Theoretical Overview

Behavioural factors of single parent

There is a high risk of financial distress in single parent families that can impair
psychological well-being. Behaviour can be understood as the manner in which a person acts
or behaves. It is the manner in which a person conducts himself. [ CITATION Usa18 \l 1033 ]

In human life, the family, which consists of parents and children, is very significant. In
accordance with the needs of his/her physical, emotional and mental needs, starting from
loving and loving the child who comes from within a family in the world, he develops a
healthy personality and obtains the most detailed knowledge about the community in which
to live.[ CITATION Usa18 \l 1033 ]

In human life, the family, which consists of parents and children, is very significant. In
compliance with the needs of his/her physical, emotional and mental needs, beginning from
caring and loving the infant who comes from inside a family in the country, he develops a
balanced personality and obtains the most detailed knowledge about the community in which
to live.

Deficiency of mother or father can cause lack of behavioural performance for any children.
Nowadays, divorce is a very ordinary event. The family is characterized as a dynamic social
system consisting of a common history, a mutual association, emotional connection,
individual family members, and people who plan action to meet the needs of the whole
family.

The family is one of the successful organizations for leading children in social growth,
adaptation and socialization. Financial hardship was associated with financial deprivation,
with some participants directly addressing the obstacles they encountered in supplying heat in
their households. In attempt to weaken their psychological well-being and mental wellbeing,
social alienation, depression and withdrawing is proposed. It was argued that not having
enough money to partake in social activities was a physical obstacle, but the humiliation of
having no money was a social and psychological barrier that was proposed to underlie their
propensity to socially retreat. This meant that financial burden and financial distress were
also associated with social detachment and social isolation.[ CITATION Spi \l 1033 ]

Key concepts of Behavioural Finance

The study of behavioural insights has implications for economic decisions and have
economic consequences for both the individual and societies as a whole. Behavioural finance
is an area of research that aims to integrate traditional economics and finance with
behavioural and cognitive psychological theories to understand the reason people make
irrational financial choices. The key concepts of behavioural finance are:

 Disposition effect bias: This applies to a desire as winners or losers to mark investments.
Disposition impact bias will cause an investor to hold on to an investment that has no
further potential or to sell a winning investment too early to cover for previous losses.
This is damaging because it can lift taxes on capital gains and can lower returns well
before taxes.
 Anchoring: The concept of anchoring draws on the tendency to attach or “anchor" our
thoughts to a reference point - even though it may have no logical relevance to the
decision at hand.
 Mental accounting: mental accounting refers to the tendency for people to separate their
money into separate accounts based on a variety of subjective criteria, like the source of
the money and intent for each account.
 Gambler’s fallacy: in the gambler's fallacy, an individual erroneously believes that the
onset of a certain random event is less likely to happen following an event or a series of
events. This line of thinking is incorrect because past events do not change the probability
that certain events will occur in the future.
 Herd behaviour: refers to the tendency of individuals to mimic the actions (rational or
irrational) of a larger group. Individually, however, most people would not necessarily
make the same choice.
 Self-attribution bias: Investors who suffer from bias in self-attribution prefer to attribute
their own behaviour to good results and external causes to negative results. As a form of
self-protection or self-enhancement, they also show this prejudice. Investors impacted by
prejudice in self-attribution can become overconfident.
 Worry: A natural and typical human emotion is the act of worrying. Worry evokes
memories and produces visions of likely future outcomes that change the decision of an
investor on personal finances. Investment anxiety boosts the potential risk and reduces the
level of risk resistance. In order to prevent this prejudice, investors should balance their
risk tolerance level with an acceptable strategy asset allocation.
 Over confidence: It refers to the tendency to overestimate or exaggerate one's ability to
successfully perform a particular task.

Different Investment & Savings Avenues in India

Savings Avenue:

Term Deposits

A time deposit or term deposit is an interest-bearing bank deposit with a specified period of
maturity. It is a money deposit at a banking institution that cannot be withdrawn for a specific
term or period of time.

Term Deposits can be Fixed Deposits where the lump sum amount educating for a specific
duration for which interest is paid by the bank, and Recurring Deposits where small amount
are invested at regular intervals of time i.e. monthly, quarterly, half yearly or yearly for a
specific duration for which interest is paid by the bank.

Post Office Savings Scheme

Post Office Savings Scheme have similar investment avenues similar to Banks. They are as
follows.

 Post Office Savings Account

 National Savings Recurring Deposit Account
 National Savings Time Deposit Account
 National Savings Monthly Income Account
 Senior Citizens Savings Scheme Account
 Public Provident Fund Account
 National Savings Certificates (VIII Issue) Account
 Kisan Vikas Patra Account
 Sukanya Samriddhi Account

Investment Avenues:

Stocks and Shares

Equity
Equity funds make money for investors by investing in the equity stock market. Equity funds
may be classified into large-cap funds, mid-cap funds, small-cap funds and sector/thematic
Funds. There are further types called multi-cap funds and balanced funds too, however, these
are just variants. When we invest in equity, we buy a stake in one or more companies in the
form of shares. The investor sells the shares at higher prices and buys at low prices and
companies will provide the dividends at least once a year. Returns in equity are not
guaranteed, as it is market linked. There is potential for equity to outperform inflation.

Large-cap funds

 Invest in large-sized companies.

 Lower risk within equity category

Large-cap funds are funds, which invest a large part of their assets in the equity shares of
very large companies. Large-cap funds invest in companies which have a large market
capitalization (hence the name large), usually, these are very large companies established
players, with a large workforce.

Mid-cap Funds

 Invest in mid-sized companies.

 Relatively higher risk than large cap

Mid-cap funds invest in mid-sized companies; these companies by being mid-sized can
provide good returns. There are various definitions of mid-caps funds in the market, one
could be companies with a market capitalization of INR 500 Cr to INR 10,000 Cr another
could be companies beyond the first top 50 companies to the 250th company.

Small-cap funds

 Invest in small-sized companies.

 Highest risk within equity category

Small cap companies include firms that are in their early stage of development with small
revenues. Small caps are typically defined as firms with a market capitalization of less than
INR 500 Crore.

Debentures
Debt funds invest in fixed income instruments. They invest in fixed income securities like
bonds, etc. Debt mutual funds mainly invest in a mix of debt or fixed income securities like
Government securities, Treasury bills, corporate bonds, etc. Those who are looking for a
steady income with relatively lower risks prefer debt funds. Debt or fixed income securities
are a form of loans that can be bought or sold in the market by corporate investors.

Mutual Fund

A mutual fund is a type of investment vehicle made up of a pool of money that many
investors accumulate to invest in securities such as commodities, shares, instruments of the
money market, and other properties. Mutual funds are run by experienced portfolio managers
who distribute the assets of the fund and aim to create capital returns or revenue for owners
of the fund. The portfolio of a mutual fund is structured and maintained to match the
investment objectives stated in its prospectus.

Some of the common types of mutual funds are:

1.Money market funds

These funds invest in short-term fixed-income instruments such as government bonds,

treasury bills, acceptances by bankers, company papers, and deposit certificates. Generally
speaking, they are a better bet, but have a lower potential return than other mutual fund types.
Canadian money market funds are attempting to keep their net asset value (NAV) at $10 per
protection steady.

2.Fixed income funds

These funds purchase investments such as government bonds, investment-grade corporate

bonds, and high-yield corporate bonds which pay a fixed rate of return. They seek to bring
cash into the fund on a daily basis, often from the interest received by the fund. Generally
speaking, high-yield corporate bond portfolios are riskier than funds buying government and
investment-grade bonds.

3.Equity funds

These funds invest in inventories. This funds are targeted at rising quicker than the capital
market or fixed income funds, so there is typically a greater chance of losing money. You can
select from various types of equity funds, including those investing in growth stocks (which
typically do not pay dividends), income funds (which carry big dividend-paying stocks),
bargain stocks, large-cap stocks, mid-cap stocks.

4.Balanced funds

Such funds invest in a mixture of stock and fixed income instruments. They strive to balance
the objective of obtaining better returns against the danger of losing cash. Many of these
funds follow a formula to distribute the capital between the various forms of investments.
They seem to be at higher risk than fixed revenue funds, but at lower risk than pure equity
funds. More equities and smaller bonds carry aggressive portfolios.

5.Index funds

The purpose of these funds is to track the performance of a given index, such as the
S&P/TSX Composite Index. The valuation of the mutual fund, when the index goes up or
down, would go up or down. Typically, index funds have lower costs than mutual funds that
are actively run because the portfolio manager doesn't have to do too much analysis or make
too many investment choices.

6.Specialty funds

These funds concentrate on specialized mandates, such as real estate, commodities and
socially conscious portfolios. A socially conscious fund, for example, may invest in
businesses supporting environmental stewardship, civil rights and diversity, and may exclude
companies engaged in alcohol, cigarettes, prostitution, guns and military operations.

Different ways to Invest in Mutual Funds

There are 2 ways through which one can invest in mutual funds.

One-time Investments: If an Individual is having some extra money then out of that money
some lump sum amount can be invested for fortune use.

Systematic Investment Plan (SIP): It is a good way of investment if a person can save some
amount from his/her monthly salary. It is a hassle-free and disciplined manner of investment.
An individual can start from a small amount of money in SIP.
References
(2019, April 26). Retrieved from https://cleartax.in/s/term-deposits.

H, U. (2018). Behavioural tendencies of Single Parent Students. 7. Retrieved from

https://files.eric.ed.gov/fulltext/ED590421.pdf

Spinder.com. (n.d.). Retrieved from The impact of Financial hardship on single parent:
https://link.springer.com/article/10.1007/s10834-017-9551-6

TaxGuru. (2018, May 20). Tax Guru. Retrieved from Tax Guru:
https://taxguru.in/finance/investment-avenues-2018.html