Professional Documents
Culture Documents
A Project Submitted to
University of Mumbai for Partial Completion of the Degree of
Bachelor in Commerce (Accounting and Finance)
SUBMITTED BY
ROLL NO -55
MRS.AFSHA KIRKIRE
2023-2024
1
DECLARATION
The empirical findings in this project report are not copied from any report
and are true and best of my knowledge.
I here by further declare that all information of this document has been
obtained and presented according to rules and regulations
2
CERTIFICATE
The student has shown immense interest in the subject and the study was carried out
with total devotion.
Signature:
Signature:
Signature:
Signature:
3
ACKNOWLEDGEMENT
Preservation, inspiration and motivation have always played a key role in the
success of any venture. In the present world of cutthroat competition, project is
like a bridge between theoretical and practical working and I am grateful to all
who have helped me through this project work and made it a successful one.
I would like to acknowledge the help rendered by each of them.
For her guidance and motivation. Without her valuable advice and support, this
project would have not been a success.
I thank all the respondents for providing me with valuable information for
carrying out this project.
4
CONTENTS
Sr. No Title
1 CHAPTER- I
ECONOMIC OVERVIEW
1.1 Market size
1.2 India as an investment destination
1.3 Government initiatives to boost Indian economy
1.4 Road ahead
2 CHAPTER-II
z INTRODUCTION
2.1 An overview of Investment
2.2 What is Investment?
2.3 Objectives of Investment
2.4 Reasons for Investing
2.5 Features of investment programme
2.6 Investment and Speculation
2.7 Types of Risks in finance
2.8 Sources of study for investors
2.9 Stage in investment process
2.10 Three approaches to succeed as an investor
2.11 Types of investment
2.12 Investor and its categories
2.13 Wealthy investor
2.14 What is Portfolio Management?
2.15 Portfolio investment by foreign sources
2.16 Investment Avenues
2.17 Factors influencing the level of investment
5
2.18 Regulatory Authority
3 CHAPTER-III
RESEARCH METHODOLOGY
3.1 Objectives of the study
3.2 Meaning of research design
3.3 Sources of data collection
3.4 Methods of data collection
3.5 Data collection instrument (Questionnaire)
3.6 Sampling plan
3.7 Data analysis techniques
4 CHAPTER-IV
DATA ANALYSIS AND INTETPRETATION
(Presentation of data collected)
5 CHAPTER-V
8 Bibliography
9. Appendix
6
LIST OF TABLES
Sr. No Description
LIST OF CHARTS
Sr. No Description
7
LIST OF ABBREVIATIONS
8
CHAPTER-I ECONOMIC OVERWIEW
India is set to emerge as the world’s fastest-growing major economy by 2015 ahead of China,
as per the recent report by The World Bank. India’s Gross Domestic Product (GDP) is
expected to grow at 7.5 per cent in 2015, as per the report.
The improvement in India’s economic fundamentals has accelerated in the year 2015 with the
combined impact of strong government reforms, RBI's inflation focus supported by benign
global commodity prices.
According IMF World Economic Outlook April, 2015, India ranks seventh globally in terms
of GDP at current prices and is expected to grow at 7.5 per cent in 2016.
India’s economy has witnessed a significant economic growth in the recent past, growing by
7.3 per cent in 2015 as against 6.9 per cent in 2014. The size of the Indian economy is
estimated to be at Rs 129.57 trillion (US$ 2.01 trillion) for the year 2014 compared to Rs
118.23 trillion (US$ 1.84 trillion) in 2013.
The steps taken by the government in recent times have shown positive results as India's
gross domestic product (GDP) at factor cost at constant (2011-12) prices 2014-15 is Rs 106.4
trillion (US$ 1.596 trillion), as against Rs 99.21 trillion (US$ 1.488 trillion) in 2013-14,
registering a growth rate of 7.3 per cent. The economic activities which witnessed significant
growth were ‘financing, insurance, real estate and business services’ at 11.5 per cent and
‘trade, hotels, transport, communication services’ at 10.7 per cent.
Stating that its great time to invest in India, Minister of State for Finance Mr Jayant Sinha
said the Indian economy has potential to become a US$ 4-5 trillion economy in the next 10-
12 years.
9
the largest trade confidence survey in the world, has positioned India at the top with 142
points. The increasing demand due to its population makes the country a good
market. Sectors projected to do well in the coming years include automotive, technology, life
sciences and consumer products.
INDIAN EXPORTS:
India’s exports have also been doing well, touching US$ 303 billion in FY 2012–13,
almost double of what it managed (US$ 167 billion) four years ago. The US$ 1.2
trillion investment planned for the infrastructure sector in the 12th Five-Year Plan will
go a long way in improving export performance of Indian companies and the Indian
growth story.
INDIAN GDP:
India is the third biggest economy in the world in terms of GDP measured at purchasing
power parity (PPP), according to a World Bank report. India is also projected to become
the third largest economy (Nominal GDP) in the world by 2043.
With the improvement in the economic scenario, there have been various investments leading
to increased M&A activity. Some of them are as follows:
India has emerged as one of the strongest performers with respect to deals across the world in
terms of mergers and acquisitions (M&A). M&A activity increased in 2014 with deals worth
US$ 38.1 billion being concluded, compared to US$ 28.2 billion in 2013 and US$ 35.4
billion in 2012. The total transaction value for the month of May 2015 was US$ 3.3 billion
involving a total of 115 transactions. In the M&A space, pharmacy continues to be the
dominant sector amounting to 23 per cent of the total transaction value.
India’s Index of Industrial Production (IIP) grew by 4.1 per cent in April 2015
compared to 2.5 per cent in March 2015. The growth was largely due to the boost in
manufacturing growth, which was 5.1 per cent in April compared to 2.8 per cent in
the previous month.
India’s Consumer Price Index (CPI) inflation rate increased to 5.01 per cent in May
2015 compared to 4.87 per cent in the previous month. On the other hand, the
10
Wholesale Price Index (WPI) inflation rate remained negative at 2.36 per cent for the
seventh consecutive month in May 2015 as against negative 2.65 per cent in the
previous month, led by low crude oil prices.
India's consumer confidence continues to remain highest globally for the fourth
quarter in a row, riding on positive economic environment and lower inflation.
According to Nielsen’s findings, India’s consumer confidence score in the first
quarter of 2015 increased by one point from the previous quarter (Q4 of 2014). With a
score of 130 in the first quarter (2015), India's consumer confidence score is up by
nine points from the corresponding period of the previous year (Q1 of 2014) when it
stood at 121.
India’s current account deficit reduced sharply to US$ 1.3 billion (0.2 per cent of
GDP) in the fourth quarter of 2015 compared to US$ 8.3 billion (1.6 per cent of GDP)
in the previous quarter, indicating a shrink in the current account deficit by 84.3 per
cent quarter-on-quarter basis.
India's foreign exchange reserve stood at a record high of US$ 354.28 billion in the
week up to June 12, 2015 – indicating an increase of US$ 1.57 billion compared to
previous week.
Owing to increased investor confidence, net Foreign Direct Investment (FDI) inflows
touched a record high of US$ 34.9 billion in 2015 compared to US$ 21.6 billion in the
previous fiscal year, according to a Nomura report. The report indicated that the net
FDI inflows reached to 1.7 per cent of the GDP in 2015 from 1.1 per cent in the
previous fiscal year.
11
b) Opening up Insurance sector:
a. FIIs and non-resident Indians (NRIs) will now be able to invest in the
insurance sector, within the 26 per cent cap on FDI. DIPP confirmed in a press
note that the norms would also apply to insurance brokers, third-party
administrators (TPAs), loss assessors and surveyors. The investments can be
made through the automatic route.
c) Promotion of SMEs:
a. The Government of India along with the industry has been working towards
fashioning a more dynamic environment for small and medium enterprises
(SMEs) and start-ups over the last few years. Indian SMEs employ about 40
per cent of the country’s workforce and contribute 45 per cent to the overall
manufacturing output. A positive policy framework allied with the growth of
angel funds and a vibrant entrepreneurial culture is contributing to the growth
of first generation entrepreneurs in the country.
d) Infrastructure:
a. The Cabinet Committee on Investments (CCI) under UPA government had
approved the speedy execution of 36 infrastructure projects entailing
investments of Rs 1,830 billion (US$ 29.28 billion) to boost investor
confidence.
12
CHAPTER-II INTRODUCTION
After the global financial crisis of 2008 and 2009, the Indian financial sector has now
emerged stronger. The investments and savings are increasing in terms of volumes and
number of investors. An investment refers to the commitment of funds at present, in
anticipation of some positive rate of return in future. Today the spectrum of investment is
indeed wide.
The common perception of investors is to buy when the market supports in uptrend and not to
invest in the falling time. They wait for the stabilization in the market; so in this research, we
would like to draw a clear picture on the trends of traders and investors. Markets have
personalities because investors have emotions. Markets are ultimately driven by people and
stock prices are what individuals make them out to be. People have a tendency to see their
own actions and decisions as totally rational, when the truth is they may not be.
An investment is confronted with array of Investment Avenues. The two main classes of
investments are:
1. Fixed Income Investment such as bonds, fixed deposits, preference shares and,
2. Variable Income Investment such as business ownership (equities) or property
ownership.
On the basis of tenure, the investments are classified as-
Short-term Investment and
Long- Term Investment.
13
With reference to individuals, investment decisions should be made very wisely and with
proper research and analysis. Investment is always attached with the element of risk of losing
the invested money and this loss is not under the control of the investor. Plenty of investment
avenues available for the investors make their decision making process more critical and
complex. There are a number of factors which influence the people to make their investment
decisions.
Taken as a whole, these psychologies really have only one effect, that is - a financial decision
is taken that lacks accuracy. And these errors are strongest when uncertainty, inexperience,
attitudes and market pressures come together to undermine decision-making ability. Each
person has his own personal psychology and response style. There are three elements that
comprise the essence of success theory:
The way in which, we as investors deal with loss and failure is just as important, if not
more important, than the way in which we deal with success.
14
Effectively controlling and channelling emotions are two very important issues in the
equation for success.
Those successful continue to be successful as investors, recognize the importance of
market psychology and incorporate it in their work to a certain extent.
Success will tend to take care of itself, if one provides the proper psychological and
behavioural background for it to occur. Goals are wonderful, without them we would be lost.
Yet, the road to success must be paved with behaviour, attitude, opinions and visualization.
To be successful as an investor, one needs to develop and maintain similar attitudes,
behaviours and opinions.
However, most people will find that their investment objectives change throughout their
lives. Capital appreciation may be more important for the young investor, but once she enters
her golden years, that same investor may place a greater emphasis on gaining income.
Furthermore, as most successful investors will tell you, diversification is king. A diversified
portfolio not only reduces unwanted risk, but also contributes to a winning portfolio. And
having a well-diversified portfolio doesn't necessarily mean just buying more than one stock;
branching out into other areas of investment could be a viable alternative.
Invest early
Invest regularly
15
2.2 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.
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. 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.
WHAT IS INVESTING?
The act of committing money or capital to an endeavour with the expectation of obtaining an
additional income or profit.
There are many different ways you can go about making an investment. This includes putting
money into stocks, bonds, mutual funds, or real estate (among many other things), or starting
16
your own business. Sometimes people refer to these options as "investment vehicles," which
is just another way of saying "a way to invest."
True investing doesn't happen without some action on your part. A "real" investor does not
simply throw his or her money at any random investment; he or she performs thorough
analysis and commits capital only when there is a reasonable expectation of profit. Yes, there
still is risk, and there are no guarantees.
However, investing is becoming more of a necessity. The days when everyone worked the
same job for 30 years and then retired to a nice fat pension are gone. For average people,
investing is not so much a helpful tool as the only way they can retire and maintain their
present lifestyle.
Whether you live in the U.S., Canada, or pretty much any other country in the industrialized
Western world, governments are tightening their belts. Almost without exception, the
responsibility of planning for retirement is shifting away from the state and towards the
individual. There is much debate over how safe our old-age pension programs will be over
the next 20, 30 and 50 years. But why leave it to chance? By planning ahead you can ensure
financial stability during your retirement
WHY INVEST?
17
2.3 OBJECTIVES OF INVESTMENT
This objective emphasizes on current yield over other factors. It is typical of people who
must rely on investment income for part of their entire livelihood.
2. Preservation of Capital:
In its purest form it means that the dollar value of the portfolio should not fall. However, in a
more complex form, it means investing so that the potential for declines in the overall value
of the portfolio is within tolerable limits. In this form, it is a common and quite logical
objective.
This modifies the first objective. While current income is important, capital gains also are
sought.
This objective aims primarily at capital gains over a relatively long period of time. It implies
a greater degree of risk in the portfolio.
This objective seeks maximum capital growth and implies making riskier investments with
considerable investment analysis and management.
6. Tax-Advantaged Investments:
A person’s top marginal income tax bracket may make tax-free or tax-sheltered investments
attractive.
18
2.4 REASONS FOR INVESTING
1. Rate of Return:
2. Risk:
Risk of an investment refers to the variability of its rate of return. The greater the variability
or dispersion of the possible outcomes or the broader the range of possible outcomes, the
greater is the risk.
3. Marketability:
4. Tax Shelter:
i. Initial Tax Benefit: It refers to the tax relief enjoyed at the time of making the
investments.
ii. Continuing Tax Benefit: Tax shield associated with the periodic returns from the
investment.
19
iii. Terminal Tax Benefit: It refers to relief from taxation when an investment is
realized or liquidated.
5. Convenience:
Degree of convenience associated with investments varies widely. At one end of the spectrum
is the deposit in a saving bank account that can be made readily and does not require any
maintenance effort. At the other end of the spectrum is purchase of a property that may
involve a lot of legal hassles and a great deal of maintenance effort.
6. Concealability:
7. Capital Growth:
It refers to the buying capacity of investment in market. Investment always involves the
commitment of current funds with the objective of receiving greater amounts of future funds.
9. Stability of Income:
It refers to the constant return from an investment. Stability of income must look for different
path just as security of principal. Every investor always considers stability of monetary
income and stability of purchasing power of income.
20
2.5 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. 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
2. 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.
3. 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.
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
21
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
diversifies 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.
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.
6. 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.
22
2.6 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
The distinction between investments and speculations is given in the table below:
1. Capital Gain:
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.
23
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
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.
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.
24
2.7 TYPES OF RISK
A. SYSTEMATIC RISK
Systematic risk is due to the influence of external factors on an organization. Such factors are
normally uncontrollable from an organization's point of view.
Interest-rate risk arises due to variability in the interest rates from time to time. It particularly
affects debt securities as they carry the fixed rate of interest.
a. Price risk:
It arises due to the possibility that the price of the shares, commodity, investment, etc. may
decline or fall in the future.
25
b. Reinvestment rate risk:
It results from fact that the interest or dividend earned from an investment can't be reinvested
with the same rate of return as it was acquiring earlier.
2. Market risk:
Market risk is associated with consistent fluctuations seen in the trading price of any
particular shares or securities. That is, it arises due to rise or fall in the trading price of listed
shares or securities in the stock market.
a. Absolute risk:
It is without any content. For e.g., if a coin is tossed, there is fifty percentage chance of
getting a head and vice-versa.
b. Relative risk:
It is the assessment or evaluation of risk at different levels of business functions. For e.g. a
relative-risk from a foreign exchange fluctuation may be higher if the maximum sales
accounted by an organization are of export sales.
c. Directional risks:
They are those risks where the loss arises from an exposure to the particular assets of a
market. For e.g. an investor holding some shares experience a loss when the market price of
those shares falls down.
d. Non-Directional risk:
It arises where the method of trading is not consistently followed by the trader. For e.g. the
dealer will buy and sell the share simultaneously to mitigate the risk
e. Basis risk:
It is due to the possibility of loss arising from imperfectly matched risks. For e.g. the risks
which are in offsetting positions in two related but non-identical markets.
26
f. Volatility risk:
Purchasing power risk is also known as inflation risk. It is so, since it emanates (originates)
from the fact that it affects a purchasing power adversely. It is not desirable to invest in
securities during an inflationary period.
The types of power or inflationary risk are depicted and listed below.
It arises due to increase in price, which result from an excess of demand over supply. It
occurs when supply fails to cope with the demand and hence cannot expand anymore. In
other words, demand inflation occurs when production factors are under maximum
utilization.
It arises due to sustained increase in the prices of goods and services. It is actually caused by
higher production cost. A high cost of production inflates the final price of finished goods
consumed by people.
B. UNSYSTEMATIC RISK
Unsystematic risk is due to the influence of internal factors prevailing within an organization.
Such factors are normally controllable from an organization's point of view.
Business risk is also known as liquidity risk. It is so, since it emanates (originates) from the
sale and purchase of securities affected by business cycles, technological changes, etc.
27
The types of business or liquidity risk are depicted and listed below.
It is due to losses arising from an inability to sell or pledge assets at, or near, their carrying
value when needed. For e.g. assets sold at a lesser value than their book value.
It exists for not having an access to the sufficient-funds to make a payment on time. For e.g.
when commitments made to customers are not fulfilled as discussed in the SLA (service level
agreements).
Financial risk is also known as credit risk. It arises due to change in the capital structure of
the organization. The capital structure mainly comprises of three ways by which funds are
sourced for the projects. These are as follows:
The types of financial or credit risk are depicted and listed below.
It is also called as exposure rate risk. It is a form of financial risk that arises from a potential
change seen in the exchange rate of one country's currency in relation to another country's
currency and vice-versa. For eg: investors or businesses face it either when they have assets
or operations across national borders, or if they have loans or borrowings in a foreign
currency.
It is an often neglected aspect of a credit-risk analysis. The recovery rate is normally needed
to be evaluated. For e.g. the expected recovery rate of the funds tendered (given) as a loan to
the customers by banks, non-banking financial companies (NBFC), etc.
28
c. Sovereign risk:
It is associated with the government. Here, a government is unable to meet its loan
obligations, reneging (to break a promise) on loans it guarantees, etc.
d. Settlement risk:
This risk exists when counterparty does not deliver a security or its value in cash as per the
agreement of trade or business
3. Operational risk:
Operational risks are the business process risks failing due to human errors. This risk will
change from industry to industry. It occurs due to breakdowns in the internal procedures,
people, policies and systems.
a. Model risk:
b. People risk:
It arises when people do not follow the organization’s procedures, practices and/or rules. That
is, they deviate from their expected behaviour.
c. Legal risk:
It arises when parties are not lawfully competent to enter an agreement among them.
Furthermore, this relates to the regulatory-risk, where a transaction could conflict with a
government policy or particular legislation (law) might be amended in the future with
retrospective effect.
d. Political risk:
It occurs due to changes in government policies. Such changes may have an unfavourable
impact on an investor. It is especially prevalent in the third-world countries.
29
2.8 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.
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.
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.
30
2.9 STAGES IN INVESTMENT PROCESS
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.
This stage involves taking decisions. It involves finding answers to the following questions.
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
behaviour of stocks, the expected returns and associated risk.
This would help you to decide whether the mix is optimal to achieve your goals.
At the base level it includes the analysis of your chosen investment asset – equity,
debentures, bonds, commodities, real estate etc..
31
At the broader level, it includes analysis of the economy and industry, qualitative and
historical analysis.
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.
For example – if a builder offers an apartment for 65 lakhs, would you blindly buy it without
analysing the builder’s track record and the facilities offered? Won’t you try to find out why
he charges 65 lakhs for that apartment? Finally you would buy that apartment only if you find
it attractive at that price. It is an individual decision after considering all the factors.
The same process needs to be done in any form of investment – whether it’s shares or mutual
funds or commodities. You have to make sure that the asset you get is worth the money you
spend.
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, and 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.
32
2.10 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.
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
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 1970s to the early 1990s, for three principal reasons:
a. Typically, issues in the primary market have been priced very attractively.
33
b. The secondary market, thanks to limited competition till almost 1991, was
characterized by numerous inefficiencies that provided rewarding opportunities to the
diligent investor.
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 organisations, 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.
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 Maynard Keynes,
John Templeton, George Soros, Warren Buffet, Phil Fisher, 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. 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.
34
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
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 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:
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.
35
2.11 TYPES OF INVESTMENTS
1. Short-term investments: Short-term investments are any assets that are anticipated
to expire or to be liquidated within the course of 1-3 years. The goal of this type of
asset is to protect capital with low-risk investments. However, with low risk, the
return on short-term investments is very low. Examples: Savings Accounts,
Certificates of Deposit (CD), Money Market Funds, Treasury Bills.
2. Long-term investments: Long-term investments are assets that are held for more
than one year or accounting period and are used to create other income outside of the
normal operations of the company.
4. Find out the costs and benefits associated with the investment
11. Seek all clarifications about the intermediary and the investment
12. Explore the options available to you if something were to go wrong, and then, if
satisfied, make the investments.
36
2.12 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.
CATEGORIES OF INVESTORS:
While there are as many investing styles as there are investors, most people fall more or less
into one of three broad categories:
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.
37
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 60% in stock, 30% in bonds, and 10% in cash equivalents. While they will
tend to favour 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 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.
38
2.13 WEALTHY INVESTORS:
According to a study undertaken jointly by Merrill Lynch, Cap Gemini, Young, High Net
worth Individuals [HNIs] or wealthy investors are proactive in portfolio management, risk
management, consolidation of financial assets and use of diversification strategies as actively
as large institutions. HNIs are proactive in identifying new investment options and take inputs
from professional advisors in volatile market conditions.
HNIs are dynamic in modifying their asset allocation and were among the first investors to
move from equities to fixed income during 2001-2002 period of downturn in equity markets.
They shifted back to equities when they identified favourable market trends.
39
Not attracted by traditional status symbols that do not add value
Hands on in checking investments, making deals and getting personally involved
The strategies and characteristics of wealthy investors have led to financial institutions
innovating and expanding their product range to meet the growing demands of such investors.
A financial advisor should keep in mind the following special needs and expectations of the
wealthy clients
Wealthy clients not only are on the lookout for multiple investment avenues, unlike
other clients, but are also ready to face the risks associated with newer products.
Net worth and goals need to be matched and assets need to be planned tax
effectively:
Since wealthy investors have surplus funds that can be passed on to the next
generations and also come into the high tax-paying category, investors need to advise
them on the best methods to transfer their assets after death as well as on the best tax
saving investments.
In-depth knowledge about tools of estate planning such as wills, trusts, and power of
attorney is necessary. It is also important to know the succession rules and tax rules to
do effective tax planning resulting in minimal/no tax on transfer of assets.
Educating the client on various and different types of investment avenues that will
suit him the best will prove very beneficial for the financial advisor. Wealthy clients,
especially those who are self made, may assume that if they can make wealth in one
industry they can manage their own portfolio as well. In such cases it is best to
educate the client about the best investment options rather than trying to push a
product; because if one is trying to push a product, the client is unlikely to get
interested since he/she will be having enough people chasing him/her for investments.
40
2.14 WHAT IS PORTFOLIO MANAGEMENT?
MEANING OF 'PORTFOLIO':
A grouping of financial assets such as stocks, bonds and cash equivalents, as well as their
mutual, exchange-traded and closed-fund counterparts. Portfolios are held directly by
investors and/or managed by financial professionals.
Portfolio management is all about strengths, weaknesses, opportunities and threats in the
choice of debt vs. equity, domestic vs. international, growth vs. safety, and many other
tradeoffs encountered in the attempt to maximize return at a given appetite for risk.
Prudence suggests that investors should construct an investment portfolio in accordance with
risk tolerance and investing objectives. Think of an investment portfolio as a pie that is
divided into pieces of varying sizes representing a variety of asset classes and/or types of
investments to accomplish an appropriate risk-return portfolio allocation.
For example, a conservative investor might favour a portfolio with large cap value stocks,
broad-based market index funds, investment-grade bonds and a position in liquid, high-grade
cash equivalents. In contrast, a risk loving investor might add some small cap growth stocks
to an aggressive, large cap growth stock position, assume some high-yield bond exposure,
and look to real estate, international and alternative investment opportunities for his or her
portfolio.
41
2. Active management involves active management of a fund’s portfolio by manager or
team of managers who take research based investment decisions and decisions on
individual holdings.
2. Consistency of Returns:
3. Capital Growth:
42
inflation and other economic factors. A portfolio must consist of those investments,
which tend to appreciate in real value after adjusting for inflation.
4. Marketability:
5. Liquidity:
6. Diversification of Portfolio:
43
2.15 PORTFOLIO INVESTMENT BY FOREIGN SOURCES
Foreign Investment in India or more precisely Foreign Direct Investment (FDI) in India is
one of the most talked about issues in the entire world economy in recent times. Rated among
the top emerging nations, India's liberalization policies are paying rich dividends to the
economy as a whole.
Foreign Direct Investment (FDI) is defined as "investment made to acquire lasting interest in
enterprises operating outside of the economy of the investor." The FDI relationship consists
of a parent enterprise and a foreign affiliate which together form a Trans-National
Corporation (TNC)
India, post liberalization, has not only opened its doors to foreign investors but also made
investing easier for them by implementing the following measures:
As the industry progresses, opportunities abound in India, which has the world's largest
middle class population of over 300 million, is attracting foreign investors by assuring them
good returns. The scope for foreign investment in India is unlimited. India offers to foreign
investors a well balanced package of fiscal incentives for exports and industrial investments
that includes:
44
Moreover, the support of the common man regarding FDI< is clearly from the sharp hike in
India's gross expenditure in the past few years. Thus the Indian economy is proving itself
highly conducive to Foreign Investment.
Portfolio Investment by Foreign Sources faced a decline during the year 1997-98 and after
that further decline was recorded in terms of both foreign institutional investment and GDRs
Fresh inflows of investments from foreign sources enervated from USD 1,926 million in
1996-97 to USD 979 million in 1997-98. During the year 1998-99, the expenditure was lesser
than the inflows in the previous year. The expenditure for 1998-99 had been USD 752 million
whereas; the inflows in the previous year were USD 973 million.
GDRs witnessed a rise of USD 645 million during the year 1997-98 which was almost lower
than half the amount of GDRs of USD 1366 million in the year 1996-97.
A major decline in portfolio investment followed till the year 1998-99, which witnessed only
USD 15million rise in GDRs as compared to USD 612million rise during the year 1997-98.
The indented scenario of domestic capital market and the enhanced emerging market risk-
perception causes this decline in the portfolio investment by foreign entities.
Portfolio investments by the NRIs have undergone a number of liberalization measures that
have been effective since 1998-99 in favour of NRIs. The ceiling for investment in an
enterprise by all NRIs/ PIOs/ OCBs through stock exchanges have been directed in a separate
route, which does not include investment ceiling available for FIIs.
The total investment ceiling for NRIs has been increased from 5 percent to 10 percent of the
paid up capital of the enterprise. Furthermore, the portfolio investment carried out by a single
NRI has increased from 1 percent to 5 percent of the paid up capital. The policies attached
with the same have also eased.
45
Investment sectors in India for NRIs
The sectors in which the non-resident Indian (NRI) can invest through the automatic route
include agriculture, mining, alcohol brewing, power, industrial explosives, hazardous
chemicals, drugs and pharmaceuticals, transport, insurance, industrial parks, non-banking
financial institutions, etc. In some cases, the approval of the Foreign Investment Promotion
Board (FIPB) may be required. These include sectors like tea, infrastructural companies
except telecom, publication of newspaper and periodicals, courier service and single brand
product retailing.
The various sectors where NRI investments in India are prohibited include retail, atomic
energy, lottery and gambling establishments, tobacco products, etc.
FIIs are permitted to buy and sell government securities as well as Treasury Bills within the
entire approved debt ceilings. The authorized dealers are allowed to provide concealment to
the fresh equity investments carried out by the FIIs in order to ensure better risk management
by the investors. In addition to this, the transactions made for Indian stocks among the FIIs
will not require post-facto confirmation from the reserve Bank of India anymore. The unlisted
debt securities of Indian firms are permitted about 100 percent FII debt funds in terms of
portfolio investment.
46
The buying of shares of any Indian company from the subsidiary market is entitled to a cap of
5 percent of the paid-up share assets and 5 percent of the paid-up value of each order of
unsecured bonds. As per the portfolio investment policies, the Foreign Institutional Investors
can buy and sell Government securities and Treasury Bills with the entire debt ceilings.
The Foreign Institutional Investors SEBI (FII), 1995, controls the portfolio investment. The
investments carried out by Foreign Institutional Investors include, a wide spectrum of
programs as listed below:
Pension Funds
University Funds
Mutual Funds
Endowment Foundations,
Charitable Trusts and Charitable Societies
Incorporated or Institutional Portfolio Managers or their Power of Attorney holders
Investment Trusts as Nominee Companies
Asset Management Companies
SEBI plays a pivotal role in the registration matters of FIIs. SEBI registered FIIs have been
granted permission by RBI to carry out investment matters in India under the Portfolio
Investment Scheme (PIS). As per the Portfolio Investment Scheme, individual investors
cannot surpass 10 percent of paid up capital and the foreign registered sub accounts of FII are
not allowed to cross 5 percent of the paid up capital as well. The Foreign Institutional
Investors along with their sub accounts cannot occupy more than 24 percent of the paid up
capital of an Indian firm.
47
2.16 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.
1. Corporate securities
Equity shares
Preference shares
Debenture/Bonds
8. Real estate
9. Bullion investment:
1. CORPORATE SECURITIES:
Equity shares:
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
48
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.
Preference shares:
Preference share as that part of share capital of the Company which enjoys preferential rights
as to:
It lies in between pure equity and debt. But preference shares cannot be traded, unlike equity
shares, and are redeemed after a pre-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.
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.
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 of the instrument and the companies’ performance in the
home country.
49
2. DEPOSIT IN BANK AND NON BANKING COMPANIES:
Broadly speaking, savings bank account, money market/liquid funds and fixed deposits with
banks may be considered as short-term financial investment options: Savings Bank Account
is often the first banking product investors use, which offers low interest (3.5% ), making
them only marginally better than fixed deposits.
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 FDs 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 9%. 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.
Current Accounts:
These accounts are used mainly by businessmen and are generally not used for the purpose of
investment. These deposits are the most liquid deposits and there are no limits for number of
transactions or the amount of transactions in a day. Cheque book facility is provided and the
account holder can deposit all types of the cheques and drafts in their name or endorsed in
their favour by third parties. No interest is paid by banks on these accounts. On the other
hand, banks charge service charges, on such accounts
Recurring Deposits:
These kinds of deposits are most suitable for people who do not have lump-sum amount of
savings, but are ready to save a small amount every month. Normally, such deposits earn
interest on the amount already deposited (through monthly instalments) at the same rates as
are applicable for Fixed Deposits/Term Deposits. These are best if one wishes to create a
fund for his/her child’s education or marriage of daughter or buy a car without loans. Such
deposits are normally allowed for maturities ranging from 6 months to 120 months. A pass
book issued where the person can get the entries for all the deposits made by him/her and the
50
interest earned. Premature withdrawal of accumulated amount permitted is usually allowed
(however, penalty may be imposed for early withdrawals). These accounts can be opened in
single or joint names. Nomination facility is also available.
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.
The investment avenues provided by post offices are non-marketable. However, most of the
savings schemes in post offices enjoy tax concessions. Post offices accept saving deposits as
well as fixed deposits from the public. There are a variety of post office savings certificates
that cater to specific savings and investment requirements of investors and are a risk free,
high yielding investment opportunity. Interest on these instruments is exempt from income
tax. Some of these instruments are also exempt from wealth tax.
51
In Post Office Recurring Deposit amount the money can be deposited in small amount
at regular intervals.
Even an illiterate person can invest his/her money in Post Office: after gaining a little
knowledge.
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.
o Life policies,
o Jeevan Saathi,
o Term assurance
o Immediate annuity
o Deferred annuity
o Riders 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.
Income guaranteed through annuities: Life indemnity is one of the ideal tools for
retirement preparation. Funds that are earned and hoarded during the lifetime are
utilized to supply a firm source of returns during the retirement period.
52
Dividends enable growth: Customary policies enable prospect to share in the
monetary increase without taking the risk of investment. The investment revenue is
shared out among the policyholders through yearly announcement of bonus and/or
dividends.
Risk guard: Because life is filled with uncertainties, life insurance guarantees that
your dear ones continue to have monetary back up in case of any unexpected incident
that may lead to your detriment or demise.
Tax benefits: Insurance plans offer tax-benefits that are appealing for both at the
entry and exit period under the majority of the plan.
Mortgage recovery: In case of demise of the policyholder who has unpaid loans and
mortgages, the insurance acts as an efficient instrument to cover up these charges,
removing the burden of repayment of the family.
Ideal investment option for both salaried as well as self employed classes
Non-Resident Indians (NRIs) are not eligible
Investment up to INR 1, 00,000 per annum qualifies for IT Rebate under section 80 C
of IT Act.
The rate of interest on the subscriptions made to the fund on or after 01.12.2011 and
balances at credit of the subscriber in the existing PPF account shall bear interest at
the rate of eight point seven per cent (8.70%) per annum.
Loan facility available from 3rd financial year up to 5th financial year. The rate of
interest charged on loan taken by the subscriber of a PPF account on or after
53
01.12.2011 shall be18.2% p.a. However, the rate of interest of 1% p.a. shall continue
to be charged on the loans already taken or taken up to 30.11.2011.
Withdrawal permitted from 6th financial year.
Advantages of PPF
It provides tax free returns because there is no tax on interest income which one
derives from this PPF which is the case with fixed deposit.
It provides good return in the range of 8 to 9 percent and since it is government
backed scheme it is very safe investment as compared to equity.
This can be started with minimum amount of 500 rupees and therefore even people
who are in lower income group can also start it.
It can be opened in the name of minor along with guardian and if child is above 18
years of age then no guardian is needed therefore an individual who has having 2
adult children can open 4 accounts, 1 in name of himself, 1 in the name of his wife
and other 2 in name of his children.
Disadvantages of PPF
Since there is lock in period of 15 years one cannot invest the money if he or she has
liquidity problem because this funds are locked in for a long period of time.
54
Maximum investment which one can made in this is limited to 100000 rupees,
therefore one has to plan his or her investment accordingly, because suppose you sold
some land for 5 Lakhs rupees and want to put that money into PPF than you cannot
do that as maximum limit is 100000 lakhs rupees only .
One cannot close his or her account prematurely (except in case of death) which
results in lower flexibility as compared to SIP or FD where you can close it whenever
you want.
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.
7. 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
because of resource, time or knowledge constraints.
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.
55
Advantages to invest in mutual funds:
Convenience: You can invest directly with the fund house or through your financial
advisor. You get regular information on the value of your investments and portfolios
of the schemes.
Easy access to your money: In open-ended mutual funds, you can redeem all or part
of your units any time you wish. Some schemes do have a lock-in period where an
investor cannot return the units until the completion of such a lock-in period. With
close-ended schemes, you can sell your units on a stock exchange at the prevailing
market price or avail of the facility of repurchase through Mutual Funds at NAV
related prices which some close-ended and interval schemes offer you on maturity of
scheme or periodically, as the case maybe.
8. 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.
56
Advantages of investing in real estate:
Income Stream:
If the property is easily convertible to rental units, the owner of the property can earn
a steady income stream in the form of rent. Depending on the geographical location
the property is located in, the earnings can be quite significant. For example, urban
city centres or towns with colleges and universities tend to offer the highest income
streams because the demand for rental units is always high.
Security:
Owning property can offer the investor a sense of security because the value does not
tend to fluctuate as much as other assets such as stocks and bonds. However, this does
not mean that the investor will always break even or earn a profit on their investment.
Although housing prices do not tend to fluctuate in the short term, they may increase
or decrease in value in the longer term. Therefore, it is important for the investor to
thoroughly research the area before making a purchase.
Self Occupation:
Another reason why many investors are attracted to investing in real estate is because
the property can be utilized by the investor. They can either live on the property while
they fix it up, or they can be a live-in landlord and earn an income stream at the same
time by renting out the other rooms.
Tax Shelter:
Since tax laws on income properties vary depending on your jurisdiction, you should
always be sure to thoroughly research it beforehand. However, it is very common for
taxes on any gains to be deferred until you sell the property. For example, if a house
appreciates in value from $250,000 to $300,000, the investor will not be required to
pay the taxes on the extra $50,000 until the property is sold.
57
Disadvantages of investing in real estate:
Legal Difficulties:
Investing in real estate has the potential of being very confusing because it requires that you
are fully aware of the laws in each jurisdiction that you own property. Some jurisdictions may
even enforce land ceilings which can make the investment risky. The legal difficulties can
become much more complex if the investor is investing in commercial real estate.
Maintenance Cost:
The cost of maintaining the property can cause the investor to lose money on the investment.
In larger cities, property taxes can be so high that it will be very difficult to resell the house at
a higher value.
If the owner of the property is renting out the units, maintenance costs can take large chunks
out of the income stream. If the owner does not personally know the tenants before renting
out the units, they run into the risk of renting the space out to someone who will not take care
of the unit, causing the owner to put large sums of money into repairs. Furthermore, other
costs such as electricity and heating will also add up.
Property Taxes:
Before investing in real estate, the investor should always factor property taxes into their
valuation of the property. In larger urban cities, property taxes can be significant and may
cause the investor to lose a big chunk of their profit. Property taxes will vary depending on
which city or state the property is purchased in. Therefore, the investor should always consult
with city officials before investing in property.
9. 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.
58
Advantages of bullion investment:
Gold and silver are useful as a store of wealth. They even act as secret assets.
Both the metals are highly liquid. This facilitates easy convertibility into cash at any
time and that too without incurring any loss.
The market price of both the metals is continuously rising. This makes investment
normally profitable and acts as a hedge against inflation.
Investment in gold and silver provides a sense of security to the investor as it has
immediate liquidity.
There is high degree of prestige value for gold and silver in the society. The benefit or
capital appreciation is also available.
Investment in gold and silver is quite safe and secured. The possibility of loss in the
investment is practically nil in the case of these metals.
59
2.17 FACTORS INFLUENCING THE LEVEL OF INVESTMENT
There are no hard and fast rules that determine patterns and levels of investment made by
either institutional investors or individuals. However, there are a few common factors and
boundaries that will at least influence investors’ decisions on how much to invest. Decisions
on how these factors affect investment strategies vary from investor to investor, but in
general they must be considered at some level.
1. Level of Income:
If the level of income rises in the economy through rise in money wage rates and other factor
prices, the demand for goods will rise which will, in turn, raise the inducement to invest.
Contrariwise, the inducement to investment will fall with the lowering of income levels.
2. Available Resources:
The first and most important factor has to do with the available assets of the person or
institution making the investment. Obviously, investment will be bound by how much money
is available, but these considerations are a bit more nuanced. For example, a company with a
good deal of liquid assets wouldn't necessarily invest even a sizable chunk of them if they
had a lot of other commitments to meet, such as payroll and debt. By the same token,
individual investors would be ill-advised to invest money that they normally spend on bills. It
all depends on the priority that the investment takes, how it interacts with other monetary
priorities and what the expected result of the investment will be.
3. Market Prediction:
The next factor that will help to determine the level of investment is predictions on results of
the investment based on the available information. Of course, no investment is foolproof
enough to put all of your money into, and by the same token, even the riskiest investment
might be worth throwing a little bit of extra cash at. Even though there is no guaranteed way
to predict the market, awareness about possible outcomes will determine what a reasonable
level of investment is. For example, it would be much more tolerable to put a large sum of
money into high-rated government bonds than into some unknown start-up company.
Different levels of investment are appropriate to each situation
60
4. Tax Exposure:
Investors in higher tax brackets prefer such investments where the return is tax exempt,
others will have no such preference
5. Type of Assets:
The type of asset being invested in is another important factor depending on the individual or
organization making the investment. For example, some types of assets, such as financial
derivatives, can be highly risky and don't really have any value unless they are cashed in at
the right time. On the other hand, certain investments can be much more tangible and can go
beyond the simple goal of earning a profit. A good example is real estate. Real estate is
clearly not a foolproof investment. However, as a tangible asset in a growing marketplace,
real estate is inherently valuable, and can be particularly so if it can help investors expand
their operations or accomplish goals.
6. Tolerable Risk:
The bottom line for any investment, to determine whether it is acceptable or not, is assessing
the level of tolerable risk. Common sense dictates that no individual or institution should ever
invest more than they are willing to lose, since, unlikely as it may be, losing the whole
investment is always a possibility. Risk should be taken very seriously and assessed
painstakingly. In some situations, there is a risk factor that goes beyond the loss of the initial
investment. For example, certain investments might require the investor to spend money on
maintenance and upkeep, or might potentially embroil the investor in legal trouble.
Inventions and innovations tend to raise the inducement to invest. If inventions and
technological improvements lead to more efficient methods of production which reduce costs,
the MEC of new capital assets will rise. Higher MEC will induce firms to make larger
investments in the new capital assets and in related ones.
The absence of new technologies will mean low inducement to invest. An innovation also
includes the opening of new areas such as of means of transport, the construction of houses,
etc., leading to new investment opportunities. Thus inducement to invest rises.
61
2.18 REGULATORY AUTHORITY
OBJECTIVES OF SEBI:
The overall objectives of SEBI are to protect the interest of investors and to promote the
development of stock exchange and to regulate the activities of stock market. The objectives
of SEBI are:
FUNCTIONS OF SEBI:
The SEBI performs functions to meet its objectives. To meet three objectives SEBI has three
important functions. These are:
A. Protective Functions:
These functions are performed by SEBI to protect the interest of investor and provide
safety of investment. As protective functions SEBI performs following functions:
62
a. It Checks Price Rigging:
Price rigging refers to manipulating the prices of securities with the main objective of
inflating or depressing the market price of securities. SEBI prohibits such practice
because this can defraud and cheat the investors.
d. SEBI undertakes steps to educate investors so that they are able to evaluate the
securities of various companies and select the most profitable securities.
e. SEBI promotes fair practices and code of conduct in security market by taking
following steps:
SEBI has issued guidelines to protect the interest of debenture-holders wherein
companies cannot change terms in midterm.
SEBI is empowered to investigate cases of insider trading and has provisions for stiff
fine and imprisonment.
SEBI has stopped the practice of making preferential allotment of shares unrelated to
market prices
63
a. SEBI promotes training of intermediaries of the securities market.
b. SEBI tries to promote activities of stock exchange by adopting flexible and adoptable
approach in following way:
Even initial public offer of primary market is permitted through stock exchange.
C. Regulatory Functions:
These functions are performed by SEBI to regulate the business in stock exchange. To
regulate the activities of stock exchange following functions are performed:
a. SEBI has framed rules and regulations and a code of conduct to regulate the
intermediaries such as merchant bankers, brokers, underwriters, etc.
b. These intermediaries have been brought under the regulatory purview and private
placement has been made more restrictive.
c. SEBI registers and regulates the working of stock brokers, sub-brokers, share transfer
agents, trustees, merchant bankers and all those who are associated with stock
exchange in any manner.
Mr. U. K. Sinha
Chairman, SEBI
64
B. RESERVE BANK OF INDIA:
The Reserve Bank of India is India's central banking institution, which controls the monetary
policy of the Indian rupee. It commenced its operations on 1 April 1935 during the British
Rule in accordance with the provisions of the Reserve Bank of India Act, 1934. The original
share capital was divided into shares of 100 each fully paid, which were initially owned
entirely by private shareholders.
The bank is also active in promoting financial inclusion policy and is a leading
member of the Alliance for Financial Inclusion (AFI)
1. TRADITIONAL FUNCTIONS:
a. Regulation of Currency:
The Reserve Bank has the monopoly of note issue in the country. It has the sole right to issue
currency notes of all denominations except one-rupee notes. One-rupee notes are issued by
the Ministry of Finance of the Government of India. The Reserve Bank acts as the only
source of legal tender because even the one-rupee notes are circulated through it. The
Reserve Bank has a separate Issue Department, which is entrusted with the job of issuing
currency notes. The Reserve Bank has adopted minimum reserve system of note issue. Since
1957, it maintains gold and foreign exchange reserves of Rs. 200 crore, of which at least Rs.
115 crore should be in gold.
b. Banker to Government:
65
The Reserve Bank acts as the banker, agent and adviser to Government of India:
It helps the government to float new loans and manages the public debt,
It provides development finance to the government for carrying out five year plans,
It acts as the agent of the Government of India in the latter's dealings with the
International Monetary Fund (IMF), the World Bank, and other international financial
institutions,
c. Banker's Bank:
The Reserve Bank of India acts as a banker to other banks. All other banks work
under the control of Reserve Bank of India. Reserve Bank of India performs all those
functions which an ordinary bank performs for its clients. The Reserve Bank of India accepts
deposits from the banks, advances loans to them, acts as a clearing house for them and comes
to their rescue whenever they realise any difficulty as the lender of last resort.
The RBI also advises the other banks whenever they require it. It also keeps their
balance of cash and remits fund on their behalf. The member banks are required to submit a
report to the Reserve Bank of India about their business and activities from time to time.
They have to submit full balance sheets to the Reserve Bank. The RBI formulates rules for
these banks.
d. Controller of credit:
Credit control is an important function of Reserve Bank. The commercial banks create credit
out of their cash balances or reserves. Reserve Bank of India needs a control over the credit
66
through the operation of various weapons. The object of credit control is to secure price
stability. The following methods of credit control are used by the RBI:
Rationing of Credit
Moral Suasion
Direct Action
As a custodian of foreign exchange the Reserve Bank of India maintains the external value of
the rupee. It also manages exchange control and acts as agent of the government in respect of
India’s membership of the international monetary fund.
In addition to the traditional functions, Reserve Bank of India has been entrusted with the
responsibilities of the following promotional functions:
The Reserve Bank of India has to play a predominant role in the field of agricultural
credit. For this purpose, the bank has set up a separate agricultural credit. For this
purpose, the bank has set up a separate agricultural credit. For this purpose, the bank
has set up a separate agricultural credit department. It is entrusted with the business of
financing of agriculture and to study the problems of rural credit. The bank has also
encouraged the development of cooperative credit movement in the country. The
government has nationalised 20 major commercial banks in 1969 and 1980in order to
promote institutional rural credit and small entrepreneurs. The establishment of
national bank for agricultural and rural development was one of the significant
67
developments in the field of promotion of agricultural credit by Reserve Bank of
India.
b. Industrial finance:
Reserve Bank of India has helped lot in setting up special financial institutions for financing
industries in the country. The Reserve Bank of India has no direct responsibility to finance
the industries. But it has undertaken this function for the speedy industrial development.
The Reserve Bank of India has set up first Bankers Training College in Mumbai in1954 for
the training of the supervisory staff of the commercial banks. The bank has set up another
training college in 1968 at madras for benefit of its junior supervisory staff.
The following are the activities or functions which cannot be performed by The Reserve
Bank of India.
e. It can buy only those negotiable documents from the commercial banks which are
payable on demand.
ROLE OF IRDA:
The Insurance Regulatory and Development Authority (IRDA) was constituted to regulate
and develop insurance business in India. As a key part of its role, it is responsible to protect
the rights of policyholders. In order to create awareness about IRDAI, its role, duties and
responsibilities are stated here under:
69
f. It specifies the requisite qualifications, code of conduct and practical training for
intermediaries or insurance intermediaries and agents.
g. It specifies the code of conduct for surveyors and loss assessors;
h. It promotes efficiency in the conduct of insurance businesses;
i. It promotes and regulates activities of professional organisations connected with life
insurance;
j. It levies fees and other charges to carry out the purposes of the IRDA Act;
k. It can call for information from, undertake the inspection of, conduct enquiries and
investigations including the auditing of insurers, intermediaries, insurance
intermediaries and other organisations connected with the business of life insurance;
l. It specifies the form and manner in which books of account should be maintained and
statements of accounts should be rendered by insurers and other insurance
intermediaries;
m. It regulates the investment of funds by insurance companies;
n. It regulates the maintenance of margins of solvency;
o. It adjudicates disputes between insurers and intermediaries or insurance
intermediaries;
p. It specifies the percentage of premium income of the insurer to finance schemes for
the promotion and regulation of certain specified professional organisations;
q. It specifies the percentage of life insurance business to be undertaken by an insurer in
the rural or social sector; and
r. It exercises any other powers as may be prescribed
About five decades ago, in 1963 Reserve Bank of India initiated a plan of collecting funds
from the small investors and invest in the shares, bonds and other wealth management
schemes. It was started regulated by RBI itself. For such things it started a trust named Unit
Trust of India. Through this trust it collected money from the investors and invested in
different areas as mentioned above. This starts attracts mostly small and medium level
investors, as they do not want to follow the market and take more risk on their investment to
fetch high returns. As there were many AMC started to plan for such schemes and entered the
SEBI took over the regulatory measures of mutual funds. Later AMFI formed in 1995 and
started it services along with SEBI as a division of it. To implement the strict rules formed by
the SEBI in the market AMFI formed and keep informing the investors about the scheme and
its status.
OBJECTIVES OF AMFI:
a. To define and maintain high professional and ethical standards in all areas of
operation of mutual fund industry.
b. To recommend and promote best business practices and code of conduct to be
followed by members and others engaged in the activities of mutual fund and asset
management including agencies connected or involved in the field of capital markets
and financial services.
71
c. To interact with the Securities and Exchange Board of India (SEBI) and to represent
to SEBI on all matters concerning the mutual fund industry.
d. To represent to the Government, Reserve Bank of India and other bodies on all
matters relating to the Mutual Fund Industry.
e. To undertake nationwide investor awareness programme so as to promote proper
understanding of the concept and working of mutual funds.
f. To disseminate information on Mutual Fund Industry and to undertake studies and
research directly and/or in association with other bodies.
g. To take regulate conduct of distributors including disciplinary actions (cancellation of
ARN) for violations of Code of Conduct.
72
CHAPTER-III RESEARCH METHODOLOGY
Research Methodology is a way to systematically solve the research problem. The Research
Methodology includes the various methods and techniques for conducting a research.
Research is an art of scientific investigation.
The logic behind taking research methodology into consideration is that one can have
knowledge about the method and procedure adopted for achievement of objective of the
project.
The purpose of the analysis is to determine the investment behaviour of investors and
investment preferences for the same. Investors perception will provide a way to accurately
measure how the investors think about the products and services provided by the company.
Today’s trying economic conditions have forced difficult decisions for companies. Most are
making conservative decisions that reflect a survival mode in the business operations. During
these difficult times, understanding what investors on an ongoing basis is critical for survival.
“The main objective of the project is to find out the needs of the current and future
investors”
For this analysis, customer perception and awareness level will be measured in important
areas such as:
73
3.2 RESEARCH DESIGN:
Since the type of study is descriptive in nature hence the research design will be guided
by following parameters.
1. The Research Problem: The research problem on hand is to find out investor’s
pattern towards the investment in different avenues.
2. Procedures and techniques used for gathering information: A proper and balanced
combination of observation, questionnaire of sample population will be adapted by
me for gathering information.
3. The population to be studied: In order to bring our some accurate conclusions, it is
decided to contact the investor.
1. Primary Data:
Primary data is that data which has been collected especially for the purpose of this
newly taken research. This preliminary data for this research project has been
collected by the means of a questionnaire designed to determine those factor which
are designated by the various investors which were important to them in the decision
making process. Various Professionals / Investors / Businessmen /Students were the
focus of this questionnaire filling procedure.
74
2. Secondary Data:
I have made extensive use of resources available in the Internet & other print media to
gather the information, do the analysis, and arrive at the conclusion. Information from
various sources has been used to understand more about various investment
alternatives & to provide suggestions for choosing better investment portfolio.
Here in this research I set questions for investors and answers can be easy to fill out with
minimum amount of time and efforts and request the respondent to answer these questions
with correct information. The questionnaire consisted of Close ended questions.
Close ended question: It contains those questions in which the respondent is given a limited
number of alternatives responses from which he/she is to select the one that most closely
matched. The fixed alternative questions may be taken in the form of-
--- Dichotomous Question: It refers to one which offers the respondents a choice between
only2 alternatives and reduces the issues to its simplest terms.
--- Multi-choice questions: A multiple – choice question refers to one, which provides
several set of alternatives. Multiple – choice questions can be used when an issue has more
than 2aspects.
2. External data: It was generated from internet websites and other print media.
75
3.5 DATA COLLECTION INSTRUMENT:
Population:
Since the study is mainly related to know the investment patterns of different category of
investors, their potentiality of earning income and reducing risk of the investment
community, where each security in the market has to be analyzed through their earnings over
the others.
Sample size:
Sampling unit:
The target population must be defined that has to be sampled. The sampling unit of this
research included salary earners, businessmen and professionals.
The analysis of data collection is completed and presented systematically with the use
of Microsoft Excel and MS-Word.
76
o Bar chart:
A bar chart or bar graph is a chart that presents Grouped data with rectangular bars
with lengths proportional to the values that they represent. The bars can be plotted
vertically or horizontally. A vertical bar chart is sometimes called a column bar chart.
A bar graph is a chart that uses either horizontal or vertical bars to show comparisons
among categories.
One axis of the chart shows the specific categories being compared, and the other axis
represents a discrete value. Some bar graphs present bars clustered in groups of more
than one (grouped bar graphs), and others show the bars divided into subparts to show
cumulative effect (stacked bar graphs).
o Pie chart:
A pie chart (or a circle chart) is a circular statistical graphic, which is divided into
slices to illustrate numerical proportion. In a pie chart, the arc length of each slice
(and consequently its central angle and area), is proportional to the quantity it
represents. Area of each segment (called slice or wedge) is of the same percentage of
the circle as the component represents is of the whole data set.
Circle diagram
Circle graph
Pizza chart
Sector graph
77
CHAPTER-IV DATA ANALYSIS AND INTERPRETATION
1) GENDER:
Interpretation:
The first question in the survey was pertaining to the gender of respondents.
78
2) AGE GROUP:
Interpretation:
The majority of respondents are in the age category of 25 to 30 years meaning young
investors. They are induced with investment skills at a younger age.
The second highest are the respondents in the age group of 30 to 35.
The third highest are the respondents above the age group of 45 and above. Considering their
age group, it is essential to make investment for future considerations
79
3) ANNUAL INCOME:
Interpretation:
The majority of respondents earn an annual income between Rs.1, 00,000 /- to Rs.2, 00,000/-
Also few of the respondents stated that they earn an annual income of more than
Rs.10,00,000 which means they have more amount left for investment purposes as compared
to those earning below Rs.10,00,000/-
80
4) SAVINGS:
Interpretation:
The majority of respondents save only up to 10-20% of their income which means that the
spending ratio is more leaving very limited amount for investing purposes.
81
5) PORTFOLIO INTENTION:
Interpretation:
The majority of respondents stated that the reason for them investing into products is to either
to fund a large purchase in the future or to generate income at a later date
Few of the respondents also stated that they invest for generating income for the present.
82
6) TYPE OF INVESTORS:
Interpretation:
Majority of the respondents said that they are either medium term or long term investors
which mean that they invest keeping in mind the long term returns.
Traders are the people who deal in the stock market. They invest almost daily for generating
income.
83
7) RISK APPETITE:
Interpretation:
Few respondents believe in taking a high risk for higher returns. Generally people trading in
stock markets take higher risk.
84
8) INVESTMENT TENURES:
Interpretation:
Very few respondents stated that they invest daily. As stated earlier also, traders invest daily
or fortnightly.
85
9) ASSET CLASS:
Interpretation:
Many respondents also invest into equity class i.e. into shares or mutual funds.
Investors should be motivated to invest in other avenues apart from currency, shares and
mutual funds only.
86
10) INVESTMENT AVENUE SELECTION:
Interpretation:
This question tried to find out the type of investments that respondents make. This is one of
the important questions which provide an eye-opener on the topic: ‘Investment pattern’.
Bank deposits are the top choice. However, many respondents have also chosen gold and
insurance which brings them close to the top spot.
87
11) PREFERENCES FOR FREQUENT INVESTMENTS:
Interpretation:
As seen above, many respondents also prefer investing in gold and insurance policies.
88
12) CHURNING OF INVESTMENTS:
Interpretation:
Remaining respondents churn their investments quarterly, half yearly or after a year.
89
13) TAX PURPOSES:
Interpretation:
Majority of the investors invest for tax purposes. Avenues such as bonds, post office
schemes, etc. are tax deductible.
90
14) INVESTOR’S MENTALITY WHILE SELECTING AN INVESTMENT
AVENUE:
Interpretation:
Majority of the respondents responded that since they have very little knowledge about
investments, they rely exclusively on the recommendations of financial advisors.
Some respondents also stated that they have good working knowledge and understand
completely how different investments work and others stated that they have limited
knowledge of stocks and bonds, and I do not follow financial markets.
Very few respondents said that understand completely how different investment products
work and that they follow financial markets closely.
91
15) KNOWLEDGE FACTOR:
Interpretation:
Majority of the investors invest into investment products with proper knowledge of the
product. It is necessary to know the product you’ve invested your money in, the risk
involved, etc.
Very few investors invest into investment products without proper knowledge of the product.
92
16) RELIANCE ON FOR CHOOSING INVESTMENT AVENUE:
Interpretation:
Majority of the respondents said that they rely on the professionals while deciding an avenue
to invest their money into. Some of them also said that they rely on their own research while
selecting an investment avenue.
93
17) MAXIMUM CAPACITY FOR BEARING LOSS:
Interpretation:
When asked the respondents what would be the maximum drop in the portfolio value that
could be tolerated by you, majority of them said that they would be uncomfortable with any
loss. While some other respondents said that they could be comfortable with a loss of Rs.5,
00,000/-
However there were also respondents who stated that they can be comfortable with a loss of
Rs. 15, 00,000/- only
94
18) INVESTMENT PHILOSOPHY:
Interpretation:
When it comes to the investment philosophy of the individuals, the views of maximum
respondents were that they could only accept only minimal fluctuations and thus prefer to
invest to safer, lower-return investments.
The equal majority of respondents said that they are willing to tolerate some ups and downs
in the value of their investments to achieve overall higher returns in the long run.
Some respondents had other perspectives. According to them, since their main interest is
high, long-term returns, they are willing to tolerate some ups and downs in the value of their
investments and are not concerned about short-term decreases in the value of their
investments.
95
FINDINGS
44% of the respondents stated that the intent of their portfolio was to fund a large
purchase in the future, followed by 38% who said that their intention was to generate
income at a later date. Only 16% stated that their portfolio was tailored to generate
income for today.
Again, when it comes to risk-taking appetite, the majority i.e. 57.1% displayed a
preference for medium risk/ medium returns investments.
Majority of the people i.e. 51% stated that they invest monthly, 18.4% invest
quarterly, 14.3% invest half yearly and 20.4% invest yearly.
When it comes to the selection of investment avenues, bank deposits are the highly
preferred options. They are even preferred for frequent investments. The next
preferred in the line are gold, life insurance and real estate. The least preferred are
company deposits, debenture and bonds.
It is observed that 27.7% people churn their investments monthly, 17% quarterly,
19.1% half-yearly, 23.4% yearly and 21.3% after a period of a year or more. It can be
concluded that majority of people churn their investments monthly.
96
It is observed that most of the respondents invest for tax purposes.
54% of respondents said that they have little knowledge about investment and rely
exclusively on the recommendations of financial advisors whereas 20% have limited
knowledge of stocks and bonds, and they do not follow financial markets. Also, 18%
of respondents said that they have good working knowledge and follow financial
markets. 8% said that they understand how different investment products work and
regularly follow financial markets closely.
94% of respondents invest into products with proper knowledge of the product. Only
6% of people invest into products without product knowledge.
When asked which statement most correctly describes their investment philosophy,
equal majority of the respondents (i.e. 34%) said that they could accept only minimal
fluctuations and hence prefer investing in safer, lower-return investments ‘AND’ also
that they could tolerate some ups and downs in the value of their investments to
achieve overall higher returns in the long run. 18% of respondents said that their main
interest is high, long term returns and that they are not concerned about short-term
decreases in the value of their investments.
97
RECOMMENDATIONS
The companies and financial institutions should determine some methods to educate
the investors about other sources of investments apart from traditional sources like
bank fixed deposits, gold and life insurance policies and real estate.
The financial service providers must concentrate on the age group 45 and above (i.e.
mostly above 51 years) as this group might want to invest because they will retire in
next few years.
Few respondents are not aware about the benefits of tax concession; hence the
financial advisors must give awareness about the tax exemption level.
Some of the respondents rely on others than the professionals advisors for choosing
the investment avenues. Thus, the financial advisors have a scope to capture this
untapped segment.
98
CONCLUSION
Most of the investors are very sensitive about the safety of their investment. They
want more safety and reliability. Current trend and easy access is not affected the
investor as much as safety and reliability.
Most of the earning people invest their income up to different level in any sector, so
investment has a very wide scope.
Investments should be made keeping in mind the market situation. Factors such as the
risk involved, return on investments, tax benefits should also be kept in mind while
selecting an investment avenue
Risk and return are directly related to each other. Higher the risk involved, higher is
the return on investment. For instance, when a person buys shares of a start-up
company, a lot of risk is involved as there is an uncertainty of whether the company
will earn enough profits. However if the company earns profit and is able to pay the
dividends, the share prices will rise and higher returns will be earned.
The profit earned by investing in shares is the highest if money is invested in the right
company. If a person who has the capacity to take risk and bear the losses, she/he
should invest into shares.
The right time to invest in gold in the form of a biscuit or ornament is when the prices
of gold fall down considerably. People buy gold on auspicious occasions increasing
its value. Since gold is an asset, people prefer not to sell it off making it a no returns
investment.
If a person is willing to wait till an appropriate time for earning profits, investing in
real estate is a better option but since profitability is available at the cost of liquidity,
liquidity is low.
99
If a person is looking for an affordable, flexible and liquid option for investment, s/he
should chose mutual funds. Mutual funds give a wider range of investment products
in the same amount making it a diversified product.
If a person is looking for a fixed interest payment, s/he should invest into bonds. The
interest paid is tax deductible making it helpful for those who wish to do so. However,
the greater the debt, greater is the financial risk.
Investing in bank fixed deposits is the safest as there is no risk and also the rate of
return and maturity date is fixed.
When a person wishes to earn higher interest as compared to bank deposits, company
deposit is the best option for him. It gives an assured return and is has low risk as
well.
Any person right from a rich person to a poor person to an illiterate person can invest
in Post office savings. Interest is received on savings deposit as well as fixed deposits.
The interest is tax deductible and exempt from income tax.
From the above discussions and interpretations, I conclude that every investment product is
unique in its own way and also that the investors are investing their money with the balance
of safety, reliability and return on investment.
100
LIMITATIONS OF THE STUDY
This is for academic effort and thus it is limited to time, cost and geographical area.
Sample size chosen was small in size – 50 for Consumers If the sample size would
have been large, the study would have been more accurate and near to reality as the
confidence limit will be more.
Area was specified, limiting only to Mumbai investors.
This study is conducted to analyze their pattern not all those factors that really matter
while investing.
This study includes information and concept of different avenues but not every
concept of investment avenues
An interpretation of this study is based on the assumption that the respondents have
given correct information.
The economy and industry are so wide and comprehensive that it is difficult to
encompass all the likely factors influencing the investors’ investment pattern in the
given period of time.
The lack of knowledge of customers about the financial instruments can be a major
limitation.
The information can be biased due to use of questionnaire.
As the analysis is based on primary as well as secondary data, possibility of
unauthorized information cannot be avoided.
Reluctance of the people to provide complete information about them can affect the
validity of the responses.
Unable to determine the seriousness of the respondents as some respondents did not
cooperate & were too busy to reply appropriately during peak hours.
101
SCOPE FOR FUTURE WORK
The study was conducted by taking limited number of sample size which stated earlier and
this study reflect awareness, factors considered for investment, risk taking ability of the
individuals residing in Mumbai
However, there might be chances that the awareness, factors consider for investment, risk
taking ability of the individuals of different nature are varied due to diversity in social life,
living pattern, income level etc.
Hence, there is a wide scope for future study by taking in consideration, a large sample size
which will cover a wider geographic area reflecting all the factors that affect the investment
level of all categories of individuals.
102
BIBLIOGRAPHY
o SEARCH ENGINES:
Google
Yahoo
o BOOKS:
Indian Financial System --- S .B. Deodhar & Aditi .A. Abhyankar.
Financial Institutions and Markets --- L. M Bhole & Jitendra Mahakud.
In The Wonderland of Investment --- A. N Shanbhag.
Banking and Financial Systems --- V. Nityananda Sarma.
Investment analysis and portfolio management --- Prasanna Chandra.
Financial Management --- L.M Pandey.
Business Aspects in Banking and Insurance --- P. K. Bandgar
Financial Institutions and Financial Markets in India ---Niti Bhasin.
o WEBLIOGRAPHY:
www.sharemarketschool.com
www.niftydirect.com
www.sebi.gov.in
www.maxlifeinsurance.com
www.finance.zack.com
www.amfiindia.com
www.portfoliomanagement.in
www.ibef.org
www.clearias.com
www.investopedia.com
103
APPENDIX
I ensure that the information will be kept secretive and only be utilized for research purpose.
Shaikh Maimoon
Name
Occupation
Gender
o Male
o Female
o 25-30
o 30-35
o 35-40
104
Annual Income (in Rs)
o 1,00,000-2,00,000
o 2,00,000-5,00,000
o 5,00,000-10,00,000
o 10-20
o 20-30
o 30-40
o 40-50
o 50-60
o Short-term
o Medium term/Long-term
o Trader
105
How often do you invest?
o Daily
o Fortnightly
o Monthly
o Quarterly
o Half-yearly
o Yearly
o Equity
o Debt
o Currency
o Commodities
o Shares
o Debentures/ Bonds
o Real Estate
o Gold
o Mutual Funds
o Bank Deposits
106
How often do you churn your investments?
o Monthly
o Quarterly
o Half-yearly
o Yearly
o Yes
o No
Any suggestions
107
108