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In today's world the importance of money has generated interest of people towards investment. Now days the awareness of investment has increase up to a great extent. People have understood the value of money in an order to meet the future circumstances because of the high standard of living. The scenario is such that people spend more and save less, people are dying to secure their money by various options available in the market. Critical decisions should not be taken hastily, and making investments is one such decision. We call investment related decisions as critical because it involves the investor's hard earned money, which they have set aside to meet a critical need/requirement in the future. A wrong investment decision could have a detrimental impact on the investor's finances.
A well balanced diet: meat, fruits, vegetables, grains and dairy products; leads to a healthy body and mind. Similarly your money should be spread across different types of investments in a well balanced manner to create a healthy financial portfolio. Each type of investment will have its own strong point. An investor needs to balance these different types of investment proportion like balancing the protein, carbohydrates and fat contents in the diet. There are different types of investment products. Each brings different advantages and returns and may have other value added benefits attached with them.
In today's world, money has been considered as everything for men. People have understood the value of money that they have. The society seeking various means through which they can save money. In this scenario the investment portfolio has become an emerging subject that every investor should take care of.
In this report I have tried to highlight investment portfolio insights. What should be the consideration of investor, while creating their investment portfolio? I have tried to explain through the analysis of behavioral aspects of investors. Investors generally take decisions on a rationale basis but some other factors also influence their investment decision in one way or other. The investment decision is the most important decision to plan for the future and to maintain the money in an order save it for the life of individuals as well as their family.
This reports include primary focus on the preference of investors that what they are looking in securities while make the choice of investment. In their investment portfolio investors keep in mind ample factors but they depend upon the conditions available with investor at a time by every aspect. This report is a fair attempt that can highlight the various dimension of investment mechanism in the portfolio management of investor. As a researcher I hope that this report will help people to understand investor's psychology and investment related other perspectives as well.
TABLE OF CONTENTS
~ PAGE NO.
I. Preface 2
II. Acknowledgement 3
III. Executive Summary 4
IV. Research Methodology 7-9
• Research Objectives 7
• Research Design 8
• Sampling 8
• Data Type 8
• Data Collection 9
• Relevancy And Limitations 9
1.1 What is investment? 10
1.2 Need for Investment 11
1.3 About investment portfolio 14
1.4 Process of Investment Portfolio 15
1.5 Investment Instruments 16
1.6 Portfolio Management 22
1.7 Diversified Portfolio 26
1.8 Treatment of Taxation 27
1.9 Role of SEBI 34
I 2.1 Analysis of Behavioral Aspects of investors 36- 56
I· Findings 57 - 58
I· Recommendations 59- 60
I· Conclusion 61
I· Bibliography 62
I· Annexure : Questionnaire 63 - 64 3
LIST OF TABLES AND CHARTS
Table Page No. Chart Page No.
1 37 1 37
2 38 2 38
3 39 3 39
4 40 4 40
5 42 5 42
6 43 6 43
7 45 7 45
8 46 8 46
9 47 9 47
10 49 10 49
11 50 11 50
12 51 12 51
13 52 13 52
14 53 14 53
15 54 15 54
16 55 16 55
17 56 17 56 4
Research is an art of scientific investigation. It's a way to systematically solve the research problem. Research Methodology is a systematic way to solve the problem. This research study contains the various steps in order to evaluate the research problem. Prior to mention my research methodology I would like to assume that investors are risk averse generally and take the investment decisions on rational basis. The methodology of my research study can be explained as under.
The research problem is first necessary to mention here, because the further application can only possible when the problem is understood precisely. This research report describes the problem as, "A Comprehensive Study on Investment Portfolio". This research includes both theoretical as well as practical situations and findings for the same.
Objectives Q[ Research:
• To cater the new insight and to get knowledge regarding the investment portfolio management.
• To identify and analyze various behavioral aspects that can affect the investment decision of the investors.
• To explore the information regarding the investments options available to investors and to study the related aspects that can affect the investment preference of investors.
• To know various preference and pattern of investors for creating their investment portfolio.
Type Q[ Research:
This research is basically a "descriptive research study". The report includes facts - finding enquiries of different kinds and exploration of investment portfolio concepts, features, liveexamples, various types and behavioral aspects of investors as well as, suggestions that endows investor's potentials and insights to build better basket of securities. Here the variables are uncontrollable and only the happenings of current scenario have been mentioned. In This research the preference of investors for the investment had been measured.
• SAMPLING DESIGN:
Type Q[ Universe:
The type of universe is infinite universe.
Sample Size & Type Q[_ Sampling:
For this project the type of sampling is deliberate/convenience sampling. The data selected is rational and with an intention to serve the purpose of this research. The sample design is based upon the non probability sampling. The suitable sample type here is Convenience Sampling because I have chosen the sample deliberately. As per my research problem it is not possible to carry out hypothesis on a big volume of companies operations so that I have purposively chosen sample size. Instead of carrying out research on a typical huge data, I have preferred the small data for better judgment. Sampling unit is Bhavnagar city.
The sample size in this research is 100 investors from which it fulfills the requirements of efficiency, representativeness, reliability and flexibility. Budgetary constraints and time constraints had its influence of the sample size of research .
• DATA COLLECTION & ANALYSIS:
Data Type: Primary and Secondary Data
The later part of my questionnaire analysis, include the primary data because I have collected it for the first time and it is fresh in the nature. While the other details regarding investment portfolio, portfolio management, types of investment etc. are secondary data, which I have collected through various sources of information. Since the primary data I have collected is original and the secondary data act as complementary information for that, this research report contains compilation of the data.
Method Q[ Data Collection:
There are various sources from where I have collected the data for this research. I have collected the data through questionnaire and other examination of informative and reliable sources of details regarding investment related aspects.
(2) Newspapers (3) Web sites
The method of data collection is Content Analysis. It consists of analyzing the contents of documentary materials on qualitative basis. The data found was reliable, suitable and adequate for this report. The sources of data were authentic.
I have collected these data carefully and after scrutinizing the authenticity of various terms and concepts. The data is further studied and analyze at subtle level. The conclusion is made after observing the behavior pattern and features of various concepts.
• The relevancy of the research can be explained that such research has wide scope to analyze behavioral aspects of group or individual.
• The pattern of investment portfolio can be easy to analyze from such kind of research study.
• Such reports can give better idea to both investors as well as companies who are offering various securities in the market; they can know the preference of investors very well and can do improvements in their offerings of securities.
• The limitation of research stands regarding the limited time frame and data availability. It may be possible that investor's view can create bias due to the psychological behavioral analysis or less understanding of questions subject matter.
1.1 - What is investment?
Investment is a word of many interpretations. We can understand the simple meaning as sacrifice of certain present value for the uncertain future reward. It entails arriving at numerous decisions such as type, mix, amount, and timing. Investment is kinds of trade off where the investor is suppose to adjust between two primary functions, i.e., risk and return. In general terms, investment means the use money in the hope of making more money. The purchase of a financial product or other item of value with an expectation of favorable future returns can be understood as investment.
An investment is an exposure of cash that has the objective of producing cash inflows in the future. The worthiness of an investment is measured by how much cash the investment is expected to generate.
In finance, investment means buying securities or other monetary or paper (financial) assets in the money markets or capital markets, or in fairly liquid real assets, such as gold, real estate, or collectibles. Investments are often made indirectly through intermediaries, such as banks, mutual funds, pension funds, insurance companies, collective investment schemes, or even investment clubs. Though their legal and procedural details differ, an intermediary generally makes an investment using money from many individuals, each of whom receives a claim on the intermediary Investing can be a complex activity.
Investments should be an outcome of a well-prepared financial planning exercise and each investment should fulfill a future goal/objective. It is for this reason that investors should not fall for any investment option only because everyone else is investing in it or because the advertisement promises high returns. Instead, they should evaluate each investment option critically before investing in it.
1.2 - Need for investment:
• The need for investing is that money is put to use in such a way that it is likely to tum into more money. This could happen because someone is willing to pay interest to use the money or because the value of whatever security the money was used to buy increases during the period of ownership.
• It is important to note that because money can be invested, the value of a given amount of money changes over time. The longer that a given amount of money is under your control, the longer you have to invest it and make more money from it.
• There is a penalty associated with not investing the money that you already have. Because prices tend to rise over time, the value of money gradually decreases. This effect is called inflation. Money that is not invested or that is accruing value at a slower rate than the rate of inflation is becoming worth less and less as time passes. Therefore, investing is not only an opportunity to make more money, but it is the only way to protect the money that you already have.
• Another spectacular benefit associated with many investments is compounding. Money that is earning interest grows at a constant rate, paying the same amount of interest at the end of each time period. However, if that interest is added to the principal that began earning money originally, there is more money earning interest. In this way, interest causes money to increase in value exponentially over time. As more and more money earns interest, more and more interest is earned. This scenario is constantly playing out in bank accounts, CDs, and any other investment that offers compound interest. The more frequently the interest compounds, the bigger the payoff because, on average, more money is earning interest at any given time for the purpose of security.
.:. Factors Effecting Investment:
Volatility of return is called Risk. In its simplest form risk to an investor is the chance that he will end up losing some or all of the money invested. The more risk an investor is prepared to assume, the greater the potential return.
The amount of risk an investor is prepared to take will vary from one person to another. It is obvious that risk and return go hand in hand. For this reason, an investment return offered by a certain investment that is in excess of the market return for that particular type of investment will be a good indicator that the risk involved is higher.
The higher the potential return offered by an investment, the greater the risk involved. The return offered by an investment can take the form of a flow of income or by the growth in the capital invested or both. A deposit with a bank is an example of an investment offering a return in the form of a flow of income, in this case, interest. A unit trust or fixed properties are examples of investments that offer both. The nature of the return desired by the investor will be a strong indicator in the investment decision.
The liquidity of an investment is all about how quickly an investor can convert his investment into cash when the need arise. A unit trust is very liquid because the Management Company guarantees to repurchase units from an investor. Listed shares would be less liquid because the investor would only be able to sell if there is a buyer prepared to buy at that price. The shares in a private company are not at all liquid because the seller will usually only be able to sell to one of the other shareholders. Only if they are not prepared to buy his shares can he find an external buyer. However there is no mechanism for the introduction of buyers and sellers as is provided by a stock exchange.
The tax consequences of an investment are fundamental to any investment decision. The return desired by an investor is usually the return after tax. The effect of taxation on the investment return will be affected by the taxpayer's tax position, marginal rate of tax etc. It could be that the investor is a tax-exempt body. It will also be affected by the identity of the investor. In other words is the investor a natural person, a trust, or a legal person such as a company. In addition the nature of the return will also have a significant influence. To a young investor wishing to maximize capital growth, an interest bearing investment may not be suitable because the interest will be taxed in his hands thereby reducing the after-tax return considerably.
Just as the bottom line for most investors is the after-tax return of an investment, so is the real return over time. By real return is meant the return after the effects of inflation have been taken into account. If an investor is not earning a positive real return, he is in fact becoming poorer by investing. In this context it is often useful to regard risk as the converse of real return.
The term of an investment has a dramatic effect on the investment decision. An investor wishing to invest only for a few months should not enter the equity market unless he is prepared to accept a very high risk .The risk associated with the equity market decreases as the term of the proposed investment increases.
Deciding when to invest is probably the most difficult of all investment decisions. It is not surprising then to realize that it is the one decision that investors get wrong more often than not. The timing decision is made less critical as the term of the investment increases.
1.3 - Investment Portfolio:
The investment portfolio includes first to establish an investment goal or objective and then to decide how to reach that goal with the securities available. This has been stated as an attempt of investor to obtain maximum return with the minimum risk. In an order to decide the balanced portfolio the investor must follow the process of investment.
Investment portfolio is the collection of investments all owned by the same individual or organization. These investments often include stocks, which are investments in individual businesses; bonds, which are investments in debt that are designed to earn interest; and mutual funds, which are essentially pools of money from many investors that are invested by professionals or according to indices. We can define the investment portfolio as:
• A variety of securities owned by an individual or an institution.
• A set of financial assets chosen by an investor.
• Total holdings of an individual investor or institution.
• Combined holding of more than one stock, bond, commodity, real estate Investment, cash equivalent, or other asset by an individual or institutional investor.
• This is a term used to describe all the investments you own - bonds, mutual funds, stocks and
so on. A diversified portfolio contains a variety of investments.
Purposefully selected securities or other assets constituting the assets of the Fund.
• A set of securities or funds that have been chosen by an investor.
• An investment portfolio is the sum total of an individual's investments, including stocks,
bonds, treasury bills, GICs or even real estate.
1.4 - Process of Investment Portfolio Management:
The investment portfolio management has the similar process like taking any managerial decision. The investor should plan, implement and monitor the results, if we take this into brief. The portfolio construction process includes further view of looking each n every aspect minutely within the combination of securities. Portfolio include the decision regarding,
• Investor Conditions
Financial Situation Knowledge
Expectation of return and risk tolerance
• Market Conditions: various instruments available for investment and their position in the market.
• Investment Policies
Asset Allocation Base Security Selection
Internal (thinking) of investor and external (market) factors
• Investment Policy Statement: include objective of investor, Constraints, Compliance and periodic revision.
• Portfolio Performance Evaluation: it includes evaluation of aggregate portfolio, security and asset classes and managers, measurement of risk and return.
• Periodic Check and Control on each security as well as combined control by monitoring the performance of securities including update of new security.
1.5 - Instruments of Investment:
The management of investment portfolio requires knowledge, expenence, constant research appraisal and reappraisal of securities in the market. One has to keep the trace of the trends in the national economy and the competitive position of different industries. The investor must have the rational approach to portfolio construction and management. Here are some details of the various investment options available to investors.
Investment companies - investment trusts as they are often known are the financial institutions which obtain funds from a large number of investors through the sale of shares. These funds are placed in a pool under the professional management, and securities (Financial Assets) are purchased for the benefit of all shareholders. Primarily the investment company exists to offer the small savers a means to diversify asset portfolio in a manner not attainable except with a very large portfolio. The purpose of Investment Company is to diversify the small outlays of its shareholders or unit holders, as the case may be, by operating the collective funds so accumulated through the medium of a large portfolio. The investment companies are known as mutual funds they offer a partial solution by providing expert research and professional management of funds over which they have no control. Most of the investment companies are controlled, owned, and managed by important managing agency houses which transform the character of such institutions from investment companies to holding companies.
Mutual Funds operate as a Collective Instrument Vehicles (CIV) on the principle of accumulating funds from the large number of investors and then investing in a diversified manner thus, limiting the risk involved. The MF industry in India is governed by SEBI Regulations, 1996, which lay the norms for the MF and its Asset Management Company (AMC). All MFs in India are constituted as pool of trusts. A MF is allowed to issue open - ended and closed - ended schemes under a common legal structure. A typical MF in India has the following constituents:
• Fund Sponsor: A sponsor is any person who, acting alone or in combination with another body corporate, establishes a MF.The sponsor of a fund is similar to be promoter of the company. In accordance with SEBI regulations, the sponsor forms a trust and appoints a Board of Trustees, and also generally appoints an AMC as fund manager. In addition, the sponsor also appoints a custodian to hold the fund assets. The sponsor must contribute at least 40% of the net worth of the AMC and possess a sound financial track record over five years prior to registration. • Mutual Fund: A MF in India is constituted in the form of a trust under the Indian Trust Act, 1882. The fund invites investors to contribute their money in the common pool, by subscribing to "units" issued by various schemes established by the trust. The assets of the trust are held by the trustee for the benefit of unit holders, who are the beneficiaries of trust. Under the Indian Trust Act 1882, the trust or the fund has no independent legal capacity; it is the trustees who have legal capacity.
• Trustees: The MF or trust can either be managed by the Board of Trustees, which is a body of individuals, or by a Trust Company, which is a corporate body. Most of the funds in India are managed by Board of Trustees. The trustees being the primary guardians of the unit holders funds and assets, a trustee has to be a person of high repute and integrity. The trustees however do not directly manage the portfolio of securities. The portfolio is managed by the AMC as per the defined objectives, in accordance with Trust Deed and SEBI (Mutual Fund) Regulations.
• Asset Management Company: The AMC, which is appointed by the sponsor or the trustees and approved by SEBI, acts like the investment manager of the trust. The AMC functions under the supervision of its own Board of Directors, and also under the direction of the trustees and SEB!. AMC in the name of the trust floats and manages the different investment "schemes" as per the SEBI Regulations and as per the Investment Management Agreement signed with the trustees.
Apart from these, the MF has some other fund constituents, such as custodians and depositories, banks, transfer agents, and distributors. The custodian is appointed for a safe keeping of securities and participating in the clearing system through approved depository. The bankers handle the financial dealings of the fund. Transfer agents are responsible for issues and redemption of units of MF. AMC's appoint distributors or bankers who sell units on behalf of their funds and also serves as an investment advisers.
2. Bonds/ Debentures:
This form of investment represents the most usual way of borrowing by a company. A debenture is a legal document containing an acknowledgement of indebtedness by a company. It contains a promise to pay a stated rate of interest for a defined period and then to re pay the principal at a given period of maturity. Bond holders assume risk but comparatively lower than the equity holders. Normally the company issues the bonds for following reasons.
• To reduce the cost of capital
• To gain the benefit of leverage, i.e. - magnifying the profit
• To effect the tax saving
• To widen the sources of funds
• To preserve control
The bonds are carrying three types of risks with them. One is the business risk, that a decline in earning power may impair the corporation's ability to service debt. The second is the purchasing power risk, the prospect that a severe inflation may impair the purchasing power of interest on debt as well as of the principal itself. The third is so - called interest rate risk. If interest rate rises the market price of the security will decline until its yield becomes competitive with the new higher interest rate.
3. Preference Shares:
Preference shares are a "hybrid" security that is not heavily utilized by corporation as a means of raising capital. It is hybrid because it combines some of the characteristics of debt and some of equity. As the return to the holders is discretionary, the corporation is under much less compulsion to pay preference dividends than to pay bond interest because preference share is merely given the right to receive its specific dividend before any dividends are paid on the equity.
Preference shares are at somewhat level similar to bonds because certain preferences usually have limited return and prior claim on assets and income of the corporation. Preference shares include the dividend provisions which are cumulative or non - cumulative. The preference share
Portfolio Analysis holders have voting rights and also they have pre -emptive right to subscribe additional issues to maintain their proportionate share of ownership. The participating preference shareholders receives stipulated dividend and shares additional earnings with the common shareholders. Preference shares issues are often retired through sinking funds. In this case, a certain percentage of earnings is allocated for redemption each year. The shares are retired for sinking fund purposes can be called by lot or purchased in the open market. The owners of preference shares called for sinking fund purposes must seek alternative investments. In this sense, the preference sinking funds have unfavorable overtones for these investors.
4. Equity Shares:
Equity represents the ownership position in a corporation. In a residual claim, in the sense that creditors and preference shareholders must be paid as scheduled before equity shareholders can receive any payment. In bankruptcy equity holders are in principle entitled only to assets remaining after all prior claimants have been satisfied. Thus, risk is highest with equity shares and so must be its expected return. When investors buy equity shares they receive ownership certificate as proof of their being part owners of the company.
Equity shares offer the following advantages.
• Potential for Profit
• Limited Liability
• Hedge Against Inflation
• Free Transferability
• Shares In Growth
• Advantage Of Tax Saving The equity shares is the only class of securities privileged to enjoy the maximum participation in an extensive growth of the company.
5. Real Estate:
Real estate offers an attractive way to diversify an investment portfolio. In addition, it offers favorable risk - return tradeoff due to the uniqueness of properties and the localized and relatively inefficient market in which they are traded. Real estate differs from financial securities in two ways first it involves ownership of the tangible asset - "real property", rather than "financial claim" and managerial decisions about real estate greatly affect the returns earned from investment in it. Nowaday real estates like residential place, commercial place, retail space and hotel, building etc ... We can see as an emerging field.
The real estate decision is depended upon the investors own preferences and choice so that real estate is a flexible and easy source to invest. It takes in to account rent, maintenance and repairs, advertising media, purchase, lease or sales contract; that determine whether or not the investor will earn the restricted return on a real estate investment. While investing in real estate, investors should consider how the characteristics of real estate differ from security and comparatively which option is more beneficial. Real estate market changes over a period of time and presently in India, the scenario is booming market of real estate. The real estate market can also be different form region to region.
6. Financial Derivatives:
The term "Derivative" indicates that it has no independent value, i.e. its value is entirely "derived" from the value of the underlying asset. The underlying asset can be securities, commodities, bullion, currency, live stock or anything else. In other words, Derivative means a forward, future, option or any other hybrid contract of pre determined fixed duration, linked for the purpose of contract fulfillment to the value of a specified real or financial asset or to an index of securities. With Securities Laws (Second Amendment) Act, 1999, Derivatives has been included in the definition of Securities.
A Derivative includes: -
A security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security. A contract which derives its value from the prices, or index of prices of underlying securities.
Financial derivatives should be considered for inclusion in any corporation's risk control arsenal. Derivatives allow for the efficient transfer of financial risks and help to ensure that value enhancing opportunity will not be ignored.
For the investors if understanding of derivatives is used properly risk can be minimized and return can be increased. But if the investor is not able to understand the complexity and risk profile derivatives could lead them in a greater financial loss. Users should be certain that the proper safeguards are build in to trading practices and that appropriate incentives are in place so that corporate traders do not take unnecessary risk. The use of derivative should be in fine tune with the investor friendly practice and according to the risk management strategy of the company. Because ultimately derivative players do not match every trade with an off setting trade; instead, they continually manage the residual risk of the portfolio.
7. Non Security forms of investment:
Investors prefer to invest in this type of investment which is generally found as less risky and safe. The non security forms are considered as less speculative options which can give steady return to investors and risk could be comparatively low. The amount invested in such form has higher safety and liquidity. In India the house hold sector's investment in non security forms constitutes the major proportion of its total investment in financial assets. Normally the non security forms of investments include the following.
• Deposits with commercial banks
• Social Security Funds -
10 Years Social Security Certificates Kisan Vikas Patra
Indira Vikas Patra
National Saving Certificate
1.6 - Portfolio Management:
Any person who pursuant to a contract or arrangement with a client, advises or directs or undertakes on behalf of the client (whether as a discretionary portfolio manager or otherwise) the management or administration of a portfolio of securities or the funds of the client, as the case may be is a portfolio manager. The discretionary portfolio manager individually and independently manages the funds of each client in accordance with the needs of the client in a manner which does not partake character of a Mutual Fund, whereas the non-discretionary portfolio manager manages the funds in accordance with the directions of the client. The portfolio manager is required to have a minimum net worth of fifty lac rupees.
Principal Officer means a director of the portfolio manager who is responsible for the activities of portfolio management and has been designated as principal officer by the portfolio manager. A portfolio manager is permitted to invest in derivatives, including transactions for the purpose of hedging and portfolio rebalancing, through a recognized stock exchange. However, leveraging of portfolio is not permitted in respect of investment in derivatives. The total exposure of the portfolio client in derivatives should not exceed his portfolio funds placed with the portfolio manager and the portfolio manager should basically invest and not borrow on behalf of his clients.
The portfolio manager provides to the client the Disclosure Document at least two days prior to entering into an agreement with the client. The Disclosure Document, inter alias, contains the quantum and manner of payment of fees payable by the client for each activity for which service is rendered by the portfolio manager directly or indirectly ( where such service is out sourced), portfolio risks, complete disclosures in respect of transactions with related parties as per the accounting standards specified by the Institute of Chartered Accountants of India in this regard, the performance of the portfolio manager and the audited financial statements of the portfolio manager for the immediately preceding three years.
Portfolio management schemes
What is a PMS? PMS is a fund management and advisory service offered by professionals with experience and knowledge if a variety of investment instrument such as stocks, debt and futures and options (F &0) PMS is offered by various mutual fund houses, banking conglomerates and broking firms.
The PMS manager invests in equity shares, convertible stocks, preference shares derivatives (index and stock futures and options), debentures, bonds, government and trust securities, mutual funds, bank deposits, treasury bills, commercial papers, certificates of deposit and other securities approved by the Securities and Exchange Board of India (SEBI)
Firms require prior permission from SEBI to undertake PMS activities. The market watchdog looks at various parameters such as minimum net worth and infrastructure before granting PMS license. For redressal of grievances, the investor can approach SEBI, which takes up the issue with the concerned portfolio manager.
As fund managers predominately invest in equities and equity-related instruments PMS carries market risk. Hence, the value of the portfolio would keep on fluctuating as per market conditions. PMS does not guarantee return or even capital protection. It could end up incurring losses as well. As per SEBI guidelines, sharing of losses is not allowed. The investor needs to bear losses. Further. SEBI prohibits the portfolio manager in indulging in day trading.
The increasing popularity of PMS hinges on the customized services offered to investors. The PMS Manager studies the investor's investment objective, investment horizon, present and future monetary requirement and risk-profile. Based on this information, he suggests appropriate investment solutions. For instance, if the risk-taking ability of the investor is high and the overall investment objective is to earn higher returns, the PMS Manager could suggest higher exposure to small and mid-cap with good potential for capital appreciation.
PMS can charge fixed fee. Or, part of the fees can be fixed and the remaining based 1.5 % to 3 % per annuam. This is irrespective of whether the portfolio generates profit or loss. This fee structure is not very popular with the market.
The second and the more popular is the fixed-p1us-profit-sharing scheme. The investors pay 1 % to 1.5 % per annum as fixed fee. Further fees depend on the profit generated by the portfolio manager.
The investor has to enter into a formal agreement with the PMS Manager covering issues such as appointment, categorizing the scheme into discretionary or non-discretionary, scope of the agreement, objective, right responsibilities and powers of the portfolio manager, fee structure, termination clause, risk factors and other points of dispute. The portfolio management agreement can be terminated by the investor or the portfolio manager by giving sufficient notice, usually 30 days.
The investor needs to sign power of attorney in favor of the portfolio manager. Through this power of attorney, the portfolio manager can operate investors' demat (DP) and banking accounts as the shares are held in the investor's name. This arrangement between portfolio manager and the investor ensures seamless and fast execution of trade and settlement (Pay-in and pay-out of funds and securities). Though many portfolio managers have their own DP, the investor cap opts for any DP of his choice.
Generally, portfolio managers offer three to five types of schemes for different investor categories with varying risk profiles such as low moderate and high. After accessing the risk appetite and expected returns apart from the overall investment objective and time horizon, the portfolio manager builds a tailor-made portfolio the various schemes of mutual funds are standardized and not customized to meet individual investor's needs. The investor usually selected scheme as per his perception about his future requirement and risk-profile. Thus, PMS scores over mutual funds in the terms of flexibility in constructing portfolio according to investor's suitability.
Not only this, if the investor is very publish on particular sectors, say private banks, he can very well indicate his preference to the portfolio manager so that the PMS can take higher exposure to the sector. But Investors should let the PMS Manager Take investment decisions. PMS Managers are better placed to choose stock as they track companies more closely systematically and of course, on a continuous basis.
A PMS investor can interact with the portfolio manager to express concerns or to understand the investment philosophy. Such one-to-one interaction definitely helps investor in understanding the investment strategy adopted by the PMS Manager, besides the portfolio manager is a good and reliable source of market information. He can keep investors abreast with the latest market happenings and trends. However, frequency of interaction and quality of service depends on the amount invested by the investor. There is hardly any personal interaction with a mutual fund manager.
PMS investors can expect daily or weekly newsletters, research reports and updates from the portfolio manager. These would assist the investor to gauge the market movement. Many portfolio managers provide daily portfolio update through e-mail. Further, they also provide monthly and quarterly updates on the portfolio. This includes transaction statement (buy and sell) bank statement, holding statement including details of stocks mutual funds and other instruments in the portfolio.
For those who believe in frequent churning of portfolio, PMS takes care on the subsequent taxation headache. The PMS Manager keeps track of gains or losses generated through each transaction. A detail transaction statement lists the investor's tax compliance issues.
As per minimum amount required for opening PMS account has gone down drastically, more and more small investor are opting for PMS. However, investors need to evaluate other options that are available, particularly mutual funds. True, PMS offers lost of flexibility and participation as the investor becomes part of the portfolio building exercise. However, the product is primary for those investors who understand risk and believe in long-term investment.
1. 7 - Diversified portfolio:
Diversified portfolio include aggregate planning of constructing portfolio in such a way, by which total emphasis of risk and return can be divided amongst each securities in favorable manner. It includes balanced design to get income, liquidity, security and marketability from the different assets and securities of investment portfolio
Portfolio diversification can be a valuable stock investing concept for every investor whose ultimate goal is to maximize profit and minimize risk. The principle of maximizing profits and minimizing risks is so simple, yet its practice is seemingly an impossible task. While the best investment advice abounds throughout investment circles, any wise and mature approach to investing is the same. Your best protection against risk is portfolio diversification; investing in multiple investment options instead of choosing to place all of your investments in only one area. You can, for example, use the stability of cash investments like CDs and money market funds to diversify your portfolio and offset the liability of stocks, futures, options and stock or bond mutual funds. Picking stocks of riskier small growth companies while also investing in the traditional blue chippers, which are the stocks of large, well-established companies allows for a structured stability that will translate to the bottoms line of an investor's portfolio. In other words, when the return is down in one area, it's usually balanced by a positive performance in another. In the simplest terms, portfolio diversification is an excellent hedge against stock volatility and the ups and downs of investing.
• Stocks, bonds, real estate, commodities, precious metals and collectibles. But here the classes are already starting to blur, as many investments in real estate, commodities and precious metals are in the form of common stock.
• Market capitalization: micro-, small-, mid- and large-cap.
• Style: Value, growth, aggressive growth, blend, and growth and income.
• A combination of market capitalization and style: small-cap value, large-cap growth, etc.
• Market sectors or industries.
• Industry groupings such as consumer staples and consumer durables.
• Geography and type of security: Domestic stock, international stock, emerging markets debt, etc.
1.8 - Tax Treatment:
Investors invest in equity for capital gain. They take the risk of investing in equity rather than the less-risky fixed income instruments to increase the value of their investment. Apart from capital gain, equity instruments can also offer certain other benefits investors such as dividends, bonuses, stock-splits and share buyback. Investors welcome all these corporate actions. But the taxation aspect should also be kept in mind before calculating the net returns earned.
Investors will always start thinking and planning for their personal tax outgoes for each year. Section 80C, this is where most of the investors save tax by investing in securities eligible under this section. Earlier, there were many tax rebates which got removed almost five years ago and were replaced by a new Section 80C. U/s. 80C, you can deduct from your income, an amount up to Rs.l Lakh from investments made in the eligible schemes/ products and you now have the flexibility to invest anywhere you wish and claim full advantage. This flexibility helps you in better planning for your tax while at the same time giving you freedom to design your portfolio to suit your self/your risk profile. Earlier, the portfolio was dictated by the different limits/caps on various schemes/products.
4 Keys to Tax planning:
• Your income: How much are you going to earn or rather your taxable income dictates how much planninglinvestments need to be done.
• Liquidity Needs: Most of the tax-saving instruments/ products have a lock in period during which you have to stay invested in that particular instrument/product. If you are tight on cash and/or may need that money some time in near future, you will have to decide in either paying the tax which you would have otherwise not paid or saving for future or just save the tax for now.
• Risk Profile: The investors today have many options for tax planning with different riskreturn tradeoff. While planning the tax, you should approach it from the overall purview of designing your portfolio and then see now the tax savings would fit in your overall portfolio/asset allocation.
• Option: Searching for the right blend of the scheme/product is another crucial thing that you need to do before you decide on any particular investment. Needless today, you should select a product that offers you with the ideal combination of liquidity (when you need it) and risk-return profile (suiting you, fitting your portfolio.
Portfolio Analysis Following are some details regarding the tax treatment and features of investment options. 1. Dividends:
A company pays dividends to shareholders out of its reserves. During a bull market, capital gain takes precedence over dividends. This is because a dividend is always on face value and not on market value. Consequently, even if a company whose share price is, say, ruling at RsAOOIdeclares a healthy dividend of 60 % (face value Rs.10), the dividend is a mere Rs. 6 per share, and the dividend yield a meager 1.5 % on an average, the dividend yield of all the share stocks works out to 1.5 %.
Equity dividends are tax-free in the hands of shareholders. However, the company distributing the dividend has to pay a dividend distribution tax of 15 % to the exchequer. In effect, it is the shareholder who bears the tax as they receive that much less as dividend. Also, the dividend amount gets subjected to tax twice. Dividend it distributed from the post-tax profit. Second" dividends attract distribution tax. Hence, some companies opt for alternative options to distribute their surplus reserves.
2. Bonus shares:
Bonus shares are issued free of cost to the shareholders of a company by capitalizing part of the company's reserves. Instead of cash dividends, investors receive dividends in the from of stocks. Though the member of total outstanding shares increase following a bonus issue, the proportional ownership of shareholders does not change.
When an investor receives bonus shares, he does not pay any tax. As bonus shares are issued by capitalizing free reserves, there is no outflow from the company to the share holders. As on income accrues to the shareholder. There is nothing that can be taxed.
However, when the investors sell bonus shares, he has to pay capital gain taxed. The cost of acquisition is taken as nil. The duration of the holding is taken into consideration for determining short-term (less than one year) or long-term (more than one year) capital gain STCG/LGCG). In the current scenario, the STCG rate is 10% while LTCG rate is nil.
STCG - Short term capital gain L TCG - Long term capital gain
Stock splits are a relatively new phenomenon in India. A stock-split or sub-division of face value is when the number of shares in a stock is increased and the value per share decreased. This in no way affects the intrinsic value of investment and has no effect on the net wealth of the shareholders.
The primary reason for the company to report to stock splits is to infuse additional liquidity by making shares more affordable.
Though stock-splits make no difference to the wealth of the Investor, mutual funds, foreign institutional investor (FIls) financial institutions (FIs) and other big investor show interest only when the liquidity is decent. Thus, stock-splits boost floating stock, indirectly leading to price appreciation.
There aren't any tax implications for stock-splits. However, when the shares are sold, the capital gains tax implications are different for those applicable for bonus issues. Here, the original cost of the shares also has to be reduced.
4. Share buybacks/open offers:
Share buybacks/open offers are comparatively new phenomena. Recently, many companies have bought back their shares for various reasons.
A buyback is essentially a financial tool that affords corporate flexibility in restructuring capital structure. A buy back in this case allows the company to sustain a higher debt-equity ratio. It is also a tool to defend against possible takeovers. Generally, companies buy back when they perceive their own shares to be undervalued or when they have surplus cash for which there is no ready capital investment needed. Buyback improves shareholder value. With fewer shares, earning per share of the remaining shares will increase. The company buying back its own securities has to compulsorily extinguish and physically destroy the securities so bought back within seven days of the last date of completion of buy-back.
Small saving schemes offer assured return !!§. well !!§. tax deduction
A PPF account can be opened by any adult in his/her name or in a minor's name in the capacity of guardian on behalf of the minor. A non-resident Indian cannot open a PPF account. A person opening a PPF account has to make a declaration that he is not maintaining any other PPF account except as provided for in the rules.
Investors are required to make contributions every year to keep their PPF account active, thereby ensuring regular savings. The minimum and maximum investment amounts per annum have been pegged at Rs.500/- and Rs 70000, respectively.
Rate of Interest:
Deposits are payable on maturity after 15 years along with interest at the rates declared by the government from time to time. Currently, the interest rate on PPF deposit is 8% per annum, compounded annually. The interest for the month is calculated on the minimum balance available in the account, from the 5th date to the end date of every month.
Withdrawals from PPF are permitted only after six years from the end of the financial year in which the first deposit was made. The amount that can be withdrawn is a factor of the balanced present in the PPF account during the earlier years.
Loans and Repayment:
A subscriber can avail of loan facility in the third financial year from the financial year in which the PPF account is opened. If the loan is sought from the minor's account, the guardian will have to make a declaration that the money is for the use of the minor. Loan can be taken up to 25% of the amount in the subscriber's account at the end of the second year immediately preceding the year in which the loan is sought. This facility is available till the end of fifth financial year from the end of the financial year in which the initial subscription was made.
Under sec 80C of the Income Tax Act, 196-1, deduction up to Rs. Ilakh per annum is allowed if investments are made in specified securities.
• N.S.C (National Saving Certificate) Features:
NSC is available in post offices across the country in various denominations ranging from Rs. 100 to Rs. 10000 depending on the requirement, Minimum investment is Rs. 100. There is no maximum limit,.
Rate of Interest:
The earning on the instrument is 8% but the interest is compounded at half yearly intervals. This pushes up the overall rate of return, or the yield, on the instrument to 8.16%. Every six months, the interest is accumulated. But this is not paid to the investor. On maturity, the capital plus the accumulated interest is paid. As the life of the instrument is six years, the entire amount will be available to the investor only at the end of this period.
Premature withdrawals are not allowed NSC May be prematurely encashed in the event of death of the subscriber. If the certificate is encashed within one year from the date of issue, only the face value is payable. If the certificate is encashed after one year but before the expiry of three years from the date of certificate, an amount equivalent to the face value of the certificate together with simple interest is payable. If the certificate is encashed after three years from the date of issue, the amount payable, inclusive of interest for the denomination of Ts. 100, is paid. Loans:
No loans are available against this scheme; But NSC can be used as collateral to raise loans from other sources.
NSC qualifies for tax benefits under sec 80 C. Deduction up to Rs. 1 lakh per annum is allowed if investments are made in specified securities. Investment in these instruments will enable a deduction from the taxable income for the buyer subject to a maximum limit of Rs. 1 lakh in a year.
• Post-office Monthly Income Scheme:
The monthly Income scheme (MIS) is ideal for those who have taken voluntary retirement or are retired and want a fixed monthly income. Deposits can start from Rs. 1000 to Rs. 3 lakh for single account and up to Rs 6 lakh for joint account. MIS is transferable from one post office to another and nomination facility is also available. A depositor can open multiple MIS accounts. Rate of Interest:
The interest on deposit is 8% compounded annually. The payment is made monthly on a fixed date. Which is the date on which the account is opened? If the due date falls on Sunday or any holiday, the interest is paid on the immediate, preceding date. If the due date of interest falls on 29,30 or 31 of the month and the date do not come in the month, then the deposit is paid on the last working day of the month.
The monthly interest can also be deposited in the post office saving bank account of the depositor if the post office is so authorized by the depositor. This is subject to the condition that the maximum limit of the saving bank account does not exceed after depositing the interest. The depositor has to produce the passbook every month for collection of interest. A depositor availing the facility of credit of interest in his savings account is required to present the passbook at lease once in six months for making entries of payment of interest.
An account can be closed any time after one year from the date of opening the account. An amount equal to 5 % of the initial investment amount will be deducted from the payment if the account is closed before three years from the date of the opening the account. No amount will be deducted on withdraw after three years.
The interest income accruing from a post-office MIS is exempt from tax under sec 801 of the Income-Tax Act, 1961. Moreover, no TDS is applicable on the interest income. The balance is exempt from wealth tax.
• Senior Citizen Scheme:
A new savings scheme called senior citizens saving scheme was notified from 2 August 2004. The scheme is for the benefit of senior citizens. The maturity period is five years, extendable by another three years. Initially, the scheme will be available through designated post offices throughout the country. The minimum investment is Rs. 1000 and in multiples of Rs. 1000 subject to a maximum ofRs. 15 Lakh. Those of 60 years of age and above are eligible to invest. Single of joint account (with spouse only) can be opened. Citizens who have retired under a voluntary or a special voluntary retirement scheme and have attained of 55 years of age are also eligible (Subj ect to specified conditions).
Rate of interest:
The deposits carry an interest of9 % per annum (taxable.) which is paid quarterly. Withdrawals:
No withdrawals are permitted under those rules before the expiry of five years from the date of opening of the account. However, one can foreclose the account. But there are severe penalties depending has much time the account has been open.
No tax rebate is available on this scheme. But the finance minister inevitably gives attractive schemes for senior citizens in every budget.
• Bank Deposits:
Fixed deposits (FDs) of banks are popular among risk adverse investors with the proposition of assured returns and safety of capital. A bank FD is meant for those investors who want to deposit a lump sump for a fixed period, from a minimum 15 days to five years and above. The investor gets a lump sump (Principal + interest) on the maturity.
Bank FDs 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 (loan) facility on the amount deposited. And premature withdrawal before maturity period (which involves loss of interest) Bank FDs are insured up to Rs. 1 1akh.
Rate of Interest:
Presently, the returns on tax-saving FDs vary between 6% - 9% per annum, depending on their maturity
Tax-saving FDs are subject to a five-year lock-in period. For all other FDs, or the so-called unfixed deposits, which offer the facility to use whole or part of the FD?
No loans are available in this scheme. But many banks make it easy to withdraw part of whole of FD with loss of interest.
Tax-saving FDs with a locking of five years offered by banks are eligible for deduction up to Rs.11akh under sec 80C of the Income-Tax Act, 1961. However, interest accrued is taxable and deducted at source if the interest income exceeds Rs.SOOO per annum.
1.9 - Role of SEBI:
The Securities and Exchange Board of India (SEBI) has been mandated to protect the interests of investors in securities and to promote the development of and to regulate the securities market so as to establish a dynamic and efficient Securities Market contributing to Indian Economy.
SEBI strongly believes that investors are the backbone of the securities market. They not only determine the level of activity in the securities market but also the level of activity in the economy.
However, many investors may not possess adequate expertise/knowledge to take informed investment decisions. Some of them may not be aware of the complete risk-return profile of the different investment options. Some investors may not be fully aware of the precautions they should take while dealing with market intermediaries and dealing in different securities. They may not be familiar with the market mechanism and the practices as well as their rights and obligations.
In this backdrop, SEBI launched a comprehensive education campaign aimed at creating awareness among investors about securities market, which has been christened - "Securities Market Awareness Campaign" (SMAC). The motto of the campaign is - 'An Educated Investor is a Protected Investor.' The campaign was launched at the nationa11eve1 by the then Prime Minister, Shri Ata1 Bihari Vajpayee, on January 17, 2003.
• Buy or sell shares only through recognized share brokers registered with SEBI and the regional Stock Exchanges.
• Ensure that the Broker's stamp along with SEBI registration number is affixed on the reverse of the transfer deed.
• If you find that the transferor has signed through a Constituted Attorney, please ensure that the registration number is mentioned on the reverse of the transfer deed.
• Intimate loss of share certificates immediately. Give details of share certificate numbers and/or distinctive numbers of shares covered by lost certificates together with duly accepted police complaint (FIR). Upon receipt of such intimation we shall advise you as to the procedure to be followed for obtaining duplicate share certificates.
• Hold shares in joint names to avoid procedural difficulties involved in the transmission of shares on the death of a shareholder.
• All requests for transfer, consolidation, split and deletion are normally processed within an average period of 7 to 10 days. If you do not receive any response within 25 days of lodgment of your request, please contact us with details and documents. This is to protect your interest against any possible loss or interception during postal transit.
• For deletion of the name of a deceased shareholder, submit a certified copy of the death certificate along with the relevant share certificates, so that the name of the deceased member can be deleted from the share certificate and the Company's record.
• All intimations of change in name, change in status, change in address, etc, should be signed by all joint holders as per specimen signature(s) recorded with the Company. This should be accompanied by certified copies of all relevant documents.
• If you have more than one folio with the Company we strongly recommend that you merge your holdings into one folio and help your Company save costs.
DA TA ANALYSIS
2.1 - An analysis of behavioral aspects of investors:
My data analysis basically includes those factors which effects the investment decision of investors while creating the investment portfolio.
Q -1: Age of Investors:
Age Group 20- 30 30 - 40 40 -50 50 - 60 >60
Investors 46 23 24 6 1 Chart 1
1. In Which category of age group you are falling?
It can be said that form the above graphical presentation that, people prefer to make the investment portfolio right from the young age when they start earning. The new generation has become smart enough that they understand the value of money and put emphasis on saving along with spending. They expect that if we will invest right now then we will get return for future after a few years. Investment at the young and middle stage in life is highly preferable, generally at the age of 50- 60 years investors save for retirement.
Q 2: Educational Qualification of Investors:
Education No. of Respondents
Under Graduate 10
Post Graduate 48
Other 2 Chart 2
• Under Graduate
2.What is your Education Qualification?
• Post Graduate
The investor's education level also contributes in a pattern of investment. The literate and learned investors can think in a better way and can take more logical decisions. They can rely on their individual decision and influence of other sources can affect less on their own decision.
Here it can be said that investor's awareness in the case of graduate and post graduate level is more than compare to those who are under graduate investors. There were few investors who have not even completed education up to higher secondary level, such investors can rely highly upon the external sources like brokers and television and they are dependent on others for their decision making.
Q 3: Occupation:
Type of Occupation No. of Respondents
Govt. Employee 40
Employee in Pvt. Co. 15
Own Business 24
Other 6 Chart 3
• Govt. Employee
• Emp. In Pvt. Company?
3. What is your Occupation?
• Own Business
Occupation of investors ultimately decides the amount that they can generate as income for the whole year. The investors divide a portion of money as their savings. Occupation of investors can effect the investment because income of business class person will be higher than govt. employee, the ultimate decision of investment and choice of security will be different, moreover the treatment of taxation also differs, so that it is important to know the investors occupation level first. The occupation of investors plays a vital role in determining the status of the person and his family in the society and the standard of living.
Q 4: Total Income:
Income(Rs. In No. of Respondents
Less than 1.5 19
Less than 2.5 32
Less than 5 41
5 or More than 5 8 Chart 4
• Less than 1.5
4. What is your yearly income?
• Less than 2.5
• Less than 5
• 5 or more than 5
The income is the parameter by which the investor can measure their caliber to invest their money. The income investors can be affected by the tax on that, so ultimate taxable income should be arranged by the investors to make their financial plan. The investors earn for the purpose of meeting their expenditure and the rest amount they keep as saving to meet the uncertainty in future. Generally no one can disclose the right amount of their income due to tax fear so; here the data available might be understood on approximate basis for the explanation.
Q 5: Preference (Choice of Instrument> of Investment:
Generally investors like to choose the combination of securities in their portfolio from the following instruments of investment.
• Non - Security Form ofInvt.
• Real Estate
• Equity Shares
• Preference Shares
• Financial Derivatives
• Mutual Fund From the above option choices the non - security form further includes following types:
Deposits with Banks Bullions
Social Security Funds like, Kisan Vikas Patra Post Office Saving
There were many investors, who use combination of instruments in the portfolio construction. Some of the most popular investment patterns can be explained as under,
Equity, Mutual Fund, Bullion, Insurance, Real Estate
Equity, Bond, Post office Saving, Bank Fix Deposit, Bullions Social Security Fund, Real Estate, Derivatives, Equity
It is not possible to know exact pattern but overall it can be analyzed the following trend,
Instrument No. of Respondents
Invest in only 1 Instrument 2
Invest in multiple instruments 98 Chart 5
• Invest in multipul instrument
5. Where do you prefer to invest?
• Invest in single instrument
Out of the total sample SIze 2% only invest in single instrument, while remammg 98% respondents invest in various combinations the general pattern of investment in most popular instruments had been founds as under:
Bank fix deposit, Insurance, Equity share, Preference share 21
Insurance, Bank fix deposit, Real estate, Bullions 34
Bond/Debenture, Real estate, Equity share, Mutual fund 25
Mutual Fund, Post office scheme, Bullions, Insurance 18 Chart 6
• Bank fix
deposit, Insurance, Equity share, Preference share
Preference in most popular investment Instrument
• Insurance, Bank fix deposit, Real estate, Bullions
• Bond/Debenture, Real
estate, Equity share, Mutual fund
• Mutual Fund, Post office scheme, Bullions, Insurance
However in choice of single investment instrument respondents like to choose commodity, equity, bond, post office scheme, bank fixed deposit, mutual fund, insurance, real estate, preference shares and bullions etc. the investment in single factor is preferred in a less manner because ultimately it increase the financial risk in a part of investor, while investing in many security can diversify the overall risk of the investment portfolio and makes cash flow for longer and shorter period of time, but the investor needs to make a sound planning in an order to construct the diversified portfolio with different securities.
Q 6: Criteria of Investment:
Investors set various criteria as key characters for their investment choice; based on the set standards they give preferences to the investment instruments. Normally investors look following criteria in the securities.
• Risk and Return
• Past Performance
• Safety and Security
• Market Trend
• Time Period and Maturity
• Performance of AMC and Fund Manager
However investors do not prefer to choose single factors in all cases, there are many investors who look multiple criteria as per their need of investment.
Approach No. of Respondents
Single Factor 8
Multiple Factors 92 Chart 7
• Single Factor
• Multiple Facto
6. Which factordid ou emphasis the most at the time of investment decision?
8% respondents have limited their choice up to the single factors only as mentioned the factors above the graph. Remaining 92%100k for various combinations of factors for their investment preference. We can understand the criteria to choose multiple factors from the following combinations.
Risk and Return, Security, Liquidity, Maturity
Risk and Return, Past Performance, Safety and Security
Risk and Return, Market trend, Mutual Fund Participants (Sponsor and AMC) Risk and Return, Security, Liquidity, Maturity, Past Performance
Risk and Return, Security, Liquidity, Maturity 20
Risk and Return, Past Performance, Safety and Security 25
Risk and Return, Market trend, Mutual Fund Participants (Sponsor and AMC) 15
Risk and Return, Security, Liquidity, Maturity, Past Performance 32 Chart 8
• Risk and
Return, Security, Liquidity, Matur ity
• Risk and Return, Past Performance, Safety and Security
• Risk and Return, Market
trend, Mutual Fund Participants (Sponsor and AMC)
• Risk and
Return, Security, Liquidity, Matur ity, Past Performance
Criterias for various securities
It is clear from the above factors that risk and return are prime factors that every investor as an individual and multiple factors always look for. It depends upon nature of security that suppose, an investor wants to invest in mutual fund, he will look Mutual Fund participants, risk and return and, overall market view, while another investors wants to invest in equity will look for past performance due to investment in long term by nature. The single factor looking investors might choose non - security forms due to the limitation and constrains of money, time etc.
Q 7: Approximate % of income in total investment:
Percentage No. of Respondents
o to 10 16
10 to 20 40
20 to 30 36
More than 30 8 Chart 9
7. Approximately what % of your income you prefer to invest?
• More Than 30%
In this question investors have respond that normally they remain on different category, Majority had replied that they invest up to 10% to 30% to secure future because the family responsibilities are increasing nowadays so, in an order to deal with them the people keep their money as a saving in large amount and invest it in to the right option as per their requirement. Investment has become as a prime understanding for everyone, and day by day the total volume of percentage of investment is increasing, it shows that people put more emphasis on investment in various instruments as per their capacity and savings.
Q 8: Source of Information:
Investors got the information and guidance from various sources available to that, the first and a foremost source is their own logic by which investor primarily built the choice and further to make their choices strengthen they take further help of sources. Those who are educated and can think logically will try to take decision faster than those who rely on some other sources. Various sources of information and guidance about the investment instruments are as under, which can give better understanding to investors.
Knowledge of Investor
News Paper and Magazine Audiovisual media advertisements Hoardings
Brokers and Sub Brokers Financial Advisors Family and Friends
Here for better understanding we can divide the response of investors in to three categories.
Sources of Information No. of
Single Source 24
Multiple Sources 76 Chart 10
• Single Source
8. How do you get information for investment?
• Multiple Source
There were 24 respondents who get the information through single source only, i.e. television, brokers, internet etc, but they do not prefer to take rational decision they specify that taking investment decision through their own knowledge is risky task.
Other 76 respondents takes decision on the basis of multiple sources one is their own knowledge and search, the other is supported with various sources like brokers, television, news paper, magazines, internet, etc. They prefer to do so because they believe that along with your own knowledge a supportive source is necessary to take right decision of your investment.
The vanous combination of multiple sources includes the following choices for media and
News Paper, Television, Broker
News Paper, Internet, Television, Family And Friends, Broker Hoardings, Television, Financial Advisor, News Paper Newspaper, Financial Advisor, Television
News Paper, Television, Broker, Own Knowledge, Magazines 20
News Paper, Internet, Television, Family And Friends, Broker, Own Knowledge 17
Own Knowledge, Hoardings, Television, Financial Advisor, News Paper 23
Newspaper, Financial Advisor, Television, Own Knowledge 16 Chart 11
Multiple Source of Information
Paper, Television, Broker, Own Knowledge, Magazines
Paper, Internet, Television, Famil y And Friends, Broker, Own Knowledge
Knowledge, Hoardings, Television ,Financial Advisor, News Paper
Q 9: Preference of Tax saving purpose:
Preference No. of Respondents
No 22 Tax has been considered as one of the most crucial factor sometimes people with high income will try to hide tax through various tax evasion techniques they invest for the purpose of black money generation. There were 78 respondents who prefer investment for special purpose of tax saving those, who belong to business class or own profession and with the high income try to arrange investment for the purpose of tax planning.
9. Do you invest for tax saving purpose?
If No, The other option in this question was: if no, what is your investment purpose? There were 22 respondents whose investment purposes were different. People have given various reply that some of them wants to invest for building the money, some of them invest for saving, some of them invest for income generation, some of them have special provision of their children, spouse. Many invest for securing the future, retirement planning etc. we can say that tax effects the investment but it is not the only purpose of investment. The tax saving can be one of the factor but people invest for more than one factor as the basic purpose.
Q 10: Expected Return:
Percentage No. of Respondents
o to 5 2
5 to 10 48
10 to 15 40
15 to 20 10 Chart 13
10. What is your expected return if you invest for the purpose of tax saving?
Those 78 respondents who, invest for the purpose of tax saving, expects the above mentioned pattern of expected return. The remaining 22 respondents who have other purposes for the investment use to divide total expected return in to various categories as per their need and their choices regarding securities in the investment portfolio set the expected return in the following pattern.
Percentage No. of Respondents
o to 5 1
5 to 10 5
10 to 15 12
15 to 20 4 Chart 14
If you are not investing for the of tax saving what is your expected return?
Here we can say that out of 100 respondents, for 22 respondents tax is not the prime importance, other objectives are still comes first. Investors prefer to expect return between 5 - 15% scales. They believe in the return they can get form the investment should neither too low nor high. Here 78% investors prefer to expect between 5 to 15%, it shows that they invest for the genuine reason and not for tax hiding. Here we can say that these classes reflect the social category of upper middle, and middle class people of the society. The various purposes of investment reflect the need of investors and their preferences for their family requirement and their own future.
Qll: Risk Taking ability: Normally investors are risk averse, they measure risk with different profiles.
Profile of Risk No. of Respondents
Moderate 20 Chart 15
11. What kind of risk you prefer to take?
The risk measurement of investors differs as per their perception and thinking pattern. Majority of investors are risk averse, so that they measured the risk at the lowest level and do not prefer to take risk. There are only few investors who like to do speculation and they take risk, there are only 8% of investors who do so. Most of the investors divide in low, medium and moderate risk. Amongst these three moderate means, over a period of time risk can be minimized. The investors expect return but they can not take more risk, so they have to playa smart trade off between risk and return as per the nature of security and their preferences to invest in the portfolio. Investors can measure the risk in a better way by information search through various sources of media and with the help of their own knowledge and logic.
Q 12: Size of Family:
No. of Family Members No. of Respondents
Less than 5 69
5 or More than 5 21 Chart 16
• Less than 5
12. How many members are there in your family?
• 5 or more than 5
An investor's family influences the investment decision, because suppose there are 2 members a young married couple will plan their investment in such a way so that they can get the liquidity securities and high return, they need money to be settle in the life, so they will choose the option in those security which can give more amount in short time period. On the other hand in a joint family investment choice will depend upon each members, like parents, husband - wife and their children. The investment decision here includes the combination of various securities that of both long term and short term, with steady and more return. If in the family 2 members only and they are of old age then they will invest in retirement plan or social security option for reliable investment source and for the low risk.
More than 1 52 Table 17
• More than 1
How many of your family members are earning?
Out of 100 respondents 48 are single earning member in their family while in other family more than one members are earning. In family where more than one members are earning their investment capacity is high and they are investing in various financial instruments and focusing on first taking insurance of family members for safety purpose. They are able to take more risk. Single earning member families are invest mainly for tax saving purpose and invest in low risk instruments. They are focusing investment for future security and regular income rather than taking risk.
• Investors prefer to make diversified portfolio. They arrange total allocation in such a way that diversification across various securities reduce the overall risk and balance their portfolio. They prefer to make the portfolio in such a pattern that the portfolio includes various kinds of securities like, long - term &short - term investment, equity, debt, non - security forms like insurance, bullions etc.
• Many investors are not fully aware about vanous factors of investment portfolio they measure the portfolio by only two factors risk and return. Relationship of ability to bear risk and expectation of return both are found as complementary and sometimes as contradictory in case of investors psychological thinking pattern. They expect high return but not ready to take high risk.
• Each portfolio should be tailored to the particular needs of the investor:
Investors are not constructing their portfolio on a single base but they are looking for various aspects like knowledge, cost, tax, return, risk etc... The investors would liker to choose multiple factors for building combination of various investment options.
• There are various behavioral aspects that effect the investment decision and preference of an
investor, like age
size of family gender Income occupation
• Investors prefer to create a need base portfolio rather than blindly saving, they have set the criteria and need prior to the investment choice and based upon that they will search for best suitable options of investment.
• Non - security forms of investment is highly popular amongst those investors who belong to the age of 40 and above that. It offers lowest risk, steady return.
• Ultimately investors want high return as the major factor from any investment instruments in their portfolio.
• Size of the family effects the investment portfolio wit relation to the age of the investors; the number of family members can decide the need of investment and kinds of securities. As compared to male respondents females prefer to take less risk end expect those investment instrument which, can give steady return. They do not prefer speculation in investment.
• Normally investors seek multiple factors in the securities of their investment portfolio, those investors who are educated and have knowledge, will always look for combination of various characteristics in their portfolio like: risk and return, security, time frame, market trend etc.
• Investors do not invest all savings in single security only, they make combination in such a way that securities include all type of investments, like: long term, short term. Moreover investors give highest preference to the following instruments for investment.
Mutual Fund Equity Bond/Debenture Insurance Bullion
Bank fix deposit and Post Office Scheme
• Investors prefer to invest mostly by the brokers, family and friends, financial advisors and various sources of media like news paper, television, and internet. Online market of a particular security like equity shares, derivatives also considered as popular sources to get the information of investment decision. Investors use mainly two or more than two sources to decide where they should invest, for future growth of their savings.
• Newspapers, television, magazines and brokers/financial advisors are most popular sources to get information for investment decisions along with the own knowledge of investors. Investors normally prefer multiple sources for right decision making because according to them investment decision is most crucial decision, so that it should taken carefully after getting all relevant information and guidance.
• What Every Investor Should Do:
A) Save for Retirement:
B) Save for The Important Goals in Life:
C) Prepare a comprehensive Financial Plan
• They should make a detailed planning for goals & objectives in life keeping in mind their needs, potential to save and risk profile.
• Follow the Asset Allocation principle while making investment portfolio and for regular monitoring of the same.
How to take the Asset allocation decision:
• Over 90% of the portfolio performance in long run can be attributed to Asset Allocation decisions.
• An optimum Asset Allocation is complete when you invest proportions of each asset class in assets that suit your risk! investor profile.
• Asset Allocation can be into Equity, Debt and Cash. Physical assets can also be classified into these asset classes depending on the nature of the asset.
• As a basic strategy, the right investment in any asset is a balance of three things: liquidity, safety & return.
How to manage portfolio & make investment decisions:
• Portfolio management is different from financial planning. But it can be used as a part of the overall financial plan to make actual investment decisions.
• Choose your own ideal investment strategy. In asset selections, you may follow a Passive or Active strategies. Else you may adopt the Fixed & Dynamic approach to maintaining the AA on an ongoing basis.
• A passive investor is concerned with keeping with say a market or a benchmark, while an active investor seeks to exploit the opportunities offered by different asset classes.
• A Fixed AA strategy tells you when to buy & sell.. ... I.e. maintaining the decided AA.
Dynamic AA involves changing the Asset Allocation itself between different assets. You may also follow the Strategic AA principle where in you may define a specific target return say 12 % and maintain the assets mix to get it.
• The frequency of review would ideally be of say quarterly or half yearly with exceptions for any huge movements in specific asset classes.
Basic Principle of Wealth Creation:
• Following are basic principles that can help you greatly in meeting all the financial goals in life .....
• By starting early, you benefit from the "Power of Compounding" called as the 8th wonder of the world by Einstein
• Starting saving early would reduce the amount needed to save and would greatly increase your end wealth ...
• Every week / month you delay your wealth, you are potentially loosing a great deal of money.
• Continued saving, even though less, has greater impact on your end wealth than you imagmg
• Saving regularly grves you the advantage of automatic timing and rupee cost averagmg.
• Disciplined approach to investing is the ideal way to invest and lump sum investments have to be treated as bonus in addition to the disciplined savings ....
Invest in the Right Asset Class
• Selecting the right Asset Class has a huge impact on your end wealth... can potentially make the difference between a Lakhpati& a Crorepati ...
• Investing in assets like deposits, bonds, etc are not for wealth creation, but only for wealth. However, even this view is tricky since effective real (net of inflation) post - tax returns can easily be negative ..... Meaning you may be loosing your wealth!
• It is a well known fact that equities are the most ideal asset class to create long-term wealth.
Investment portfolio management is the most crucial thing that every investor must keep in mind. A Rupee Invested has been earned for wealth Creation is simple & easy ... and possible for all investors. For creating their portfolio investors should try to think by their own rationality and knowledge rather than influencing from others. The investor while taking the investment portfolio choice should keep in mind that one doesn't need to be wealthy to save, but one needs to save to be wealthy.
Y Research Methodology, Chapter 2,3,4 - C.R.Kothari, 4th Edition, Vishwa Prakashan. Y Investment Management, V.K.Bhalla, 11 th edition, Sultan Chand & Company Ltd.
Search Engine - www.google.co.in, www.bing.com, www.dogpile.com y www.incometaxindia.gov.in
y www.investorsdailyedge.com y www.sebi.org.in
Gender: Male D Female D
1) You are falling in the following category of age group: 20 - 30 D 30 - 40 D 40 - 50 D 50 - 60 D > 60 D
2) What is your educational qualification? Under Graduate D Graduate D Post Graduate D
Other D (Specify)
3) What is your occupation?
Govt. Employee D Employee in Pvt. Co. D Own Business D
Profession D Other D ---l.Specify)
4) What is your total income? (Rs. In lakhs)
Less than 1.5 D Less than 2.5 D Less than 5 D 5 or more than 5 D
5) Where do you prefer to invest?
Bank Fix Deposit D Post Office Saving Scheme D Insurance D
Bond/debenture D Real Estate D Bullions(Gold/Silver) D Financial Derivatives D Mutual Fund D Preference Shares D Equity Shares D
Other D (Specify)
Do you invest in 1 instrument only? D
Do you invest in Multiple Instruments? D
6) In all of the above options which factors did you emphasis the most at the time of investment decision?
Risk and Return D Past Performance D Liquidity D Safety & Security D Market Trend D Time frame and maturity period D
• If in Mutual Fund, performance of AMCI Fund Manager D Do you Consider 1 factor only? D
Do you Consider multiple factors? D
7) Approximately what % of your income you prefer to invest? 1 - 10 % D 10 - 20 % D 20 - 30% D More than 30 % D
8) From which sources do you get information, about investment?/ How do you decide, where to invest?
Independent decision by your knowledge D Newspaper and Magazines D Brokers and sub brokers D Financial Advisors D Hoardings D Audio/visual media advertisements D Family and Friends D
Do you follow Single Source ofInformation? D Do you Multiple Sources of Information ? D
9) Do you invest for tax savings purpose? Yes D No D
• If No, What is your investment purpose? (Specify)
10) What is your expected return if you invest for the purpose of tax saving? 0-5 % D 5 - 10 % D 10 - 15 % D 15 - 20 % D More than 20 % D
• If you are not investing for the purpose of tax saving, what is your expected return? 0-5 % D 5 - 10 % D 10 - 15 D 15 - 20 % D More than 20 % D
11) How do you measure risk with reference to your expected return and investment type?
Medium D Low D Moderate D
12) How many members are there in your family? 2 D Less than 5 D 5 or More than 5 D
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