“A STUDY ON VARIOUS INVESTMENT OPPORTUNITIES AND

INVESTMENT PATTERN OF SALARIED PEOPLES”

A PROJECT REPORT

Submitted by
VAISHAK P
REG. NO: NA16BS0122

Under the supervision of

MS. SUNENA M R
Assistant Professor
Dept. of Commerce

In partial fulfillment of the requirement for the award of the Degree in

BACHELOR OF COMMERCE

KANNUR UNIVERSITY
2018-19
 BONAFIDE CERTIFICATE

This is to certify that this project report entitled “A STUDY ON

VARIOUS INVESTMENT OPPORTUNITIES AND INVESTMENT

PATTERN OF SALARIED PEOPLES” is the bonafide work done by

VAISHAK P(NA16BS0122) III year B.COM of School of Distance Education,

Kannur University, who carried out the project work under my supervision.

Ms. SUNENA M R

ASSISTANT PROFESSOR

DEPT. OF COMMERECE
 DECLARATION

I, VAISHAK P hereby declare that the project report entitled as “FINANCIAL

PERFORMANCE ANALYSIS OF POORNA CHANDRA PIPE INDUSTRY
WITH SPECIAL REFERENCE TO RATIO ANALYSIS” has been prepared
by me and submitted to Kannur university in partial fulfillment of the requirement
for the award of the Degree of Bachelor Of Commerce, is a record of original
work done by me and under the supervision of Ms. SUNENA M R, Assistant
Professor, Department of Commerce.

I hereby declare that, this report has not been submitted to any other university for
the award of any other degree, fellowship or any similar title

Place : PERIYA VAISHAK P

Date: NA16BS0122
 ACKNOWLEDGEMENT

A research report usually falls short of its expectation unless guided by the right
person at the right time. Success of a research report is an outcome of sincere
efforts, channeled in the right direction, efficient supervision and the most valuable
professional guidance. This research report would not have been completed
without the direct and indirect help of such luminaries. They provided me with the
necessary resources and the atmosphere conductive for healthy learning and
training.
At this outset I sincerely thank GOD, the almighty who helped me not only in
this work but also in all my endeavor. I would also like to take this opportunity to
thank my guide, Ms. SUNENA M R, Assistant Professor, Department of
Commerce who has critically evaluated my each step in developing my research
report.
Lastly, I give my sincere thanks to all those who have helped me in this
research report, and also to all the respondents of this research report. I extend my
deep sense of gratitude to all my family, friends and all others who have directly or
indirectly encouraged and helped me to complete my project successfully.

VAISHAK P
NA16BS0122
 TABLE OF CONTENT
CHAPTER 1
INTRODUCTION

Sl.No TITLE PAGE NO.

1.1 INTRODUCTION 1

1.2 STATEMENT OF THE PROBLEM 2

1.3 SIGNIFICANCE OF THE STUDY 2

1.4 SCOPE OF THE STUDY 2

1.5 OBJECTIVES OF THE STUDY 2

1.6 METHODOLOGY 2

1.7 DATA COLLECTION APPROACH 3

1.8 LIMITATIONS OF THE STUDY 3

CHAPTER 2
REVIEW OF LITERATURE

Sl.No TITLE PAGE NO.

2.1 REVIEW OF LITERATURE 4-7

CHAPTER 3
THEORETICAL FRAME WORK

Sl.No TITLE PAGE NO.

3.1 INVESTMENT 8

3.2 WHAT IS INVESTMENT? 8

 3.3 FINANCIAL AND ECONOMIC MEANING OF 8-9
INVESTMENT
3.4 INVESTMENT AVENUES 9-16

3.5 FEATURES OF AN INVESTMENT PROGRAMME 16-18

3.6 THE INVESTMENT PROCESS - STAGES IN 18-19

INVESTMENT
3.7 SUCCESS IN INVESTMENT 19-22

3.8 THREE APPROACHES TO SUCCEED AS AN 22-25

INVESTOR
3.9 INVESTMENT AND SPECULATION 22-27

3.10 WHAT CAUSES THE RISKS? 27-31

3.11 INVESTMENT AND GAMBLING 31

3.12 INVESTMENT AND ARBITRAGE 32-33

3.13 FACTORS FAVOURABLE FOR INVESTMENT 33-36

3.14 FUNDAMENTAL ANANLYSIS OF VARIOUS 36-38
INVESTMENT ALTERNATIVES
3.15 TYPES OF INVESTMENT 38
3.16 INVESTOR 38
3.17 CATEGORIES OF INVESTORS 39-40
3.18 SOURCES OF STUDY FOR INVESTORS 40-41

CHAPTER 4
DATA ANALYSIS AND INTERPRETATION

Sl.No TITLE PAGE NO.

4.1 DATA ANALYSIS AND INTERPRETATION 42-54

 CHAPTER 6
FINDINGS, SUGGESTIONS AND CONCLUSION

Sl.No TITLE PAGE NO.

5.1 FINDINGS 55

5.2 SUGGESSIONS 56

5.3 CONCLUSIONS 57

CHAPTER 7
BIBLIOGRAPHY

Sl.No TITLE PAGE NO.

7.1 BIBLIOGRAPHY 58

7.2 ANNEXURE 59-62

 LIST OF CHART
NAME OF THE CHART
No PAGE NO.

1 TABLE REGARDING TO KNOW WHETHER RESPONDENTS 43

INVEST
2 TABLE SHOWS AWARENESS REGARDING TYPES OF 43
INVESTMENT INSTRUMENTS
3 TABLE REGARDING TO KNOW THE TYPE OF INVESTMENT 44
OPTION THE PERSON HAS BEEN INVESTING
4 TABLE SHOWS THE RATES AT WHICH THE INVESTMENT 45
GROW
5 TABLE REGARDING THE FREQUENCY OF INVESTMENT BY 46
THE RESPONDENTS
6 TABLE SHOWING THE PERCENTAGE OF INCOME THAT 47
RESPONDENT INVEST ANNUALLY
7 TABLE SHOWING PURPOSE OF INVESTMENT 48

8 TABLE REGARDING THE RESPONDENT’S INFLUENCE ON 49

INVESTMENT DECISION
9 TABLE SHOWING THE FACTORS THOSE WERE CONSIDERED 50
WHILE INVESTING
10 TABLE SHOWS INVESTOR’S ACTION IN CASE OF STOCK 51
MARKET DROP
11 TABLE REGARDING THE DECISION REGARDING OTHER 52
INVESTMENT POLICY
12 TABLE SHOWS THE SATISFACTION LEVEL OF 53
RESPONDENTS WITH THEIR INVESTMENT OPTION
 CHAPTER 1

INTRODUCTION
1.1 INTRODUCTION

In the present day investing money has become a very complex task. Most of
the investors are unaware of the fact that investing is both an art and a science. Majority of
people irrespective of their education, status, occupation etc, are fascinated by investments.
Investment is an economic activity in which every person is engaged in one form or another.
Even though the basic objective of making investment is earning profits, not everybody who -
makes investment benefits from it. Those who incur losses have not managed their funds
scientifically and have just followed others blindly. All investments are risky to some degree
or other as risk and return go together. The art of investment is to see that the return is
maximized with the minimum degree of risk. Investment is the process of, ‘sacrificing
something now for the prospect of gaining something later’. Our definition implies that there
are three dimensions to an investment- time which involves creation of assets or exchange of
assets with profit motive. it is the employment of funds with the purpose of earning additional
income or growth in value. The person making investment has to part with his funds. The
funds may be converted into monetary assets or a claim on future money for a return. This
return is an award for abstaining from present consumption for parting with the money or
liquidity and for taking a risk. The risk may be about the return on investment, time of
waiting, cost of getting back funds, safety of funds, and variability of the return.

"Sacrifice of certain present value for some uncertain future value"

- Sharpe/Alexander

The developing countries like India face the enormous task of finding sufficient capital in
their development efforts. Most of these countries find it difficult to get out of the vicious
circle of poverty of low income, low saving, low investment, low employment etc. With high
capital output ratio, India needs very high rates of investments to make a leap forward in her
efforts of attaining high levels of growth. Since the beginning of planning, the emphasis was
on investment as the primary instruments of economic growth and increase in national
income. In order to have production as per target, investment was considered the crucial
determinant and capital formation had to be supported by appropriate volume of saving.

1
1.2 STATEMENT OF THE PROBLEM.

Problem formulation is the first step in the research process. Problem formulation
identified that for which research is to be carried out. In order to avoid waste in time and
money, it is necessary to define the problem in specific terms through this we can arrive at a
hypothesis or presumption and a refinement of the problem definition. A problem should
neither be defined too broadly nor too narrowly.

1.3 SIGNIFICANCE OF THE STUDY

The need of the study was to fill the gap that was identified in the previous researches.
The researchers conducted earlier lay emphasis on the customer perception bout securities
considering the ample importance of this aspect the present study was conducted to know the
pattern of investment of salaried people and study the behaviour of investors and determine
their awareness level regarding investment avenues available in the stock market.

1.4 SCOPE OF THE STUDY

This study is focusing on the preference of Investments by salaried class people and it
will be helpful to identify the better investment options in the market. The scope of the study
is limited to Roper city.

1.5 OBJECTIVES OF THE STUDY

Behaviours of investors and determine their awareness level regarding investment

avenues available in India. Specifically the study seeks attain the following objectives

1. To study the investment preference among salaried people working in different

sectors
2. To know the factor that influencing investment behavior of the peoples
3. To analyze the investment pattern among the salaried investors.
4. To find the problems facing by the investors
5. To know the mode of investments of the salaried respondents in various investment
avenues

1.6 METHODOLOGY

This report draws primarily up on qualitative data collected from Salaried Individuals.

2
1.7 DATA COLLECTION APPROCH

To achieve the objective of the study, both primary and secondary data are used.

A. Primary source
 Questionnaire
 Interview
B. Secondary sources.
 Information from internet
 Magazines, newspapers and journals.

1.8 LIMITATIONS OF THE STUDY

It I said. “What is worth doing best”. In other words a person should aim at perfection.
However in real life this is not always possible. Human have to work within the limitation set
by the nature and society that is to say even though every effort has been made to make this
project report authentic and comprehensive however many constraints were also at play.lhe
major limitations of the study are:

1. Due to paucity of time and resources a country wide survey was not possible hence
only Kanhangad town in the Kasaragod District has been taken for the study.
2. Since a smaller sample was chosen so it may not be a true representative of the
population under study.
3. Most of the study was restricted to internet and published data became of the non
availability of primary data.
4. The information given by the respondents might be biased because some of them
might not be interested to given correct information.
5. Some of the respondents could not answer the questions due to lack of knowledge.
6. Some of the respondents of the survey were unwilling to share information.

3
 CHAPTER 2

REVIEW OF LITERATURE
2.1 REVIEW OF LITERATURE

1. An empirical analysis on preferred Investment avenues among rural and semi urban
households. kantidas Sanjay (2011)

The study reveals that in most cases investors across all categories found them to be safer
with taking up the insurance policies. A significant proportion of respondents also show keen
preference towards unit linked insurance policies so as to get short term gain. It is also
observed that most of the respondents show their keen interest towards the insurance products
so n to get tax benefits. life protection and average profitable Investment avenues. This is
perhaps the most striking features of general investor» and the most important factor that
Influences the Investment decision. Further. It is observed that the level of Income also
Influences the investment daemons. Higher income group thaws relatively high preference
towards Investment in share market. Conversely lower and average Income group shows
keen preference towards insurance and banks as the most preferred Investment avenues.

In fine, the changing pattern of Indian household savings is the result of a number of factors.
The household savings in India has experienced a variety of changes over the past one or two
decades. The changes in lifestyles and consumption models in a developing country like India
have also contributed towards those variations. The trends of investment by households are
not similar in nature and they vary between several financial Instruments. This results from
the changing preference of the investors. Previously, household savings in financial securities
out performed household savings in physical properties. Nonetheless, the trend has changed
now. Household savings in physical properties are greater than household savings in financial
instruments. This is assumed to be a consequence of a preliminary preference shift. (Kantidas
Sanjay(201 l)Journal front line research in art and science .Pg no.26-36)

2. Savings and Investments Attitude of Salaried Class in CUDDALORE District

L. Pandiyan. Dr. T. Aranganathan May-June 20l2)

Investment climate must attract the people to save from their income at times even by
forgoing the enjoyment of comforts and luxuries. Countries can never sustain development
unless they have adequate savings. So, Favourable climate is to be assured by the government
to provide investment climate guaranteeing acquisition, maintenance and liquidation of
assets. Since savings is the main factor for investment. the government though legal measures
encourage savings accumulation. For the growth of a disciplinant investment market a well

4
organized monetary system though protecting the investments against the eves of inflation or
depletion is to be kept by government. (Pandiyan. Dr. T. Aranganathan . IOSR Journal 01
Business and Management May June 2012 pg no.40-49)

3. Investment Pattern of Salaried People - A study in Coimbatore district

R. SreePriya .P. Gurusamy (Jan 2013)

This study has made an attempt to analyze the saving and investment pattern of salaried class
Investor. An in dept is done to identify the attitude. factor Influencing investors to save and
savings preference of investors. It is hoped that the saving public (particularly salaried class)
WI" analyse their savings and investment. The study identified the problem faced by the
investors and the impending problems could be solved in the right direction. (R. SreePriya .P.
Gurusamy} international journal of scientific research ,issue l)

4. A study of investment perspective of salaried people (private sector)

Prof. CA Yogesh P. Patel; Prof. CS Charul Y. Patel (Oct 2012)

Investment is the employment of funds With the aim of getting return on it; It is the
commitment of funds which have been saved from current consumption With the hope that
some benefits will accrue in future. Thus, it is a reward for waiting for money. So the lint step
to investment is savings. In common usage, savings generally means putting money aside, for
example, by pulling money In the bank or investing in a pension plan. In a broader sense,
savings is typically used to refer to economizing, cutting costs, or to rescuing someone or
something. In terms of personal finance, savings refers to preserving money for future use
typically by putting it on deposit this is distinct from investment where there is an element of
risk. The main elements of Investments are Return, Risk and Time. This research aims to
study and understand the behavioural pattern of investment among the salaried people
working in private sector and the difference in perception of an individual related to various
investment alternatives. It also aims to provide an insight into factors considered for an
appropriate investment. Gives a wider scope to understand various issues related to
investment by salaried people. (Prof. CA Yogesh P. Patel) (Prof. CS Charul Y. Patel) Oct
2012. Asia Pacific Journal of Marketing & Management Review .pg no 145-146)

5
5. Investment Preferences of Salaried people.

Nanavati Nihar K (June 2012)

The investment ideology depends upon the individuality and many other factors. Here is an
attempt to find the solution to a problem of where to invest by a middle and lower income
level of the society. A market survey has been conducted of 25 people in sub-urban
Ahmadabad to identify their investment psychology and relevant preference. The survey is
giving us an insight towards traditional approach of savings and investment pattern. The
detailed analysis of the survey is presented hereunder. Inclination towards safe, secure and
tax beneficial investment is more than that of risky or high return investment. With lower
income segment, one cannot create wealth but with good combination of investment, one can
create a better and respectable living. Only a sample size of 25 in a mega city Ahmadabad
with large number of population the conclusion drawn is always a kind of limitation of
survey. The biased opinion and hesitant respondents are also the constraints of the ideal
study. (Nanavati Nihar K , Journal of Advances in Developmental Research June 2012)

6. A Study on People‘s Preferences in Investment Behaviour

N. Geetha, Dr. M. Ramesh (Nov 20l l)

The study on people's choice in Investment Choice has been undertaken With the objective.
to analyze the investment choice of people in Kurumbalur, Analysis of the study was
undertaken With the help of survey conducted. After analytic and interpretation of data it is
concluded that in Kurumbalur respondents are medium aware about various investment
choices but they do not know aware about stock market, equity, bound and debentures. The
study is conducted by taking a limited number of sample sizes which is stated whet. And this
study reflects the perceptions of those respondents who ate residing in Kurumbalur. There
might be a chance that the perceptions of the respondents of different are varied due to
diversity in social life, living pattern, income level etc. All the age groups give more
important to invest in Insurance, NSC, PPF and bank deposit. Income level of a respondent is
an important factor which affects portfolio of the respondent. Middle age group, Lower
income level groups respondents are preferred to invest in insurance, NSC, PPF and bank
deposit rather than any other investment avenues in Kurumbalur respondents are more aware
about various investment avenues like Insurance, PPF, bank deposits, Small savings like post
office savings etc. For that awareness program has to be conducted by Stock Brokering firms

6
because most of the respondents unaware about this new service and about stock mantel. (N .
Geetha, Dr. M. Ramesh, IJMER.Nov 2011)

7. Mutual Fund Attributes and Investor Behaviour(Feb 2006)

This paper analyzes the dynamics of investor fund flows in a sample of socially screened
equity mutual funds. Mutual fund companies, which continually compete to offer new funds
in an effort to attract investor capital, can expect SR investors to be more loyal than investors
in ordinary funds. Nicolas P.B. Bollen (Feb2006)

8. Mutual fund b the better Investment plant2005)

Institute of management technology Ghaziabad

In few years mutual funds has emerged as a tool for financial well being. Mutual fund% have
not only contributed to the growth story but have also helped families tap into the success of
Indian Industry. This paper analyse the market research on saving and investment practices of
the investor and preference of the investment in mutual funds. Akilesh Mishra (2005)

9. Gold etfs : An emerging investment option (2008)

An investor has numerous investment option to choose from depending on his profile and
expectation of returns .different investment options represent risk-reward trade off .of the
various types of Investment options in stock market, gold exchange traded funds.(Asia
pacific journal of research in business management Dr.Prashnata Athma (2008)

10. Awareness of commodity market with reference derivative investor. (2009)

Commodity futures markets are new and emerging market. The awareness of the market is
very less among the investor who can use this trade to sell their products without the
middlemen or agents it also help the actual buyer too.

Here trader also can transfer his risk to some other who can handle it or can appetite the risk
trough hedging technique.

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 CHAPTER 3

THEORATICAL FRAME WORK

3.1 INVESTMENT

Investment is the sacrifice of certain present value for the uncertain future reward. lt
entails arriving at numerous decisions such as type, mix, amount, timing, grade etc of
investment and disinvestments. Further such decisions making has not only to be continuous
but rational too. Instead of keeping the savings idle you may like to use savings in order to
get return on it in the future, which is known as ‘investment’. There are various investment
avenues such as Equity, Bonds, Insurance, and Bank Deposit etc. A Portfolio is a
combination of different investment assets mixed and matched for the purpose of achieving
an investor's goal. There are various factors which affects investors' portfolio such as annual
income, government policy, natural calamities, economical changes etc.

3.2 WHAT IS INVESTMENT?

Investment is the employment of funds with the aim of achieving additional income or
growth in value. The essential quality of income is that, it involves ‘waiting ‘for a reward. It
involves the commitment of resources which have been saved or put away from current
consumption in the hope that some benefits will occur in future. The term ‘investment’ does
not appear to be a simple as it has been defined. Investment has been categorized by financial
experts and economists. It has also often been confused with the term speculation.

3.3 FINANCIAL AND ECONOMIC MEANING OF INVESTMENT

Investment is the allocation of monetary resources to assets that expected to yield some gain
or positive return over a given period of time. These assets range from safety investment to
risky investments. Investments in this form are also called ‘Financial Investments’. To the
economists, ‘Investment’ means the net additions to the economy’s capital stock which
consists of goods and services that are used in the production of other goods and services. In
this context the term investment implies the information of new and productive capital in the
form of new construction, new producers’ durable equipment such as plant and equipment.

8
 Inventories and human capital are included in the economist’s definition of investment. In
simple words 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 as
an investment, real estate, or collectibles. Valuation is the method for assessing whether a
potential investment is worth its price. Types of financial investments include shares or other
equity investment, and bonds (including bonds denominated in foreign currencies). These
investments assets are then expected to provide income or positive future cash flows, but may
increase or decrease in value giving the investor capital gains or losses

3.4 INVESTMENT AVENUES

In India, numbers of investment avenues are available for the investors. Some of them are
marketable and liquid while others are non-marketable and some of them also highly risky
while others are almost risk less. The investor has to choose Proper Avenue among them,
depending upon his specific need, risk preference, and return expected.

Investment Avenues

Real Estate Commodities Misc Debt Equity

EstateAven e EstateAven
ues ues
Apartments/ Gold Art Cash FDs Share/stocks
Plots Silver POMIS, PPF
Residential NSC, EPF Mutual Funds
Commercial Mutual Funds NPS, KVP Equity
Gold ETFs Bonds diversified
Mutual Funds Senior Citizen Schemes Balanced funds
Real Estate Fixed Maturity Plans ELSS
Mutual Funds Thematic
Mutual Funds Exchange
Fixed Income traded
Balanced Index
Floating Rate
Gilt Liquid, Liquid Plus Insurance
ULIPs – Equity
Insurance
portion
Traditional-Endowment
Traditional-Whole Life
Traditional-Money Back
ULIPs-Debt portion

9
Investment avenues can broadly be categorized under the following heads

1. Corporate securities
a. Equity shares
b. Preference shares
c. Debenture/Bonds
d. GDR’s/ADR’S
2. Deposit in bank and non banking companies
3. Post office deposits and certificate
4. Life insurance policies
5. Provident fund schemes Government and semi-government securities
6. Mutual fund and schemes
7. Real estate

1. Corporate securities:

a. Equity share

Total equity capital of a company is divided into equal units of small denominations, each
called a share. The holders of such shares are members of the company and have voting
rights. When company makes profit shareholder receives their share of the profit in form of
dividends. In addition, when company performs well and the future expectation from the
company is very high, the price of the companies share goes up in the market.

Investor can invest in shares either primary market offerings or in the secondary market.

b. Preference shares

Preference share as that part of share capital of the Company which enjoys preferential right
as to: (a) payment of dividend at a fixed rate during the lifetime of the Company; and (b) the
return of capital on winding up of the Company. It is lie in between pure equity and debt. But
preference shares cannot be traded, unlike equity shares, and are redeemed after a pre-

10
decided period. Also, Preferential Shareholders do not have voting rights. These are issued to
the public only after a public issue of ordinary shares.

Preference shares also get traded in the market and give liquidity to investor. Investor
can opt for this type of investment when their risk performance is very low.

c. Debentures and Bonds

It is a fixed income (debt) instrument issued for a period of more than one year with the
purpose of raising capital. The central or state government corporations and similar
institutions sell bonds. A bond is generally a promise to repay the principal along with a fixed
rate of interest on a specified date, called the Maturity Date.

Many types of debenture and bonds have been structured to suit investors with
different time needs. Though having higher risk as compared to bank fixed deposits, bonds
and debentures do offer higher returns. Debenture instruments require scanning the market
and choosing specific securities that will cater to investment objectives of the investor.

d. Depository Receipts (GDRs/ADRS)

Global depository receipts are the instrument in the form of a depository receipts or
certificate created by the overseas depository bank outside India and issued to non-resident
investors against ordinary shares. A GDR issued in America, is an American Depositary
Receipts. As investors seek to diversify their equity holdings, the option of GDRs and ADR’s
is very lucrative, while investing in such securities, investors should identify the
capitalization and risk characterizes 0f the instrument and the companies’ performance in the
home country.

e. Warrants

A warrant is a certificate giving its holder rights to purchase securities at a stipulated price
within a specified time limit. The warrants act as a value addition because holder of the
warrant has the right but not the obligation to investing in equity at the indicated rate. An
option contract often sold with another security. For instance, corporate bonds may be sold
with warrants to buy common stock of that corporation. Warrants are generally detachable.
Options generally have lives of up to one year. The majority of options traded on exchanges
have maximum maturity of nine months. Longer dated options are called Warrants and are
generally traded over-the counter.

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2. Commercial Banks/Bank Deposits

Bank deposit is the simple investment avenue open for the investors. Commercial banks
provide to the investor both deposits which are liquid in nature, which has stability and which
also given an element of security. The following kind of deposits is provided by the bank.

a. Savings bank deposit

The most liquid form of investment is the maintenance of a saving bank account. The
deposits may be made at any time through the introduction of a person already having a bank
account or through the manager of the bank on completion of the formalities of filling a form
and having it certified, the investor can begin to operate association.

b. Current account

An investigator is also given the option of having a current account in the bank for
maintaining liquidity. A current account is usually open a business house of this current
account, the account holder is permitted to draw according to a fixed limited provided by the
bankers in agreement with the account opening association.

c. Recurring deposit

Recurring deposit is a made by which an investor may at regular intervals deposit a fixed sum
of money in bank.

d. Fixed deposit schemes

Each bank has certain special schemes. These schemes vary from bank to bank but the
maturity value is normally the same and the interest at a fixed deposit is specified from time
to time by the RBI. Fixed Deposits with Banks are also referred to as term deposits. Fixed
Deposits in banks are for those investors, who have low risk appetite. Bank F Ds is likely to
be lower than money market fund returns. Fixed deposits may be recurring deposits where in
savings are deposited at regular intervals or fixed deposits of varying maturities or with the
varying notice periods such as 15 days, etc. The interest rates on these deposits vary
depending on the maturity period, from 4 to 900. In general, it is lower for fixed deposits of
shorter term and higher for fixed deposits of longer term. If the deposit period is less than 90
days, the interest is paid on maturity; otherwise it is paid quarterly.

12
 e. Mutual fund schemes

Commercial banks in India have also started mutual fund schemes. The first bank take this
step was in 1987.

3. Company fixed deposits

For a manufacturing company the term of deposits can be one to three years, whereas for
non-banking finance company it can vary between 25 months to five years. A manufacturing
company can mobilize, by way of fixed deposits, an amount equal to 25 percent of its net
worth from the public and an additional amount equal to 10 percent of its net worth from its
share holders. A non banking finance company, however can mobilize a higher amount. The
interest rates on company deposits are higher than those on bank fixed deposits.

4. Post Office Time Deposits (POTDs):

Similar to fixed deposits of commercial banks, POTDs can be made in multiples of Rs 50

without any limit. The interest rates on POTDs are, in general, slightly higher than those on
bank deposits. The interest is calculated half-yearly and paid annually. No withdrawal is
permitted up to 6 months. After 6 months, withdrawals are permitted. However, on
withdrawals made between 6 months and 1 year, no interest is payable. On withdrawals after
1 year, but before the term of deposit, interest is paid for the period the deposit has been held,
subject to a penal deduction 0f 2%. A POTD account can be pledged. Deposits in 10 years to
15 years Post Office Cumulative Time Deposit Account can be deducted before computing
the taxable income under Section 80c.

5. Monthly Income Scheme of the Post Office:

Post Office Monthly Income Scheme is a low risk saving instrument, which can be availed
through any Post Office. It provides an interest rate of 8% per annum, which is paid monthly.
Minimum amount, which can be invested, is Rs. 1,000/and additional investment in multiples
of Rs. l,000/-. Maximum amount is Rs. 3, 00,000(if Single) or Rs. 6, 00.000/-(if held jointly)
during a year. It has a maturity period of 6 years. A bonus of 5% is paid at the time of
maturity. Premature withdrawal is permitted if deposit is more than one year old. A deduction
of 1% is levied from the principal amount if withdrawn prematurely. The 5% bonus is also
denied.

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6. Life insurance policies

Insurance companies offer many investment schemes to investors. These schemes promote
saving and additionally provide insurance cover. LIC is the largest life insurance company in
India. Some of its schemes include life policies, convertible whole life assurance policy,
endowment assurance policy, jeevan Saathi, money back policy etc. Insurance policies, while
catering to the risk compensation to be faced in the future by investor, also have the
advantage of earning a reasonable interest on their investment insurance premiums.

7. Public Provident Fund:

A long-term savings instrument with a maturity of 15 years it can be made in monthly

instalments with a minimum of Rs.100 and a maximum of Rs.60,000 per annum and interest
payable at 800 per annum compounded annually. It is not transferable, but has nomination
facility. One withdrawal per financial year can be made any time after 5 years from the end of
the year in which the subscription is made. Withdrawal is limited to 5000 at the end of the 4th
year. All subscription of PPF is completely free and balances in PPF are not taken into
account for wealth tax purpose.

8. Government and semi-government securities

It is a fixed income (debt) instrument issued for a period of more than one year with the
purpose of raising capital. The central or state government, corporations and similar
institutions sell bonds. A bond is generally a promise to repay the principal along with a fixed
rate of interest on a specified date, called the Maturity Date.

The government issues securities in the money market and in the capital market. Money
market instruments are traded in Wholesale Debt Market (WDM) trades and retail segments.
Instruments traded in the money market are short term instruments such as treasury bills and
convertible bonds.

9. Mutual Fund

These are funds operated by an investment company, which raises money from the public and
invests in a group of assets (shares, debentures etc.), in accordance with a stated set of
objectives. It is a substitute for those who are unable to invest directly in equities or debt

14
because of resource, time or knowledge constraints. Benefits include professional money
management, buying in small amounts and diversification.

Mutual fund units are issued and redeemed by the Fund Management Company based on the
fund's net asset value (NAV), which is determined at the end of each trading session. NAV is
calculated as the value of all the shares held by the fund, minus expenses, divided by the
number of units issued. Mutual Funds are usually long term investment vehicle though there
some categories of mutual funds, such as money market mutual funds, which are short term
instruments.

On the basis of objective we can categories mutual funds as equity funds/growth funds,
diversified funds, sector funds, index funds, tax saving funds, debt/income funds, liquid
funds/money market funds, gift funds, balanced funds. And on the basis of flexibility we can
categories them as open-ended funds, close-ended funds and interval funds.

10. Real Estate

Investment in real estate also made when the expected returns are very attractive. Buying
property is an equally strenuous investment decisions. Real estate investment is often linked
with the future development plans of the location. At present investment in real assets is
booming there are various investment source are available for investment which are directly
or indirectly investing real estate.

11. Bullion Investment

The bullion offers investment opportunity in the form of gold, silver, and other metals;
specific categories of metals are traded in the metal exchange. The bullion market presents an
opportunity for an investor by offering returns and the end value of future. It has been absurd
that on several occasions, when stock market failed, the gold market provided a return on
investments.

a. Gold

Gold is one of the most valuable assert in the economy. It has been used in India primarily as
the form of saving by the house vice although it is said to appreciate many times yet in India
it is more of a sense of security and fixed assets rather than for the use of sale or for the
purchase of making profit or income on this investment. Gold may be invested into either in
the form of gold shares, gold coins, gold bars and gold jewelleries.

15
 b. Silver

Silver is sold in the form of weight by kilograms in India. Silver may be owned in the form of
coin, utensils, glasses, bowels, plates, trays and jewellery. This like gold has been a hedge
during inflation. The price of silver although less than gold, also keeps on rising in the same
way as gold.

3.5 FEATURES OF AN INVESTMENT PROGRAMME

In choosing specific investments, investors will need definite ideas regarding features,
which their investment avenue should possess. These features should be consistent With the
investors’ general objectives and in addition, should afford them all the incidental
conveniences and advantages, which are possible under the circumstances. The following are
the suggested features as the ingredients from which many successful investors compound
their selection policies.

1. Safety of principal

The investor, to be certain of the safety of principal, should carefully review the
economic and industry trends before choosing the types of investment. Errors are avoidable
and therefore, to ensure safety of principal, the investor should consider diversification of
assets. Adequate diversification involves mixing investment commitments by industry,
geographically, by management, by financial type and maturities. A proper combination of
these factors would reduce losses.

2. Liquidity

Even investor requires a minimum liquidity in his investment to meet emergencies.

Liquidity will be ensured if the investor buys a proportion of readily saleable securities out of
his total portfolio. He may therefore, keep a small proportion of cash, fixed deposits and units
which can be immediately made liquid investments like stocks and property or real estate
cannot ensure immediate liquidity.

3. Income stability

Regularity of income at a consistent rate is necessary in any investment pattern. Not

only stability, it is also important to see that income is adequate after taxes. It is possible to
find out some good securities, which pay particularly all their earnings in dividends.

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 4. Appreciation and purchasing power stability

Investors should balance their portfolios to Fight against any purchasing power
stability. Investors should judge price level inflation, explore their possibility of gain and loss
in the investments available to them, limitations of personal and family considerations. The
investor should also try and forecast which securities will possibly appreciate. A purchase of
property at the right time will lead to appreciation in time. Growth stock will also appreciate
over time. These, however, should be done thoughtfully and not in a manner of speculation.

5. Legality and freedom from care

All investments should be approved by law. Law relating to minors, estates, trusts,
shares and insurance be studied will bring out many problems for the investor. One way of
being free from care is to invest in securities like Unit Trust of India, Life Insurance
Corporation or Saving Certificates. The management of securities is then left to the care of
the Trust who diversities the investments according to safety, stability and liquidity with the
consideration of their investment policy. The identity of legal securities and investments in
such securities also help the investor in avoiding many problems.

6. Tangibility

Intangible securities have many times lost their values due to price level inflation,
confiscatory laws or social collapse. Some investor prefers to keep a part of their wealth
invested in tangible properties like building, machinery and land. It may, however, be
considered that tangible property does not yield an income apart from direct satisfaction of
possession or property.

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FEATURE OF INVESTMENT AVENUES

Particulars Risk Return/Current Capital Liquidity/ Tax

yield appreciation Marketability benefits
Equity High High High High
Shares
Debentures Low High Very low Very low Nil
Bank Low Low High Nil
Deposit
Life Nil Nil Low Low Moderate
Insurance
Policies
Real Estate Low Low High in Moderate Changes
Long-term according to
rules
Gold and Low Nil High in Moderate Nil
Silver Long-term

3.6 THE INVESTMENT PROCESS - STAGES IN INVESTMENT

The investment process is generally described in four stages. These stages are investment
policy, investment analysis, valuation of securities and portfolio construction.

1. Investment Policy
The first stage determines and involves personal financial affairs and
objectives before making investments. It may also be called preparation of the
investment policy stage. The investor has to see that he should be able to create an
emergency fund, an element of liquidity and quick convertibility of securities in to
cash. This stage may, therefore, be considered appropriate for identifying investment
assets and considering the various features of investment.

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 2. Investment Analysis
When an individual has arranged a logical of the types of the investments that
he requires on his portfolio, the next step is to analyse the securities available for
investment. He must make a comparative analysis of the type of the industry, industry
of security and fixed vs. variable securities. The primary concern at this stage would
be to form beliefs regarding future behavior or prices and stocks, the expected returns
and associated risk.
3. Valuation of investments
The third step is perhaps most important consideration of the valuation of
investments, investments value, in general, is taken to be the present worth to the
owners of the futures benefits from investments. The investor has to bear in mind the
value of these investments. Appropriate sets of weights have to be applied with use of
the forecasted benefits to estimate the value of the investment assets. Comparison of
the value with the current market price of the asset allows a determination of the
relative alternativeness of the asset. Each asset must be valued on its individual merit.
Finally the portfolio should be constructed.
4. Portfolio Construction
As discussed under features of investment programme, portfolio construction
requires knowledge of the different aspects of securities. Consisting of safety and
growth of principal, liquidity of assets after taking into account the stage involving
investment timing, selection of investment, allocation of savings to different
investments.

The success of every investment decision has become increasingly important

in recent times. Making sound investment decision requires both knowledge and skill.
Skill is needed to evaluate risk and returns associated with an investment decision.
Knowledge is required regarding the complex investment alternatives available in the
economic environment.

3.7 SUCCESS IN INVESTMENT

Success in most things is relative, and not less so in the field of investment. Success in
investment means earning the highest possible return with the constraints imposed by the
investor’s personal circumstances-age, family needs liquidity requirements, tax position and

19
acceptability of risk. If possible, performance should be measured against alternative
investment, or combination of investment, available to the investor within those constraints.
Genuine success also means winning the battle against inflation, against the fall in the real
value of savings and capital.

To be successful investor, one should strive to achieve no less than the rate of return
consistent with the risk assumed. But is this success? If markets are efficient, abnormal
returns are not likely to be achieved, and so the best one can hope for return consistent with
the level of risk assumed. The trick is to assess the level of risk we wish to assume and make
certain that the collection of assets we buy fulfils our risk expectations. As a reward for
assuming this level of risk, we will receive the returns that are consistent with it. If however,
we believe that we do better than the level of return warranted by the level of risk assumed,
then success must be measured in these terms. But care must be exercised here. Merely
realizing higher returns does not indicate success in this sense. We are really talking about
outperforming the average of the participant in the market for assets. And if we realize higher
return we must be certain that we are not assuming higher risks consistent with those returns
in order to measure our success. Thus we are left with two definitions of success.

1. Success is achieving the rate of return warranted by the level of risk assumed.
Investors expect returns proportional to the risk assumed.
2. Success is achieving a rate of return in excess or warranted by the level of risk
assumed. Investors expect abnormal returns for the risk assumed.

To be successful under the first definition, an investor must have a rational approach to
portfolio construction and management. Reasonably efficient diversification is the key. To be
successful under the second definition, an investor must have at least one of the following:

Superior Analytical Skill, Superior Forecasting Ability, Inside Information, Dumb Luck

Whether and to what extent anyone is likely to possess these characteristics and consistently
be able to outperform the market by the level of risk assumed is critical issue. The investor
should be aware of, but not denoted by, the fact that professional investors in particular,
largely dominate investment markets, the stock market. As a consequence, grossly under-
valued investments are rarely easy to come by. Moreover, he should beware of books
subtitled. How I made a Million in the Stock Market, Get Rich Quick and statements such as
‘You can have a high return with no risk’. In reasonably efficient markets risk and return go

20
together like bread and butter; in the words of Milton Friedman, there is no such thing as a
free lunch.

Success involves planning-clearly establishing one’s objectives and constraints. Investments

should be looked at in terms of what they contribute to the overall portfolio, rather than their
merits in isolation. Institutional investment will probably play some part, and performance
tables are available to give some guidance. But personal direct investment should not be
overlooked, particularly in the obvious area of Turk ownership, and one’s own knowledge,
skills, hobbies and acquaintances can also be put to advantage. Remember Francis Bacon’s
words: If a man looks sharply and attentively, he shall see fortune; for though she is blamed,
yet she is not so invisible. More money has been lost in the stock market, then one can
imagine simply because of the failure of investors to clearly define their objectives and assess
their financial temperaments. In analyzing the portfolios of individual investors, the most
common errors observed are:

 Firstly, portfolio is over diversified, containing so many issues that the investors
cannot follow closely the development in those companies.
 Secondly, many portfolios suffer from overconcentration in one or two issues.
 Thirdly, all too often, the quality of these securities is not consistent with the stated
investment goal and usually a portfolio contains too many speculative securities.
 Fourthly, many individual investors are afraid to take losses; they want to wait for
their stock to come back to the price they paid.
 Fifthly, most investors, without realizing it, do not have a plan. They are buying and
selling and believe is going where the action is instead of sticking to an investment
goal.
 Finally, most serious of all some investors consider only profit potential never the
risk factor. They try to wait for the bottoms to buy and tops to sell, they don’t learn
from their mistakes and sight of their financial goals for the timeframe of the
investment objectives under pressure of hope, fear, or greed.

Should investors play a winner’s game or a loser’s game while buying securities?

To answer this question, probably the best way to explain it is to use a sport as an illustration.
Let us take tennis. To professionals like Williams sisters, tennis is a winner game. To win,
they must deliver the ball to a place where the opponent will find it difficult to return or play

21
at a speed that the opponent cannot keep up with. They win the game by delivering winning
shots.

According to sports writers, on the one hand, tennis to amateurs is actually a loser’s game.
They do not have the strikes that in any way resemble those of Williams sisters and other
professionals. The best strategy to win a game, they, is to keep the ball in play and let the
opponent defeat himself by hitting the ball into the net or outside the court. They win game
by loosing less than their opponent.

The above analogy clears the distinction between winner and loser’s game. Probably now the
investors can guess whether buying securities is a winner’s game or a loser’s game. Recently,
buying securities has become a loser’s game even for professionals engaged in institutional
investing. For those who determine to win the loser’s game, it is required:

 Play your own game. Know your policies very well and play according to them all the
time.
 Do the things do best? Make ‘fewer’ but ‘better’ investment decisions.
 Concentrate on your defenses. Most investors spend too little time on sell-decisions.
Sell decisions are as important as buy-decisions. Investors should spend at least equal
time in making sell-decision.

The crucial point of loser’s game is to put the balance sheet and the income statement through
a fine screen. This is the first step in making sure to avoid a mistake and will help the investor
to keep away from letting the excitement make him move too quickly. Remember the old
saying. A fool and his money are quickly parted.

3.8 THREE APPROACHES TO SUCCEED AS AN INVESTOR

As Charles Ellis argued, it appears that there are three different ways of earning superior risk
adjusted returns on stock market. The first one is physically difficult, the second one is
intellectually difficult, and the third one is psychologically difficult.

1. Physically Difficult Approach

Many investors seem to follow this approach, wittingly or unwittingly. They look at the
newspapers and financial periodicals to learn about new issues, they visit the offices of

22
brokers to get advice and application forms, and they apply regularly in the primary market.
They follow the budget announcements intently, they read CMIE reports to learn about the
developments in economy and various industrial sectors, they read investment columns
written by the so called ‘experts’, they follow developments in the companies, they solicit
information from company executives, they read the columns in technical analysis, and they
attend seminars and conferences. In a nutshell, they apply themselves assiduously, diligently,
and even doggedly. They operate on the premise that if they can be a step ahead of others,
they will outperform the market.

The physically difficult approach seems to have worked reasonably well for most of the
investors in India since the late 19705 to the early 19903, for three principal reasons:

 Typically, issues in the primary market have been priced very attractively.
 The secondary market, thanks to limited competition till almost 1991, was
characterized by numerous inefficiencies that provided rewarding opportunities to the
diligent investor.
 An advancing price-earnings multiple, in general, bailed out even inept investors.

Things, however, have changed from mid-1995. The opportunities for subscribing
issues in the primary market have substantially dried up as companies, quite understandably,
are placing securities with institutional investors at prices that are fairly close to the
prevailing market prices. Likewise, the scope for earning superior returns in the secondary
market has diminished as the degree of competition and efficiency is increasing, thanks to the
emergence of hundreds of new institutional players (mutual funds, foreign institutional
investors, merchant banking organizations, corporate bodies) and millions of new individual
investors. Finally, the prospects of a fluctuating price-earnings multiple seem to be a greater
than the prospects of a rise in the price-earnings multiple.

2. Intellectually Difficult Approach

The Intellectually Difficult Approach to successful investing calls for developing

profound understandings of the nature of investments and hammering out a strategy based on
superior insights. This approach has been followed mainly by the highly talented investors
who have an exceptional ability, a rare perceptiveness, an unusual skill, or a touch of
clairvoyance. Such a gift has been displayed by investors like Benjamin Graham, John

23
Maynard Keynes, John Templeton, George Soros, Warren Buffet, Phil F isher, Peter Lynch,
and others.

Benjamin Graham, widely acclaimed as the father of modern security analysis, was an
exceptionally gifted quantitative navigator who relied on hard financial facts and religiously
applied the ‘margin of safety’ principle. John Maynard Keynes, arguably the most influential
economist of the 20th Century, achieved considerable investment success on the basis of his
sharp insights into market psychology. John Templeton had an unusual feel for bargain stocks
and achieved remarkable success with the help of bargain stock investing. Warren Buffett,
the most successful stock market investor of our times, is the quintessential long-term value
investor. George Soros, a phenomenally successful speculator, developed and applied a
special insight which he labels as the ‘reflexivity’ principle. Growth Phil Fisher, a prominent
growth stock advocate, displayed a rare ability with regard to invest in growth stocks. Peter
Lynch, perhaps the most widely read investment guru in recent years, has performed
exceptionally well, thanks to a rare degree of openness and flexibility in his approach.

The intellectually difficult approach calls for a special talent that is diligently honed
and nurtured over time. Obviously, it can be practiced only by a select few and you should
have the objectivity to discern whether you can join this elite club. Remember that many
investors unrealistically believe that they have a rare gift because the stock market provides
an exceptionally fertile environment for self-deception. Participants in the stock market can
easily live in a world of make belief by accepting confirming evidence and rejecting
contradictory evidence. As David Dreman says:

“Under conditions of anxiety and uncertainty, with vast interacting information grid,
the market can become a giant Rorschach test, allowing the investor to see any pattern that he
wishes....experts cannot only analyse information incorrectly, they can also find relationships
that aren’t there a phenomenon called illusory correlation.”

3. Psychologically Difficult Approach

The stock market is periodically swayed by two basic human emotions, viz. Greed and
fear. When greed and euphoria sweep the market prices rise to dizzy heights. On the other
hand, when fear and despair envelop the market, prices fall to abysmally low levels. If you
can surmount these emotions which can wrap your judgment, create distortions in your

24
thinking, and induce you to commit follies, you are likely to achieve superior investment
results. The psychologically difficult approach essentially calls for finding ways and means
of substantially overcoming fear and greed. Its operational guidelines are as follows:

 Develop an investment policy and adhere to it consistently

 Do not try to forecast stock prices
 Rely more on hard numbers and less on judgment
 Maintain a certain distance from the market place
 Face uncertainty with equanimity

These guidelines look simple, but they are psychologically difficult to follow. Yet, for the
bulk of the investors this appears to be only sensible approach to improve the odds of their
investment performance.

3.9 INVESTMENT AND SPECULATION

Traditionally, investment is distinguished from speculation in three ways, which are based on
the factors of:

1. Capital gains.
2. Time period.
3. Risk

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The distinction between investments and speculations is given in the table below:

Investment Speculation
Time Horizon Long-term time framework Short-term planning holding
beyond 12 months. assets even for one day with
the objective.
Risk It has limited risk. There are high profits and
gains.
Return It is consistent and moderate High returns, though risk of
over a long period. loss is high.
Use of funds Own funds through savings Own and borrowed funds.
Decisions Safely, liquidity, profitability Market behavior information,
and stability, considerations judgments on movement in
and performance of the stock market. Hunches
companies. and beliefs.

1. Capital

The distinction between investment and speculation emphasizes that if the motive is
primarily to achieve profits through price changes, it is speculation. If purchase of securities
is preceded by proper investigation and analysis and review to receive a stable return over a
period of time, it is termed as investment. Thus, buying low and selling high, making large
capital gain is associated with speculation.

2. Time Period

The second difference is the consideration of the time period. A longer-term fund
allocation is termed as investment. A short-term holding is associated with trading for the
‘quick turn’ and is called speculation.

The distinction between investment and speculation is helped to identify the role of the
investor and speculator. The investor constantly evaluates the worth of a security through
fundamental analysis, whereas the speculator is interested in market action and price
movement. These distinctions also draw out the fact that there is a very fine line of division

26
between investment and speculation. There are no established rules and loss, which identify
securities, which are permanent for investment. There has to be a constant review of
securities to find out whether it is a suitable investment. To conclude, it will be appropriate to
state that some financial experts have called investment ‘a well grounded and carefully
planned speculation’, or good investment is a successful speculation. Therefore, investment
and speculation are a planning of existing risks. If artificial and unnecessary risks are created
for increased expected returns, it becomes gambling.

3. Risk

The word ‘risk’ has a definite financial meaning. It refers to possibility of incurring a
loss in a financial transaction. In a broad sense, investment is considered to involve limited
risk and is confined to those avenues where the principal is safe. ‘Speculation’ is considered
as an involvement of funds of high risk. An example may be cited of stock brokers’ lists of
securities which labels and recommends securities separately for investments and speculation
purposes. Risk, however, is a matter of degree and no clear-cut lines of demarcation can be
drawn between high risk and low risk and sometimes these distinctions are purely arbitrary.
No investments are completely risk-free. Even if it safety of principal and interest are
considered, there are certain non manageable risks which are beyond the scope of personal
power. These are (a) the purchasing power risk In other words, it is the fall in real value of
the interest and the principal and (b) the money rate risk or the fall in market value when
interest rate rises.

These risks affect both the speculator and the investor. High risk and low risk are, therefore,
general indicators to help and understanding between the terms investments and speculation.

3.10 What causes the risks?

The risks are caused by the following factors:

 Wrong decision of what to invest in.

 Wrong timing of investment.
 Nature of the instrument invested say, the category of assets like corporate shares or
bonds, Chit funds, Nidhis, Benefit funds etc. are highly risky, as they are in the

27
 unorganized sector. Some instruments as bank deposits or PO Certificates are less
risky, due to their certainty of payment of principal and interest.
 Creditworthiness of the issuer: The securities of Government end semi-Government
bodies are more credit worthy than those issued by the corporate sector and much less
secure are those in the unorganized sector like indigenous bankers, shroffs, chit funds
etc. private limited companies share and shares of unlisted companies are more risky.
 Maturity period are length of investment: The longer the period, the more risky is the
investment normally.
 Amount of investment: The higher the amount invested in any security the larger is
the risk, while a judicious mix of investments in small quantities may be less risky.
 Method of investment, namely, secured by collateral or not.
 Terms of lending such as periodicity of servicing, redemption periods etc.
 Nature of the industry or business in which the company is operating.
 National and international factors, acts of god etc.

Reference was made to two types of Risk of investor:

1. Systematic Risks
2. Unsystematic Risks

1. Systematic Risks

Systematic Risks are out of external and uncontrollable factors, arising out of the market,
nature of the industry and state of the economy and a host of other factors. In other words
systematic risk refers to that portion of the total variability of the return caused by common
factor affecting the prices of all securities alike through economic, political and social factors.

2. Unsystematic Risks

Unsystematic Risks emerge out of the known and controllable factors, internal to the issuer of
the securities or companies. In other words unsystematic risk refers to that portion of the total
variability of the return caused due to unique factors, relating that firm or industry, through
such factors as management failure, labour strikes, raw material scarcity etc.

28
While the systematic risk is common to all companies and has to be borne by the investor and
compensated by the Risk Premium, The unsystematic risk can be reduced by the investor
through proper diversification and planning a proper investment strategy for the purpose.

Examples of Systematic Risks:

1. Market Risk:

This arises out of changes in Demand and Supply pressures in the markets, following the
changing flow of the information or expectations. The totality of the investor perception and
subjective factors influence the events in the market which are unpredictable and give rise to
risk, which is not controllable.

2. Interest Rate Risk:

The return on an investment depends on the interest rate promised on it and changes in
market rates of interest from time to time. The costs of funds barrowed by companies or
stockbrokers depend on interest rates. The market activity and investor perceptions change
with the changes in interest rates. These interest rates depend on nature of instruments,
stocks, bonds, loans etc maturity of the periods and the creditworthiness of the issuer of
securities. But basically the monetary and credit policy, which is not controllable by the
investor, affects the riskiness of investments due their effects on returns, expectations, and
the total principal due to be refunded

3. Purchasing Power Risk:

Inflation or rise in prices lead to rise in costs of production, lower margins, wage rises and
profit squeezing etc. The return expected by the investors will change due to change in real
value of returns. Cost pushed inflation is caused by rise in the costs, due to wage rise or rise
in input prices. Demand-pull forces operate to increase prices due to inadequate supplies and
rising demand. The increase in demand may be caused by changing expectation of future
interest rates and inflation or due to increase in money supply or creation of currency to
finance the deficits of the government. This element of purchasing power risk is inherent in
all investments and cannot be controlled by him.

29
Examples of Unsystematic Risks

1. Business Risk:

This relates to variability of business, sales income, profits etc., which in turn depend
on the market conditions for the product mix, input supplies, strength of competitors etc. This
business risk is sometimes external to the company due to changes in government policy or
strategy of competitors or unforeseen market conditions. They may be internal due to fall in
production, labour problem, raw materials problem or inadequate supply of electricity etc.
The internal business risk leads to fall in revenues and in profit of the company, but can be
corrected by certain changes in the company’s policies.

2. Financial Risk:

This relates to the method of financing, adopted by the company, high leverage
leading to larger debt servicing problems or short-term liquidity problems due to bad debts,
delayed receivables and falls in current assets or rise in current liabilities. These problems
could no doubt to be solved, but they may lead to fluctuations in earnings, profits and
dividends to share holders. Sometimes, if the company runs in to losses or reduced profits,
these may lead to fall in returns to investors or negative returns. Proper financial planning and
other financial adjustments can be used to correct this risk and as such it is controllable.

3. Default or Insolvency Risk:

The barrower or issuer of securities may become insolvent or may default, or delay
the payments due, such as interest instalments or principal repayments. The barrower’s credit
rating might have fallen suddenly he became default prone and in its extreme form it may
lead to insolvency or bankruptcies. In such cases the investor may get no return or negative
returns. An investment in a healthy company’s share might turn out to be a waste paper, if
within a short span, by the deliberate mistakes of management or acts of God, the company
became sick and its share price tumbled below its face value.

4. Other Risks

In addition to the above major risks both in controllable and uncontrollable categories,
there are many more risks, which can be listed, but in actual practice, they may vary in form,
size and effect.

30
Some of such identifiable risks are:

1. Political Risks:

Political risks, following the changes in the government, or its policy shown in fiscal or
budgetary aspects etc. through changes in tax rates, imposition of controls or administrative
regulations etc.

2. Management Risks:

Management Risks, due to errors or inefficiencies of management, causing losses to the

company.

3. Marketability Risks:

Marketability Risks, involving loss of liquidity or loss of value in conversions from one asset
to another say, from stocks to bonds, or vice versa. Such risks may arise due to some features
of securities, such as capability; or lack of sinking fund or Debenture Redemption Reserve
fund, for repayment of principal or due to conversion terms, attached to the security, which
may go adverse to the investor.

All the above types of risks are of varying degrees, resulting in uncertainty or variability of
return, loss of income and capital losses, or erosion of real value of income and wealth of the
investor. Normally the higher the risk taken, the higher is the return. But sometimes the risk
is caused by acts of God and there may be no return at all.

3.11 Investment and Gambling

The difference between investment and gambling is very clear. From the above discussion, it
is established that investment is an attempt to carefully plan, evaluate and allocate funds in
various investment outlets which offers safety of principal, moderate and continuous returns
and long-term commitment. Gambling is quite the opposite of investment. It connotes high
risk and the expectation of high returns. It consists of uncertainty and high stakes for thrill
and excitement. Typical examples of gambling are horse racing, game of cards, lottery etc.
Gambling is based on tips, rumours and hunches, it is unplanned, non-scientific and without
knowledge of the exact nature of risk. These distinctions between investment, speculation and
gambling give us a basic idea of their nature, purpose and role.

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3.12 Investment and Arbitrage

Investment is usually a planned method of safely putting ones savings into different outlets to
get a good return. Arbitrage is the mechanism of keeping one’s risk to the minimum through
hedging and taking advantage of price differences in different markets. The simultaneous
purchase of the same or similar security in two different markets would be an arbitrage
transaction. Short-term gains can be expected through such transactions. An investor can also
be an arbitrageur if he buys and sells securities in more than one stock exchange to take
advantage of the price differentials in such exchanges. Derivatives introduced in the Indian
market have a great potential for arbitrage transactions. Arbitrage transactions help in
enhancing efficiency and liquidity in the stock market and in increasing the volume of trade.
Hedgers, speculators and arbitrageurs can make riskless profits through the arbitrage process.

1. Real Assets

Real assets refer to tangible assets, which are in the form of land and buildings, furniture,
gold, silver, diamonds, or artefacts. These assets have a physical appearance. They may be
marketable or non-marketable. They may also have the feature of being movable or non
movable. These assets are used to produce goods or services.

2. Financial Assets

A financial asset is a claim represented by securities. These assets are popularly called paper
securities. Shares, bonds, debenture, bills, loans, lease, derivatives and fixed deposits are
some of the financial assets. Therefore, financial assets represent a claim on the income
generated by real assets of some other parties. F inancial assets can be easily traded, as they
are marketable and transferable. Financial assets are usually between two parties, for
example, if a person buys a bond of Rs. 10,000 of ICIC I Bank. The bond is liabilities of
ICICI, but an asset of the person buying a bond because he has a claim over the bank to
receive the principal sum with interest.

3. Commodity Assets

Commodities are a new form of investment in India. Commodity assets consist of wheat,
sugar, potatoes, rubber, coffee and other grains. Commodities are also in the form of metal
like gold, silver, aluminium and copper. It also consists of items like cotton oil and foreign

32
currency. Importers and exporters invest in commodities to diversify their portfolios. Traders
hedge or transact in commodities to make gains. A National Commodity and Derivatives
Exchange Ltd. (NCDEX) have been set up in India in 2003 as a public limited company to
transact in commodities.

The promoters of NCDEX were ICICI Bank Ltd., National Bank for Agriculture and Rural
Development (NABARD), Life Insurance Corporation of India, (Punjab National Bank,
Canara Bank, CRISIL Ltd., Indian Farmers Fertilizer, Co-operative Ltd. (IFFCO) and
National Stock Exchange of India Ltd., (NSE). All these institutions subscribed to the equity
shares of NCDEX.

3.13 Factors Favourable For Investment

The investment market should have a favourable environment to be able to function

effectively. Business activities are marked by social, economic and political considerations. It
is important that the economic and political factors are favourable. Generally, there are four
basic considerations, which foster growth and bring opportunities for investment. These are
legal safeguards, stable currency and existence of financial institutions to aid savings and
forms of business organization.

1. Legal Safeguards

A stable government, which frames adequate legal safeguards, encourages

accumulation of savings and investments. Investors will be willing to invest their funds if
they have the assurance of protection of their contractual and property rights.

In India, the investors have the dual advantage of free enterprise and control. Freedom,
efficiency and growth are ensured from the competitive forces of private enterprises.
Statutory control exerts discipline and curtails some element of freedom. In India, the
political climate is conducive to investment since the new economic reforms in 1991 leading
to liberalization and globalization.

2. A Stable Currency

A well-organized monetary system with definite planning and proper policies is a

necessary prerequisite to an investment market. Most of the investments such as bank

33
deposits, life insurance and shares are payable in the currency of the country. A proper
monetary policy will give direction to the investment outlets. As far as possible, the monetary
policy should neither promote acute inflationary pressures nor prepare for a deflation model.
Neither condition is satisfactory.

Price inflation destroys the purchasing power of investments. Thrift is also penalized when
the net interest after taxes received by the investor is less than the rise in the price level,
leaving the investor with less total purchasing power than he had at the time of saving.
Inflation occurs generally in unstable conditions like war or floods but in the last decade, it
also discernible in peace conditions especially in developing countries because of huge
government deficit in creating infrastructure. Deflation is equally disastrous because the
nominal values of inventories, plant and machinery and land and building tend to shrink. An
example of the evil effects of deflation can be cited for the period 1929-1933 in the United
States when the shrinkage in nominal values came to a point of producing wholesale
bankruptcy.

A reasonable stable price level, which is produced by wise monetary and fiscal management,
contributes towards proper control, good government, economic well being and a well
disciplined growth oriented investment market and protection to the investor.

3. Existence of Financial Institutions and Services

The presence of financial institutions and financial services encourage savings, direct
them to productive uses and helps the investment market go grow. The financial institutions
in existence in India are mutual funds, development banks, commercial banks, life insurance
companies, investment companies, investment bankers and mortgage bankers. The fmancial
services include venture capital, factoring and forfeiting, leasing, hire purchase and consumer
finance, housing finance, merchant bankers and portfolio management. Investment bankers
are merchants of securities. They buy bonds and stocks of companies for re-sale to investors.
The investment bankers are distinguished from security brokers who act as agents in buying
and selling already issued securities for commission. Mortgage bankers sometimes act as
merchants and sometimes as agents on mortgage loans generally on residential properties.
They serve as middlemen between investors and borrowers and perform collateral service in
connection with loans. Commercial banks and financial institutions also act as mortgage
bankers in giving mortgage loans and servicing the loans.

34
In India, there are a large number of financial institutions under Central Government and
State Governments and rural bodies that have encouraged the growth of savings and
investment. The Life Insurance Corporation and Unit Trust of India offer a wide variety of
schemes for savings and give tax benefits also. Apart from these, there is a well-organized
network of development banks such as the Industrial Development Bank of India (IDBI),
Industrial Credit Investment Corporation of India (lCICl) and Industrial Finance Corporation
of India (IFCI). At the state level, there is State Financial Corporation, for rural areas and
agriculture, the National Bank of Agriculture and Rural Development (NABARD). These
financial institutions and development banks offer a wide variety of policies for encouraging
savings and investment. These institutions lend an element of strength to the capital market
and promote discipline while encouraging growth.

Since 1991, there has been a development of the private corporate sector. Many new financial
institutions have emerged in the private sector. Insurance companies, mutual funds and
venture capitalists leasing companies have been opened up to private financing agencies.
Foreign banks have been allowed to do business.

Thus, there is the presence of a large number of institutions and services, which channel the
funds in productive directions.

4. Choice of Investment

The growth and development of the country leading to greater economic activity has
led to the introduction of a vast array of investment outlets. Apart from putting aside savings
in savings banks where interest is low, investors have the choice of a variety of instruments.
The question to reason out is which is the most suitable channel? Which media will give a
balanced growth and stability of return? The investor in his choice of investment will have to
try and achieve a proper mix between high rate of return and stability of return to reap the
benefits of both. Some of the instruments available are equity shares and bonds, provident
fund, life insurance, fixed deposits and mutual funds schemes.

The three golden rules for all investors are:

 Invest early
 Invest regularly
 Invest for long term and not short term

35
One needs to invest for

 Earn return on your idle resources

 Generate a specified sum of money for a specific goal in life
 Make a provision for an uncertain future
 To meet the cost of inflation

3.14 Fundamental analysis of various investment alternatives:

Before investing in various investment alternatives fundamental analysis is very necessary. A

fundamental analysis believes that analyzing the economy, strength, management,
production, financial status and other related information will help to choose investment
avenues that will outperform the market and provide consistent gain to the investor.
Fundamental analysis is the examination of the underlying forces that affect the interests of
the economy, industrial sectors, and companies. It tries to forecast the future movement of
capital market using signals from the economy, industry, company. Fundamental analysis
requires an examination of the market from broader prospective. It also examines the
economic environment, industrial performance, and company performance before taking an
investment decision.

1. Economic Analysis

The economic analysis aims at determining if the economic climate is conductive and is
capable of encouraging the growth of business sector, especially the capital market. When the
economy expands, most industry groups and companies are expected to benefit and grow and
when the economy declines, most sectors and companies usually face survival problems.
Hence, to predict scrip prices, an investor has to spend time exploring the forces operating in
the overall economy. Economic analysis implies the examination of GDP, government
financing, government borrowings, consumer durable goods market, non-durable goods and
capital goods market, saving and investment pattern, interest rates, inflation rates, tax
structure, foreign direct investment, and money supply.

The most used tools for performing economic analysis are;

 Gross Domestic Product

 Monetary policy and liquidity

36
  Inflation
 Interest rate
 International influences
 Consumer behaviors
 Fiscal policy etc

2. Industry Analysis:

It is very important to see how the industry to which the company belongs is faring. Specifics
like effect of Government policy, future demand of its products etc. need to be checked. At
times prospects of an industry may change drastically by any alterations in business
environment. For instance, devaluation of rupee may brighten prospects of all export-oriented
companies. Investment analysts call this as Industry Analysis. Companies producing similar
products are subset (form a part) of an Industry/Sector. For example, National Hydroelectric
Power Company (NHPC) Ltd., National Thermal Power Company (NTPC) Ltd., Tata Power
Company (TPC) Ltd. etc. belong to the Power Sector/Industry of India.

Tools for industry analysis

 Cross study of performance of the industry. 0 Industry performances over times.

 Differences in industry risk.
 Prediction about market behaviors,
 Competition over the industry life cycle

a) Company Analysis:

Company analysis involved choice of investment opportunities within a specific industry that
consists of several individual companies.

How has the company been faring over the past few years? Seek information on its current
operations, managerial capabilities, growth plans, its past performance vis-a-vis its
competitors etc.

37
 b) Financial Analysis:

If performance of an industry as well as of the company seems good, then check, if at the
current price, the share is a good to buy or not. For this, look at the financial performance of
the company and certain key financial parameters like Earnings per Share (EPS), P/E ratio,
current size of equity etc. for arriving at the estimated future price. This is termed as
Financial Analysis. For that you need to understand financial statements of a company i.e.
balance Sheet and Profit and Loss Account contained in the Annual Report of a company.

3.15 Types of investment:

1. Short term Investment

It is an investment made by the investor for very short period of time i.e. for one to three
years. Such as investment in bank, money market, liquid funds etc.

2. Long Term Investment

When investor invests money for more than three to five years then it is called long term
investment. Such as investment in bonds, mutual funds, fixed bank deposits, PPF, insurance
etc

3.16 INVESTOR

Investor is a person or an organization that invest money in various investment sources for
specific objective. Attitude of investment is different in each alternative. E.g. financial market
have different attitude towards risk and return. Some investors are risk averse, while some
have an affinity of risk. The risk bearing capacity of investor is a function of personal,
economical, environment, and situational factors such as income, family size, expenditure
pattern, and age. A person with higher income is assumed to have higher risk bearing
capacity. Thus investor can be classified as risk skiers, risk avoiders, or risk bearers.

38
3.17 Categories of Investors

While there are as man)r investing styles as there are investors, most people fall more or less
into one of three broad categories: conservative, moderate, aggressive.

1. Conservative investors

Generally, conservative investors feel that safeguarding what they have is their top priority.
These investors want to avoid risk particularly the risk of losing any principal (their original
investment) even if that means they’ll have to settle for very modest returns.

Conservative investors allocate most of their portfolios to bonds, such as Treasury notes or
high rated municipal bonds, and cash equivalents, such as CDs and money market accounts.
They’re generally reluctant to invest in stocks, which may lose value, especially over the
short term. When conservative investors do venture into stocks they‘re often inclined to
choose blue chips or other large-cap stocks with well-known brands because they tend to
change value more slowly than other types of stock and often pay dividend income.

2. Moderate investors

Moderate investors want to increase the value of their portfolios while protecting their assets
from the risk of major losses.

For example, a moderate investor might use an allocation model that has 6000 in stock, 3000
in bonds, and 10% in cash equivalents. While they will tend to favor blue chip and other
large-cap stocks, they may be willing to invest a modest portion of their principal in higher
risk securities such as international stock, small-caps, and volatile sector funds in order to
increase their potential for higher returns.

3. Aggressive investors

Aggressive investors concentrate on investments that have the potential for significant
growth. They are willing to take the risk of losing some of their principal, with the
expectation that they will realize greater returns.

Aggressive investors might allocate from 75 to 95% of their portfolios to individual stocks
and stock mutual funds. While large and small-cap stocks and funds may make up the core of
their portfolios, many aggressive investors will have significant holdings in more speculative
stocks and funds, such as emerging market and sector mutual funds. Since aggressive

39
investors focus on growth, they are usually less inclined to hold income producing securities,
such as bonds.

An aggressive investing style is definitely not for the faint of heart. It’s best suited for
investors with a long-term investing horizon of 15 years or more, who are willing to make a
long-term commitment to the stocks they buy. But history has shown that an aggressive
investing approach, combined with a well diversified portfolio, and the patience to stick to a
long-term buy-and-hold investing strategy through inevitable market downturns, can be the
most profitable in the long run.

Before making any investment, one must ensure to:

 Obtain written documents explaining the investment

 Read and understand such documents
 Verify the legitimacy of the investment
 Find out the costs and benefits associated with the investment
 Assess the risk-return profile of the investment
 Know the liquidity and safety aspects of the investment
 Ascertain if it is appropriate for your specific goals
 Compare these details with other investment opportunities available
 Examine if it fits in with other investments you are considering or you have already
made
 Deal only through an authorized intermediary Seek all clarifications about the
intermediary and the investment
 Explore the options available to you if something were to go wrong, and then, if
satisfied, make the investment.

3.18 Sources of study for investors:

A look out for new investment opportunities helps investors to beat the market. There are
many sources from which investors can gather the required information. Such as;

1. Financial institutions

Corporate house, government bodies and mutual funds are the main source of investment
information. Many of these enterprises have their own website and post investment related
information on their websites.

40
2. Financial market

Stock exchange and regulated bodies also provide useful information to investor to make
their investment decisions. With respect to secondary market, the Securities and Exchange
Board of India uses various modes to promote investors education and takes great effort to
achieve an investor friendly secondary market in India. The Reserve Bank of India also
provide useful information relating to the prevent interest rates and non-banking financial
intermediaries that mobiles money through deposit schemes.

3. Financial service intermediaries

These are intermediaries who promote securities among the public. Many of these
intermediaries are the agencies of specific instruments especially tax saving instruments.
These intermediaries offer to share their commission from there concerned organization with
the individual investor thus investor get additional advantages while investing through
intermediaries.

4. Media

Press sources such as financial newspapers, financial magazine, business news channel,
websites etc. provide information related to investment to the public. Besides information on
securities, these sources also provide analysis of information and in certain instance suggest
suitable investment decisions to be made by investor.

41
 CHAPTER 4

DATA ANALYSIS AND INTERPRETATION

DEMOGRAPHIC PROFILE OF INVESTORS

Demographics No. of respondents Percentage of respondents

Male 74 74
Female 26 26
Total 100 100

Age No. of respondents Percentage of respondents

Less than 20 0 0
20-40 years 35 35
Greater than 40 65 65
Total 100 100

Occupation No. of respondents Percentage of respondents

Government Employees 38 38
Private Employees 62 62
Total 100 100

Occupation No. of respondents Percentage of respondents

Less than 20000 20 20
20000-40000 55 55
Greater than 40000 25 25
Total 100 100

42
Interpretation

It was found that the major population of investors was greater than 40 yrs and 35% was of
20-40 yrs. And 38% investors are government employees and 62% investors are private
employees. And majority of respondents i.e. 55% earn income between Rs. 20000-40000 per
month. It means majority of investors was greater than 40 years having income in between
Rs. 20000-40000.

4.1 To know whether respondents invest

No. of respondents Percentage of respondents

Yes 90 90
No 10 10
Total 100 100

Interpretation

From the survey it was found that 90% respondents invest in the securities and 10% are non
investor.

4.2 Awareness regarding types of investment instruments

Types of investment No. of respondents Percentage of respondents

instruments
Shares 8 8
Bank Deposits 30 30
Insurances 21 21
Post office savings 13 13
Gold/Real Estates 18 18
Mutual Funds 10 10
Total 100 100

43
Chart No.1

No. of respondents

Shares
Bank Deposits
Insurance
Post Office Savings

Interpretation

Above pie chart shows that 8% investors were aware of share, 30% were aware of bank
deposits, 21% insurance, 13% post office savings, 18% gold/real estates and 10% were aware
mutual funds. It means majority of the people are aware of bank deposits followed by
insurance.

4.3 To know the type of investment option the person has been investing

No. of respondents Percentage of respondents

Shares 3 3
Bank Deposits 8 8
Insurances 30 30
Post office savings 25 25
Gold/Real Estates 20 20
Mutual Funds 14 14
Total 100 100

44
Chart No.2

No. of Respondents

Shares
Mutual Funds
Bank Deposits
Post Office Savings

Interpretation

From the survey it was found that 3% respondents invest in shares, 8% in mutual funds, 30%
in bank deposits, 25% in post office savings, 20% in insurance and 14% respondents invest in
gold/real estates. That means majority of the salaried people invests in bank deposits.

4.4 To know the rates at which the investment grow

No. of respondents Percentage of respondents

Steadily 0 0
At an average rate 10 10
At fast rate 90 90
Total 100 100

45
Chart No.3

No. of Respondents

Steadily

At an average rate

At fast rate

Interpretation

From the survey it was found that 90% respondents wants their investment grow at fast rate
where as only 105 respondents were in the favour of investment growth at average rate.

4.5 To know the frequency of investment by the respondents

No. of respondents Percentage of respondents

Daily 0 0
Weekly 20 20
Monthly 45 45
Yearly 35 35
Total 100 100

46
Chart No.4

No. of Respondents

Daily
Weekly
Monthly
Yearly

Interpretation

From the above table & chart it was found that 45% respondents invest monthly. 35% invest
yearly, and there were 20% respondents who invest weekly. Thus, it can be stated that
majority of the investors invest monthly in different types of alternatives.

4.6To know the percentage of income that respondent invest annually

No. of respondents Percentage of respondents

Up to 10% 14 14
10-15% 22 22
15-20% 40 40
More than 20% 24 24
Total 100 100

47
Chart No.5

No. of Respondents

Up to 10%
10-15%
15-20%
More than 20%

Interpretation

From the above table & chart it was found that 40% respondents invest 15-205 of their annual
income, 24% respondents invest more than 20% of their annual income, 22% respondents
invest up to 10-15% of their income and 14% respondents invest up to 10% of their income
in different investment avenues. Thus, it can be conclude that majority of investors invest
10% to 20% of their annual income.

4.7 To know the purpose of investment

No. of respondents Percentage of respondents

Wealth Creation 10 10
Future Needs 42 42
Children’s Education 38 38
House Building 6 6
Marriage Purpose 4 4
Total 100 100

48
Chart No.6

No. of Respondents

Wealth Creation
Future Needs
Children’s Education
House Building

Interpretation

From the above table it can be found that 10% people invest money to create its capital, 42%
people invest to meet its future needs, 38% of salaried people invest for their children’s
education, 6% people to build their house and 4% people to meet marriage expenses. Thus,
according to above majority of the people invest majority to meet its future needs.

4.8 To know the respondent’s influence on investment decision.

No. of respondents Percentage of respondents

Self 48 48
Friends & Relatives 20 20
Service providers & 12 12
Consultants
Newspapers & Advertisements 10 10
Agents 5 5
Workshops & Seminars 5 5
Total 100 100

49
Chart No.7

No. of Respondents

Self
Friends & Relatives
Service providers & Consultants
Newspapers & Advertisements

Interpretation

From the above table & chart, it was found that multiple aspects for investing influenced
respondents. 48% respondents take decision on the basis of their personal evaluation where as
20% respondents invest because of influence of friends & relatives. The consultants'
influences 12% respondent and the advertisement influences 10% respondents. It can be
stated that majority of the persons are influenced by their own opting for investment tool.

4.9 To know the factors those were considered while investing.

Investing Factors No. of respondents Percentage of respondents

Return on investment 25 25
Tax benefits 20 20
Capital appreciation 15 15
Maturity period 6 6
Risk 12 12
Safety of principal 7 7
Liquidity 15 15
Total 100 100

50
Chart No.8

No. of respondents

Return on investment
Tax benefits
Capital appreciation
Maturity period

Interpretation

From the above survey it was found that the maximum respondents considered return on
investment was most important faction 20% respondents considered tax benefits as an
important factor and 15% respondents considered capital appreciation as an important factor.
It can be stated that majority of investors were consider mum as an important factor while
investing.

4.10 To know investor’s action in case of stock market drop

No. of respondents Percentage of respondents

Transfer funds into secure investment 25 25
Wait to see investment improves 40 40
Invest more funds 30 30
Withdraw funds and stop investing 5 5
Total 100 100

51
Chart No.9

No. of Respondents

Transfer funds into secure

investment
Wait to see investment
improves
Invest more funds

Withdraw funds and stop

investing

Interpretation

From the survey it was found that maximum respondent would wait to see if their investment
improves and start generating funds, 30% respondents would more funds. 25% respondents
would transfer funds into secure investment and 5% respondents would stop investing. It can
be stated that majority of investors would like to wit to see whether investment improves or
they can invest more funds.

4.11 To know the decision regarding other investment policy

Investment decision No. of respondents Percentage of respondents

Yes 98 98
No 2 2
Total 100 100

52
Chart No.10

No. of Respondents

Yes
No

Interpretation

From the survey it was found that 98% respondents have the other investment policy where
as 2% respondents do not have the other investment policy.

4.12 To know the satisfaction level of respondents with their investment option

Particulars Highly Dissatisfied Neutral Satisfied High Summated

Dissatisfied Satisfied score

Shares 30 30 10 25 5 245

Mutual 20 18 35 19 8 277
Funds

Bank 10 6 14 30 40 384
Deposits

Post Office 15 10 15 40 20 340

Savings

Insurance 12 15 20 35 18 332

Gold/Real 30 10 20 30 10 280
Estates

53
Range:

Max. Score=100*5=500 (high satisfied)

Avg. Score = 100*3=300 (neutral)

Min. Score = 100*1=100 (highly dissatisfied)

Interpretation:

Most of the respondents have given the highest summated score to bank deposits. And the
second most important investment option is post office savings which influenced the decision
regarding investment. Other important factor is insurance coverage which has 332 summated
score. Return on gold/real estates get the 280 summated score.

54
 CHAPTER 5

FINDINGS, SUGGESTIONS AND CONCLUSION

5.1 FINDINGS OF THE STUDY

Following Findings are generated from the study:

1. Maximum investors are aware of all the investment options.

2. Investors do not invest in a single avenue. They prefer different avenues and
maximum investors prefer to invest in Bank Deposits, Post Office Savings and
Insurance.
3. Maximum investors’ wants their investment grow at fast rate.
4. The main purpose of majority of the people to invest money is m meet its future
needs.
5. The investment decision of investors is influenced by their own decision and through
friends & relatives.
6. Different factors considered by investors while investing are return, risk. In benefits,
Capital appreciation and most prominent factor is the return on any investment
avenue.
7. Majority of investors invest 15 20% of their annual income.
8. Maximum investors invest on monthly basis.
9. Maximum investors have other investment policies.
10. Investors are more satisfied from bank deposits followed by post office savings.

55
5.2 SUGGESTIONS

Following are the recommendations of the study:

1. The various investment tools which are mostly preferred by the investors are bank
deposits, post office savings, etc. So there should be various other means to create
awareness regarding the potential of other instruments and the tools which can be
more beneficial to the investors.
2. The investors consider various factors while making investment like risk, return,
liquidity etc. there should be rational thinking 0 that the investor is able to know that
at what point of time they need capital appreciation instead the risk and when the need
return instead of liquidity.
3. The preferred time span of investment by the investors depends upon the need of the
investor that whether they wants to have early and high returns or wants to have stable
returns, most probably the long time span is suitable because the returns are high and
safety is also there.
4. The satisfaction level of various investors is different due to different investment
alternatives they opt for. If they will be aware of each type of alternative and the
worth of the alternatives then investing as per that there satisfaction level will also be
high.
5. Investors should have the complete knowledge of all the alternatives.

56
CONCLUSION

This report is a reflection of the awareness and factors considering, risk taking ability of the
various categories of salaried individuals. Selection of the perfect investment avenue is a
difficult task to an individual. An effort is made to identity the taste and preference of a
sample of individuals selected by connivance and snowball sampling. Despite of many
limitations to the study I was successful in identifying some investments patterns there is
some commonness in these individuals.

This report concentrated in identifying the fauna considered individuals before investment.
Awareness level of salaried individuals towards various investment avenues are identified
based on their occupations. Investors risk in selecting a particular avenue.

The presents study has important implication for investment manager as it has come out with
certain interesting facets of salaried individual. The individual investor still prefers to invest
in financial products which give risk free returns. This confirms that individuals even if they
are of high income, well educated, independent are conservative individual prefer to play
safe. The investments product designer can design products which can cater to the
individuals, who are low risk tolerant, tax savings and use T.V. as a marketing media as they
seem to spend long time watching TVs. The study also draws an important conclusion from
study that the individuals are keen to invest in midterm products.

57
 CHAPTER 6

BIBLIOGRAPHY
6.1 BIBLIOGRAPHY

To obtain more information regarding the present study and to substantiate it with
theoretical proof, the following references were made.

Direct interview with Investors

 WEBSITES

WWW.BUSINESSDICTIONARY.COM

WWW.ZERODHA.COM/VARSITY

WWW.TAXINDIA.COM

WWW.BUSINESSTIMES.COM

 NEWSPAPERS
 The Hindu
 The Economic Times
 The Financial Express
 Business Standard

58
ANNEXURE
 QUESTIONAIRE

Dear Sir/Madam

As a part my B.com program I VAISHAK P undergoing a project work entitled “ A

STUDY ON VARIOUS INVESTMENT OPPORTUNITIES AND

INVESTMENT PATTERN OF SALARIED PEOPLES” with the objective to
understand “To study the investment preference among salaried people working in different
sectors” Please share your views and opinions through this questionnaire.

Thanking you

VAISHAK P

Date:………………

Place:……………

Signature of respondent:……………

1. Name:
2. Address:
3. Gender: Male Female

4. Age: less than 20 years

20-40 years

Greater than 40 years

5. Occupation: Government Employee

Private Employee

6. Income:
(per month)
Less than Rs.20000

59
 Rs.20000-Rs.40000

Greater than Rs.40000

7. Do you invest your money?

Yes No

8. Out of the following, which type of instrument are you aware of?
Shares

Mutual Funds

Bank Deposits

Post Office Savings

Debentures

Bonds

Insurance

Gold/real estates

9. Where have you been investing?

Shares

Mutual Funds

Bank Deposits

Post Office Savings

Debentures

Bonds

Insurance

Gold/real estates

10. Which rates do you want your investment to grow?

Steadily

At an average rate

At fast rate

60
11. How frequently do you invest?
Daily

Weekly

Monthly

Yearly

12. What percentage of your annual income do you invest in securities?

Up to 10%

10-15%

15-20%

More than 20%

13. What is the main purpose of your investment?

Children’s education

Wealth creation

House building

Marriage purpose

14. By which sources of information you come to know about particular option?
Self

Friends & Relatives

Service providers & Consultants

Newspapers, magazines &

Advertisements

Agents

Workshops and seminars

15. Which factor do you consider before investing in different securities?

Capital appreciation

Maturity period

Safety of principal

Risk
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 Return on investment

16. In your opinion what would be the optimum strategy if stock market drops
immediately after you invest in it?
Cut your losses and transfer

Funds into secure investments

Wait to see if investment

Improves

Invest more funds to lower your

Losses expecting future growth

Withdraw your funds and stop

Investing

17. Do you have any other investment policy?

Yes No

18. Rate the satisfaction with the return generated by your investment option?
Particulars Highly Dissatisfied Neutral Satisfied High Summated
Dissatisfied Satisfied score
Shares
Mutual
Funds
Bank
Deposits
Post
Office
Savings
Insurance
Gold/Real
Estates

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