of Investment
The word investment can be defined in many ways according to different theories and
principles. It is a term that can be used in a number of contexts. However, the different
meanings of investment are more alike than dissimilar.
Generally, investment is the application of money for earning more money.
Investment also means savings or savings made through delayed consumption. According to
economics, investment is the utilization of resources in order to increase income or
production output in the future. An amount deposited into a bank or machinery that is
purchased in anticipation of earning income in the long run is both examples of investments.
Although there is a general broad definition to the term investment, it carries slightly
different meanings to different industrial sectors.
Investment Definition
According to economists, investment refers to any physical or tangible asset, for
example, a building or machinery and equipment.
On the other hand, finance professionals define an investment as money utilized for
buying financial assets, for example stocks, bonds, bullion, real properties, and precious
items.
Investment definition according to finance, the practice of investment refers to the
buying of a financial product or any valued item with anticipation that positive returns will be
received in the future.

The most important feature of financial investments is that they carry high market
liquidity. The method used for evaluating the value of a financial investment is known
as valuation.
Definition of investment according to business theories, investment is that activity in
which a manufacturer buys a physical asset, for example, stock or production equipment, in
expectation that this will help the business to prosper in the long run.
The Two Types of Investments You Can Make In a Small Business
Investing in a small business is one of the most popular ways families begin the journey
to financial freedom. It isn't uncommon, at least in nations with an entrepreneurial history
such as the United States, for someone to have never owned a publicly traded share
of stock or a mutual fund, but have their own restaurant, dry cleaning business, or sporting
goods store. Frequently, this grows to represent the most important financial resource the
family owns, other than their primary residence.
In today's economy, these types of small business investments are often structured as
either a limited liability company or a limited partnership, with the former being the most
popular. In years past, sole proprietorships or general partnerships were more popular, which
provide no protection for the owners' personal assets outside of the company.
Whether you are considering investing in a small business by founding one from scratch
or buying into an existing company, there are typically only two types of positions you can
take:
1.) Equity
2.) Debt.
Equity Investments in Small Businesses
When you make an equity investment in a small business, you are buying an ownership
stake. Equity investors provide capital, almost always in the form of cash, in exchange for a
percentage of the profits and losses. The business can use this cash for a variety of things,

including funding capital expenditures to expand, reducing debt, buying out other owners,
building liquidity, or hiring new employees.
In some cases, the percentage of the business the investor receives is proportional to the
total capital he or she provides. An equity investment in a small business can result in the
biggest gains, as well as the most risk. If expenses run higher than sales, the losses get
assigned to you. A bad quarter, or year, and you might see the company fail or even go
bankrupt. However, if things go well, your returns can be enormous. Virtually all of the
research on millionaires in the United States shows that the single biggest classifications of
the millionaires are self-made business owners. If you want to rank among the top 1% of
wealth, owning a profitable business in a niche market that churns out dividends each year is
your best chance, statistically.
Debt Investments in Small Businesses
When you make a debt investment in a small business, you loan it money in exchange
for the promise of interest income and eventual repayment of the principal. Debt capital is
most often provided either in the form of direct loans with regular amortization or the
purchase of bonds issued by the business, which provide semi-annual interest payments
mailed to the bondholder.
The biggest advantage of debt is that it has a privileged place in the capitalization
structure. That means if the company goes bust, the debt has priority over the stockholders
(the equity investors). Generally speaking, the highest level of debt is a first mortgage
secured bond that has a lien on a specific piece of valuable property or an asset, such as a
brand name. For example, if you loan money to an ice cream shop and are given a lien on the
real estate and building, you can foreclose upon it in the event the company implodes. It may
take time, effort, and money, but you should be able to recover whatever net proceeds you
can get from the sale of the underlying property that you confiscate. The lowest level of debt
is known as a debenture, which is a debt not secured by any specific asset but, rather, but the
company's good name and credit.

Which Is Better: An Equity Investment or a Debt Investment?


There is no simple answer to this question. If you had been an early investor in
McDonald's and bought equity, you'd be rich. If you had bought bonds, making a debt
investment, you would have earned a decent, but by no means spectacular, return on your
money. On the other hand, if you buy into a business that fails, your best chance to escape
unscathed is to own the debt, not the equity.
All of this is complicated by an observation that famed value investor Benjamin
Graham made in his seminal work, Security Analysis. Namely, that equity in a business that
is debt-free cannot pose any greater risk than a debt investment in the same firm because, in
both cases, the person would be first in line in the capitalization structure.
The Preferred Equity Debt Hybrid
Sometimes, small business investments straddle the ground between equity investments
and debt investments, modeling preferred stock. Far from offering the best of both worlds,
preferred stock seems to combine the worst features of both equity and debt; namely, the
limited upside potential of debt, with the lower capitalization rank of equity. There are
always exceptions to the rule.
Invest In Individual Stocks
If you have ever picked up a financial magazine or spoken to a handful of financial
advisers, you know there are some pretty strong opinions about whether investors should buy
individual stocks for their portfolios or just go with a collection of low-cost index funds.
What is the difference? I thought I'd provide a brief overview to help you understand some of
the benefits and drawbacks of each school of thought.

INVESTMENT TYPES
A particular investor normally determines the investment types after having formulated
the investment decision, which is termed as capital budgeting in financial lexicon. With the

proliferation

of financial

markets there

are

more

options

for

investment

types.

According to the financial terminology investment means the following:

Purchasing Securities in Money or Capital Markets


Buying Monetary or Paper Financial Assets in Money or Capital Markets
Investing in Liquid Assets like Gold, Real Estate and Collectibles
Investors assume that these forms of investment would furnish them with some revenue by
way of positive cash flow.
These assets can also affect the particular investor positively or negatively depending on the
alterations in their respective values. Investments are often made through the intermediaries
who use money taken from individuals to invest. Consequently the individuals are regarded
as having claims on the particular intermediary.

It is common practice for the particular intermediaries to have separate legal procedures
of their own.
Types of Investment:
Capital Investment
Equity Investment
Land As Investment
Stock Investment
Retirement Investment Planning
Financial Market Investment

Share Market Investment


Portfolio Investment
Gold Investment , Investment in Gold
Business Investment
Real Estate Investment
Following are some intermediaries:
Banks
Mutual Funds
Pension Funds
Insurance Companies
Collective Investment Schemes
Investment Clubs
Investment in the domain of personal finance signifies funds employed in the purchasing
of shares, investing in collective investment plans or even purchasing an asset with an
element of capital risk. In the field of real estate, investments imply buying of property with
the sole purpose of generating income Investment in residential real estate could be made in
the form of buying housing property, while investments in commercial real estate is made by
owning commercial property for corporate purposes that are geared to generate some amount
of revenue.
Individual Private Investors
The individual private investors are also known as angel investors. These investors
provide a big portion of the business capital for the home based businesses. A part of these

investments are also made in several other firms. These investments are made for short
periods of time.
In the recent years, the stock market boom has fueled the individual private investments
also. At present, the individual private investors are investing in huge amounts in the home
based businesses with huge growth potentials. In this way, the angel investors are promoting
the home based businesses and speeding up their development. At the same time, a number of
big and established companies are also getting these investments.There are a number of home
based businessmen who wants to develop quickly and also to expand their business as much
as possible. For the purpose, any size of home based businesses can try and attract the angel
investors.
Normally these investors can invest $50,000 or even more in the businesses. At the same
time, there are a number of investors who are interested in investing their money in the
growing industries only. The individual private investors are very helpful for the businesses.
Apart from investing money, the individual investors are also a rich source of new business
connections and clients. At the same time, some of the individual investors also take part in
the business activities and play a decisive role in the businesses. The investments done by the
individual private investors are mostly made in the businesses where the products are secured
by patents. These investments are taken out from the businesses in a short span of nearly five
years. There are different types of individual private investors.
Some of these are the following:
Value Added Investors
Unaccredited Private Investor
Barter Investors
Partner Investor
Deep Pocket Investor
Manager Investor

Socially Responsible Private Investors

Five Factors or Events that Affect the Stock Market


Stock markets can be volatile, and the reasons particular stocks rise and fall can be
complex. More often than not, stock prices are affected by a number of factors and events,
some of which influence stock prices directly and others that do so indirectly. According to
stock market guru Peter Lynch, an important point to remember when investing is that There
is a company behind every stock and a reason why companies--and their stocks--perform the
way they do.
Internal Developments
Developments that can occur within companies will affect the price of its stock,
including mergers and acquisitions, earnings reports, the suspension of dividends, the
development or approval of a new innovative product, the hiring or firing of company
executives and allegations of fraud or negligence. Stock price movements will be most drastic
when these internal developments are unexpected.
World Events
Company stock prices and the stock market in general can be affected by world events
such as war and civil unrest, natural disasters and terrorism. These influences can be direct
and indirect, and they often occur in chain reactions. The social uncertainty and fear
generated by the terrorist attacks on Sept. 11, 2001, affected markets directly as they caused
many investors in the United States to trade less and to focus on stocks and bonds with less
risk. An example of an indirect influence on markets is the announcement of a new military
venture by a country in response to the outbreak of civil unrest or conflict abroad. This
announcement likely would cause the price of the stocks of military equipment and weapons
manufacturers to rise due to an expected increase in defense contracts, which in turn can raise
the value of stocks for companies that supply military equipment parts and technology. It
likely would raise the demand for, and price of, natural resources used to make these parts,
which would raise the price of stocks representing particular mining and natural resource
processing companies.

Inflation and Interest Rates


One of the more predictable influences of the stock market is periodic adjustments of
interest rates by the U.S. Federal Reserve to combat inflation. When interest rates are raised,
many investors sell or trade their higher risk stocks for government-backed securities such as
bonds to take advantage of the higher interest rates they yield and to ensure that their
investments are protected.
Exchange Rates
Foreign currency rates have a direct impact on the price and value of stocks in foreign
countries, and changes in exchange rates will increase or decrease the cost of doing business
in a country, which will affect the price of stocks of companies doing business abroad. While
long-term movements in exchange rates are affected by fundamental market forces of supply
and demand and purchase price parity, short-term movements are driven by news, events and
futures trading and are difficult to predict.
Hype
Stocks and the stock market also can be affected by hype about a company or the release
of new products or services. Many people and organizations have an interest in promoting
particular stocks and industries to increase the value of their own shares and profits, and
positive financial reports and stock market newsletters, Internet blogs, press releases and
news reports can build high expectations for the performance of companies, which will raise
the price of their stocks. This can occur even when the hype has no foundation in truth;
investors are wise to consider peoples reaction to hype rather than analyze the merits of the
positive promotion. Rnrn Hype (and its opposite) can be advanced by respected stock market
authorities such as Warren Buffet, Peter Lynch and hedge fund investor and financial
speculator George Soros; such is the respect given to these individuals skill and past success
that they sometimes can affect the movement of markets by simply suggesting that
developments might occur.

OBJECTIVES OF THE STUDY


Primary Objective
To study the various factors influencing the investors behavior of investment.
Secondary Objective
To study the impact of the self-image/firm image coincidence on the investor
behavior.
To identify the influence of the accounting information on the investor behavior.
To find out the effect of the factors related to neutral information on the investor
behavior.
To interpret the effect of the factors related to personal financial needs on the investor
behavior.
To study the investment pattern of the investors based on their risk taking abilities.
To study the investment time of the investors based on their personal profile.

SCOPE OF THE STUDY


Research in behavioral finance has important applications. A better understanding of
behavioral processes and outcomes is important for financial planners because and
understanding of how investors generally respond to market movements should help
investment advisors devise appropriate asset allocation strategies for their clients. For
companies, identifying the most influencing factors on their investors behavior would affect
their future policies and strategies would affect their future financial plans. For government,
identifying the most influencing factors on investors behavior would affect the required
legislations and the additional procedures needed in order to satisfy investors desires and
also to give more support to market efficiency.
The research can help guide portfolio allocation decisions, both by helping us to
understand the kinds of errors that investors tend to make in managing their portfolios, and
also by allowing us to understand better how to locate profit opportunities for investment
managers. Beyond this, understanding the psychological foundation of human behavior in
financial markets facilitates the formulation of macroeconomic policy and the devising of
new financial institutions.

LIMITATIONS OF THE STUDY:


The study conducted for the short period of time
Sample size is restricted to 120 only
The study has been conducted in the Chennai city only

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