A

Summer Internship Project Report

On
“A STUDY OF CUSTOMER-BUYING BEHAVIOR IN LIFE INSURANCE
INDUSTRY”
at

SHRIRAM LIFE INSURANCE COMPNY LIMITED, NAGPUR

Submitted to
Rashtrasant Tukdoji Maharaj Nagpur University
Nagpur

In partial fulfillment for

Master of Business Administration IIIrd Semester
Submitted By

Mr. JIVAN RAMESHRAO GAWARLE

Under the guidance of

Prof. Shubhangi Jepulkar

DEPARTMENT OF ADVANCED MANAGEMENT STUDIES

G.S. COLLEGE OF COMMERCE (PG), WARDHA

2019-2021

1
 DEPARTMENT OF ADVANCED MANAGEMENT STUDIES
G.S. COLLEGE OF COMMERCE (PG), WARDHA

CERTIFICATE

This is to certify that Mr./Ms. JIVAN RAMESHRAO GAWARLE of GS COLLEGE OF

MANAGEMENT (PG) has successfully completed the project work titled A STUDY OF
BEHAVIOURAL BIASES ON INVESTMENT DECISION OF INVESTORS IN
CAPITAL MARKET in partial fulfillment of requirement for the award of MBA prescribed
by the GS COLLEGE OF MANAGEMENT World Peace University, Nagpur.

This project is the record of authentic work carried out by him out during the academic year
2019-2021

Authorized signature with stamp

 ACKNOWLEDGEMENT

“Words have never expressed human sentiments. This is only an attempt to express my deep
gratitude which comes from my heart “It is a great pleasure for me to express my deep
feeling of gratitude to my respected guide, faculties, for his great encouragement & support
to carry out my work.

I am grateful to Dr. SAHEBRAO CHAVAN, Principle of GS COLLEGE OF

MANAGEMENT WARDHA for making all facilities available for my Work.

I am thankful to Dr. PRISHKRIT AGRAWAL (HOD-MBA) and for giving me their

valuable guidance and direction throughout the project. I express my whole hearted sense of
gratitude and indebtedness to my guides.

Last but not the least; I am thankful to my parents, colleagues, friends, & other faculty
members for their direct & indirect help for completion of this work.

Date: Mr. JIVAN RAMESHRAO GAWARLE

Place: Wardha
 DECLARATION

I, JIVAN RAMESHRAO GAWARLE student of MBA from GS COLLEGE OF

MANAGEMENT (PG), WARDHA hereby declare that the work which is presented in the report
entitled ―A STUDY OF BEHAVIOURAL BIASES ON INVESTMENT DECISIONS OF INVESTORS
IN CAPITAL MARKET‖ in partial fulfillment of the requirements for the award of the Degree of Master in
Business of Administration and submitted in the GS COLLEGE OF MANAGEMENT (PG), Wardha, is an
authentic record of my own work carried out under the supervision of Dr. PRISHKRIT AGRAWAL

I further declare that the information presented in this project is true and original to the best of my
knowledge.

Place: Wardha, India

Date:
Table of Contents

EXECUTIVE SUMMARY..............................................................................................................................................6
INTRODUCTION...........................................................................................................................................................8
INDUSTRY PROFILE..................................................................................................................................................10
COMPANY PROFILE...................................................................................................................................................12
LITERATURE REVIEW...............................................................................................................................................14
RESEARCH OBJECTIVE.............................................................................................................................................16
RESEARCH METHODOLOGY...................................................................................................................................18
DATA ANALYSIS AND INTERPRETATION............................................................................................................21
FINDINGS..................................................................................................................................................................... 28
SUGGESTIONS& RECOMMENDATION..................................................................................................................30
CONCLUSION..............................................................................................................................................................32
EXECUTIVE SUMMARY
 CHAPTER ONE

EXECUTIVE SUMMARY

This research focuses on the behavioral analysis of the investors investing their money in the capital markets.
Behavioral biases can also be called investing on the basis of irrational thinking. Many academics and
practitioners think that human emotions have effect on their investment choices.
Primary Objectives

The objective of the study is to determine the effect of behavioral biases on investment decisions of
individual investors in Capital market.

Secondary Objectives

To find out which bias is most pronounced in the Indian context.

To find out the investment perspectives of investors.

FINDINGS

After the study we found out that the major irrational behaviour on the basis of which they invest their
money in the capital markets are –

a) Optimism bias and

b) Overconfidence.

Investors think that they have average or more than average knowledge about financial management.
There is more no. of people who work in private companies and private companies pay also more so these
people have more money to save and invest.
Major number of investors are from the age group of 20-30 which means that the people started investing at
a very young age.
More no of investors are post graduates which means that the level of education is good in investors.
INTRODUCTION
 CHAPTER TWO

INTRODUCTION

INTRODUCTION
For a long time, everybody thought that traditional finance theory is accurate because it states that investors
think rationally and make deliberate decisions, based on various estimations or using economic models.
However, after a number of investigations, it was noticed that human decisions often depend on their nature,
intuitions, and habits, cognitive or emotional biases hidden deeply at the back of one ‘s mind. The new
discipline – behavioral finance has begun to develop after gathering enough information that confirm
particular human behavior which is contrary to traditional finance theory. According to Shefrin (2011)
behavior finance is the study of how psychology affects financial decision-making process and financial
markets. Since psychology explores human judgment, behavior and welfare, it can also provide important
facts about how human actions differ from traditional economic assumptions.

Consequently, investment decision processes based on forecasts and the great knowledge of market
participants are becoming more unrealistic in these days’ global financial markets. Foreign scientists Berber
& Odean (1999), Huberman (2001), Pompian (2008) & Shefrin (2011) have found out that human
psychological state affects their investment decisions making. Various changes of setting (including price
volatility, variations of economic situation) have a gross impact on investors‟ thinking. Individuals
constantly feel the fear of losing money, so impulsively react to market changes, changing off-the-cuff their
long-term investment goals responds to every financial expert ‘s opinion and begins to have doubts of their
investments. The irrational decision proliferates in such situations which determine inefficient investments or
uprising losses, which per se reduces the ranks of people willing to invest. Consequently, financial behavior
is a science that analyzes behavior subtlety of market participants as well as revealing their irrational
decision-making motives can help to avoid the impact of financial behavior for investment decisions and
thereby attract more individuals willing to invest.

Investors‟ irrationality is an inevitable reality that has been time and again pointed out by researchers like
Statman. These researchers throw light on the fact that an actual investor cannot conform to the ―rational‖
assumptions of the standard finance theories. They argue that investors are not the calculative utility
maximizing machines as the traditional theories believe them to be. Rather, they are led by their sentiments
and are prone to make cognitive errors. They may lack self-control, be overconfident about their abilities,
miscalibrate information, overreact or follow the crowd without thinking.

Behavioral Bias

Pompian (2012) found that in finance and economics, behavioral biases refer to the tendency of decision
making that results in irrational financial decisions caused by faulty cognitive reasoning and /or reasoning
influenced by emotions. The interest in biases caused by faulty cognitive reasoning or emotions that affect
individual financial outcomes has seen the emergence of research on behavioral finance as a concept. Sewell
(2005) construed behavioral finance as the study of the influence of psychology on the behavior of financial
practitioners and the subsequent effect on markets.
INDUSTRY PROFILE
 CHAPTER THREE

INDUSTRY PROFILE

INTRODUCTION

The insurance industry of India consists of 57 insurance companies of which 24 are in life insurance business
and 33 are non-life insurers. Among the life insurers, Life Insurance Corporation (LIC) is the sole public
sector company. Apart from that, among the non-life insurers there are six public sector insurers. In addition
to these, there is sole national re-insurer, namely, General Insurance Corporation of India (GIC Re). Other
stakeholders in Indian Insurance market include agents (individual and corporate), brokers, surveyors and
third-party administrators servicing health insurance claims.

Market Size
Government's policy of insuring the uninsured has gradually pushed insurance penetration in the country and
proliferation of insurance schemes.
Gross premiums written in India reached Rs 5.53 trillion (US$ 94.48 billion) in FY18, with Rs 4.58 trillion
(US$ 71.1 billion) from life insurance and Rs 1.51 trillion (US$
23.38 billion) from non-life insurance.

Overall insurance penetration (premiums as % of GDP) in India reached 3.69 per cent in 2017 from 2.71 per
cent in 2001.In FY19 (up to October 2018), premium from new life insurance business increased 3.66 per
cent year-on-year to Rs 1.09 trillion (US$ 15.46 billion). In FY19 (up to October 2018), gross direct
premiums of non- life insurers reached Rs 962.05 billion (US$ 13.71 billion), showing a year-on-year growth
rate of 12.40 per cent. Insurance industry in India is expected to reach US$ 220 billion by 2020 driven by
increasing awareness, innovative products and more distribution channels.

Evolution

Meeting increasing retirement needs

The elder segment of the population has extensive needs (which are likely to grow further in time) in terms
of post-retirement income as well as services and protection covers. The progressive reduction of support to
the ageing population from governments, often grappling with cumbersome public spending, is going to
increase the need for solutions from private providers. This is exactly the natural playing field of Life
insurance companies.

Meeting the multiple needs of the young and middle-aged population through single solutions
Young and middle-aged customers are increasingly looking for simple and tailored solutions as well as
single providers that can cater to all their needs, including investments, savings, protection & health
insurance. As opposed to banks and asset managers, Life insurers can provide comprehensive responses to
all these multiple needs.
Life companies can offer personalized Unit-Linked and hybrid solutions that combine the upside potential of
investment products with the protection of capital or income, reflecting the risk profile of different segments.
Over the recent past, customers have shown remarkable interest in Unit-Linked and hybrid solutions.
COMPANY PROFILE
 CHAPTER FOUR

COMPANY PROFILE

INTRODUCTION

Shriram Life Insurance Company, also known as (SLIC) was founded in the year 2005 and commenced
operations in the year 2006. SLIC is well known for their efficient use of capital and low operational costs.
Shriram Life Insurance Company is a joint venture between Shriram Group founded in 1974, headquartered
in Chennai and Sanlam, a leading financial services group based in Cape Town, South Africa. Together,
Sanlam and Shriram ‘s group aims to provide the best life insurance products to cater different segments of
Indian market. In 2016, Shriram Life Insurance Company received the Bizz Americas 2016 Awards. The
company’s objective aims in ‗reaching out to the common man with products and services that would be
helpful to him/her as they set out on the path to prosperity.

Mission and Vision

The Shriram Life Insurance Company was founded with the objective of reaching out to the ―common man‖
with products and services that would be helpful to him as he sets out on the path to ―prosperity‖.

Operational efficiency, integrity and a strong focus on catering to the needs of the average Indian, by
offering him high quality and cost-effective products and services, are the core values that drive the
organization. These values have been strongly adhered to over the decades and are now an integral part of
the organization’s DNA.

The company prides itself on its deep understanding of the customer. Each product or service is tailor-made
to specifically suit the needs of the customer. It is this guiding philosophy of putting people first that has
brought the group company closer to the grassroots and has made it the preferred choice for all truck
financing requirements amongst the customers.
LITERATURE REVIEW
 CHAPTER FIVE

LITERATURE REVIEW

This chapter highlights the various types of behavioral biases underpinning investor decisions based on
previous research and literature. Existing literature classifies behavioral biases into two major types. These
are: cognitive biases and emotional biases.

Razek (2011) portends that human beings are faced with limited cognitive abilities that constrain their
problem-solving abilities. According to Pompian (2012), cognitive errors or biases stem from basic
statistical, information processing, or memory errors and thus, may be considered the result of faulty
reasoning. Cognitive errors do not result from emotional or other predisposing towards certain judgments,
but rather from either subconscious mental procedure for processing information or irrational perseverance
in ones own beliefs. The author argues that because cognitive errors stem from faulty reasoning, better
information, education and advice can often correct for them.

Lindblom & Platan (2002) studied factors that influence the speculative bubble during the period 1998 to
March 2000. A survey of 160 private investors drawn from Aktiespararna Association in Southern Sweden
in Dec. 2001 and 47 institutional investors comprising of banks, mutual funds and investment banks was
conducted through questionnaire. The study concluded that herd instincts, cognitive dissonance, anchoring
and loss aversion contributed significantly to the speculative bubbles as well as overconfidence.

Huberman (2011) showed that investors have localized preferences for stock by documenting their
preferences for holding stocks in a regional company in preference to other investments.

Grinblatt & Keloharju (2001) note that Finish agents are more prone to hold stock in firms which are located
close to the investor.
RESEARCH OBJECTIVE
 CHAPTER SIX

RESEARCH OBJECTIVES

Primary Objectives

The objective of the study is to determine the effect of behavioral biases on investment decisions of
individual investors in Capital market.

Secondary Objectives

To find out which bias is most pronounced in the Indian context.

To find out the investment perspectives of investors.

RESEARCH METHODOLOGY
 CHAPTER SEVEN

RESEARCH METHODOLOGY

Introduction
The general objective of the study is to determine the impact of behavioral biases on investment decisions in
Capital Market. This chapter describes the details of the research design used for this study. It discusses the
population and sampling design, sample size, sampling technique, data collection methods, research
procedures and data analysis methods.

Research Design:

The study was descriptive in nature with survey method being used to complete the study. The purpose of
methodology is to describe the purpose involve in the research work. This descriptive study is concerned
with finding out the what, where and how of a phenomenon. This study therefore generalized the findings to
individual investors in capital market. The main focus of the study will be quantitative.

Sample Design:

Population includes respondents involve in capital market. Most of the sample will be generated by personal
contacts as the research requires those samples who are investing in capital market. Individuals were
approached through questionnaire and their responses were recorded.

Sample size:

Sample size is taken as 50 respondents.

Tool used for data collection:

Data was selected by using both primary and secondary method, in Primary method of data collection
questionnaire was used, in case of secondary data was collected by using magazine, books.
TYPES OF DATA COLLECTION

Primary data:

The primary data was collected by asking the respondents those who invest in capital market by themselves.
These are those data which are collected a fresh and for the first time and thus happen to be original in
character.

Secondary data:

Secondary data are the information which is attained indirectly. They are the data collected by someone else
and which has already passed through statistical process.

DATA ANALYSIS

Before processing the responses, the completed questionnaires were edited for completeness and
consistency.

Quantitative data was presented in tables and explanation in prose.

DATA ANALYSIS AND INTERPRETATION
 CHAPTER EIGHT

DATA ANALYSIS AND INTERPRETATION

Part I: Analysis of demographic profile of the respondent

The Composition of total respondents as per Gender.

Frequency Percent

Male 37 74.0

Valid Female 13 26.0

Total 50 100.0

Table No 8.1

As per the data analyze in the table 8.1, 74% of respondents are male and 26% of respondents are female. As
conclusion final result and finding will dominated by male ‘s response.
The Composition of total respondents as per Age.

Frequency Percent

less than 20 years 2 4.0

20-30 year 28 56.0

30-40 years 6 12.0

Valid 40-50 years 9 18.0

50-60 years 3 6.0

Above 60 year 2 4.0

Total 50 100.0

Table No 8.2

As per the data analyze in the table 8.2, we see that out of 50 respondents 56% people lie between 20-30
years, 18% people between the age group of 40-50years. As per the
further analysis we reveal that the maximum no. of respondents are between 20-30 years in this study.

The Composition of total respondents as Education

Frequency Percent

Undergraduate 3 6.0

Graduate 20 40.0

Valid Post-graduate 21 42.0

Doctorate 6 12.0

Total 50 100.0

Table No 8.3

As per the data analyze in table 8.3, we found that out of the 50 respondents, 42% of respondent are Post
graduate, 40% of respondent are Graduate, 12% of respondents are Doctorate and 6% of respondents are
Undergraduate. Therefore, the maximum number of respondent are Post graduate in this study.
The Composition of total respondents as per Occupation.

Frequency Percent

Government employed 3 6.0

Private employed 21 42.0

Self employed 10 20.0

Business 2 4.0
Valid

Retired 4 8.0

Others 10 20.0

Total 50 100.0

Table No 8.4
As per the data analyze in table8.4, we found that out of 50 respondents, 42% of respondents are occupied in
private employed, and 20% of them were involve in other activities. As per the further analysis we found that
the minimum number of respondents are Government employed in this study.

The Composition of total respondents as per Annual Income.

Frequency Percent

Below Rs.300000 20 40.0

Rs.300000- Rs.500000 17 34.0

Annual Rs.500000- Rs.100000 6 12.0

Income

Above Rs.1000000 7 14.0

Total 50 100.0

Table No 8.5
As per the data analyze in table 8.5, we found that out of 50 respondents, 40% of respondents belongs to
income below Rs 3,00,000, 34% of respondents belongs to income between Rs 3,00,000- Rs 5,00,000, 12%
of respondents belongs to income between Rs 5,00,000- Rs 10, 00,000 and 14% of respondents belongs to
income of above Rs 10, 00,000. As per the further analysis we reveal that the maximum number of
respondent are of below Rs 3, 00,000 income in this study.
FINDINGS
 CHAPTER NINE

FINDINGS

After the study we found out that the major irrational behavior on the basis of which they invest their money
in the capital markets are –

a) Optimism bias and

b) Overconfidence.

Investors think that they have average or more than average knowledge about financial management.
There is more no. of people who work in private companies and private companies pay also more so these
people have more money to save and invest.

Major number of investors are from the age group of 20-30 which means that the people started investing at
a very young age.

More no of investors are post graduates which means that the level of education is good in investors.
Less no. of women has financial education
SUGGESTIONS& RECOMMENDATION
 CHAPTER TEN

SUGGESTIONS & RECOMMENDATION

The study would recommend education to be vested in individual investors since this would overcome
unfavorable investment outcomes caused by behavioral biases. In order to manage the excesses of behavioral
influences to investment decision making, training programs that create investor awareness and ability to
identify and guard against behavioral biases that lead to bad investment choices should be offered to both
potential and existing individual investors.
The study also recommends that there is need for financial management knowledge for individual investors
such that their capacities in managing funds are enhanced. Therefore, research should be conducted on how
financial capability program could be designed and implemented in suitable and cost effective manners that
enhance the value of the investors.
The study further recommends the individual investors to seek the advice of stock brokers/fund managers to
advise them accordingly in terms of performance of a specific security in which an investor would wish to
invest in. the implication is that such brokers/fund managers have the information of the market and are
aware of the movers and shakers of securities and therefore provide their advice at a fee.
In relation to the above recommendation there should exist measure to curb the behaviors of such
brokers/fund managers in trying to exploit naïve investors by misadvising them or even charging exorbitant
fee in the name of information provision. This is to say that there should be some kind of regulation by the
government or even say the governing body.

31
CONCLUSION
 CHAPTER ELEVEN

CONCLUSIONS

Individual investor decisions were influenced several behavioral biases. The investors thereby showed that
their decisions are influenced by the behavioral factors as opposed to being rational. The factors that were
most prevalent among individual investors manifested in the form of representativeness bias, leading to
individual investors‟ past history influencing their present investment decisions.

The individual investors were also affected by Pessimism, Overconfidence, Loss aversion. The individual
investor‘s decisions were also influenced by herd instinct bias as they responded thinking hard and for a long
time about something give them little satisfaction.

The result of the study highlights for achievement of financial goals it is necessary to learn from past
experiences and based on those learning ‘s take future course of investment actions rather than depending on
past experiences and making mistakes by showing rigid behavior of not adopting to current dynamic
circumstances of investment. At the same time past experiences also teaches investors positive aspects of
investing which, can be utilized to achieve financial goals by making correct investment decisions. The
investment decisions also depend upon the prevalent economic condition and the ambiance for the
investment avenues. The individual financial and investment goals though are subjective in nature but they
largely affected by the behavioral biases as discussed in this study.