TABLE OF CONTENTS CHAPTER 1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 2 2.1 2.2 2.3 2.4 2.

5 2.6 2.7 2.8 2.9 2.10 2.11 INTRODUCTION Investment Investment Need Of An Inves
or Types Of Investment Avenues Evaluation Of Various Investment Avenues Attribut
es Of Investment Approaches To Investment Decision Making Common Errors In Inves
tment Management TITLE PAGE No. 2-23 2 3 4 11 12 14 17 20 24-30 24 24 25 27 28 2
8 29 29 30 30 30
Risks In Investment RESEARCH METHODOLOGY Introduction Statement Of The
eview Of Literature Need For Study Objectives Of The Study Scope Of Study Hypoth
esis Research Design Tools Of Data Collection Method Of Analysis
3 3.1 3.2 3.3
Limitations Of Study INDUSTRY PROFILE Indian Financial Market Classification Of
Financial Markets
31-63 31 34 35
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3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 3.12

Money Market Capital Market Distinction Between Primary Market And Secondary Mar
ket Distinction Between Capital Market And Money Market Stock Exchange Speculati
on In Stock Exchanges Stock Exchanges In India Regulations Of Stock Exchanges Ro
le Of SEBI Emergence Of Financial Services Industry In
36 37 38 38 43 44 45 46 48
4 5 6
India ANALYSIS AND INTERPRETATION FINDINGS AND SUGGESTIONS CONCLUSION
51-76 77-80 81
BIBLIOGRAPHY ANNEXURE
82 83-85
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LIST OF TABLES
No. 1.1 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14
NAME Summary evaluation of various investment avenues Gender wise classification
of Respondents Age wise classification of Respondents Classification of Respond
ents on the basis of their Marital Status Classification of Respondents on basis
of Occupation Classification of Respondents on basis of Annual Income Classific
ation of Respondents on basis of Education Level Classification of Respondents o
n basis Influence on Investment Decision Classification of Respondents on the ba
sis of Regularity in making Investment Decisions Classification of Respondents o
n the basis of Objectives of Investment Plan Classification of Respondents on th
e basis of Factors Influencing an Investment Decision Classification of Responde
nts on basis of Preferred Investment Avenues Classification of Respondents on th
e basis of Industry preferred Classification of Respondents on the basis of Time
Horizon for Investment Classification of Respondents on the basis of Knowledge
about Financial Terms
PAGE NO. 11 51 52 53 54 55 56 57 58 59 60 61 62 63 64
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4.15 4.16 4.17 4.18 4.19 4.20 4.21

Classification of Respondents on basis of Sources of Investment Information Clas
sification of Respondents on basis of Risk Tolerance Level Relationship between
Gender and Risk Tolerance of Respondents Relationship between Age and Investment
Avenues preferred by the Respondents Relationship between Income and Investment
Avenues preferred by the Respondents Relationship between Age of Respondents an
d Time Horizon for investment Relationship between Age and Risk Tolerance of the
Respondents
65 66 67 69 71 73 75
LIST OF CHARTS
No.
NAME
PAGE NO.
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1.1 1.2 3.1 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 4.15 4.
16
Various investment alternatives Relationship between Expected Return and Risk Cl
assification of financial markets Gender wise classification of Respondents Age
wise classification of Respondents Classification of Respondents on the basis of
their Marital Status Classification of Respondents on basis of Occupation Class
ification of Respondents on basis of Annual Income Classification of Respondents
on basis of Education Level Classification of Respondents on basis Influence on
Investment Decision Classification of Respondents on the basis of Regularity in
making Investment Decisions Classification of Respondents on the basis of Objec
tives of Investment Plan Classification of Respondents on the basis of Factors I
nfluencing an Investment Decision Classification of Respondents on basis of Pref
erred Investment Avenues Classification of Respondents on the basis of Industry
preferred Classification of Respondents on the basis of Time Horizon for Investm
ent Classification of Respondents on the basis of Knowledge about Financial Term
s Classification of Respondents on basis of Sources of Investment Information Cl
assification of Respondents on basis of Risk Tolerance Level 66
4 13 34 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65
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4.17 4.18 4.19 4.20 4.21

Relationship between Gender and Risk Tolerance of Respondents Relationship betwe
en Age and Investment Avenues preferred by the Respondents Relationship between
Income and Investment Avenues preferred by the Respondents Relationship between
Age of Respondents and Time Horizon for investment Relationship between Age and
Risk Tolerance of the Respondents
68 70 72 74 76
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EXECUTIVE SUMMARY
Investing money is a crucial and deciding the avenues where to invest needs a lo
t of planning. In India people are more conservative and hence prefer investment
s that are less risky. Similarly there are other demographic factors like age, i
ncome level, gender which affect their decision. As the availability of financia
l products increase, perception of investors towards such avenues changes over a
period of time. It becomes important for a marketer to understand the perceptio
n of investors towards investment avenues to successfully pitch the product. The
objective of this study is to understand the investment characteristics of inve
stors and their objectives of investment plan. We will also study the demographi
c information of investors, preferred investment avenues of investors, preferred
sources of information influencing investment decisions, the risk tolerance lev
el of the investors. This study on investors behaviour is an attempt to know the
profile and the characteristics of the investors so as to understand their prefe
rence with respect to their investments. The main focus of the study is to disco
ver the influence of demographic factors like gender and age on risk tolerance l
evel of the investor. Here we also look upon other factors that influence them w
hile making investment decisions. Innovations in financial products like derivat
ives, unit linked insurance products, fund of funds likewise are not easily unde
rstood by the investor. Based on previous research in related areas, a questionn
aire was constructed to measure the investment pattern of individuals on the bas
is of demographic characteristics and the risk tolerance of investors was also c
alculated. Even though this study has certain limitations but it will be helpful
to mutual fund companies and other investment companies to understand individua
l behavior of investors so that they could build suitable investment options for
them individually. Also this study will help the investor to decide the areas w
here they could invest.
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CHAPTER 1 INTRODUCTIO N
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1.1 INTRODUCTION TO INVESTMENT The money one earns is partly spent and the rest
is saved for meeting future expenses, instead of keeping savings idle one may li
ke to use savings in order to get returns on it in the future, this is called as
investment. In an economic sense, an investment is the purchase of goods that a
re not consumed today but are used in the future to create wealth. In finance, a
n investment is a monetary asset purchased with the idea that the asset will pro
vide income in the future or appreciate and be sold at a higher price. Mere earn
ing will not help one to secure the future, so it becomes important to invest. O
ne of the important reasons why one needs to invest wisely is to meet the cost o
f Inflation. Inflation is the rate at which the cost of living increases. The co
st of living is simply what it costs to buy the goods and services you need to l
ive. Inflation causes money to lose value because it will not buy the same amoun
t of a good or a service in the future as it does now or did in the past. The so
oner one starts investing the better. By investing early one allow ones investmen
ts more time to grow, whereby the concept of compounding increases ones income, b
y accumulating the principal and the interest or dividend earned on it, year aft
er year. The dictionary meaning of investment is to commit money in order to ear
n a financial return or to make use of the money for future benefits or advantag
es. People commit money to investments with expectations to increase their futur
e wealth by investing money to spend in future years. For example, if you invest
Rs. 1000 today and earn 10% over the next year, you will have Rs.1100 one year
from today. An investment can be described as perfect if it satisfies all the ne
eds of all investors. So, the starting point in searching for the perfect invest
ment would be
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to examine investor needs. If all those needs are met by the investment, then th
at investment can be termed the perfect investment. Most investors and advisors
spend a great deal of time understanding the merits of the thousands of investme
nts available in India. Little time, however, is spent understanding the needs o
f the investor and ensuring that the most appropriate investments are selected f
or him. Before making any investment, one must ensure to: Obtain writ
ts explaining the investment Read and understand such documents Verify the legit
imacy of the investment Find out the costs and benefits associated with the inve
stment Assess the risk-return profile of the investment Know the liquidity and s
afety aspects of the investment Ascertain if it is appropriate for your specific
goals Compare these details with other investment opportunities available Exami
ne if it fits in with other investments you are considering or you have already
made Deal only through an authorized intermediary Seek all clarifications about
the intermediary and the investment Explore the options available to you if some
thing were to go wrong, and then, if satisfied, make the investment. 1.2 INVESTM
ENT NEEDS OF AN INVESTOR Investing money is a stepping stone to manage spending
habits and prepare for the future expenses. Most people recognize the need to pu
t their money away for events or circumstances that may occur in future. People
invest money to manage their personal finances some of them invest to plan for r
etirement, while others invest to accumulate wealth. Each one has a different ne
ed and each of them expect something from their money in future.
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By and large, most investors have eight common needs from their investments: i.
ii. iii. iv. v. Security of original capital Wealth accumulation Tax Advantages
Life cover Income
1.3 TYPES OF INVESTMENT AVENUES
Figure 1.1: Various investment alternatives Source: Investment analysis and port
folio management Author: Prasanna Chandra Figure 1.1 shows various investment al
ternatives which are explained below. One can invest money in different types of
Investment instruments. These instruments can be financial or non-financial in
nature. There are many factors that affect ones choice of investment. Millions of
Indians buy fixed deposits, post office savings certificates, stocks, bonds or
mutual funds,
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purchase gold, silver, or make similar investments. They all have a reason for i
nvesting their money. Some people want to supplement their retirement income whe
n they reach the age of 60, while others want to become millionaires before the
age of 40. We will look at various factors that affect our choice of an investme
nt alternative, let us first understand the basics of some of the popular invest
ment avenues. 1.3.1 Non marketable Financial Assets: A good portion of financial
assets is represented by non-marketable financial assets. These can be classifi
ed into the following broad categories: Bank Deposits: The simplest of investmen
t avenues, by opening a bank account and depositing money in it one can make a b
ank deposit. There are various kinds of bank accounts: current account, savings
account and fixed deposit account. The interest rate on fixed deposits varies wi
th the term of the deposit. In general, it is lower for fixed deposits of shorte
r term and higher for fixed deposits of longer term. Bank deposits enjoy excepti
onally high liquidity. Post Office Savings Account: A post office savings accoun
t is similar to a savings bank account. The interest rate is 6 percent per annum
. Post Office Time Deposits (POTDs): Similar to fixed deposits of commercial ban
ks, POTD can be made in multiplies of 50 without any limit. The interest rates o
n POTDs are, in general, slightly higher than those on bank deposits. The intere
st is calculated half-yearly and paid annually. Monthly Income Scheme of the Pos
t Office (MISPO): A popular scheme of the post office, the MISPO is meant to pro
vide regular monthly income to the depositors. The term of the scheme is 6 years
. The minimum amount of investment is 1,000. The maximum investment can be 3, 00
,000 in a single account or 6, 00,000 in a joint account. The interest rate is 8
.0 percent per annum, payable monthly. A bonus of 10 percent is payable on matur
ity. Kisan Vikas Patra (KVP): A scheme of the post office, for which the minimum
amount of investment is 1,000. There is no maximum limit. The
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investment doubles in 8 years and 7 months. Hence the compound interest rate wor
ks out to 8.4 percent. There is a withdrawal facility after 2 years. National Sa
vings Certificate: Issued at the post offices, National Savings Certificate come
s in denominations of 100, 500, 1,000, 5,000 and 10,000. It has a term of 6 year
s. Over this period Rs. 100 becomes Rs. 160.1. Hence the compound rate of return
works out to 8.16 percent. Company Deposits: Many companies, large and small, s
olicit fixed deposits from the public. Fixed deposits mobilized by manufacturing
companies are regulated by the Company Law Board and fixed deposits mobilized b
y finance company (more precisely non-banking finance companies) are regulated b
y the Reserve Bank of India. The interest rates on company deposits are higher t
han those on bank fixed deposits, but so is risk. Employee Provident Fund Scheme
: A major vehicle of savings for salaried employees, where each employee has a
separate provident fund account in which both the employer and employee are requ
ired to contribute a certain minimum amount on a monthly basis. Public Provident
Fund Scheme: One of the most attractive investment avenues available in India.
Individuals and HUFs can participate in this scheme. A PPF account may be opened
at any branch of State Bank of India or its subsidiaries or at specified branch
es of the other public sector banks. The subscriber to a PPF account is required
to make a minimum deposit of 100 per year. The maximum permissible deposit per
year is 70,000. PPF deposits currently earn a compound interest rate of 8.0 perc
ent per annum, which is totally exempt from taxes. 1.3.2 Bonds: Bonds are fixed
income instruments which are issued for the purpose of raising capital. Both pri
vate entities, such as companies, financial institutions, and the central or sta
te government and other government institutions use this instrument as a means o
f garnering funds. Bonds issued by the Government carry the lowest level of risk
but could deliver fair returns. Many people invest in bonds with an objective o
f earning certain amount of interest on
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their deposits and/or to save tax. Bonds are considered to be a less risky inves
tment option and are generally preferred by risk-averse investors. Bond prices a
re also subject to market risk. Bonds may be classified into the following categ
ories: Government securities: Debt securities issued by the central government s
tate government and quasi government agencies are referred as gilt edge securiti
es. It has maturities ranging from 3-20 years and carry interest rate that usual
ly vary between 7 to 10 percent. Debentures of private sector companies: Debentu
res are viewed as a mixture of having a shareholding and a fixed interest loan.
Debenture holders are normally entitled to a return equivalent to a fixed percen
tage of their initial investment. The security inherent in debentures makes them
a safer investment than shares. Preference shares: Investing in shares is safer
and dividends are assured every year. Savings bonds
1.3.3 Mutual funds: A mutual fund allows a group of people to pool their money t
ogether and have it professionally managed, in keeping with a predetermined inve
stment objective. This investment avenue is popular because of its costefficienc
y, risk-diversification, professional management and sound regulation. There are
three broad types of mutual fund schemes classified on basis of investment obje
ctive: Equity schemes: The aim of growth funds is to provide capital appreciatio
n over the medium to long- term. Such schemes normally invest a major part of th
eir corpus in equities. Such funds have comparatively high risks. These schemes
provide different options to the investors like dividend option, capital appreci
ation, etc. and the investors may choose an option depending on their preference
s. Growth schemes are good for investors having a longterm outlook seeking appre
ciation over a period of time.
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Debt schemes: The aim of income funds is to provide regular and steady income to
investors. Such schemes generally invest in fixed income securities such as bon
ds, corporate debentures, Government securities and money market instruments. Su
ch funds are less risky compared to equity schemes. These funds are not affected
because of fluctuations in equity markets. However, opportunities of capital ap
preciation are also limited in such funds. The NAVs of such funds are affected b
ecause of change in interest rates in the country. If the interest rates fall, N
AVs of such funds are likely to increase in the short run and vice versa. Howeve
r, long term investors may not bother about these fluctuations.

Balanced schemes: The aim of balanced funds is to provide both growth and regula
r income as such schemes invest both in equities and fixed income securities in
the proportion indicated in their offer documents. These are appropriate for inv
estors looking for moderate growth. They generally invest 40-60% in equity and d
ebt instruments. These funds are also affected because of fluctuations in share
prices in the stock markets. However, NAVs of such funds are likely to be less v
olatile compared to pure equity funds.
1.3.4 Real Estate: Residential real estate is more than just an investment. Ther
e are more ways than ever before to profit from real estate investment. Real est
ate is a great investment option. It can generate an ongoing income source. It c
an also rise in value overtime and prove a good investment in the cash value of
the home or land. Many advisors warn against borrowing money to purchase investm
ents. The best way to do this is to save up and pay cash for the home. One shoul
d be able to afford the payments on the property when the property is vacant, ot
herwise the property may end up being a burden instead of helping to build wealt
h. 1.3.5 Equity Shares: Equities are a type of security that represents the owne
rship in a company. Equities are traded (bought and sold) in stock markets.
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Alternatively, they can be purchased via the Initial Public Offering (IPO) route
, i.e. directly from the company. Investing in equities is a good long-term inve
stment option as the returns on equities over a long time horizon are generally
higher than most other investment avenues. However, along with the possibility o
f greater returns comes greater risk. 1.3.6 Money market instruments: The money
market is the market in which short term funds are borrowed and lent. These inst
ruments can be broadly classified as: Treasury Bills: These are the lowest risk
category instruments for the short term. RBI issues treasury bills [T-bills] at
a prefixed day and for a fixed amount. There are 4 types of treasury bills: 14-d
ay T-bill, 91-day T-bill, 182day T-bill and 364-day T-bill. Certificates of Depo
sits: After treasury bills, the next lowest risk category investment option is c
ertificate of deposit (CD) issued by banks and financial Institution (FI). A CD
is a negotiable promissory note, secure and short term, of up to a year, in natu
re. Although RBI allows CDs up to one-year maturity, the maturity most quoted in
the market is for 90 days. Commercial Papers: Commercial papers are negotiable
short-term unsecured promissory notes with fixed maturities, issued by well-rate
d organizations. These are generally sold on discount basis. Organizations can i
ssue CPs either directly or through banks or merchant banks. These instruments a
re normally issued for 30/45/60/90/120/180/270/364 days. Commercial Bills: Bills
of exchange are negotiable instruments drawn by the seller or drawer of the goo
ds on the buyer or drawee of the good for the value of the goods delivered. Thes
e are called as trade bills and when they are accepted by commercial banks they
are called as commercial bills. If the bill is payable at a future date and the
seller needs money during the currency of the bill then the seller may approach
the bank for discounting the bill.
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1.3.7 Life insurance policies: Insurance is a form of risk management that is pr

imarily used to hedge the risk of a contingent loss. Insurance is defined as the
equitable transfer of the risk of a loss, from one entity to another, in exchan
ge for a premium. An insurer is a company that sells insurance; insured or the p
olicyholder is a person or entity buying the insurance. The insurance rate is a
factor that is used to determine the amount which is to be charged for a certain
amount of insurance coverage, and is called the premium. It can be classified a
s: Money-back Insurance: Money-back Insurance schemes are used as investment ave
nues as they offer partial cash-back at certain intervals. This money can be uti
lized for childrens education, marriage, etc. Endowment Insurance: These are term
policies. Investors have to pay the premiums for a particular term, and at matu
rity the accrued bonus and other benefits are returned to the policyholder if he
survives at maturity. 1.3.8 Bullion Market: Precious metals like gold and silve
r had been a safe haven for Indian investors since ages. Besides jewellery these
metals are used for investment purposes also. Since last 1 year, both Gold and
Silver have highly appreciated in value both in the domestic as well as the inte
rnational markets. In addition to its attributes as a store of value, the case f
or investing in gold revolves around the role it can play as a portfolio diversi
fier. 1.3.9 Financial Derivatives: Derivatives are contracts and can be used as
an underlying asset. Various types of Derivatives are: Forwards: A forward contr
act is a customized contract between two entities, where settlement takes place
on a specific date in the future at todays preagreed price. Futures: A futures co
ntract is an agreement between two parties to buy or sell an asset at a certain
time in the future at a certain price. Futures
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contracts are special types of forward contracts in the sense that the former ar
e standardized exchange traded contracts Options: Options are of two types - cal
ls and puts. Calls give the buyer the right but not the obligation to buy a give
n quantity of the underlying asset, at a given price on or before a given future
date. Puts give the buyer the right, but not the obligation to sell a given qua
ntity of the underlying asset at a given price on or before a given date. Swaps:
Swaps are private agreements between two parties to exchange cash flows in the
future according to a prearranged formula. They can be regarded as portfolios of
forward contracts. E.g. Currency swaps, interest swaps.
1.4 EVALUATION OF VARIOUS INVESTMENT AVENUES Table 1.1: Summary evaluation of va
rious investment avenues
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Source: Investment analysis and portfolio management Author: Prasanna Chandra Ta

ble 1.1 shows the evaluation of various investment avenues. From this table we c
an say that risk, liquidity and return are the so called factors which are consi
dered before making an investment. But there is a trade off between risk and ret
urn. Higher the risk higher is the return. Lower the risk and lower is the retur
n. The decision of which mode of investment to choose largely depends upon the i
nvestors necessity and the factors which according to him is the most vital one.
People with more security concern choose fixed investment like bank deposits an
d investments in government securities and various post office savings. The main
reason for choosing such an investment mode is that the
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amount invested in the above stated securities seems to be very secure and hence
they seemed to be more preferred one where security is the prime concern. Peopl
e whom returns are most important are ready to take risk to earn fairer risk. Th
e preferred mode of investment over here is equity shares and mutual fund. The r
isk factor in these modes of investment is basically the returns are basically p
erformance based. If the company performs well the investors can accept fairer r
eturns but if the company fails to perform then there can be a threat to the inv
ested amount. Hence the returns are very volatile with the changes in the market
conditions. 1.5 ATTRIBUTES OF INVESTMENT Investment can be said to be an art. M
any people invest money without knowing what they are doing. Only a few people r
eally understand the art of investing money. They invest according to certain pr
inciples. There are also certain factors that affect the investment decisions. A
ll these are done mainly to increase the return on the investment and also to ke
ep the risk to a minimum. The various factors that affect the investment decisio
ns are given below. For evaluating an investment avenue, the following attribute
s are relevant. a) Rate of Return: The rate of return on an investment for a per
iod (which is usually a period of one year) is defined as follows: Rate of retur
n = Annual income + (Ending price Beginning price) Beginning price Yield: Yield
is the annual rate of return for any investment and is expressed as a percentage
. With stocks, yield can refer to the rate of income generated from a stock in t
he form of regular dividends. This is often represented in percentage form, calc
ulated as the annual dividend payments divided by the stock s current share pric
e. Current yield= Annual cash inflows Market price
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Capital Appreciation: Its the rise in the market price of an asset. Capital appre
ciation is one of two major ways for investors to profit from an investment in a
company. The other is through dividend income. b) Risk: The risk of investment
refers to the variability of its rate of return. A simple measure of dispersion
is the range of values, which is simply the difference between the highest and t
he lowest values.
Figure 1.2: Relationship between Expected Return and Risk Figure 1.2 shows the r
elationship between expected return and risk. From this figure it is clear that
with higher risk the returns also increases while it decrease as the risk decrea
ses. High variance indicates high degree of risk and low variance indicates less
er risk. Expected returns increases when investors is willing to take risk. Othe
r measures commonly used in finance are as follows: Variance: This is the mean o
f the squares of deviations of individual returns around their average values St
andard deviation: This is the square root of variance Beta: This reflects how vo
latile the return from an investment is, in response to market swings. Risk = Ac
tual Return Expected Returns If, Actual Return = Expected Return = Risk Free Inv
estment If, Actual Return > or < Expected Return is risky investment c) Marketab
ility: An investment is highly marketable or liquid if: it can be transacted qui
ckly
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the transaction cost is low; and the price change between two successive transac
tions is negligible.
The liquidity of a market may be judged in terms of its depth, breadth, and resi
lience. Depth refers to the existence of buy as well as sells orders around the
current market price. Breadth implies the presence of such orders in substantial
volume. Resilience means that new orders emerge in response to price changes. G
enerally, equity shares of well established companies enjoy high marketability a
nd equity shares of small companies in their formative years have low marketabil
ity. High marketability is a desirable characteristic and low marketability is a
n undesirable one. d) Tax Shelter: Tax benefits are of the following three kinds
: Initial Tax Benefit: An initial tax benefit refers to the tax relief enjoyed a
t the time of making the investment. Continuing Tax Benefit: A continuing tax be
nefits represent the tax shield associated with the periodic returns from the in
vestment. Terminal Tax Benefits: A terminal tax benefit refers to relief from ta
xation when an investment is realized or liquidated. e) Convenience: Convenience
broadly refers to the ease with which the investment can be made and looked aft
er. The degree of convenience associated with investments varies widely. At one
end of the spectrum is the deposit in a savings bank account that can be made re
adily and that does not require any maintenance effort. At the other end of the
spectrum is the purchase of a property that may involved a lot of procedural and
legal hassles at the time of acquisitions and a great deal of maintenance effor
t subsequently.
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1.6 APPROACHES TO INVESTMENT DECISION MAKING The stock market is thronged by inv
estors pursuing diverse investment strategies which may be subsumed under four b
road approaches: i. Fundamental Approach: The basic tenets of the fundamental ap
proach, which is perhaps most commonly advocated by investment professionals, ar
e as follows:
There is an intrinsic value of a security, which depends upon unde
rlying economic (fundamental) factors. The intrinsic value can be established by
a penetrating analysis of the fundamental factors relating to the company, indu
stry, and economy. At any given point of time, there are some securities for whi
ch the existing market price will differ from the intrinsic value. Sooner or lat
er, of course, the market price will fall in line with the intrinsic value.
Supe
rior returns can be earned by buying under-valued securities (securities whose i
ntrinsic value exceeds the market price) and selling over-valued securities (sec
urities whose intrinsic value is less than the market price). ii. Psychological
Approach: The psychological approach is based on the premise that stock prices a
re guided by emotion rather than reason. Stock prices are believed to be influen
ced by the psychological mood of investors. When greed and euphoria sweep the ma
rket, prices rise to dizzy heights. On the other hand, when fear and despair env
elop the market, prices fall to abysmally low levels. Since psychic values appea
r to be more important than intrinsic values, the psychological approach suggest
s that it is more profitable to analyze how investors tend to behave as the mark
et is swept by waves of optimism and pessimism, which seem to alternate. The psy
chological approach has been described vividly as the castles in the air theory Bu
rton G. Malkiel. Those who subscribe to the psychological approach or the castles
in the air theory generally use some form of technical analysis which is
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concerned with a study of internal market data, with a view to developing tradin
g rules aimed at profit making. The basic premise of technical analysis is that
there are certain persistent and recurring patterns of price movements, which ca
n be discerned by analyzing market data. Technical analysts use a variety of too
ls like bar chart, point and figure chart, moving average analysis, breadth of m
arket analysis, etc. iii. Academic Approach: Over the last five decades or so, t
he academic community has studied various aspects of the capital market, particu
larly in the advanced countries, with the help of fairly sophisticated methods o
f investigation.
Stock markets are reasonably efficient in reacting quickly and
rationally to the flow of information. Hence, stock prices reflect intrinsic val
ue fairly well. Put differently, Market price = Intrinsic value
Stock price beha
viour corresponds to a random walk. This means that successive price changes are
independent. As a result, past price behaviour cannot be used to predict future
price behaviour. In the capital market, there is a positive relationship betwee
n risk and return. More specifically, the expected return from a security is lin
early related to its systematic risk iv. Eclectic Approach: The eclectic approac
h draws on all the three different approaches discussed above. The basic premise
s of the eclectic approach are as follows: Fundamental analysis is helpful in es
tablishing basic standards and benchmarks. However, since there are uncertaintie
s associated with fundamental analysis, exclusive reliance on fundamental analys
is should be avoided. Equally important, excessive refinement and complexity in
fundamental analysis must be viewed with caution.
Technical analysis is useful i
n broadly gauging the prevailing mood of investors and the relative strengths of
supply and demand forces. However, since the mood of investors can vary unpredi
ctably excessive reliance on technical indicators can be hazardous. More
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important, complicated technical systems should ordinarily be regarded as suspec

t because they often represent figments of imagination rather than tools of prov
en usefulness.
The market is neither as well-ordered as the academic approach su
ggest, nor as speculative as the psychological approach indicates. While it is c
haracterized by some inefficiencies and imperfection, it seems to react reasonab
ly efficiently and rationally to the flow of information. Likewise, despite many
instances of mispriced securities, there appears to be a fairly strong correlat
ion between risk and return.
Level of return often necessitates the assumption o
f a higher level of risk. 1.7 COMMON ERRORS IN INVESTMENT MANAGEMENT Investments
always do not generate wealth sometimes it fail do so because of some condition
s. The reason for this failure is either the market condition or some mistakes m
ade by the investors. We cannot control market condition but errors made by inve
stors could be avoided. Investors appear to be prone to the errors in managing t
heir investments. Some of the errors made by investors are discussed below: 1.7.
1 Inadequate Comprehension of Return and Risk Many investors have unrealistic an
d exaggerated expectations from investments, in particular from equity shares an
d convertible debentures. One often comes across investors who say that they hop
e to earn a return of 25 to 30 percent per year with virtually no risk exposure
or even double their investment in a year or so. They have apparently been misle
d by one or more of the following; (a) tall and unjustified claims made by peopl
e with vested interests; (b) Exceptional performance of some portfolio they have
seen or managed, which may be attributable mostly to fortuitous factors; and (c
) Promises made by tipsters, operators, and others. In most of the cases, such e
xpectations reflect investor inexperience and gullibility.
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1.7.2 Vaguely Formulated Investment Policy Often investors do not clearly spell
out their risk disposition and investment policy. This tends to create confusion
and impairs the quality of investment decisions. Ironically, conservative inves
tors turn aggressive when the bull market is near its peak in the hope of reapin
g a bonanza; likewise, in the wake of sharp losses inflicted by a bear market, a
ggressive investors turn unduly cautions and overlook opportunities before them.
Ragnar D. Naess put it this way: The fear of losing capital when prices are low
and declining, and the greed for more capital gains when prices are rising, are
probably, more than any other factors, responsible for poor performance. if you k
now what your risk attitude is and why you are investing, you will learn how to
invest well. A well articulated investment policy, adhered to consistently over
a period of time, saves a great deal of disappointment. 1.7.3 Naive Extrapolatio
n of the Past Investors generally believe in a simple extrapolation of past tren
ds and events and do not effectively incorporate changes into expectations. As A
rthur Zeikel says: People generally, and investors particularly, fail to apprecia
te the working of countervailing forces; change and momentum are largely misunde
rstood concepts. Most investors tend to cling to the course to which they are cu
rrently committed, especially at turning point.
The apparent comfort provided b
y extrapolating too far, however, is dangerous. As Peter Bernstein says: Momentum
causes things to run further and longer than we anticipate. They very familiari
ty of a force in motion reduces our ability to see when it is losing its momentu
m. Indeed, that is why extrapolating the present into the future so frequently t
urns out to be the genesis of an embarrassing forecast.
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1.7.4 Cursory Decision Making Investment decision making is characterized by a g

reat deal of cursoriness. Investors tend to: Base their decisions on partial evi
dence, unreliable hearsay, or casual tips given by brokers, friends, and others.
Cavalierly brush aside several of investment risk (market risk, business risk,
and interest rate risk) as greed overpowers them. Uncritically follow others bec
ause of the temptation to ride the bandwagon or lack of confidence in their own
judgment. 1.7.5 Untimely entries and exits Investors tend to follow an irrationa
l start and stop approach to the market characterized by untimely entries (after
a market advance has long been underway) and exit (after a long period of stagn
ation and decline). 1.7.6 High costs Investors trade excessively and spend a lot
on investment management. A good proportion of investors indulge in day trading
in the hope of making quick profits. However more often transaction cost wipes
out whatever profits they may generate from frequent trading. 1.7.7 Over-Diversi
fication and Under-Diversification Many individuals have portfolios consisting o
f thirty to sixty, or even more, different stocks. Managing such portfolios is a
n unwieldy task and as R.J.Jenrette put it: Over-diversification is probably the
greatest enemy of portfolio performance. Most of the portfolios we look at have
too many names. As a result, the impact of a good idea is negligible. Perhaps as
common as over-diversification is under-diversification. Many individuals do no
t apparently understand the principle of diversification and its benefit in term
of risk reduction. A number of individual portfolios seem to be highly under-di
versified, carrying an avoidable risk exposure.
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1.7.8 Wrong Attitude towards Losses and Profits An investor has an aversion to a
dmit his mistake and cut losses short. If the price falls, contrary to his expec
tation at the time of purchase, he somehow hopes that it will rebound and he can
break even. Surprisingly, such a belief persists even when the prospects look d
ismal and there may be a greater possibility of a further decline. If the price
recovers due to favourable conditions, there is a tendency to dispose of the sha
re when its price more or less equals the original purchase price, even though t
here may be a fair chance of further increases. The psychological relief experie
nced by an investor from recovering losses seems to motivate such behaviour. Thi
s means the tendency is to let the losses run and cut profits short, rather than
to cut the losses short and let the profits run. 1.8 RISKS IN INVESTMENT Risk i
s uncertainty of the income /capital appreciation or loss or both. Every investm
ent (equity, debt, property, etc.) carries an element of risk that is unique to
it. Though risk cannot be totally eliminated, it can be managed by undertaking e
ffective risk management. To manage risk, one first need to identify different k
inds of risks involved in investing and then take appropriate steps to reduce it
. Risk and return share a direct relationship with one another. Therefore, an in
vestment which carries negligible risk, will offer a low return (viz. bonds issu
ed by the Reserve Bank of India) while an investment which carries a higher risk
, also offers the potential of higher returns (stocks).All investments are a trad
e off between risk and returns. Let us first discuss the types of risks. 1.8.1 Ty
pes of Risks All investments carry their unique set of risks. Though there are s
everal types of risks, the important ones are - market risk, credit risk, intere
st rate risk, inflation risk, currency risk and liquidity risk. These are briefl
y explained below: a) Market Risk: A share may rise or fall depending on the for
tunes of the company, the industry it is in, or in response to investor sentimen
t.
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b) Credit Risk: This risk is attributed to debt investments wherein the borrower
may default on interest and/or principal repayment. c) Interest Rate Risk: When
interest rates rise, fixed income investments lose value. This is because the i
nvestor will continue to earn the same (lower) interest rate until the investmen
t matures while market interest rates have already gone up. In order to compensa
te for a lower interest rate compared to the market rate, the fixed income inves
tment will thus have to be priced at a lower rate. d) Inflation Risk: Rising inf
lation will erode the value of your income and asset. Due to inflation, the cost
of products and services will rise and consequently, your future income and ass
ets will be worth less than what they are worth today. e) Currency Risk: Changes
in exchange rates between currencies could lead to decline in value of your inv
estments. With Indian investors now being allowed to invest in other countries,
you will now be exposed to currency risk i.e. a fall in the value of the currenc
y in which you are investing vis--vis your home currency i.e. the Rupee. f) Liqui
dity Risk: Certain investments carry the risk of poor liquidity either due to th
e nature of the asset or regulatory reasons. For example, property is inherently
an illiquid investment as it cannot be sold as simply as selling stocks. Certai
n investments like the Reserve Bank of India bonds are not transferable till mat
urity. Investments in Equity Linked Savings Schemes are illiquid for a period of
3 years and in case you redeem from such schemes, your tax benefit is withdrawn
. 1.8.2 Risk Management Once different kinds of risks associated with investment
s are identified appropriate steps can be taken to reduce these risks. Some of t
hese steps are:
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a) Diversification: Most types of risks can be managed by diversifying your inve

stments across asset classes (stocks, bonds, properties etc.), industry, currenc
ies etc. Diversification spreads the risk and reduces the adverse impact that an
y one investment might have on a portfolio. b) Research and Monitor: Rigorous re
search and continuous monitoring will help in controlling the market and credit
risk of your investments. This will caution beforehand to avoid an investment an
d alert in case the risk is increasing on an investment already undertaken. 1.8.
3 Risk Tolerance Level: Risk includes the possibility of losing money. However,
extra considerations should be made in addition to the safety of the principal a
nd the potential for growth. These considerations include the likelihood of achi
eving the financial goals you have established. Additionally, one should conside
r whether he/she is willing and able to accept a higher level of risk in order t
o achieve further rewards. Before starting on the setting of the investment port
folio, every investor should establish his/her risk tolerance level. Only after
this he/she is ready to build strategies for the accomplishment of his/her finan
cial goals. The higher the degree of risk involved in the investment portfolio t
he greater the chances of higher returns and failures. The setting of the risk t
olerance level is very subjective issue. However, younger investors can afford m
ore risk taking since they have more time to fix the losses. On the other hand o
lder investors should apply more conservative approach since they have less time
in front of them. But, they should keep in mind that they greatly decrease thei
r chances of faster achieving their financial goals. A portfolio that carries mo
re bonds is considered more conservative and risk averse. However, the one that
includes a greater percentage of stocks is more risk taking with higher potentia
l of rewards. Many financial experts recommend the diversification between inves
tments with different degrees of
Page | 30

risk. This is a good idea since your portfolio will benefit from the rises and f
alls of the different investments and will alleviate the potential of losing mon
ey. Risk Personalities: Based on the risk capacity and risk tolerance, risk appe
tite can be decided. This is the level of risk that one is ready to bear. Broadl
y risk personalities can be categorised at 3 levels Conservative, Balanced and A
ggressive. Each risk personality has a different objective which it aims to achi
eve through the investment portfolio. These personalities are explained below: C
onservative personality: For investors having this personality preservation of t
he capital invested is the ultimate goal, even if it means compromising on the r
eturns. Balanced personality: People with this type of personality wish to strik
e a balance between high-risk and low-risk investments. Aggressive personality:
Investors with such personality do not wish to compromise at all on the returns,
even if their capital erodes.
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CHAPTER 2 RESEARCH METHODOLOG Y

Page | 32

2.1 INTRODUCTION
Indian investor today have to endure a slow-moving economy, the steep market dec
lines prompted by declining revenues, alarming reports of scandals ranging from
illegal corporate accounting practices like that of Satyam to insider trading to
make investment decisions. Stock markets performance is not simply the result of
intelligible characteristics but also due to the emotions that are still baffli
ng to the analysts. Despite loads of information coming from all directions, it
is not the calculations of financial wizards, or companys performance or widely a
ccepted criterion of stock performance but the investors irrational emotions like
overconfidence, fear, risk aversion, etc., seem to decisively drive and dictate
the fortunes of the market. The market is so volatile that its behaviour is unp
redictable. In the past couple of years, the movement of share prices exceeded a
ll the limits and had gone remarkably low and high levels. These dramatic prices
of the shares ruin the concept of intrinsic value and rational investment behav
iour. The traditional finance theories assume that investors are rational but th
ey are unable to explain the behaviour and pricing of the stock market completel
y. Many research studies have validated the relationship between a dependent var
iable i.e., risk tolerance level and independent variables such as demographic c
haracteristics of an investor. Most of the Indian investors are from high income
group, well educated, salaried, and independent in making investment decisions
and from the past trends it is also seen that they are conservative in nature. T
elevision is the media that is largely influencing the investors decisions. Hence
, in the present project report an attempt has been
Page | 33

made to study the relationship between risk tolerance level and demographic char
acteristics of Indian investors. 2.2 STATEMENT OF THE PROBLEM This study on inve
stors behaviour is an attempt to know the profile and the characteristics of the
investors so as to understand their preference with respect to their investments
. The main focus of the study is to discover the influence of demographic factor
s like gender and age on risk tolerance level of the investor. The study mainly
concentrates on the factors that influence an individual investor before making
an investment. It also studies the various patterns in which investors like to i
nvest their money based on their risk tolerance level and other demographic fact
ors like income level, occupation etc. 2.3 REVIEW OF LITERATURE The literature r
eview section examines the importance of research studies, company data or indus
try reports that serve as a foundation for the setup of study. The research dime
nsion of the related literature and the relevant information begins from an expl
anatory perspective, approaching towards specific studies which do related to ju
dge the limitations and informational gaps in data from the secondary sources. T
his analysis may reveal conclusions from past studies to realize the reliability
of the secondary sources and their credibility. This in turn enables one to rel
y on a comprehensive review for the study. Literature suggests that major resear
ch in the area of investors behaviour has been done by behavioural scientists suc
h as Weber (1999), Shiller (2000) and Shefrin (2000). Shiller (2000) who strongl
y advocated that stock market is governed by the market information which direct
ly affects the behaviour of the investors. Several studies have brought out the
relationship between the demographics such as Gender, Age and risk tolerance lev
el of individuals. Of this the relationship between Age and risk tolerance level
has attracted much attention.
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Horvath and Zuckerman (1993) suggested that ones biological, demographic and soci
oeconomic characteristics; together with his/her psychological makeup affects on
es risk tolerance level. Malkiel (1996) suggested that an individuals risk toleran
ce is related to his/her household situation, lifecycle stage and subjective fac
tors. Mittra (1995) discussed factors that were related to individuals risk tole
rance, which included years until retirement, knowledge sophistication, income a
nd net worth. Guiso, Jappelli and Terlizzese (1996), Bajtelsmit and VenDerhei (1
997), Powell and Ansic (1997), Jianakoplos and Bernasek (1998), Hariharan, Chapm
an and Domain (2000), Hartog, Ferrer-I-Carbonell and Jonker (2002) concluded tha
t males are more risk tolerant than females. Wallach and Kogan (1961) were perha
ps the first to study the relationship between risk tolerance and age. Cohn, Lew
ellen et.al found risky asset fraction of the portfolio to be positively correla
ted with income and age and negatively correlated with marital status. Morin and
Suarez found evidence of increasing risk aversion with age although the househo
lds appear to become less risk averse as their wealth increases. Yoo (1994) foun
d that the change in the risky asset holdings were not uniform. He found individ
uals to increase their investments in risky assets throughout their working life
time, and decrease their risk exposure once they retire. Lewellen et.al while i
dentifying the systematic patterns of investment behaviour exhibited by individu
als found age and expressed risk taking propensities to be inversely related wit
h major shifts taking place at age 55 and beyond. Indian studies on individual i
nvestors were mostly confined to studies on share ownership, except a few. The RB
I s survey of ownership of shares and L.C. Gupta s enquiry into the ownership pa
ttern of Industrial shares in India were a few in this direction. The NCAER s st
udies brought out the frequent form of savings of individuals and the components
of financial investments of rural households. The Indian Shareowners Survey bro
ught out a volley of information on shareowners. Rajarajan V (1997, 1998, 2000 a
nd 2003) classified investors on the basis of their demographics. He has also br
ought out the investors
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characteristics on the basis of their investment size. He found that the percent
age of risky assets to total financial investments had declined as the investor
moves up through various stages in life cycle. Also investors lifestyles based ch
aracteristics has been identified. The above discussion presents a detailed pict
ure about the various facets of risk studies that have taken place in the past.
In the present study, the findings of many of these studies are verified and upd
ated. Latha Krishnan (2006) explained as Investments come in many forms. While s
ome people consider hard assets such as land, house, gold and platinum as invest
ments, others look to monetary instruments such as stocks and bonds as ways to m
ake their money grow. A cautious or conservative investor is unlikely to play ca
relessly with his hard-earned money. So he keeps to safe investments that guaran
tee the return of his capital and still earn good returns in a stipulated period
if the product in which he invested gains in that period. In such an investment
, even if the markets go down and he does not gain much, he also does not suffer
a heavy loss. A wealthy person with more money to invest can take more risks an
d invest in a variety of products that major financial players provide. A wealth
of information on these as well as comments and criticisms on their performance
s and profitability is readily available. Perception of investors towards capital
market instruments globally by John Marshall and Investment analysis and Portfoli
o management by Punithavathy Pandian. John Marshalls study was at global scale and
it explains the perception of people across globe towards capital market instrum
ents and Pandian explains the theoretical aspects of capital market instruments
and use of various investment avenues to build a strong portfolio.
2.4 NEED FOR STUDY
Investing money is a crucial and deciding the avenues where to invest needs a lo
t of planning. In India people are more conservative and hence prefer
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investments that are less risky. Similarly there are other demographic factors l
ike age, income level, gender which affect their decision. As the availability o
f financial products increase, perception of investors towards such avenues chan
ges over a period of time. It becomes important for a marketer to understand the
perception of investors towards investment avenues to successfully pitch the pr
oduct. Marketing is known as meeting needs profitably. If the marketer is able t
o understand the mindset of investor towards a product then he/she will be in a
position to market the product. This report attempts to study the behavior of In
dian investors while making an investment. Here we also look upon other factors
that influence them while making investment decisions. Innovations in financial
products like derivatives, unit linked insurance products, fund of funds likewis
e are not easily understood by the investor. Hence the need for this study arise
s to understand what exactly an Indian investor thinks before investing his/her
money and how much risk he/she is willing to take. This report gives the markete
r and other peers to successfully market the financial products which are more p
opular, as it gives information regarding the perception of investors towards in
vestment avenues in India. 2.5 OBJECTIVES OF THE STUDY 2.5.1 Primary Objectives
To study the investment characteristics of investors To study the objectives of
investment plan of an investors To study the demographic information of investor
s
2.5.2 Secondary Objectives To know the preferred investment avenues of investors
To identify the preferred sources of information influencing investment decisio
ns To understand the risk tolerance level of the investors and suggest a suitabl
e portfolio
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To study the dependence/independences of the demographic factors (Gender, Age, i
ncome level) of the investor and his/her risk tolerance level
2.6 SCOPE OF STUDY Based on previous research in related areas, a questionnaire
was constructed to measure the investment pattern of individuals on the basis of
demographic characteristics and the risk tolerance of investors was also calcul
ated. It helped us to understand how an Indian investor behaves while investing.
This study will be helpful to mutual fund companies and other investment compan
ies to understand individual behaviour of investors so that they could build sui
table investment options for them individually. Also this study will help the in
vestor to decide the areas where they could invest. 2.7 HYPOTHESIS A hypothesis
describes the relationship between or among variables. A good hypothesis is one
that can explain what it claims to explain, is testable and has greater range, p
robability and simplicity than its rivals. There are two approach of hypothesis
testing: 1) Classical or sampling theory statistics and 2) The Bayesian approach
In the present dissertation chi square test has been used to find out the depen
dence/independence of various factors that influence investment decision. Hypoth
esis has been found between following factors: Gender and risk tolerance of resp
ondents Age and preferred investment avenues by the respondents Income and inves
tment avenues preferred by the respondents Age of respondents and time horizon f
or investment Age and risk tolerance of the respondents
2.8 RESEARCH DESIGN
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Research methodology is a way to systematically solve the research problem. It m

ay be understood as a science of studying how research is done scientifically.
R
esearch type Many investors were reluctant to reveal their investment details es
pecially the amount of money invested so, referral sampling method is used for t
his study. Sample description The sample was drawn from the population of the po
tential investors from India. A survey was conducted to understand the investors
behaviour with the help of questionnaire. It was carried out with a sample size
of 250 investors. 2.9 TOOLS OF DATA COLLECTION Primary data: The data has been c
ollected directly from respondent with the help of structured questionnaires. Se
condary data: The secondary data has been collected from various magazines, jour
nals, newspapers, text books and related websites. 2.10 METHOD OF ANALYSIS Stati
stical techniques like Chi square test, simple percentage method are used to ana
lyze and interpret raw data. Chi square was used to show the dependency/independ
ency of various factors. After collecting the data its variable having defined c
haracter, it was tabulated and analyzed with the help of charts and graphs in Mi
crosoft Excel 2007. 2.11 LIMITATIONS OF STUDY Sample size is small because of th
e time constraint Respondent may be hesitant to provide their investment details
Behavior of investors doesnt remain same for long time
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Time for the study is limited
CHAPTER 3
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INDUSTRY PROFILE
3.1 INDIAN FINANCIAL MARKET Money always flows from surplus sector to deficit se
ctor. That means persons having excess of money lend it to those who need money
to fulfil their requirement. Similarly, in business sectors the surplus money fl
ows from the investors or lenders to the businessmen for the purpose of producti
on or sale of goods and services. So, we find two different groups, one who inve
st money or lend money and the others, who borrow or use the money. The financia
l markets act as a link between these two different groups. It facilitates this
function by acting as an intermediary between the borrowers and lenders of money
. So, financial market may be defined as a transmission mechanism between investo
rs (or lenders) and the borrowers (or users) through
Page | 41

which transfer of funds is facilitated. It consists of individual investors, fina

ncial institutions and other intermediaries who are linked by a formal trading r
ules and communication network for trading the various financial assets and cred
it instruments. Financial market talks about the primary market, FDIs, alternati
ve investment options, banking and insurance and the pension sectors, asset mana
gement segment as well. India Financial market happens to be one of the oldest a
cross the globe and is the fastest growing and best among all the financial mark
ets of the emerging economies. The history of Indian capital markets spans back
200 years, around the end of the 18th century. It was at this time that India wa
s under the rule of the East India Company. The capital market of India initiall
y developed around Mumbai; with around 200 to 250 securities brokers participati
ng in active trade during the second half of the 19th century. 3.1.1 Scope of In
dian Financial Market The financial market in India at present is more advanced
than many other sectors as it became organized as early as the 19th century with
the securities exchanges in Mumbai, Ahmedabad and Kolkata. In the early 1960s,
the number of securities exchanges in India became eight - including Mumbai, Ahm
edabad and Kolkata. Apart from these three exchanges, there was the Madras, Kanp
ur, Delhi, Bangalore and Pune exchanges as well. Today there are 23 regional sec
urities exchanges in India. The Indian stock markets till date have remained sta
gnant due to the rigid economic controls. It was only in 1991, after the liberal
ization process that the India securities market witnessed a flurry of IPOs seri
ally. The market saw many new companies spanning across different industry segme
nts and business began to flourish. The launch of the NSE (National Stock Exchan
ge) and the OTCEI (Over the Counter Exchange of India) in the mid 1990s helped i
n regulating a smooth and transparent form of securities trading. The regulatory
body for the Indian capital markets was the SEBI (Securities and Exchange Board
of India). The capital markets in India experienced turbulence after which
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the SEBI came into prominence. The market loopholes had to be bridged by taking
drastic measures. 3.1.2 Potential of Indian Financial Market India Financial Mar
ket helps in promoting the savings of the economy helping to adopt an effective
channel to transmit various financial policies. The Indian financial sector is w
ell-developed, competitive, efficient and integrated to face all shocks. In the
India financial market there are various types of financial products whose price
s are determined by the numerous buyers and sellers in the market. The other det
erminant factor of the prices of the financial products is the market forces of
demand and supply. The various other types of Indian markets help in the functio
ning of the wide India financial sector.
3.1.3 Features of Indian Financial Market

India Financial Indices - BSE 30 Index, various sector indexes, stock quotes, Se
nsex charts, bond prices, foreign exchange, Rupee & Dollar Chart

Indian Financial market news Stock News - Bombay Stock Exchange, BSE Sensex 30 i
ndex, S&P CNX-Nifty, company information, issues on market capitalization, corpo
rate earnings statements

Fixed Income - Corporate Bond Prices, Corporate Debt details, Debt trading activ
ities, Interest Rates, Money Market, Government Securities, Public Sector Debt,
External Debt Service

Foreign Investment - Foreign Debt Database composed by BIS, IMF, OECD,& World Ba
nk, Investments in India & Abroad

Global Equity Indexes - Dow Jones Global indexes, Morgan Stanley Equity Indexes
Page | 43


Currency Indexes - FX & Gold Chart Plotter, J. P. Morgan Currency Indexes

National and Global Market Relations Mutual Funds Insurance Loans Forex and Bull
ion
The main functions of financial market are: It provides facilities for interacti
on between the investors and the borrowers. It provides pricing information resu
lting from the interaction between buyers and sellers in the market when they tr
ade the financial assets. It provides security to dealings in financial assets.
It ensures liquidity by providing a mechanism for an investor to sell the financ
ial assets. It ensures low cost of transactions and information.
3.2 CLASSIFICATION OF FINANCIAL MARKETS
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Figure 3.1: Classification of financial markets Source: Investment analysis and

portfolio management Author: Prasanna Chandra Figure 3.1 shows the classificatio
n of financial markets. From this figure we can interpret that there are differe
nt ways of classifying financial market. One is to classify financial market by
the type of financial claim. The debt market is the financial market foe fixed c
laims (debt instrument) and the equity market is the financial market for residu
al claims (equity instruments)
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The second way is to classify financial markets by the maturity of claims. The m
arket for short term financial claims is referred to as the money market and the
market for long term financial claims is referred to as the capital market.

The third way to classify financial markets is based on whether the claims repre
sent new issues or outstanding issues. The market where issues sell new claims i
s referred as primary market and the market where issues sell outstanding claims
is referred as secondary market.

The fourth way to classify financial markets is by the timing of delivery. A cas
h or spot market is one where the delivery occurs immediately and forward or fut
ures markets are those markets where the delivery occurs at a pre determined tim
e in future.

The fifth way to classify financial markets is by the nature of its organization
al structure. An exchange traded market is characterized by a centralized organi
zation with standardized procedures and an over the counter market is a decentra
lized market with customized procedures.
These markets are further explained in detail. 3.3 MONEY MARKET The money market
is a market for short-term funds, which deals in financial assets whose period
of maturity is up to one year. It should be noted that money market does not dea
l in cash or money as such but simply provides a market for credit instruments s
uch as bills of exchange, promissory notes, commercial paper, treasury bills, et
c. These financial instruments are close substitute of money. These instruments
help the business units, other organizations and the Government to borrow the fu
nds to meet their short-term requirement. Money market does not imply to any spe
cific market place. Rather it refers to the whole networks of financial institut
ions dealing in short-term funds, which provides an outlet to lenders and a sour
ce of supply for such funds to borrowers. Most of the money market transactions
are taken place on telephone, fax or Internet. The Indian money market consists
of Reserve Bank of India,
Page | 46

Commercial banks, Co-operative banks, and other specialized financial institutio

ns. The Reserve Bank of India is the leader of the money market in India. Some N
on-Banking Financial Companies (NBFCs) and financial institutions like LIC, GIC,
UTI, etc. also operate in the Indian money market. 3.4 CAPITAL MARKET Capital M
arket may be defined as a market dealing in medium and longterm funds. It is an
institutional arrangement for borrowing medium and longterm funds and which prov
ides facilities for marketing and trading of securities. So it constitutes all l
ong-term borrowings from banks and financial institutions, borrowings from forei
gn markets and raising of capital by issue various securities such as shares deb
entures, bonds, etc. The market where securities are traded known as Securities
market. It consists of two different segments namely primary and secondary marke
t. The primary market deals with new or fresh issue of securities and is, theref
ore, also known as new issue market; whereas the secondary market provides a pla
ce for purchase and sale of existing securities and is often termed as stock mar
ket or stock exchange. 3.4.1 PRIMARY MARKET The Primary Market consists of arran
gements, which facilitate the procurement of long-term funds by companies by mak
ing fresh issue of shares and debentures. You know that companies make fresh iss
ue of shares and/or debentures at their formation stage and, if necessary, subse
quently for the expansion of business. It is usually done through private placem
ent to friends, relatives and financial institutions or by making public issue.
In any case, the companies have to follow a well-established legal procedure and
involve a number of intermediaries such as underwriters, brokers, etc. who form
an integral part of the primary market. You must have learnt about many initial
public offers (IPOs) made recently by a number of public sector undertakings
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such as ONGC, GAIL, NTPC and the private sector companies like Tata Consultancy
Services (TCS), Biocon, Jet-Airways and so on. 3.4.2 SECONDARY MARKET The second
ary market known as stock market or stock exchange plays an equally important ro
le in mobilizing long-term funds by providing the necessary liquidity to holding
s in shares and debentures. It provides a place where these securities can be en
cashed without any difficulty and delay. It is an organized market where shares
and debentures are traded regularly with high degree of transparency and securit
y. In fact, an active secondary market facilitates the growth of primary market
as the investors in the primary market are assured of a continuous market for li
quidity of their holdings. The major players in the primary market are merchant
bankers, mutual funds, financial institutions, and the individual investors; and
in the secondary market you have all these and the stockbrokers who are members
of the stock exchange who facilitate the trading. After having a brief idea abo
ut the primary market and secondary market let see the difference between them.
3.5 DISTINCTION BETWEEN PRIMARY MARKET AND SECONDARY MARKET The main points of d
istinction between the primary market and secondary market are as follows: 1. Fu
nction: While the main function of primary market is to raise long-term funds th
rough fresh issue of securities, the main function of secondary market is to pro
vide continuous and ready market for the existing long-term securities. 2. Parti
cipants: While the major players in the primary market are financial institution
s, mutual funds, underwriters and individual investors, the major players in sec
ondary market are all of these and the stockbrokers who are members of the stock
exchange.
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3. Listing Requirement: While only those securities can be dealt with in the sec
ondary market, which have been approved for the purpose (listed), there is no su
ch requirement in case of primary market. 4. Determination of prices: In case of
primary market, the prices are determined by the management with due compliance
with SEBI requirement for new issue of securities. But in case of secondary mar
ket, the price of the securities is determined by forces of demand and supply of
the market and keeps on fluctuating. 3.6 DISTINCTION BETWEEN CAPITAL MARKET AND
MONEY MARKET Capital Market differs from money market in many ways. While money
market is related to short-term funds, the capital market related to long term
funds. While money market deals in securities like treasury bills, commercial pa
per, trade bills, deposit certificates, etc., the capital market deals in shares
, debentures, bonds and government securities. While the participants in money m
arket are Reserve Bank of India, commercial banks, non-banking financial compani
es, etc., the participants in capital market are stockbrokers, underwriters, mut
ual funds, financial institutions, and individual investors. While the money mar
ket is regulated by Reserve Bank of India, the capital market is regulated by Se
curities Exchange Board of India (SEBI). 3.7 STOCK EXCHANGE As indicated above,
stock exchange is the term commonly used for a secondary market, which provide a
place where different types of existing securities such as shares, debentures a
nd bonds, government securities can be bought and sold on a regular basis. A sto
ck exchange is generally organised as an association, a society or a company wit
h a limited number of members. It is open only to these members who act as broke
rs for the buyers and sellers. The Securities Contract (Regulation) Act has defi
ned stock exchange as an
Page | 49

association, organisation or body of individuals, whether incorporated or not, e

stablished for the purpose of assisting, regulating and controlling business of
buying, selling and dealing in securities. The main characteristics of a stock ex
change are: It is an organized market. It provides a place where existing and a
proved securities can be bought and sold easily. In a stock exchange, transactio
ns take place between its members or their authorized agents. All transactions a
re regulated by rules and by laws of the concerned stock exchange. It makes comp
lete information available to public in regard to prices and volume of transacti
ons taking place every day. It may be noted that all securities are not permitte
d to be traded on a recognised stock exchange. It is allowed only in those secur
ities (called listed securities) that have been duly approved for the purpose by
the stock exchange authorities. The method of trading nowadays is quite simple
on account of the availability of on-line trading facility with the help of comp
uters. It is also quite fast as it takes just a few minutes to strike a deal thr
ough the brokers who may be available close by. Similarly, on account of the sys
tem of scrip-less trading and rolling settlement, the delivery of securities and
the payment of amount involved also take very little time, say, 2 days. 3.7.1 F
UNCTIONS OF A STOCK EXCHANGE The functions of stock exchange can be enumerated a
s follows:
Provides ready and continuous market: By providing a place where list
ed securities can be bought and sold regularly and conveniently, a stock exchang
e ensures a ready and continuous market for various shares,
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debentures, bonds and government securities. This lends a high degree of liquidi
ty to holdings in these securities as the investor can encash their holdings as
and when they want.
Provides information about prices and sales: A stock exchang
e maintains complete record of all transactions taking place in different securi
ties every day and supplies regular information on their prices and sales volume
s to press and other media. In fact, now-a-days, you can get information about m
inute to minute movement in prices of selected shares on TV channels like CNBC,
Zee News, NDTV and Headlines Today. This enables the investors in taking quick d
ecisions on purchase and sale of securities in which they are interested. Not on
ly that, such information helps them in ascertaining the trend in prices and the
worth of their holdings. This enables them to seek bank loans, if required. Pro
vides safety to dealings and investment: Transactions on the stock exchange are
conducted only amongst its members with adequate transparency and in strict conf
ormity to its rules and regulations which include the procedure and timings of d
elivery and payment to be followed. This provides a high degree of safety to dea
lings at the stock exchange. There is little risk of loss on account of non-paym
ent or no delivery.
Helps in mobilisation of savings and capital formation: Effi
cient functioning of stock market creates a conducive climate for an active and
growing primary market. Good performance and outlook for shares in the stock exc
hanges imparts buoyancy to the new issue market, which helps in mobilising savin
gs for investment in industrial and commercial establishments. The stock exchang
es provided liquidity and profitability to dealings and investments in shares an
d debentures. It also educates people on where and how to invest their savings t
o get a fair return. This encourages the habit of saving, investment and risk-ta
king among the common people. Thus it helps mobilising surplus savings for inves
tment in corporate and government securities and contributes to capital formatio
n.
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Barometer of economic and business conditions: Stock exchanges reflect the chang
ing conditions of economic health of a country, as the shares prices are highly
sensitive to changing economic, social and political conditions. It is observed
that during the periods of economic prosperity, the share prices tend to rise. C
onversely, prices tend to fall when there is economic stagnation and the busines
s activities slow down as a result of depressions. Thus, the intensity of tradin
g at stock exchanges and the corresponding rise on fall in the prices of securit
ies reflects the investors assessment of the economic and business conditions in
a country, and acts as the barometer which indicates the general conditions of t
he atmosphere of business. Better Allocation of funds: As a result of stock mark
et transactions, funds flow from the less profitable to more profitable enterpri
ses and they avail of the greater potential for growth. Financial resources of t
he economy are thus better allocated.

3.7.2 ADVANTAGES OF STOCK EXCHANGES Having discussed the functions of stock exch
anges, let us look at the advantages which can be outlined from the point of vie
w of (a) Companies, (b) Investors, and (c) the Society as a whole. a) To the Com
panies
The companies whose securities have been listed on a stock exchange enjoy
a better goodwill and credit-standing than other companies because they are sup
posed to be financially sound.
The market for their securities is enlarged as th
e investors all over the world become aware of such securities and have an oppor
tunity to invest As a result of enhanced goodwill and higher demand, the value o
f their securities increases and their bargaining power in collective ventures,
mergers, etc. is enhanced.
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The companies have the convenience to decide upon the size, price and timing of
the issue.
(b) To the Investors:
The investors enjoy the ready availability of facility and
convenience of buying and selling the securities at will and at an opportune ti
me. Because of the assured safety in dealings at the stock exchange the investor
s are free from any anxiety about the delivery and payment problems.
Availabilit
y of regular information on prices of securities traded at the stock exchanges h
elps them in deciding on the timing of their purchase and sale.
It becomes easie
r for them to raise loans from banks against their holdings in securities traded
at the stock exchange because banks prefer them as collateral on account of the
ir liquidity and convenient valuation. (c) To the Society The availability of lu
crative avenues of investment and the liquidity thereof induces people to save a
nd invest in long-term securities. This leads to increased capital formation in
the country. The facility for convenient purchase and sale of securities at the
stock exchange provides support to new issue market. This helps in promotion and
expansion of industrial activity, which in turn contributes, to increase in the
rate of industrial growth.
The Stock exchanges facilitate realisation of financ
ial resources to more profitable and growing industrial units where investors ca
n easily increase their investment substantially.
The volume of activity at the
stock exchanges and the movement of share prices reflect the changing economic h
ealth. Since government securities are also traded at the stock exchanges, the g
overnment borrowing is highly facilitated. The bonds issued by governments, elec
tricity boards; municipal corporations and public sector
Page | 53

undertakings (PSUs) are found to be on offer quite frequently and are generally
successful. 3.7.3 LIMITATIONS OF STOCK EXCHANGES Like any other institutions, th
e stock exchanges too have their limitations. One of the common evils associated
with stock exchange operations is the excessive speculation. You know that spec
ulation implies buying or selling securities to take advantage of price differen
tial at different times. The speculators generally do not take or give delivery
and pay or receive full payment. They settle their transactions just by paying t
he difference in prices. Normally, speculation is considered a healthy practice
and is necessary for successful operation of stock exchange activity. But, when
it becomes excessive, it leads to wide fluctuations in prices and various malpra
ctices by the vested interests. In the process, genuine investors suffer and are
driven out of the market. Another shortcoming of stock exchange operations is t
hat security prices may fluctuate due to unpredictable political, social and eco
nomic factors as well as on account of rumours spread by interested parties. Thi
s makes it difficult to assess the movement of prices in future and build approp
riate strategies for investment in securities. However, these days good amount o
f vigilance is exercised by stock exchange authorities and SEBI to control activ
ities at the stock exchange and ensure their healthy functioning. 3.8 SPECULATIO
N IN STOCK EXCHANGES The buyers and sellers at the stock exchange undertake two
types of operations, one for speculation and the other for investment. Those who
buy securities primarily to earn a regular income from such investment and poss
ibly make some long-term gain on account of price rise in future are called inve
stors. They take delivery of the securities and make full payment of the price.
Such transactions are called investment transactions.
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But, when the securities are bought with the sole object of selling them in futu
re at higher prices or these are sold now with the intention of buying at a lowe
r price in future, are called speculation transactions. The main objective of su
ch transactions is to take advantage of price differential at different times. T
he stock exchange also provides for settlement of such transactions even by rece
iving or paying, as the case may be, just the difference in prices. However, now
adays stock exchanges have a system of rolling settlement. Such facility is limi
ted only to transactions of purchase and sale made on the same day, as no carry
forward is allowed. Though speculation and investment are different in some resp
ects, in practice it is difficult to say who is a genuine investor and who is a
pure speculator. Sometimes even a person who has purchased the shares as a longt
erm investment may suddenly decide to sell to reap the benefit if the price of t
he share goes up too high or do it to avoid heavy loss if the prices starts decl
ining steeply. But he cannot be called a speculator because his basic intention
has been to invest. It is only when a persons basic intention is to take advantag
e of a change in prices, and not to invest, then the transaction may be termed a
s speculation. In strict technical terms, however, the transaction is regarded a
s speculative only if it is settled by receiving or paying the difference in pri
ces without involving the delivery of securities. It is so because, in practice,
it is quite difficult to ascertain the intention. Some people regard speculatio
n as nothing but gambling and consider it as an evil. But it is not true because
while speculation is based on foresight and hard calculation, gambling is a kin
d of blind and reckless activity involving high degree of chance element. Not on
ly that, speculation is a legal activity duly recognised as a prerequisite for t
he success of stock exchange operations while gambling is regarded as an evil an
d a punishable activity. However, reckless speculation may take the form of gamb
ling and should be avoided.
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3.9 STOCK EXCHANGES IN INDIA The first organised stock exchange in India was sta
rted in Mumbai known as Bombay Stock Exchange (BSE). It was followed by Ahmedaba
d Stock Exchange in 1894 and Kolkata Stock Exchange in 1908. The number of stock
exchanges in India went up to 7 by 1939 and it increased to 21 by 1945 on accou
nt of heavy speculation activity during Second World War. A number of unorganise
d stock exchanges also functioned in the country without any formal set-up and w
ere known as kerb market. The Security Contracts (Regulation) Act was passed in
1956 for recognition and regulation of Stock Exchanges in India. At present we h
ave 23 stock exchanges in the country. Of these, the most prominent stock exchan
ge that came up is National Stock Exchange (NSE). It is also based in Mumbai and
was promoted by the leading financial institutions in India. It was incorporate
d in 1992 and commenced operations in 1994. This stock exchange has a corporate
structure, fully automated screen-based trading and nation-wide coverage. Anothe
r stock exchange that needs special mention is Over the Counter Exchange of Indi
a (OTCEI). It was also promoted by the financial institutions like UTI, ICICI, I
DBI, IFCI, LIC etc. in September 1992 specially to cater to small and medium siz
ed companies with equity capital of more than Rs.30 Lakhs and less than Rs.25 Cr
ores. It helps entrepreneurs in raising finances for their new projects in a cos
t effective manner. It provides for nationwide online ring less trading with 20
plus representative offices in all major cities of the country. On this stock ex
change, securities of those companies can be traded which are exclusively listed
on OTCEI only. In addition, certain shares and debentures listed with other sto
ck exchanges in India and the units of UTI and other mutual funds are also allow
ed to be traded on OTCEI as permitted securities. It has been noticed that, of l
ate, the turnover at this stock exchange has considerably reduced and steps have
been afoot to revitalise it. In fact, as of now, BSE and NSE are the two Stock
Exchanges, which enjoy nation-wide coverage and handle most of the business in s
ecurities in the country.
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3.10 REGULATIONS OF STOCK EXCHANGES As indicated earlier, the stock exchanges su

ffer from certain limitations and require strict control over their activities i
n order to ensure safety in dealings thereon. Hence, as early as 1956, the Secur
ities Contracts (Regulation) Act was passed which provided for recognition of st
ock exchanges by the central Government. It has also the provision of framing of
proper bylaws by every stock exchange for regulation and control of their funct
ioning subject to the approval by the Government. All stock exchanges are requir
ed submit information relating to its affairs as required by the Government from
time to time. The Government was given wide powers relating to listing of secur
ities, make or amend bylaws, withdraw recognition to, or supersede the governing
bodies of stock exchange in extraordinary/abnormal situations. Under the Act, t
he Government promulgated the Securities Regulations (Rules) 1957, which provide
d inter alia for the procedures to be followed for recognition of the stock exch
anges, submission of periodical returns and annual returns by recognised stock e
xchanges, inquiry into the affairs of recognised stock exchanges and their membe
rs, and requirements for listing of securities. 3.11 ROLE OF SEBI As part of eco
nomic reforms programme started in June 1991, the Government of India initiated
several capital market reforms, which included the abolition of the office of th
e Controller of Capital Issues (CCI) and granting statutory recognition to Secur
ities Exchange Board of India (SEBI) in 1992 for: (a) Protecting the interest of
investors in securities; (b) Promoting the development of securities market; (c
) Regulating the securities market; and (d) Matters connected there with or inci
dental thereto. SEBI has been vested with necessary powers concerning various as
Regulating the business in stock exchanges and
pects of capital market such as:
any other securities market;
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Registering and regulating the working of various intermediaries and mutual fund
s; Promoting and regulating self regulatory organisations; Promoting investors e
ducation and training of intermediaries; Prohibiting insider trading and unfair
trade practices; Regulating substantial acquisition of shares and takeover of co
mpanies; As part of its efforts to protect investors interests, SEBI has initiate
d

many primary market reforms, which include improved disclosure standards in publ
ic issue documents, introduction of prudential norms and simplification of issue
procedures. Companies are now required to disclose all material facts and risk
factors associated with their projects while making public issue. All issue docu
ments are to be vetted by SEBI to ensure that the disclosures are not only adequ
ate but also authentic and accurate. SEBI has also introduced a code of advertis
ement for public issues for ensuring fair and truthful disclosures. Merchant ban
kers and all mutual funds including UTI have been brought under the regulatory f
ramework of SEBI. A code of conduct has been issued specifying a high degree of
responsibility towards investors in respect of pricing and premium fixation of i
ssues. To reduce cost of issue, underwriting of issues has been made optional su
bject to the condition that the issue is not undersubscribed. In case the issue
is under-subscribed i.e., it was not able to collect 90% of the amount offered t
o the public, the entire amount would be refunded to the investors. The practice
of preferential allotment of shares to promoters at prices unrelated to the pre
vailing market prices has been stopped and private placements have been made mor
e restrictive. All primary issues have now to be made through depository mode. T
he initial public offers (IPOs) can go for book building for which the price ban
d and issue size have to be disclosed. Companies with dematerialized shares can
alter the par value as and when they so desire. As for measures in the secondary
market, it should be noted that all statutory powers to regulate stock exchange
s under the Securities Contracts
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(Regulation) Act have now been vested with SEBI through the passage of securitie
s law (Amendment) Act in 1995. SEBI has duly notified rules and a code of conduc
t to regulate the activities of intermediaries in the securities market and then
registration in the securities market and then registration with SEBI is made c
ompulsory. It has issued guidelines for composition of the governing bodies of s
tock exchanges so as to include more public representatives. Corporate membershi
p has also been introduced at the stock exchanges. It has notified the regulatio
ns on insider trading to protect and preserve the integrity of stock markets and
issued guidelines for mergers and acquisitions. SEBI has constantly reviewed th
e traditional trading systems of Indian stock exchanges and tried to simplify th
e procedure, achieve transparency in transactions and reduce their costs. 3.12 E
MERGENCE OF FINANCIAL SERVICES INDUSTRY IN INDIA Services sector industry has st
arted gaining large scale momentum since the process of liberalization in 1991.P
rior to its contribution to GDP was around 40 percent, but since 1992 it has bee
n grown rapidly and reached a value of 51 percent GDP. Contribution of service s
ector to GNP in advanced counties like USA is as high as 75%.In India many innov
ative financial products and services like credit cards, ATMs, consumer finance,
venture financing have been emerging since 1980s And these financial services h
ave become an integral component of Indian financial system. This integration is
largely attributed to the liberalization of economic policies and deregulation
that led to economic changes, development and contemporary evolution of capital
market and financial disintermediation. The far reaching changes in the Indian e
conomy since liberalization in the early 1990s have had a deep impact on the Ind
ian financial sector. The financial sector has gone through a complex and someti
mes painful process of restructuring, capitalizing on new opportunities as well
as responding to new Challenges. During the last decade, there has been a broade
ning and
Page | 59

deepening of financial markets. Several new instruments and products have been i
ntroduced. Existing sectors have been opened to new private players. This has gi
ven a strong impetus to the development and modernization of the financial secto
r. New players have adopted international best practices and modern technology t
o offer a more sophisticated range of financial services to corporate and retail
customers. This process has clearly improved the range of financial services an
d service providers available to Indian customers. The entry of new players has
led to even existing players upgrading their product offerings and distribution
channels. This continued to be witnessed in 2002-03 across key sectors like comm
ercial banking and insurance, where private players achieved significant success
. These changes have taken place against a wider systemic backdrop of easing of
controls on interest rates and their realignment with market rates, gradual redu
ction in resource pre-emption by the government, relaxation of stipulations on c
oncessional lending and removal of access to concessional resources for financia
l institutions. Over the past few years, the sector has also witnessed substanti
al progress in regulation and supervision. Financial intermediaries have gradual
ly moved to internationally acceptable norms for income recognition, asset class
ification, and provisioning and capital adequacy. This process continued in 2002
-03, with RBI announcing guidelines for risk-based supervision and consolidated
supervision. While maintaining its soft interest rate stance, RBI cautioned bank
s against taking large interest rate risks, and advocated a move towards a float
ing rate interest rate structure. The past decade was also an eventful one for t
he Indian capital markets. Reforms, particularly the establishment and empowerme
nt of securities and Exchange Board of India (SEBI), market-determined prices an
d allocation of resources, screen-based nation-wide trading, dematerialization a
nd electronic transfer of securities, rolling settlement and derivatives trading
have greatly improved both the regulatory framework and efficiency of trading a
nd settlement.
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On account of the subdued global economic conditions and the impact on the India
n economy of the drought conditions prevailing in the country, 2002-03 was a sub
dued year for equity markets. Despite this, the National Stock Exchange (NSE) an
d the Bombay Stock Exchange (BSE) ranked third and sixth respectively among all
exchanges in the world with respect to the number of transactions. The year also
witnessed the grant of approval for setting up of a multi commodity exchange fo
r trading of various commodities. The US$ 28 billion Indian financial sector has
grown at around 15 per cent and has displayed stability for the last several ye
ars, even when other markets in the Asian region were facing a crisis. This stab
ility was ensured through the resilience that has been built into the system ove
r time. The financial sector has kept pace with the growing needs of corporate a
nd other borrowers. Banks, capital market participants and insurers have develop
ed a wide range of products and services to suit varied customer requirements. T
he Reserve Bank of India (RBI) has successfully introduced a regime where intere
st rates are more in line with market forces. Financial institutions have combat
ed the reduction in interest rates and pressure on their margins by constantly i
nnovating and targeting attractive consumer segments. Banks and trade financiers
have also played an important role in promoting foreign trade of the country. H
ere we will study the three industries with respect to India.
Page | 61

CHAPTER 4 ANALYSIS & INTERPRETATIO N

Page | 62

Data analysis and interpretation Table 4.1: Gender wise classification of Respon
dents Gender Number of Percentage (%) 80 20 100
Respondents Male 200 Female 50 Total 250 Interpretation:
Table 4.1 shows the Gender wise classification of Respondents. It was found that
80% of the Respondents are men and the rest are females. Generally males bear t
he financial responsibility in Indian society, and therefore they have to make i
nvestment decisions to fulfil the financial obligations. On the other hand femal
es are not involved in such activities as majority of them are busy with their h
ousehold activities. Also there are very less houses which depend on a female in
come most of them are male dominated households. Hence investment activities are
more seen in males than females.
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Figure 4.1: Gender wise classification of Respondents Table 4.2: Age wise classi
fication of Respondents Age( in years) Below 35years 36-50years 51-60years above
60years Total Interpretation: Table 4.2 shows the Age wise classification of Re
spondents. When it comes to age, it was found that 37% are young i.e. of age gro
up below 35 years and 53% of them are in the age group of 35 to 50. Other than t
hese 7% of them belong to age group of 51 to 60 and rest them belongs to age gro
up above 60. This shows that age group of 35 years an above are more interested
in investments while people above 51 years make less investments as most of them
would retire at age of 60 and would start planning for retirement. Number of Re
spondents 92 133 17 8 250 Percentage (%) 36.7 53.3 6.7 3.3 100
Page | 64

Figure 4.2: Age wise classification of Respondents

Table 4.3: Classification of Respondents on the basis of their Marital Status Ma
rital status Single Married Total Interpretation: Table 4.3 shows classification
of Respondents on the basis of their Marital Status. It was found that marital
status of 78% of the Respondents was found to be married and the rest 22% are un
married. This is because a married individual is considered to have dependents s
o they are involved in making financial investments. Whereas Respondents who are
unmarried mostly invest to generate wealth but they do not have any financial r
esponsibility. Number of Respondents 55 195 250 Percentage (%) 22 78 100
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Figure 4.3: Classification of Respondents on the basis of their Marital Status

Table 4.4: Classification of Respondents on basis of Occupation Occupation Gover
nment Employee Businessman Private Sector Student Others Total Interpretation: T
able 4.4 shows classification of Respondents on basis of Occupation. From the ab
ove graph indicates that 36% of the Respondents are working in private sector, 2
9% of them are government employees, 28% of them are self employed, 2% of them a
re students and rest are working in other sectors. Number of Respondents 73 70 9
0 5 12 250 Percentage (%) 29 28 36 2 5 100
Page | 66

Respondents who work in private sectors are involved in investments as the incom
e would be lesser in private sectors.
Figure 4.4: Classification of Respondents on basis of Occupation Table 4.5: Clas
sification of Respondents on basis of Annual Income Annual Income Below 2 Lakhs
2 Lakhs 4 Lakhs 4 Lakhs 6 Lakhs 6 Lakhs 8 Lakhs above 8 Lakhs Total Interpretati
on: Table 4.5 shows the classification of Respondents on basis of Annual Income.
It was found that 48% of Respondents with annual earnings above 8 Lakhs are int
erested in investments because their savings are more which they invest to gener
ate wealth, 23% of them are earning 4 to 6 Lakhs annually, the other 25% are ear
ning between 6 to 8 Lakhs in a year, 4% of them earn 2 to 4 Lakhs in an year but
there were no respondents with annual income below 2 Lakhs as they do not have
savings to invest.
Page | 67
Number of Respondents 0 10 58 61 121 250
Percentage (%) 0 4 23.3 24.3 48.4 100

Figure 4.5: Classification of Respondents on basis of Annual Income Table 4.6: C

lassification of Respondents on basis of Education Level Education Level Under G
raduate Graduate Post Graduate and above Total Interpretation: Table 4.6 shows t
he classification of Respondents on basis of Education Level. It indicates that
47% of the Respondents covered in the study are postgraduates; 43% Respondents a
re graduates and 10% of the Respondents are undergraduates. Investors with post
graduate degree would be more exposed to market situation which make them more i
nterested in investments. Also graduates would have fair knowledge about investm
ents. Whereas Respondents who are undergraduates mostly do not invest due to unf
amiliarity to investment avenues or unavailability if information about investme
nts. Number of Respondents 25 108 117 250 Percentage (%) 10 43.3 46.6 100
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Figure 4.6: Classification of Respondents on basis of Education Level Table 4.7:

Classification of Respondents on basis Influence on Investment Decision Investm
ent Decisions are Taken on own initiative Taken on own initiative but with help
from an expert Made by expert on investors behalf Total Interpretation: Table 4.
7 shows classification of Respondents on basis Influence on Investment Decision.
It was found that most Respondents tend not to depend upon expert advice and he
lp while making investment decisions. However, the majority of the Respondents i
.e. 74% make investment decisions without the help and advice from experts; only
18% investors consult some experts, for advice in investment decisions. And the
rest of them allow the expert to take decision on their behalf. Number of Respo
ndents 185 45 20 250 Percentage (%) 74 18 8 100
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Figure 4.7: Classification of Respondents on basis Influence on Investment Decis

ion Table 4.8: Classification of Respondents on the basis of Regularity in makin
g Investment Decisions Regularity of Investment Decisions Frequently Seldom Tota
l Interpretation: Table 4.8 shows the classification of Respondents on the basis
of Regularity in making Investment Decisions. Most of the Respondents i.e. 59%
of total sample make investment decisions on a regular basis while rest 41% does
not invest regularly. Those who are familiar with the working of investments wo
uld invest more frequently than those who do not have much knowledge about inves
tments. Number of Respondents 148 102 250 Percentage (%) 59.3 40.7 100
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Figure 4.8: Classification of Respondents on the basis of Regularity in making I

nvestment Decisions
Table 4.9: Classification of Respondents on the basis of Objectives of Investmen
t Plan Objective of investment Plan Preserve capital and generate income Generat
e moderate capital growth with some income Generate aggressive capital growth ov
er long-term Generate long-term capital growth Total Interpretation: 27 250 11.1
100 Number of Respondents 105 77 41 Percentage (%) 42 30.6 16.3
Table 4.9 shows the classification of respondents on the basis of Objectives of
Investment Plan. Based on this table, we can conclude that the investors
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objective of investment plan is capital appreciation or balance of capital appre

ciation and current income. It is clear that investors invest to accumulate weal
th rather as an avenue to supplement their income.
Figure 4.9: Classification of Respondents on the basis of Objectives of Investme
nt Plan Table 4.10: Classification of Respondents on the basis of Factors Influe
ncing an Investment Decision Factors Influencing an Investment Decision Risk Rat
e of return Tax shelter Marketability Convenience Total Interpretation: Number o
f Respondents
63 90 35 43 20 25 36 14 17 8
Percentage (%)
250
100
Table 4.10 shows the classification of Respondents on the basis of Factors consi
dered before making an Investment. Out of all majorities of the Respondents i.e.
36% prefer to invest where there is high return. 25% of the Respondents look fo
r risk involved in the investment, 14% of the Respondents invest in those avenue
s wherein they will get tax benefit. 17% of Respondents look for marketability a
nd the rest look for ease with which the investment can be made.
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Figure 4.10: Classification of Respondents on the basis of Factors Influencing a

n Investment Decision Table 4.11: Classification of Respondents on basis of Pref
erred Investment Avenues Investment Avenues Fixed Deposits Insurance schemes Equ
ities Mutual Funds schemes Real estate Commodities/ Derivatives Total Interpreta
tion: Number of Respondents 67 64 11 60 24 24 250 Percentage (%) 26.8 25.6 4.4 2
4 9.6 9.6 100
Table 4.11 shows classification of Respondents on basis of Preferred Investment
Avenues. It can be concluded that the Respondents prefer FDs/Bonds/PPFs avenues t
han insurance schemes next to mutual funds, equities and derivatives. It was int
eresting to know that Indian individual investors still prefer to invest their s
urplus amount in risk free investment avenues next to insurances schemes. It con
firms that Indian investors are conservative investors.
Page | 73

Figure 4.11: Classification of Respondents on basis of Preferred Investment Aven

ues Table 4.12: Classification of Respondents on the basis of Industry preferred
Industry Financial Corporations Cement Automobile IT Banking Telecommunication
Agriculture Manufacturing Others Total Interpretation: Table 4.12 shows the clas
sification of Respondents on the basis of Industry preferred by them for Investi
ng. It is found that 21% of Respondents prefer financial service, 18% of them pr
efer IT sector, 10% of them prefer automobile industry, 9% of them prefer manufa
cturing and telecommunication each, 7% of them prefer banking followed by cement
and agriculture industries and rest 19% Number of Respondents 53 13 25 45 18 23
5 23 48 250 Percentage (%) 21 5 10 18 7 9 2 9 19 100
Page | 74

prefer other industries to invest their funds. Majority of Respondents prefer fi

nancial services to invest because it stable industry and fetch more returns.
Figure 4.12: Classification of Respondents on the basis of Industry preferred Ta
ble 4.13: Classification of Respondents on the basis of Time Horizon for Investm
ent Investment Time Horizon Below 1year 1-3 years 4-9 years Above 10 years Total
Interpretation: Table 4.13 shows the classification of Respondents on the basis
of Time Horizon for Investment. From the above table we can interpret that majo
rity of the Respondents i.e. 46% of the total sample invest for less than 1 year
, 33% of them invest for time period of 1 to 3 years, 19% of them invest for per
iod of 4 to 9 years and the rest of them i.e. 2% of them invest for long term i.
e. more than 10 years. It is found that most of the Respondents want to make mon
ey quickly hence they invest for a short period of below 1year. Number of Respon
dents 115 82 48 5 250 Percentage (%) 46 33 19 2 100
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Figure 4.13: Classification of Respondents on the basis of Time Horizon for Inve
stment Table 4.14: Classification of Respondents on the basis of Knowledge about
Financial Terms Knowledge about Financial Terms Excellent Very good Average Goo
d Satisfactory Total Interpretation: Number of Respondents 107 70 38 27 8 250 Pe
rcentage (%) 42.7 27.8 15.1 11.3 3.1 100
Table 4.14 shows classification of Respondents on the basis of Knowledge about F
inancial Terms. Majority of the Respondents have excellent knowledge of financia
l terms, 28 % have good knowledge, 15% have average knowledge, 11 % have good kn
owledge rest 3% have fair knowledge about investment.
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Figure 4.14: Classification of Respondents on the basis of Knowledge about Finan

cial Terms Table 4.15: Classification of Respondents on basis of Sources of Inve
stment Information Sources of Investment Information News Paper/ Magazines Elect
ronic Media (T.V) Peer group/ Friends Broker/ Financial Advisor Internet Total I
nterpretation: Number of Respondents 75 25 44 50 46 250 Percentage (%) 30 10 17.
6 20 18.4 100
Table 4.15 shows the classification of Respondents on basis of Sources of Invest
ment Information. Most of the Respondents get their information related to inves
tment through print media (News paper/ Business news paper/ Magazines) next to e
lectronic media (TV- NDTV Profit, CNBC and some business news channels). This co
uld be because print media is easy and readily accessible investment information
when compared to the other sources of investment
Page | 77

information whereas some other Respondents prefer brokers to get information abo
ut investment.
Figure 4.15: Classification of Respondents on basis of Sources of Investment Inf
ormation Table 4.16: Classification of Respondents on basis of Risk Tolerance Le
vel Risk Tolerance Level Low (Category A) Medium (Category B) High (Category C)
Total Interpretation: No. of Respondents 102 63 85 250 Percentage (%) 41 25 34 1
00
Table 4.16 shows the classification of Respondents on basis of Risk Tolerance Le
vel. From the table 4.16 we can conclude that 41% of Respondents are preferring
portfolio with less risk, 34% of them prefer highly risky portfolio with high re
turns and rest of them i.e. 25 % prefer portfolio with moderate risk. Indian inv
estors are still conservative in nature and avoid taking huge risk while investi
ng their funds.
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Figure 4.16: Classification of Respondents on basis of Risk Tolerance Level

HYPOTHESIS: The relationship between important factors has been analyzed with th
e help of Chi-Square Test. The following pairs have been analyzed: a) Gender and
Risk Tolerance: Gender and the Risk Tolerance Level of an investor are two inde
pendent attributes. The relationship between the Gender and Risk Tolerance of in
vestors can be presented with the help of following table and diagram: Table 4.1
7: Relationship between Gender and Risk Tolerance of Respondents Gender/ Risk To
lerance Level Male Female Total Low risk 80 22 102 Moderate risk 52 12 64 High r
isk 68 16 84 Total 200 50 250
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Interpretation: Table 4.17 shows the relationship between Gender and Risk Tolera
nce of Respondents. Let us consider, H0: Gender and Risk Tolerance of Respondent
s are independent. H1: Gender and Risk Tolerance of Respondents are dependent .
Conducting chi square test at 5% level of significance, it is found that 2 = 0.2
658 as the omputed value whih is very less than the table value 5.991 so we a
ept H0. Hene we an onlude that Gender and Risk Tolerane of an investor are
two independent attributes. Generally, it is onsidered that women tend to be r
isk averse in omparison with men.
Figure 4.17: Relationship between Gender and Risk Tolerane of Respondents
Page | 80

b) Age and Investment Avenues: Age of investor and the Investment Avenues prefer
red by an investor are two independent attributes. The relationship between the
Age and Investment Avenues preferred by the investors an be presented with the
help of following table and diagram: Table 4.18: Relationship between Age and In
vestment Avenues preferred by the Respondents
Interpretation:
Page | 81

Table 4.18 shows the relationship between Age and Investment Avenues preferred b
y the Respondents. Let us take, H0: Age and Preferred Investment Avenues by inve
stors are independent. H1: Age and Preferred Investment Avenues by investors are
dependent . Conduting hi square test at 5% level of signifiane, it is found
that 2 = 3.889 i.e. 4 approx but the omputed value is very less than the table
value 24.996 so we aept H0. Hene null hypothesis stands and we an onlude
that age and preferred investment avenues by the investors are two independent a
ttributes of the investor.
Figure 4.18: Relationship between Age and Investment Avenues preferred by the Re
spondents
Page | 82

) Inome and Investment Avenues: There is no signifiant relationship between t

he Inome of an investor and the Investment Avenues preferred by the investors.
The relationship between Inome and Investment Avenues preferred by the investor
s an be presented with the help of following table and diagram: Table 4.19: Rel
ationship between Inome and Investment Avenues preferred by the Respondents
Page | 83

Interpretation: Table 4.19 shows the relationship between Inome and Investment
Avenues preferred by the Respondents. Let us onsider, H0: There is no signifia
nt relationship between Inome and Investment Avenues preferred by investors. H1
: There is signifiant relationship between Inome and Investment Avenues prefer
red by investors. Conduting hi square test at 5% level of signifiane, it is
found that 2 = 1.499662 but the omputed value is very less than the table value
31.410 so we aepts H0. Hene the null hypothesis stands and we an onlude t
hat there is no signifiant relationship between Inome and Investment Avenues p
referred by the investors.
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Figure 4.19: Relationship between Inome and Investment Avenues preferred by the
Respondents
d) Age and Time Horizon: The relationship between Age of investors and Time Hori
zon for investment an be presented with the help of following table and diagram
: Table 4.20: Relationship between Age of Respondents and Time Horizon for inves
tment Age/
Page | 85

Investment Below 1 1-3 years Time Horizon Below 35years 36-50years 51-60years ab
ove 60years Total Interpretation: year 43 62 7 3 115 31 44 5 2 82
4-9 years
Above 10 Total years
17 25 4 2 48
1 2 1 1 5
92 133 17 8 250
Table 4.20 shows the relationship between Age of Respondents and Time Horizon fo
r investment. Let us take, H0: Age of investors and Time Horizon for investment
has no signifiant relation H1: Age of investors and Time Horizon for investment
has a signifiant relation Conduting hi square test at 5% level of signifian
e, it is found that 2 = 7.047 as the omputed value whih is very less than the
table value 16.919 so we aept H0. Hene null hypothesis stands and we an on
lude that Age of investors and Time Horizon has no signifiant relation with ea
h other.
Page | 86

Figure 4.20: Relationship between Age of Respondents and Time Horizon for Invest
ment
Page | 87

e) Age and Risk Tolerane: The relationship between Age and Risk Tolerane of th
e investors an be presented with the help of following table and diagram: Table
4.21: Relationship between Age and Risk Tolerane of the Respondents Age/ risk
tolerane level Below 35 years 35-50 years 51-60 years Above 60 years Total Inte
rpretation: Table 4.21 shows the relationship between Age and Risk Tolerane of
the Respondents. Let us onsider, H0: Age and Risk Tolerane of the investors is
independent. H1: Age and Risk Tolerane of the investors is dependent. Conduti
ng hi square test at 5% level of signifiane, it is found that 2 = 0.3333 as t
he omputed value whih is very less than the table value 12.592 so we aept H0
. Hene null hypothesis stands and we an onlude that Age and Risk Tolerane o
f the Respondents are two independent attributes of the investor. Low risk 38 55
6 3 102 Moderate risk 23 33 5 2 63 31 45 6 3 85 92 133 17 8 250 High risk Total
Page | 88

Figure 4.21: Relationship between Age and Risk Tolerane of the Respondents
Page | 89

CHAPTER 5 FINDINGS & SUGGESTION S

Page | 90

5.1

FINDINGS
In the present projet, an attempt is made to study the investment harateristi
s of Indian investors. Based on the data olleted and analysed about the inves
tment preferenes of the investors, the following findings are given. The study
reveals that male investors dominate the investment market in India. It is found
that most of the investors belong to the age group of below 35 years and 35 to
50 years indiating youngsters and the middle aged people are predominant in the
finanial investment setor. Most of the investors possess higher eduation qua
lifiation like graduation and above. Majority of respondents are working in pri
vate setor organisations as ompared to government organisations. As per the ge
neral pereption, it is found respondents with higher inome groups like inome
above 8 Lakhs were found to invest more beause of their large portions of savin
gs. The investors deisions are based on their own initiative. Speifi invest
t pattern was noted in a majority of the people who partiipated in the study. R
espondents usually prefer to invest frequently. The objetive of investment was
either apital appreiation or balane of apital appreiation and urrent inom
e. Investors usually invest their funds so as to earn wealth. Investors prefer t
o invest their funds in avenues like PPF/FD/Bonds next to insurane and mutual f
unds sheme. Most preferred industries for investment are finanial servies ban
king and information tehnology.
Page | 91


Most of the respondents preferred to invest for a short period that is less than
1 year. Some of them preferred to invest for a time period of 1-3 years.

With referene to the objetive of investment, most of the respondents preferred

high returns, followed by risk, tax shelter, onveniene and marketability.

Most of the investors get their information related to investment through print
media like business newspapers and magazines while others prefer to get informat
ion from brokers and eletroni media like TV.

Most of the investors prefer to invest in to less risky investments. Very less p
roportion of respondents preferred risky portfolios. Indian investors are onser
vative in nature and prefer to invest in less risky avenues. Majority of the inv
estors have moderate knowledge about finanial terms related to investment. Gend
er and the risk tolerane level of the investor are independent attributes of th
e investor. It is found from the analysis of data that inrease in age derease
the risk tolerane level. It is revealed from the study that age of investors in
dependent of preferred investment avenue. Inome of investors and investment ave
nues preferred by them are two independent attributes of the investor. Age of in
vestors and time horizon for whih they invest are two independent attributes of
the investor. Age and risk tolerane of the investors are two independent attri
butes of the investor.
Page | 92

5.2
SUGGESTIONS
The traditional finane theories assume that investors are rational but they are
unable to explain the behaviour and priing of the stok market ompletely. Des
pite loads of information popping from all diretions, it is not the alulation
s of finanial wizards, or ompanys performane or widely aepted riterion of s
tok performane but the investors irrational emotions like overonfidene, fear,
risk aversion, et., seem to deisively drive and ditate the fortunes of the m
arket. Many researh studies have validated the relationship between a dependent
variable i.e., risk tolerane level and independent variables suh as demograph
i harateristis of an investor. Hene, in the present projet report an attem
pt has been made to study the relationship between risk tolerane level and demo
graphi harateristis of Indian investors. Based on the analysis of data, the
following suggestions are given. It is evident from the study that investors lak
knowledge of the pros and ons of various investment avenues. Hene it is sugge
sted that investors are to be eduated about various investment avenues, seleti
on of shemes based on their objetives, their risk tolerane, importane of div
ersifiation and so on to whih will in turn help in effiient investment rather
impulsive. The analysis of data learly indiates that the investors investment
behaviour is independent of their demographi fators. Therefore it is suggested
that the shemes an be designed based on mathing the objetives of the invest
ment rather based on demographi fators in order to motivate investors. The pri
mary objetive of most of the respondents is maximise return through apital app
reiation as well as regular returns. Hene, the investment avenues that offer 
apital appreiation and dividend inome like equity shares are more attrative t
o the investors. Therefore various shemes an be designed that inludes equity
investment.
Page | 93


Most of the respondents hesitate to invest their money through online mode, so i
t is preferred to ontat the investors through the distributors and finanial a
dvisers besides online servies.

All the investors prefer to maximise their returns and minimise the risk. Even n
ow fixed deposits and insurane shemes are more famous among Indian investors.
It is suggested that the investors have arefully onstrut their portfolios aft
er doing fundamental analysis and through proper diversifiation.

It always better that the investors follow a systemati investment proess to in

vest their money. Investment avenues are to be hosen based on their objetives
and risk preferenes whih would result in risk return trade off.
Page | 94

CHAPTER 6 CONCLUSION
CONCLUSION
Page | 95

Investment is putting money into something with the expetation of profit. More
speifially, investment is the ommitment of money or apital to the purhase o
f finanial instruments or other assets so as to gain profitable returns in the
form of interest, dividends, or appreiation of the value of the instrument. Inv
estment is involved in many areas of the eonomy, suh as business management an
d finane whether for households, firms, or governments. Investment omes with t
he risk of the loss of the prinipal sum. The investment that has not been thoro
ughly analyzed an be highly risky with respet to the investment owner beause
the possibility of losing money is not within the owner s ontrol. This study ha
s tried addressing the Investment harateristis of Indian investors. Beause of
time limit only 250 respondents are taken for the study. A survey was onduted
to get knowledge of fators whih influene Indian investors investment deisions
. This study was an attempt to understand the harateristis of Indian investor
s. This study is limited to Indian investors only but the study an be extended
to other investors also. The study an be extended to global investors investment
behaviour. There is also a sope of a omparative study whih an be done betwe
en Indian investors investment behaviour with the global investors behaviour. Du
e to time limitation this study was restrited to only demographi harateristi
s but the study an be done with onsidering other fators also.
Page | 96

BIBLIOGRAPHY
Page | 97

BIBLIOGRAPHY
Books C K Kothari, Researh Methodology, Wishwa Prakashan Publishing, 1996, Seo
nd Edition Herbert B. Mayo, Investments, Chennai Miro Print pvt. Ltd Chennai, 2
006 Punithavathi Pandyan, Seurity Analysis and Portfolio Management , Tata M G
raw-Hill Publishing Company Ltd , New Delhi,2008 Third Edition Prasanna Delhi,20
08 Prasanna Chandra, Finanial Management, Tata M Graw Hill Chandra, Investment
Analysis And Port Folio
Management, Tata M Graw-Hill Publishing Company Ltd , New
Publishing Company Ltd , New Delhi2007 Journals

Asian Journal Of Management Global Journal of Finane and Management Indian Jour
nal of Finane The IUP Journal of Behavioural Finane, Barberis, N. and Thaler,
R. H. (2002) A Survey of Behavioural Finane

Websites Referene

www.indiafinane&investmentguide.om www.wikipedia.org www.nseindia.om
Page | 98


www.apitalmarkets.om www.bseindia.om www.finaneindia.org/artile
ANNEXURE
Page | 99

ANNEXURE
QUESTIONNAIRE I am Chitra Raveendran student of MBA from Aharya Institute of Ma
nagement and Sienes Bangalore, onduting a survey on A Study on Investment ha
rateristis of Indian investors as a part of my dissertation. I would request to
kindly fill in this questionnaire and the information given by you will be kept
highly onfidential. (Please tik mark the hoie from the option given below)
PART A 1) Name: 2) Gender: 3) Age Group: Below 35years 36-50years 51-60years abo
ve 60years Male Female
4) Please speify your marital status? Single Married
5) What is your oupation? Government Employee Businessman Self-Employed Studen
t Private Setor
Others (please speify) _____
Page | 100

6) What is your annual inome? Below 2 Lakhs 6 Lakhs 8 Lakhs 2 Lakhs 4 Lakhs abo
ve 8 Lakhs 4 Lakhs 6 Lakhs
7) Please mention your eduation level. Under Graduate PART B 1) Whih of the fo
llowing investments you have invested in? Fixed Deposits Mutual Funds shemes Co
mmodities/ Derivatives 2) Please mention the list of industries you have investe
d in. a) __________________________________ b) _________________________________
_ ) __________________________________ d) __________________________________ 3)
Whih of the following statements best desribes your main objetive of investm
ent? To preserve apital and generate inome To generate moderate apital growth
with some inome To generate aggressive apital growth over long-term To genera
te long-term apital growth 4) Your knowledge about finanial terms or aspets o
f investments is: Exellent Satisfatory 5) What is your investment time horizon
?
Page | 101
Graduate
Post Graduate and above
Insurane shemes Real estate
Equities
Very good
Average
Good

Below 1 year Above 10years

1year 3 years
4years 9years
6) How regularly do you make investment deisions? Frequently Often
7) Your investment deisions are Taken on own initiative Taken on own initiative
but with help from an expert Made by expert on your behalf
8) Whih soure do you prefer to get investment information? News Paper/ Magazin
es Eletroni Media (T.V) Peer group/ Friends Broker/ Finanial Advisor Internet
9) What is your risk appetite? High Medium Low No Risk / Safe Investments
10) If you ould hoose only one of the three portfolios haraterized below, wh
ih would you selet, given your investments are in Equities, Fixed deposits, a
sh equivalents, alternative assets?
Page | 102

Portfolio A(less risky): 25%, 50%, 25%, and 0% Portfolio B (balaned): 55%, 30%,
10%, and 5% Portfolio C (risky): 10%, 5%, 5%, 80%
Thank You
Page | 103