AN EMPIRICAL STUDY ON THE INVESTORS' PERCEPTION

TOWARDS INVESTMENT ALTERNATIVES

'Shalini R, ^Kiran Hiremath & ^Dr. Poornima Charantimath

ABSTRACT
The present article attempts to examine the relationship between investor's preference on various attributes and

perceived satisfaction on different financial instruments. This relationship is shown in perceptual mapping. The

study has hypothesized a positive relationship exists between perceived preference and perceived satisfaction of

financial instruments among individual investors. In addition, to prove whether there is statistically significant

difference on perceived satisfaction across demographic variables. Sample of 67 were collected which included

students, employees, retired people, housewives etc. in Bangalore. ANOVA and correlation tests have been

used to prove the hypothesis. Based on mean score of preference and satisfaction of investors ranking has been

done. Results showed the attributes which are most preferred across various instruments among the investors.

Key words : Retail Investors, Financial instruments a n d perceptual m a p p i n g

INTRODUCTION of funds, holding, buying and selling of securities.

Investors hold different perceptions on liquidity,
The Indian capital market has been growing
profitability, collateral security, statutory perception,
tremendously with the initiation of various economic
etc., for various Investment avenues. In addition
reforms.. T h e Indian e c o n o m y has opened up and
they also fix their own priorities for these
many developments have been taking place in the
perceptions. The formation of perceptions triggers
Indian capital market and money market. A s a
the investment process in its o w n way, often leading
result, new investment avenues are o p e n e d up for
to unrealistic apprehensions especially among
individual investors, in particular.
individual investors. There is a need to help
Individual investors face lot of problems due to investors develop a realistic perspective of the
inadequate knowledge, lack of investment skills, investment avenues and their attributes
non-availability of information, rural orientation, etc.,
Investors are a h e t e r o g e n e o u s group, they may be
to name a few that influence the formation of
large or small, rich or poor, expert or lay m a n a n d
investment perception as well as investment
not all investors need equal d e g r e e of protection
activities. T h e perceptions influence the investment
process including the choice of avenues, planning (Mayya, 1996). An investor has three objectives

^Shalini R ^Kiran Hiremath ^Dr. Poornima Charantimath

Research Scholar. Research Scholar, Research Guide

Rayalaseema University, Rayalaseema University, Rayalaseema University,

KumooL Andhra Pradesh Kurnool, Andhra Pradesh Kurnool, Andhra Pradesh

Adarsh Journal of fVlanagement Research 55

while investing his money, namely safety of optimism is associated with greater willingness to
invested money, liquidity position of invested accept higher levels of risk in a portfolio. Therefore,
m o n e y and return on investment. T h e return on in addition to gender effects, Felton, Gibson, and
investment may further be divided into capital gain Sanbonmatsu [2003] found that personality
a n d the rate of return on investment as interest or characteristics can affect investment choice.
dividend. Thus, it is high time to u n d e r s t a n d a n d Investors differ systematically in how they perceive
analyze investor's perception and expectations,
and m a n a g e investment risk. People do not just
a n d unveil s o m e extremely valuable information to
invest their money; they do so in order to achieve
support financial d e c i s i o n making.
personal goals. For example, s o m e investors need
Modern financial economics assumes that we to increase capital in order to purchase expensive
behave with extreme rationality; but, w e do not commodities like houses or cars. Others aim to
(Barber and Odean, 2001). T h e recognition that
secure the financing of their retirement or their
individual behavioural influences affect market
children's education. Yet others invest with more
outcomes initiated a new research stream in
financial economics, called behavioural finance. short-term goals in mind, such as being able to
Behavioural finance research applies lessons from take a year off work to travel, or to get married.
psychology to financial decision by incorporating
Typically, investment is a financial means toward a
observable, systematic, and very h u m a n departures
non-financial goal. T h e fact that the personal context
from rationality into standard models of financial
markets. Gender differences in investment of an investment can have an impact on an

strategies are one s u c h departure. Psychological investor's choice seems intuitive. It also appears to
research demonstrates that in areas such as be recognized by investment services providers,
financial decision making, w o m e n have different
w h o often tout highly personalized portfolios and
outlook and preferences than men.
client- centered fund managers. So how can we
W h a t prompts investors to choose one investment quantify what effect investors' o w n goals have on
option over another? T h e standard behavioural their investment choices? W e posit that rendering
answer is that investors are striving to minimize investor goals more salient is likely to result in
investment risk. This notion is based on K a h n e m a n investment decisions that minimize risk (or the
a n d Tversky's [1979] prospect theory, w h i c h states variability in outcomes). Thinking about personal
that people tend to be more risk-averse than goals such as purchasing a house, getting marhed,
risk-seeking when it c o m e s to gains (and the or securing one's retirement is likely to focus
opposite w h e n it c o m e s to losses). However, to say
people on such non-financial, personally important
that risk preference is at the core of investment
plans, and thus render them more hsk averse.
choice is only part of the story—and. as recent
research suggests, perhaps a very small part.
Against this background, this article aims at
Recent studies suggest that investor gender,
analyzing the investors' perception towards
personality, a n d even cultural factors are related to investment alternatives. T h e article is divided into
investor preference. For example, Olsen and Cox 3 sections. Section I comprises Introduction,
[2001] found that female investors are more R e v i e w of Literature, O b j e c t i v e s a n d Hypothesis.
risk-averse than their male counterparts. Felton, Section II deals with Research Design and
Gibson, and S a n b o n m a t s u [2003] replicated this fVlethodology and Data Analysis Last Section
difference, and also found that higher investor includes Findings, S u g g e s t i o n s a n d C o n c l u s i o n s

Vol 5 Issue 2 September 2012 56

1.1 R E V I E W O F L I T E R A T U R E Services and found out that the perception
regarding investing in different avenues and returns
Lewellen (1997) finds that age, sex, income and
differ from investor to investor based on their age.
education affects the investors' preferences.
K. Senthil K u m a r (India), C. Vijaya Banu (India),
Karmakar (2001) has found that the life insurance
V. Lakshmana Gomathi Nayagam (India)
policy is the most popular investment avenue.
Financial product preferences of Tiruchirapalli
Hubertnan (2001) is of the option that a person is
investors using analytical hierarchy process
more likely to invest in know/n c o m p a n i e s and not
and fuzzy multi criteria decision making (2008)
in unknown. In April 2004, Merrill Lynch
conducted the study and found out the rank
Investment Managers undertook a study of
preference of the financial product which are as
investors and examined their related attitudes,
follows Post office, bank deposit, gold, real estate,
beliefs a n d knowledge levels. In gender terms, the
equity investment and mutual fund.
survey found that a little self-knowledge can go a
long way. Participants had to be solely or jointly T h e present study is unique as it investigates the
responsible for financial and investment decisions perceptions of investors towards different

for their household, and have at least $75,000 in
investible assets and an annual household income
of at least $75,000. Nick Sevdalis & Nigel Harvey
in 2007 has c o n d u c t e d a study on
versus Investing for a Reason Context Effects
in Investment Decisions and f o u n d
investment avenues unlike others w h o have studied
mostly in only one or two investment avenues.
1.2 O b j e c t i v e s of the s t u d y
Investing
1. To find out the most preferred instrument a m o n g
out that the individual investors.

people i.e. investors who do self analysis 2. To find out the reasons behind such preference

c h o o s e to invest in less risky avenues. Yesh Pal of instruments.

Davar, Professor, University Business School, 3. To know the relationship between preference
Panjab University and Suveera Gill have
and satisfaction a m o n g investors
studied the role of gender in decision m a k i n g
4. To capture the perception of investor with the
in J u n e 2007 and they f o u n d that male have
help of perceptual mapping.
more awareness than female and are less
confident than male investors. Nicolas P. B.
1.3 R e s e a r c h H y p o t h e s i s
Bollen in September 2007 from school of
In o r d e r to s u p p o r t t h e o b j e c t i v e s of t h e s t u d y
Business Administration, University of Washington,
and to answer the research question, the
Seattle, has studied the investor's behaviour
f o l l o w i n g h y p o t h e s e s are d r a w n :
towards mutual funds and found that there w a s
H01: There is a p o s i t i v e r e l a t i o n s h i p existing
greater response towards positive returns by
b e t w e e n p r e f e r e n c e a n d s a t i s f a c t i o n of f i n a n c i a l
investors than investors in conventional funds. i n s t r u m e n t s a m o n g retail i n v e s t o r s .
Nidhi Walla Lecturer, School of M a n a g e m e n t &
H02: T h e r e is statistically significant difference on
Social Sciences, Thapar University Patiala,
perceived satisfaction across demographic
India Dr. Mrs. Ravi Kiran School of M a n a g e m e n t variables (Total income).
& Social Sciences, Thapar University Patiala,
India in 2009 conducted a study on Analysis of
Investor's Risk Perception towards Mutual Funds

Adarsh Journal of fVlanagement Research 57

I I . R e s e a r c h D e s i g n and M e t h o d o l o g y : part 2- preference of various instruments m e a s u r e d

The type of research used in this study is in 5 point scale, and

exploratory and descriptive, it tries to explore the part 3 - R e a s o n s for p r e f e r e n c e is m e a s u r e d in
relationship existing between preference and a g a i n 5 point s c a l e w h e r e 1 is s t r o n g l y d i s a g r e e
satisfaction of financial instrument a m o n g investors. a n d 5 is s t r o n g l y a g r e e
T h e study follow/ed quantitative research approach,
2.3 Data analysis:
where survey method is followed as research
T h e d a t a is a n a l y z e d u s i n g d e s c r i p t i v e statistics
method. This research centers on the typically
s u c h as f r e q u e n c y mean score and standard
structured and undisguised questionnaire style
d e v i a t i o n , A N O V A to p r o v e statistical s i g n i f i c a n t
which is adopted as data collection method.
d i f f e r e n c e a m o n g v a r i o u s levels of i n c o m e g r o u p .
Hypothetico-Deductive logic method is used to test
Correlation is used to know the relationship
the theory.
between preference and satisfaction, which is
2.1 Data Collection a n d S a m p l e Design: illustrated in p e r c e p t u a l m a p p i n g w i t h t h e help of

2.1.2. Data Collection X Y chart labeler in M S e x c e l 2 0 0 7 .

Data is collected from two sources. Primary data

2.4 Results:
and secondary data have been used in this s t u d y
2.4.1. D e m o g r a p h i c c o m p o s i t i o n
Primary data is collected by administering a
Out of 67 r e s p o n d e n t s , the results s h o w e d (refer
detailed questionnaire. S e c o n d a r y data is collected
A n n e x u r e 1) that 5 2 . 2 % are f e m a l e r e s p o n d e n t s ,
through various sources w h i c h includes online and
2 6 . 9 % are in the a g e g r o u p of 36-45 y e a r s a n d
hard copy journals in order to understand the
4 6 - 5 5 years, 3 2 . 8 % r e s p o n d e n t s b e l o n g to the
theoretical aspects and background of industry.
category of matriculation, 68.7% respondents
2 . 1 . 3 . S a m p l e Design b e l o n g to the a n n u a l i n c o m e c a t e g o r y of up to
5 lakhs, 38.8% respondents belong to the
Target population is a p e r s o n w h o is of the age of
occupation category of business, 82.1%
a b o v e 25 years a n d w h o has c h o s e n more than 2
r e s p o n d e n t s feel that the r e a s o n for i n v e s t m e n t is
instruments and invested at least for past 2 years.
fixed income and 97% of r e s p o n d e n t s go by
For the purpose of this s t u d y 100 questionnaires
friend's suggestion for getting the source of
w e r e distributed in a n d a r o u n d Bangalore city. Out
information.
of 100, 6 7 samples w e r e completely collected from
respondents. The study used non probability 2.4.2 P e r c e p t u a l m a p p i n g
sampling method, in that it f o l l o w e d convenient Correlation shows the relationship between
sampling. T h e study tal<es care of d e m o g r a p h i c investors' preference and satisfaction among
composition in the different level of e a c h variable
various financial instruments. In addition, mean
such as age, sex, income etc. It is further ensured
score is calculated for all the 9 instruments on
that major elements of target population are
satisfaction. Based on the above 2 output,
captured in the samples.
perceptual mapping is generated, X axis is

2.2. M e a s u r e s U s e d in the s t u d y correlation score and Y axis is satisfaction m e a n

score. Perceptual map contains 4 quadrants; top
All the measures used in the study are classified into
right quadrant s h o w s the most preferred and highly
3 parts, in the Questionnaire. They are as follows:
satisfied instruments like bank and post office
part 1 concentrates on d e m o g r a p h i c variables deposits, gold etc. T h e least preferred a n d least
w h i c h m e a s u r e d in categorical scale satisfied instrument is bonds or d e b e n t u r e s w h i c h

Vol 5 Issue 2 September 2012 58

can be seen in the bottom left quadrant. The graph given below shows clearly the investor's preference and
satisfaction a m o n g various financial instruments. Also refer A n n e x u r e 2.

Fiiimicial lustruineiits Drives the Investors

P r e f e r e n c e »& S i i t i s f i i r t i o u

5.00
Bank & PO
4.50 deposit^

4.00
^Gold
3.50

3.00 Real Estate Govt .Sec.

4 Insurance ^ Stocks
• • • •
2.50

• Mutual Funds
2.00 •
Derivatives
1.50 Bonds or
^ Debentures
1.00
0-v 40-6 60% 80% 100"

H1: T h e r e is a positive relationship existing HO: T h e r e is statistically no significant difference

b e t w e e n p r e f e r e n c e a n d s a t i s f a c t i o n of f i n a n c i a l b e t w e e n the income level of investors a n d different
i n s t r u m e n t s a m o n g retail i n v e s t o r s . financial instruments.

HO: T h e r e is no p o s i t i v e r e l a t i o n s h i p existing T h e study used A N O V A to prove w h e t h e r there is

b e t w e e n p r e f e r e n c e a n d s a t i s f a c t i o n of f i n a n c i a l statistically significant difference between the
i n s t r u m e n t s a m o n g retail i n v e s t o r s . i n c o m e level of investors a n d different financial
From the a b o v e perceptual m a p p i n g it is clear that instruments. O n e financial instrument that is
there exists a positive relationship between the Insurance s h o w s statistically significant difference
preference and satisfaction of financial instrument among the preference of investors. Except
a m o n g retail investors. Hence H1 is a c c e p t e d and i n s u r a n c e other financial instruments do not have
HO is rejected. any difference. H e n c e is HO is a c c e p t e d for all the
financial instruments except I n s u r a n c e a n d H1 is
M e a n score for e a c h instrument is calculated and
rejected. Refer A n n e x u r e 4
the ranking is done. W h e n all the 9 instruments
w e r e ranked based on the preference across 16 III. S U G G E S T I O N S A N D C O N C L U S I O N

attributes, g o v e r n m e n t securities w e r e ranked 1 This study finds that most of the respondents prefer
bank and post office deposits over other financial
followed by bank and post office deposits in rank 2,
instruments. This study effectively captures the
stocks w e r e ranked 3, real estate & gold ranked 4. perception of investor about instruments with the
Refer A n n e x u r e 3 help of perceptual mapping. There is a strong
relationship between perceived preference and
H1: There is statistically significant difference perceived satisfaction of financial instruments
b e t w e e n the income level of investors a n d different among retail investors. There is statistically
financial instruments. significant difference on perceived satisfaction

Adarsh Journal of fVlanagement Research 59

across demographic variables i.e., between income
level and perception towards Insurance. Irrespective
of the age, income level and occupation, people still
have great faith on government securities, bank and
post office deposits. This shows that people do not
get secured feeling towards other instruments like
mutual funds, derivatives etc. One of the reasons
could be lack of awareness towards such instruments.
Hence it is suggested that awareness programmes
and promotional activities should be organized
enlighten the people about other financial instruments
highlighting liquidity, security and returns.
SUMMARY
T h e present study endeavored to give a look on
investor's perceptions towards various investment
avenues. Understanding of investor's expectations
REFERENCES:
• Gopalsamy, N. (2005) "Capital Market: The
Indian Financial Scene", MacMillan India Ltd.,
I Edition, p.243, 2 6 8 - 2 7 6
• Harlis, D.E. & P e t e r s o n S. P, 1998, "Investor
behaviour a n d persistence of p o o r - p e r f o r m i n g
mutual funds", Journal of e c o n o m i c s b e h a v i o u r
& organization, 37, 257-276.
to
• H u b e r m a n , Gur, ( 2 0 0 1 ) , " F a m i l i a r i t y b r e e d s
i n v e s t m e n t " . R e v i e w of F i n a n c i a l s t u d i e s .
Vol 1 4 ( 3 ) , p a g e s 6 5 9 - 8 0
• K a r m a k a r ( 2 0 0 1 ) J o u r n a l of F i n a n c i a l T r a n s -
formation, vol.3,11 7 - 1 2 6
• L e w e l l e n , W., L e a s e , R. a n d S c h l a r b a u m , G.,
1 9 9 7 , P a t t e r n s of i n v e s t m e n t s t r a t e g y and

from various avenues has b e c o m e a necessary behavior a m o n g individual investors. Journal

of B u s i n e s s , 50, 2 9 6 - 3 3 3 .
issue. Facts revealed in this study highlights the
preferences of varied investors w h o desire to invest • M a y y a , M . R . (^996)"Investor Protection",
in bank and post office deposits but also require B h a r a t Law H o u s e Pvt. Ltd., N e w Delhi, I
s o m e innovations and added quality dimensions in Edition, p.1.
existing services. This study also revealed that most
• Nick Sevdalis, Nigel Harvey, (2007) J o u r n a l of
of the people m a k e investments for fixed income
Behavioral science, Vol 10, Issue 2 , 8 9 - 1 0 0
purpose rather than for retirement or medical
requirement. T h e age does not have any influence • Nicolas P.B. Bollen (2005) "short term
p e r s i s t e n c e in M u t u a l f u n d p e r f o r m a n c e " , T h e
on their reason for investing and most people base
R e v i e w of financial s t u d i e s , 1 8 , 5 6 9 - 5 9 7
their investment decision on their friend's
suggestions. • K. Senthil Kumar, C.Vijaya Banu, V. L a k s h m a n a
Gomathi Nayagam.(2008) Investment
T h e study attained the objectives of finding the
Management and Financial Innovations,
most preferred financial instrument a n d the reason Volume 5, Issue 1.
for s u c h preference & also captures the perception
of investors about instruments with the help of • Yesh Pal Davar a n d S u v e e r a Gill (2007),
perception mapping. Investment Decision M a k i n g : A n Exploration of
the Role of G e n d e r Decision, Vol. 34, I s s u e l .

^^^^ ^^^^ ^^^^ ^^^^ ^^^^

Vol 5 Issue 2 September 2012 60

 ANNEXURE1

Demographic Profile Retail Investors (n=67)

Gender Age Education

• N'stricjiition PUC
I !/£!« Ftfn'ili • 15-55 • i S - i S -iS-S!. • D«fr££' (v'sster deg: ££

A n n u a l Income Occupation

3S.8

•••
149 1A9 li.?

iUptDSi;:5 £-10!f:s lO-ilim E-Jiiritis cmFtevit Student HiuMivifs Retirtd PtrsDn

Reason for Investment Sources of Information

82.:^ Friends sjgjSitiDn 57.C:i

Own Ar;iv'S!S il.S

Adv'eniieTiint 50.05i

Rsti' Coriiutt;''icv

Adarsh Journal of fVlanagement Research 61

 ANNEXURE 2

Instruments Derived Score Stated score

{ X axis) (Y axis)

Bank & PO deposits 96%" 4.28

Real Estate 40%" 2.89
Gold ° 81%" 3.75
Govt .Sec. 70%" 2.75
Insurance 42%" 2.73
Derivatives 91%" 2.07
Stocks 83%" 2.68
Bonds or Debentures 3%(NS) 1,19
Mutual Funds 5%(NS) 2.21

** sig @ 1 % , * s i g @ 5 % , N S - n o n sig.
Note: Derived score is the correlation b e t w e e n Preference and Satisfaction of financial instruments a n d
Stated Score is M e a n score of Satisfaction.

ANNEXURE 3
Instruments Satisfaction (max 5) Preference (max 9)
Bank & PO deposits 4.28 7.15
Bonds or Debentures 1.19 1.72
Derivatives 2.07 2.68
Mutual Funds 2.21 3.17
Stocks 2.68 4.49
Insurance 2.73 4.78
Govt. Securities 2.75 4.12
Real Estate 2.89 4.35
Gold 3.75 5.96

Gold 6

Real Estate c

Government Securities L

Insurance s

Stocks 4
3 M M M
Mutual Funds 3
2 mmmam
Derivatives 2 mmmm
3
Bonds or Debentures
1 i "
Bank & PO deposits . „ 7

Vol 5 Issue 2 September 2012 62

 Bank deposits and post office savings

6.00
4.45 4 76
5 00
4 00
3,00
2,00
1,00
0,00
c Ol
o I ^ . t?I Fi 5 s r £ >• £
o 0/ o ^ i
r s 2 = = ? i ^ £ ••s <C •? >
1- — f ; =rr 3
cc .r ' t ^ ^ -3 'l 1 ^ ^ g - ^ o
W
t^ Z o X
a. „ -r; 5 J; o
q: S.
rz

G o v e r n m e n t Securities

6,00 4 91
479 4.62
5.00 4-09
4,00 - -
3.00
2.00 —

LU ^ ^ W

^ ^ 1. 1 =

Stocks

6.00
4.51 4 70
5.00

MiiIILI.
.00
.00
00 —
00
00
5 ^^ gt —
g
n: ^ 3 S
c o - or,o c
Of ^ - o i - s
o -Q, "C a: .r ^ 2 ^ £ o
« E 5 £ X
re c Q.
a a.
1

Adarsh Journal of fVlanagement Research 63

 Real Estate Gold
6.00
4.73 4 70
5.00
4,00
i.OO
2.00
1.00
0.00
TO >- iire o
0/
L/
re
]u
! .2 E 5 o i- o *> 0; 0/
>•

re o
o Si o
<Ll 5 re ^ w ii 9/ re U % "re
O cc re w ^ ^ o ^ £ tr^ 0
O t E
1- "w "o t
^ £ — r S"
0/
r - SI £ J 2 O X 5 a> o o X
K .E ° a 5 Of re

Bank
deposits
and Real Government Bonds or Mutual
Gold Insurance Derivatives Stocks
post Estate Securities Debentures Funds
office
savings
Number of
1st
preference
across 16 4.00 1.00 1.00 7.00 0.00 0.00 3.00 0.00 0.00
attributes

Rank
For
Preferred
Investment

Vol 5 Issue 2 September 2012 64

 ANNEXURE 4

yVNOVA
Sum of Mean
df F Sig.
Squares Square
Between
39.973 2 19.986 20.100 0.000
Groups
d ^ o s i t s
Within
and post Groups
63.639 64 0.994

¥ 103.612 66
savings
Between
3.713 2 1.856 1.291 0.283
Groups
Real Estate Within
77.656 54 1.438
V Groups
Total 81.368 56
Between
Km Groups
0.547 2 0.274 0.162 0.851

Gold Within
108.139 64 1.690
Groups
• i-- • . • .i-v Total 108.687 66
Between
Groups 37.189 2 18.595 12.044 0.000
Govennnent Within
Secuiities Groups 83.372 54 1.544
Total 120.561 56
Between
Groups 7.793 2 3.897 3.223 0.046
I Within
'Insurance Groups 77.371 64 1.209
Total 85.164 66
Between
Groups 4.347 2 2.174 1.375 0.262
Within
Groups 85.372 54 1.581
Total
89.719 56
Between
Groups 0.010 2 0.005 0.002 0.998

'W^S^ Within
134.306 54 2.487
Groups
Total 134.316 56
Between 0.144 2 0.072 0.362 0.698
Groups
Within 10.733 54 0.199
Total 10.877 56
Sy^j^^^l-;-ii Between
0.472 2 0.236 0.174 0.840
Groups
Within
86.603 64 1.353
Groups
Total 87.075 66

©©©©©

Adarsh Journal of fVlanagement Research 65