A

Summer Training Project Report

On
CONSUMER AWARENESS REGARDING DIFFERENT
INVESTMENT ALTERNATIVES

Submitted for partial fulfillment of requirement for the award of degree

of
MASTER OF BUSINESS ADMINISTRATION
PUNJAB TECHNICAL UNIVERSITY

By
Manoj Kumar
1537487
MBA 3rd SEMESTER
UNDER THE SUPERVISION OF
Mr. Harvinder Singh

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 DECLARATION

I Manoj kumar undersigned solemnly declare that the report of the project
work entitled CONSUMER AWARENESS REGARDING DIFFERENT
INVESTMENT ALTERNATIVES, is based my own work carried out during

the course of my study under the supervision of Mr. Harvinder Singh.

I assert that the statements made and conclusions drawn are an outcome
of the project work. I further declare that to the best of my knowledge and
belief that the project report does not contain any part of any work which has
been submitted for the award of any other degree/diploma/certificate in this
University or any other University.

Manoj Kumar
(Signature of the Candidate)

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 Roll No:
1537487CERTIFICATE BY GUIDE

This to certify that the report of the project submitted is the outcome of the
project work entitled CONSUMER AWARENESS REGARDING
DIFFERENT INVESTMENT ALTERNATIVES carried out by Manoj
Kumar bearing Roll No.:1537487 & Enrollment No.:1537487 carried by
under my guidance and supervision for the award of Degree in Master of
Business Administration of Punjab Technical University (PTU), Jalandhar,
India.

To the best of the my knowledge the report

i) Embodies the work of the candidate him/herself,
ii) Has duly been completed,
iii) Fulfils the requirement of the ordinance relating to the MBA degree of
the University and
iv) Is up to the desired standard for the purpose of which is submitted.

_______________________
(Signature of the Guide)
Name: Mr. Harvinder Singh

Designation:Assistant Prof.
Department:Management
CGC JHANJERI,MOHALI

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 CERTIFICATE BY THE EXAMINERS

CONSUMER AWARENESS REGARDING DIFFERENT INVESTMENT

ALTERNATIVES

Submitted by

<Manoj kumar > Roll No:1537487 Enrollment No.:1537487been examined by the

undersigned as a part of the examination for the award of Master of Business
Administration degree of Punjab Technical University, Jalandhar.

________________ ________________

________________ ________________

Name & Signature of Name & Signature of

Internal Examiner External Examiner

Date: Date:

Forwarded by

HOD

Department of Management

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 ACKNOWLEDGEMENT
I express my sincere thanks to my project guide Mr. Harvinder Singh for
guiding me right from the inception till the successful completion of the
project. I sincerely acknowledge him for extending his valuable guidance,
support for literature, critical review of project and the report and above all
the moral support he had provided to me with all stages of this project.

I also want to thank all the staff and employees of our organization because
without the help and support them, I cant we able to complete my training
report.

Manoj kumar

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 PREFACE

This analysis will help to strengthen investor intimacy. This analysis will also throw light on
various investment avenues available in India that will help in many ways like. The
expectations of different types of investors regarding particular service requirements can
be identified.
The common problem areas faced by the investors can be understood.
It also enhances new services initiatives.
This study will help in gaining a better understanding of what an investor looks for in
an investment option.
It can be used by the financial sector in designing better financial instrument
customized to suit the needs of the investor.
It will also help the agents and brokers in marketing the existing financial instruments.
It will provide knowledge to the investors about the various financial services provided
by the company to their investors.
It will also help the company to understand what is the requirement and expectations
of different categories of investors.

This analysis will be originated in order to empower the investors with detailed research on
various investments avenues available in India. The awareness lever of the investors about
the various investment options and what is the perception of the investors with regard to
the investments they want to make.
Hence my attempt is to cover all the organizational activities and related facts so as to have
better control over my primary subject of study. The increased significance of understanding
pivot for modern researches.

The experience which I gained by doing this project was essential at this turning point of my
career. This project is being submitted which content detailed analysis of the research under
taken by me.

The research provides an opportunity to the student to devote his\her skills knowledge and
competencies required during the technical session.

TABLE OF CONTENTS

CHAPTE PARTICULAR PAGE NO.

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R
1. INTRODUCTION OF TOPIC

PERFORMANCE APPRAISAL 8

2. INTRODUCTION OF HDFC BANK 26

3. REVIEW OF LITERATURE 30
4. RESEARCH METHODOLOGY

OBJECTIVES &RESEARCH 33
PLAN
5. ANALYSIS AND INTERPRETATION 38
6. FINDINGS & SUGGESTIONS 58
7. CONCLUSION 62
BIBLIOGRAPHY 64
ANNEXURE 65

QUESTIONNAIRE

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 CHAPTER- 1

INTRODUCTION

OF

TOPIC
DESCRIPTION ON VARIOUS
INVESTMENT ALTERNATIVES
SAVINGS ACCOUNT
As the name denotes, this account is perfect for parking your temporary savings. These
accounts are one of the most popular deposits for individual accounts. These accounts
provide cheque facility and a lot of flexibility for deposits and withdrawal of funds

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from the account. Most of the banks have rules for the maximum number of
withdrawals in a period and the maximum amount of withdrawal, but no bank enforces
these. However, banks have every right to enforce such boundaries if it is felt that the account
is being misused as a current account. At present the interest on these accounts is regulated by
Reserve Bank of India. Presently Indian banks are offering 3.50% p.a. interest rate on such
deposits.

This account gives the customer a nominal rate of interest and he can withdraw money as and
when the need arises. The position of account is depicted in a small book known as 'Pass
Book'. Such accounts should be treated as a temporary parking area because the rate
of interest is much less than Fixed Deposits. As soon as one s savings accumulate to
an amount which he can spare for a certain period of time, shift this money to Fixed
Deposit. The returns on the money kept in Savings Bank account will be less but the
freedom to withdraw is the highest.

FIXED DEPOSITS/ TERM DEPOSITS

The term "fixed" in Fixed Deposits denotes the period of maturity or tenor. Fixed
Deposit, therefore, pre plans a length of time for which the depositor decides to keep
the money with the Bank and the rate of interest payable to the depositor is decided by this
tenure. Rate of interest differs from Bank to Bank. Normally, the rate is highest for deposits
for 3-5 years. This, however, does not mean that the depositor loses all his rights over
the money for the duration of the tenor decided. Deposits can be withdrawn before the
period is over. However, the amount of interest payable to the depositor, in such cases goes
down.

Every Banks offer fixed deposits schemes with a wide range of tenures for periods from 7
days to 10 years. Therefore, the depositors are supposed to continue such Fixed Deposits for
the duration of time for which the depositor decide s to keep the money with the
bank. However, in case of need, the depositor can ask for closing the fixed deposit in
advance by paying a penalty. Soon some banks have even introduced variable interest fixed
deposits. The rate of interest in such deposits will keep on varying with the prevalent
market rates i.e. it will go up if market interest rate goes and it will come down if the market
rates fall.

Tax deduction: Banks should deduct tax at source on interest paid in excess of Rs.

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5000 per annum to any depositor. This is not per deposit but per individual. The refore if an
individual has 5 deposits and the aggregate interest earned on these is Rs. 7000 though
in each individual deposit, interest should not exceed Rs. 2000, tax must be deducted at
source.

PUBLIC PROVIDENT FUND (PPF)

PPF is a 30 year old constitutional plan of the Central Government happening with the
objective of providing old age profits security to the unorganized division workers and
self employed persons. Currently, there are almost 30 laths PPF account holders in
India across banks and post offices.

Eligibility: Any individual salaried or non-salaried can open a PPF account. He may also
pledge on behalf of a minor, HUF, AOP and BOI. Even NRIs can open PPF account. A person
can contain only one PPF account. Also two adults cannot open a combined PPF
account. The collective annual payment by an individual on account of himself his
minor child and HUF/AOP/BOI (of which individual is member) cannot exceed Rs.70,
000 or else the excess amount will be returned without any interest.

Subscription: The yearly contribution to PPF account ranges from a least of Rs.500 to
a maximum of Rs.70, 000 payable in multiple of Rs.5 either in lump sum or in
convenient instalments, not exceeding 12 in a year.

Penalty in case of non-subscription: The account will happen to obsolete if the

required minimum of Rs.500 is not deposited in any year. The amount before now
deposited will continue to earn interest but with no facility of taking loan or making
withdrawals. The account can be regularized by depositing for each year of default,
arrears of Rs.500 along with per malty of Rs.100.

Interest rate: Deposits in the account earn interest at the rate notify by the Central Govt from
time to time. Interest is designed on the lowest balance among the fifth day and last day of the
calendar month and is attributed to the account on 31st March every year. So to
derive the maximum, the deposits should be made between en 1st and 5th day of the

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month, as it also enables you to earn interest on your Savings Bank A/c for the previous
month.

Tenure: Even though PPF is 15 year scheme but the effectual period works out to 16 years i.e.
the year of opening the account and adding 15 years to it. The sum made in the 16th financial
year will not earn any interest but one can take advantage of the tax rebate.

Withdrawal: The investor is allowable to make one removal every year beginning
from the seventh financial year of an amount not more than 50% of the balance at the end of
the fourth year or the financial year immediately preceding the withdrawal, whichever is
less. This facility of making partial withdrawals provide liquidity and the withdrawn amount
can be used for any purpose.

NATIONAL SAVINGS CERTIFICATE (NSC)

National Savings Certificate (NSC) is a fixed interest, long term instrument for
investment. NSCs are issued by the Department of Post, Government of India. Since they are
backed by the Government of India, NSCs are a practically risk free avenue of investment.
They can be bought from authorized post offices. NSCs have a maturity of 6 years. They offer
a rate of return of 8% per annum. This interest is calculated every six months, and is merged
with the principal. That is, the interest is reinvested, and is paid along with the principal
at the time of maturity. For every Rs. 100 invested, you receive Rs. 160.10 at maturity.

NSCs qualify for investment under Section 80C of the Income Tax Act (IT Act). Even the
interest earned every year qualifies under Sec 80C. This means that investments in NSCs
and the interest earned on it every year, up to Rs. 1 Laky, are deductible from the
income of the investor. There is no tax deducted at source (TDS).

Features of NSC
Minimum investment Rs. 500/- No maximum limit.
Rate of interest 8% compounded half yearly.

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Rs. 1000/- grow to Rs. 1601/- in six years.
Two adults, Individuals, and minor through guardian can purchase.
Companies, Trusts, Societies and any other Institutions not eligible to purchase.
Non-resident Indian/HUF cannot purchase.
No pre-mature encashment.

POST OFFICE SAVINGS

There are various investment schemes available in post offices, like KVP (Kisan Vikas
Patra), MIS (Monthly Income Scheme) and various others. All these schemes are
completely risk-free, and you do not need to have large sum of money to start investing in
these post office schemes. Some schemes offer Tax-saving benefits and some gives tax-free
returns. So you need to find out some scheme as per your requirements.

These are some of the safe and secure investments that you can opt for. Though the
interest rates are not so high, but still you must invest some part of your money into
any of these investment instruments. It is your hard-earned money, so better play safe
and invests some part in secure funds also.

GOVERNMENT SECURITIES (G-secs)

Government securities (G-secs) are supreme securities which are issued by the Reserve
Bank of India on behalf of Government of India in lieu of the Central Government's
market borrowing program.

The term Government Securities includes:

Central Government Securities.
State Government Securities
Treasury bills

The Central Government borrows funds to finance its fiscal deficit. The market borrowing
of the Central Government is increased through the issue of dated securities and 364 days
treasury bills either by auction or by floatation of loans. In addition to the above, treasury bills

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of 91 days are issued for managing the temporary cash mismatches of the
Government.
These do not form part of the borrowing program of the Central Government.

Features
Issued at face value
No default risk as the securities carry sovereign guarantee.
Ample liquidity as the investor can sell the security in the secondary market
Interest payment on a half yearly basis on face value
No tax deducted at source
Can be held in Demat form.
Redeemed at face value on maturity
Maturity ranges from of 2-30 years.
Securities qualify as SLR investments (unless otherwise stated).

Benefits of Investing in Government Securities

No tax deducted at source
Additional Income Tax benefit u/s 80L of the Income Tax Act for Individuals
Qualifies for SLR purpose
Zero default risk being sovereign paper
Highly liquid.
Transparency in transactions and simplified settlement procedures through CSGL/NSDL.

MUTUAL FUNDS
A mutual fund is a professionally-managed firm of collective investments that pools
money from many investors and invests it in stocks, bonds, short-term money market
instruments, and/or other securities. In a mutual fund, the fund manager, who is also known as
the portfolio manager, trades the fund's underlying securities, realizing capital gains or
losses, and collects the dividend or interest income. The investment proceeds are then passed
along to the individual investors. The value of a share of the mutual fund, known as the net
asset value per share (NAV), is calculated daily based on the total value of the fund divided by
the number of shares currently issued and outstanding.
Advantages of Mutual Funds
1. Diversification
2. Professional Management

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 3. Regulatory oversight
4. Liquidity
5. Convenience
6. Transparency
7. Flexibility
8. Choice of schemes
9. Tax benefits
10. Well regulated
11. Drawbacks of Mutual Funds

Following are the few drawbacks of Mutual Funds:

1. No Guarantees
2. Fees and commissions
3. Taxes
4. Management risk

LIFE INSURANCE
Life insurance is a contract between the policy owner and the insurer, where the insure r
agrees to pay an amount of money upon the happening of the insured individual's or
individuals' death or other event, like terminal illness, critical illness. In return, the policy
owner agrees to pay a fixed amount called a premium at regular intervals or in bulge sum.

Like other insurance policies, life insurance is also a contract between the insurer and
the policy owner whereby a benefit is paid to the nominated beneficiaries if an insured
event occurs which is covered by the policy. The assessment for the policyholder is derived
not from an actual claim event. But to a certain extent it is the value derived from the
'peace of mind' experienced by the policyholder, because of the negating of adverse
financial consequences caused by the death of the Life Assured. To be a life policy the
insured event must be based upon the lives of the people named in the policy.

Advantages of a Life Insurance Policy

1. Financial Security
2. Helps to diverts States Resources for Other Purpose
3. Facilitates Economic Movements
4. Helps to Avail Tax Exemptions

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BONDS & DEBENTURES
Bonds & Debentures, these two words can be used interchangeably. In Indian markets, we use
the word bonds to indicate debt securities issued by government, semi-government
bodies and public sector financial institutions and companies. We use the word debenture
to refer to the debt securities issued by private sector companies.
Bonds- Debt securities issued by Govt. or Public sector companies
Debentures - Debt securities issued by private sector companies

In other words we can tell that a bond is a debt security, similar to an I.O.U. When you
purchase a bond, you are lending money to a government, municipality, corporation, or
Public entity known as the issuer. The issuer promises to pay you a specified rate of interest
during the life of the bond, in return for the loan. They also promise s to repay the face
value of the bond (the principal) when it matures.
Following are allowed to issue bonds
Governments
Municipalities
Variety of institutions
Corporations

Buying and Holding of Bonds: Investors can subscribe to primary issues of Corporate
and Financial Institutions (FIs). It is common practice for FIs and Corporate to raise funds for
asset financing or capital expenditure through primary bond issues. Some bonds are also
available in the secondary market. The minimum investment for bonds can either be Rs 5,000
or Rs 10,000.
However, this amount varies from issue to issue. There is no prescribed upper limit to
your investment. The duration of a bond issue usually varies between 5 and 7 years.

Selling of Bonds: Selling bonds in the secondary market has its own drawbacks. First, there is
a liquidity problem which means that it is a tough job to find a buyer. Second, even if you
find a buyer, the prices may be at a sharp discount to its intrinsic value. Third, you
are subject to market forces and, hence, market risk. If interest rates are running high,
bond prices will be down and you may well end up incurring losses. On the other
hand, Debentures are always secured.

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Debentures A debenture is similar to a bond except the securitization conditions are
different. A
debenture is generally unsecured in the sense that there are no liens or pledges on
specific assets. It is defined as a certificate of agreement of loans which is given under the
company's stamp and carries an undertaking that the debenture holder will get a fixed return
(fixed on the basis of interest rates) and the principal amount whenever the debenture matures.

Debentures vs. Bonds: Debentures and bonds are similar except for one difference bonds are
more secure than debentures. In case of both, you are paid a guaranteed interest that does
not change in value
Irrespective of the fortunes of the company. However, bonds are more secure than debentures,
but carry a lower interest rate. The company provides collateral for the loan. Moreover, in
case of liquidation, bondholders will be paid off before debenture holders.

STOCK MARKET
The first step is to understand the stock market. A share of stock is the smallest unit of
ownership in a company. If you own a share of a company s stock, you considered as
the part owner of the company.

Stock Market Trading Stock market trading consists of buying and selling of company
stocks and as well as stock derivatives. This type of trading usually takes place in a
stock exchange, in which
Companies need to be listed in order for their shares to be bought and sold. This trading
market provides with substantial earnings potential and is one among the most popular
investment options.

Working of Stock Market Stock market trading is normally done by brokers. As a result,
the first step is to seek a reliable investment broker. Stock market trading occurs at a
physical stock exchange, where
buyers and sellers of company shares meet and agree on the price at which the
transactions would materialize.

Conventional stock trading entails an investor placing an order for a specific number of

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shares of a company with his/he r broker present in the physical stock market. The
broker forwards the order to the floor clerk, who then attempts to locate a trader desire to
sell those shares. Bids are then exchanged. The transaction closes only after the buyer agrees
on the price quoted by the seller. This technique is also called open outcry, because it
involves traders crying out their bids.

Stock market trading will also takes place online. This procedure is much quicker and
less complicated than trading in the physical stock market. Online stock market trading
engrosses the real time placement of buying and selling orders for stocks. The
transaction is accomplished when the trading system is capable to match bids and a
confirmation is received.

Benefits of Stock Market Trading

1. It promotes economic growth.
2. It helps companies raise capital and handle financial issues.
3. It ensures that money is invested in businesses to enhance profit potential.
4. It helps investors realize substantial profits.

Drawbacks of Stock Market Trading:

1. It proposes lower leverage than other forms of trading, such as Forex trading.
2. The short selling of stocks is hard, because stock prices do not appreciate
significantly in a short span of time. Accordingly, there is a wait period before
you can book healthy profits.
3. It is traded for limited hours in a day.

COMMODITY TRADING
The terms commodities and futures are often used to depict commodity trading or futures
trading. It is similar to the way stocks and equities are used when investors talk
about the stock market. Commodities are the actual physical goods like gold, crude
oil, corn, soybeans, etc. Futures are contracts of commodities that are traded at a
commodity exchange like MCX. Apart from numerous regional exchanges, India has
three national commodity exchanges namely, Multi Commodity Exchange (MCX),

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National Commodity and Derivatives Exchange (NCDEX) and National Multi-
Commodity Exchange (NMCE). Forward Markets Commission (FMC) is the regulatory
body of commodity market.

It is one of a few investment areas where an individual with limited capital can make
extraordinary profits in a relatively short period of time. Many people have become very rich
by investing in commodity markets. Commodity trading has a bad name as being too risky
for the average individual. The fact is that commodity trading is only as risky as you want
to make it. Those who treat trading as a get-rich-quick scheme are likely to lose because they
have to take big risks. If you act carefully, treat your trading like a business and are
willing to settle for a reasonable return, the possibility of success is very high.

The course of trading commodities is also known as futures trading. Unlike other kinds
of investments, such as stocks and bonds, when you trade futures, you do not really
buy anything or own anything. You are speculating on the future direction of the price
in the commodity you are trading. This is like a bet on future price direction. The
terms "buy" and "sell" merely indicate the direction you expect future prices will move. If,
for example, you were speculating in wheat, you would buy a futures contract if you
thought the price would be going up in the future. You would sell a futures contract if you
thought the price of wheat would go down. For every trade, there is always a buyer
and a seller. Neither person has to own any wheat to participate. But he has to deposit
sufficient capital with a brokerage firm to insure that he will be able to pay the losses if
his trades lose money.
Working of Commodity Market: Commodity Market works Just like stock futures.
When you buy Futures, you don't have to pay the entire amount, just a fixed percentage of the
cost. This is known as the margin. Let's say you are buying a Gold Futures contract. The
minimum contract size for a gold future is 100 Gms. 100 gms of gold may be worth
Rs. 1,50,000. The margin for gold set by MCX is 3.5%. So you only end up paying Rs
5,250.

The low margin means that you can buy futures representing a large amount of gold by
paying only a fraction of the price. So you bought the Gold Futures contract when it
was Rs. 1,50,000 per 100 gms. The next day, the price of gold rose to Rs 1,60,000
per 100 gems. Rs 10,000 (Rs 1,60,000 - Rs 1,50,000) will be credited to your account. The

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following day, the price dips to Rs 1,55,000. Rs 5000 will get debited from your account (Rs
1,60,000 - Rs 1,55,000).

FOREX MARKET
Forex trading is the immediate trade of one currency and the selling of another.
Currencies are traded through an agent or dealer and are traded in pairs. For example
Euro (EUR), US dollar (USD), British pound (GBP) or Japanese Yen (JPY).

Here you are not buying anything physical; this type of trading is confused. Think of
buying a currency as buying a share of a particular country. When you purchase say
Japanese Yen, you are in effect buying a share in the Japanese financial system, as the
price of the currency is a direct reflection of what the market thinks about the current and
future health of the Japanese economy. In common, the exchange rate of a currency versus
other currencies is a reflection of the condition of that country's financial system
compared to the other countries financial system.

Unlike other financial markets like the New York Stock Exchange, the Forex spot market has
neither a physical location nor a central exchange. The Forex market is measured an Over-
the-Counter (OTC) or Interbank market, due to the fact that the entire market is run
electronically within a network of banks continuously over a 24-hour period.

Until the late 1990's only the big guys could play this game. The first requirement was
that you could trade only if you had about ten to fifty million bucks to start with Forex.
Forex was initially intended to be used by bankers and large institutions and not by
small guys. However because of the rise of the Internet, online Forex trading firms are
now able to offer trading accounts to 'retail' traders. All you need to get started is a
computer, a high-speed Internet connection, and the information.

The foreign exchange market is exclusive because of the following reasons;

Its trading volumes
The tremendous liquidity of the market
Its geographical dispersion
Its long trading hours

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The variety of factors that affect exchange rates.
The low limits of profit compared with other markets of fixed income but profits
can be high due to very great trading volumes
The use of leverage

Benefits of Forex Trading

1. Forex is the largest market.
2. No Bulls or Bears!
3. Forex trading online offers great leverage
4. Forex prices are predictable.
5. Forex trading online is commission free
6. Forex trading online is instant.

REAL ESTATE AS AN INVESTMENT OPTION

The growth curve of Indian economy is at an all time high and contributing to the
upswing is the real estate sector in particular. Investments in Indian real estate have
been strongly taking up over other options for domestic as well as foreign investors.

The boom in the sector has been so appealing that real estate has turned out to be a
convincing investment as compared to other investment vehicles such as capital and
debt markets and bullion market. It is attracting investors by offering a possibility of stable
income yields, moderate capital appreciations, tax structuring benefits and higher
security in comparison to other investment options.

A survey by the Federation of Indian Chambers of Commerce and Industry (FICCI) and
Ernst & Young has predicted that Indian real estate industry is poised to emerge as one of
the most preferred investment destinations for global realty and investment firms in the
next few years. The potential of India's property market has a revolutionizing effect on
the overall economy of India as it transforms the skyline of the Indian cities
mobilizing investments segments ranging from commercial, residential, retail, industrial,
hospitality, healthcare etc. But maximum growth is attributed to its growth from the booming
IT sector, since an estimated 70 per cent of the new construction is for the IT sector.

Real estate industry research has also thrown light on investment opportunities in the
commercial office segment in India. The demand for office space is expected to
increase significantly in the next few years, primarily driven by the IT and ITES industry
that requires an projected office space of more than 367 million sq ft till 2012-13.

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INVESTMENT IN GOLD
Gold has got lot of emotional value than monetary value in India. India is the largest
Consumer of gold in the world. In western countries, you can find most of their gold
in their
central banks. But in India, we use gold mainly as jewels. If you look at gold in a business
sense,
you will understand that gold is one of the all time best investment tool. My dear
readers,
Today I would like to discuss on investments in gold and its potential.

Indian Gold Market Current Scenario:

Size of the Gold Economy: more than Rs. 30,000 crores
Number of gold jewellery manufacturing units: 1,00,000
Number of people employed: 5,00,000
Gems & Jewellery constitute 25% of Indias exports about 10% of our import
bill constitute gold import.
Number of banks allowed importing gold: 15 (While recently this has been
liberalized, detailed notification is awaited)
Official estimates of the stock of gold in India: 9,000 tons
Unofficial estimates of the stock of gold in India: 12,000 V 14,000 tons
Gold held by the Reserve Bank of India: 358 tons
Gold production in India: 2 tons per annum.

Demand for gold in the Indian Market:

India has the highest demand for gold in the world and more than 90% of this gold is
acquired in the form of jewellery. Following are the factors influencing the demand for
gold. The movement of gold prices is one of the important variables determining demand
for gold. The increase in the irrigation, technological change in agriculture (through
mechanization and high yielding varieties), have generated large marketable surplus and
a highly skewed rural income distribution is another factors contributing to additional
demand for gold.

Supply of Gold: The main economic effects that arise from the changes in the supply
of gold can be seen against the quantum of gold that is already in existence in the economy.
The supply of gold is not up to the requirements as the production of gold is also

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coming down and demand for gold is going up very sharply.

Gold as an Investment Option:

Gold as an investment tool always gives good returns, flexibility, safety and liquidity to the
investors. Therefore as a financial consultant my advice to you all is, kindly allocate a
portion of your portfolio for gold investments. Practice the habit of buying at least one gram
of gold every month.

EMERGING INVESTMENT AVENUES

According to a study undertaken jointly by Merrill Lynch, Cap Gemini, and Ernst &
Young, High Net worth Individuals [HNIs] or wealthy investors are proactive in
portfolio management, risk manage ment, consolidation financial assets and use of
diversification strategies as actively as large institutions. HNIs are proactive in
identifying new investment options and take inputs from professional advisors in volatile
market conditions.

HNIs are dynamic in modifying their asset allocation and were among the first investors to
move from equities to fixed income during 2001-2002 period of downturn in equity markets.
They shifted back to equities when they identified favourable market trends.

Investment products and avenues

Managed products: Managed product service is the most popular investment strategy
adopted by wealthy investors globally
Real Estate: Wealthy investors have found this asset class very attractive and have
invested directly in real estate and indirectly through real estate investment trusts.
Art and passion: Wealthy investors also have their investment in art, wine, antiques,
Precious Metals: Gold and other precious metals are attractive investment options to
balance the asset allocation
Commodities: Wealthy investors have turned to commodities to offset the lower returns
from fixed income securities.
Alternative investments: Hedge funds and Private equity investments such as venture
funds are becoming increasingly popular with wealthy investors to reduce the investment
risks related to stock market fluctuations. This is because these instruments have low
correlation with equity asset class performance. Investment in non correlated assets, such as

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commodities helps to improve diversification of the portfolio amidst volatile market
conditions.

INVESTMENT IN ART
Today, we find that an increasing number of individuals are looking at alternative
investments, which provide them with a diversification away from a particular asset
class. People are willing to invest and looking for areas other than the stock market
for investing. Investing in the vintage wine, coins, stamps and Art, is now an indulgence
which gives them an opportunity to cash in on their hobbies, without having the level of
expertise that is required for other dire ct investments.

Art is being incorporated into the investor's overall asset allocation decision. The art
scene around the world is growing significantly. With more and more investors looking at art
as an alternative asset class and a store of a long term value, average annual art valuations
have outpaced average annual stock market valuations by more than three times since 2000.

HEDGE FUNDS
Over the last 15 years, hedge funds have become increasingly popular with high net
worth individuals, as well as institutional investors. The number of hedge funds has
risen by about 20% per year and the rate of growth in hedge fund assets has been even more
rapid.

A hedge fund is a private investment fund, charging a performance fee and is open to
only a limited number of investors. These funds are like mutual funds, which collect
money from investors and use the proceeds to buy stocks and bonds. They can invest on
almost any type of opportunity; in any market where in good returns are expected with low
risk levels.

Hedge Fund Risks:

Lack of transparency
Limited liquidity
Difficulty accessing quality hedge funds
Unreliable or incomplete return data
Valuation risk
Asymmetrical nature of Hedge fund returns distributions [SKEW]
Counterparty risk [Leverage]

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PRIVATE EQUITY INVESTMENTS
Is the most important funding source in the entrepreneurial marketplace? Private equity
investments contribute to the funding of around 25 times the numbe r of businesses the
venture capitalists fund each year.

Private equity investments are usually derived from a high net-worth individual who
represents an essential source of funding for early stage, high-risk ventures. It is estimated
that one-seventh of the 300,000 + start/early growth firms in the US receive funding
from angel investors. This translates into over $20 billion of investment in approximately
50,000 deals each year. This investment group exceeds venture capital sources which are
estimated at $5 - $7 billion spread over 1,000 venture capital investments each year.

A typical profile of a private equity investor:

Is someone that prefers to invest within one day of travel?
Is very well educated
Tends to invest collectively within a group of other private equity investors
Usually invests within the dollar range of $10,000 - $500,000, averaging $230,000
Makes one investment every two years

Private equity investors have proven to be the single most important players in the
entrepreneurial marketplace. Private capital investors fund thirty to forty times as many
entrepreneurial companies as the entire venture capital industry and estimates put the
total amount between $20 - $60 billion annually.

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 CHAPTER-2
INDUSTRY
PROFILE

Indian financial industry is considered as one of the strongest financial sectors among
the world markets. Many industry experts may give various reasons for such Indian
financial industry reputation, but there is only one answer which no one can deny, is
the effective control and governance of the country s supreme monetary authority the
RESERVE BANK OF INDIA (RBI).
Financial sector in India has experienced a better environment to grow with the
presence of higher competition. The financial system in India is regulated by independent
regulators in the field of banking, insurance, and mortgage and capital market. Government of
India plays a significant role in controlling the financial market in India.
Ministry of Finance, Government of India controls the financial sector in India. Every

Page | 25
year the finance ministry presents the annual budget on 28th February. The Reserve
Bank of India is an apex institution in controlling banking system in the country. Its monetary
policy acts as a major weapon in India's financial market.

Various governing bodies in financial sector:

1. RBI - Reserve Bank of India is the supreme authority and regulatory body for
all the monetary transactions in India. RBI is the regulatory body for various
Banking and Non Banking financial institutions in India.
2. SEBI - Securities and Exchange Board of India is one of the regulatory
authorities for India's capital market.
3. IRDA Insurance regulatory and development authority in India regulates all the

insurance companies in India.

4. AMFI Association of mutual funds in India regulates all the mutual fund companies in
India.
5. FIPB Foreign investments promotion board regulates all the foreign direct investments
made in India.

Ministry of housing is planning to establish a real estate regulatory and

governing body by the end of financial year 2010 - 11.
Investments in gold is governed by the world gold council, in India we
do not have any regulatory authority for investments in gold.
Ministry of Finance, Government of India has a control over all the
financial bodies in India.
Government securities, Public Provident Fund (PPF), National Savings

Certificate (NSC), and Post Office Savings are all under the control of the
central government.

Investment are normally categorized using the risk involved in it, risk is dependent on
various factors like the past performance, its governing body, involvement of the
government etc., in this scenario Indian investments are classified in to 3 categories based on
risk. They are
1. Low Risk/ No Risk Investments.
2. Medium Risk Investments.
3. High Risk Investments.
Apart from these, there are traditional investment avenues and emerging investment avenues.

Page | 26
Different Investment alternatives available in India
Safe/Low Risk Avenues:
Savings Account
Bank Fixed Deposits.
Public Provident fund.
National savings certificates.
Post office savings.
Government Securities.
Moderate Risk Avenues:
Mutual Funds.
Life Insurance.
Debentures.
Bonds.
High Risk Avenues:
Equity Share Market.
Commodity Market.
FOREX Market.
Traditional Avenues:
Real Estate (property).
Gold/Silver.
Chit Funds.
Emerging Avenues:
Virtual Real Estate.
Hedge Funds/Private Equity Investments.
Art and Passion.

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CHAPTER -3

Page | 28
 LITERATURE
REVIEW

Literature suggests that major research in the area of investors behaviour has been
done by behavioural scientists such as Weber, Shiller and Shefrin. Shiller who strongly
advocated that stock market is governed by the market information which directly affects
the behaviour of the investors. Several studies have brought out the relationship
between the demographics such as Gender, Age and risk tolerance level of individuals.
Of this the relationship between Age and risk tolerance level has attracted much attention.

Horvath and Zuckerman suggested that one s biological, demographic and socioeconomic
characteristics; together with his/her psychological makeup affects one s risk tolerance
level. Malkiel suggested that an individual s risk tolerance is related to his/her
household situation, lifecycle stage and subjective factors. Mittra discussed factors that
were related to individuals risk tolerance, which included years until retirement,
knowledge sophistication, income and net worth. Guiso, Jappelli and Terlizzese, Bajtelsmit
and VenDerhei, Powell and Ansic, Jianakoplos and Bernasek, Hariharan, Chapman and
Domain, Hartog, Ferrer-I- Carbonell and Jonker concluded that males are more risk tolerant

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than females.

Wallach and Kogan were perhaps the first to study the relationship between risk
tolerance and age. Cohn, Lewellen et.al found risky asset fraction of the portfolio to
be positively correlated with income and age and negatively correlated with marital status.
Morin and Suarez found evidence of increasing risk aversion with age although the
households appear to become less risk averse as their wealth increases. YOO found that the
change in the risky asset holdings were not uniform. He found individuals to increase
their investments in risky assets throughout their working life time, and decrease their
risk exposure once they retire. Lewellen et.al while identifying the systematic patterns
of investment behaviour exhibited by individuals found age and expressed risk taking
propensities to be inversely related with major shifts taking place at age 55 and beyond.
Indian studies on individual investors' were mostly confined to studies on share
ownership, except a few. The RBIs survey of ownership of shares and L.C. Guptas enquiry
into the ownership pattern of Industrial shares in India were a few in
This direction. The NCAER's studies brought out the frequent form of savings of individuals
and the components of financial investments of rural households. The Indian
Shareowners Survey brought out a volley of information on shareowners.
Rajarajan V classified investors on the basis of their demographics. He has also brought out
the investors' characteristics on the basis of their investment size. He found that the
percentage of risky assets to total financial investments had declined as the investor
moves up through various stages in life cycle. Also investors lifestyles based
characteristics has been identified. The above discussion presents a detailed picture 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 updated.

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CHAPTER-4

Page | 31
 RESEARCH
METHODOLOGY

Savings form an important part of the economy of any nation. With the savings invested in
various options available to the people, the money acts as the driver for growth of the
country. Indian financial scene too presents a plethora of avenues to the investors.
Though certainly not the best or deepest of markets in the world, it has reasonable
options for an ordinary man to invest his savings.

The cost of living is simply what it cost to buy the goods and services you need to live.
Inflation causes money to lose value because it will not buy the same amount of a
good or service in the future as it does now or did in the past. The sooner one starts
investing the Better. By investing early you allow your investments more time to grow,
whereby the concept of compounding increases your income, by accumulating the
principal and the interest or Dividend earned on it, year after year.

The three golden rules for all investors are:

Invest early

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 Invest regularly
Invest regularly

Sampling technique
Initially, a rough draft will be prepared keeping in mind the objective of the research. A pilot
study will be undertaken in order to know the accuracy of the questionnaire. The final
questionnaire will be arrived at only after certain important changes are incorporated.
Convenience sampling technique will be used for collecting the data from different
investors. The investors are selected by the convenience sampling method. The selection of
units from the population based on their easy availability and accessibility to the
researcher is known as convenience sampling. Convenience sampling is at its best in
surveys dealing with an exploratory purpose for generating ideas and hypothesis.
Sampling unit:
The respondents who will be asked to fill out the questionnaires are the sampling units. These
comprise of employees of MNC s, government employees, house wives, self employed,
professionals and other investors.

Sampling size:
The sample size will be restricted to only 100, which comprised of mainly people from
different regions of Hyderabad due to time constraints.
Sampling area:
The area of the research is Hyderabad.

1.7 SOURCES OF INFORMATION

Primary Data
Information is collected by conducting a survey by distributing a questionnaire to 100
investors in Ambala City . These 100 investors are of different age group, different
occupation, different income levels, and different qualifications. (A copy of the questionnaire
is given in the last as ANNEXURE 1).

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Secondary Data:
This data is collected by using the following means.
1. Articles in Financial Newspapers (Economic times and Business Standard).
2. Investment Magazines, Business Magazines, Financial chronicles.
3. Expert s opinion published in various print media.
4. Books written by various Foreign and Indian authors on Investments.
5. Data available on internet through various websites
www.tax4India.com
www.economictimes.Indiatimes.com
www.business-standard.com
www.Indiamoney.com
www.moneymanagementideas.com
www.savingwala.com

OBJECTIVE OF THE STUDY

The purpose of the analysis is to determine the investment behaviour of investors and
Investment preferences for the same. Investors perception will provide a way to accurately
measure how the investors think about the products and services provided by the
company. Today s trying economic conditions have forced difficult decisions for
companies. Most are making conservative decisions that reflect a survival mode in the
business operations. During these difficult times, understanding what investors on an
ongoing basis is critical for survival. Executives need a third party understanding on
where investor s loyalties stand. More than ever management needs ongoing feedback

from the investors, partners and employees in Order to continue to innovate and grow.

The main objective of the project is to find out the needs of the current and
future Investors.
For this analysis, customer perception and awareness level will be measured in important
Areas such as:
1. To understand in depth about different investment alternatives available in India.
2. To find out how investors get information about the various financial instruments.
3. The type of financial instruments, they would prefer to invest.
4. The duration for which they would prefer to keep their money invested.
5. What are the factors that they consider before investing?
6. To give a recommendations to the investors that where they should invest.

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1.3 NEED FOR THE STUDY
To the rationality of the investor. Traditional finance theory is based on the two assumptions.
Firstly, investors make rational decisions; and secondly investors are unbiased in their
predictions about Stock market has been subjected to speculations and inefficiencies,
which are beached future returns of the stock. However financial economist have now
realized that the long held assumptions of traditional finance theory are wrong and found that
investors can be irrational and make predictable errors about the return on investment
on their investments.
This analysis on Individual Investors Behaviour is an attempt to know the profile of the
investor and also know the characteristics of the investors so as to know their preference
with respect to their investments. The study also tries to unravel the influence of
demographic factors like age on risk tolerance level of the investor.

1.5 LIMITATIONS OF THE STUDY

This analysis is based upon investors behaviour for investment preferences during
normal time vis--vis recessionary period. This analysis would be focusing on the
information from the investors about their knowledge, perception and behaviour on
different financial products.

The various limitations of the study are:

The total number of financial instruments in the market is so large that it needs a lot of
resources to analyze them all. There are various companies providing these financial
instruments to the public. Handling and analyzing such a varied and diversified data
needs a lot of time and resources.
As the analysis is based on primary as well as secondary data, possibility of

unauthorized information cannot be avoided.

Reluctance of the people to provide complete information about them can affect

the validity of the responses.

The lack of knowledge of customers about the financial instruments can be a
major limitation.
The information can be biased due to use of questionnaire.

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CHAPTER-5
DATA ANALYSIS
&
Page | 36
 INTERPRETATION

Analysis in this report:

An analysis is made on the responses received from 100 sample investors. The objective of the
report is to find out the investor s behaviour on various investment avenues, to find out the
needs of the current and future investors.

The questionnaire contains various questions on the investor s financial experience, based on
these experiences an analysis is made to find out a pattern in their investments. Based on these
investment experiences of the 100 sample investors an analysis is made and interpretations are
drawn. Interpretations are made on a rational basis, these interpretations may be correct
or may not be correct but care is taken to draw a valid and approvable interpretation.

Analysis is made only from the information collected through questionnaires no other
data or information is taken in to consideration for purpose of the analysis.

Analysis of the Survey:

TABLE 1: DEMOGRAPHICS OF THE SAMPLE INVESTOR
PARAMETER NO: OF INVESTORS PERCENTAGE
GENDER
MALE 58 58%
FEMALE 42 42%
TOTAL 100 100%
AGE GROUP

Page | 37
BELOW 20 0 0%
BETWEEN 20 to 30 35 35%
BETWEEN 30 to 40 35 35%
ABOVE 40 30 30%
TOTAL 100 100%
QUALIFICATION
UNDER GRADUATES 7 7%
GRADUATES 46 46%
POST GRADUATES 39 39%
OTHER 8 8%
TOTAL 100 100%

OCCUPATION
SALARIED 52 52%
BUSNIESS 22 22%
PROFESSIONAL 14 14%
HOOUSE WIFE 11 11%
RETIRED 1 1%
TOTAL 100 100%
ANNUAL INCOME
BELOW Rs. 2,00,000 37 37%
Rs. 2,00,000 - 4,00,000 31 31%
Rs. 4,00,000 - 6,00,000 18 18%
ABOVE Rs, 6,00,000 14 14%
TOTAL 100 100%

Interpretation
Table 1 above shows, that 58 (58%) of the investors are men and the rest 42(42%) are
females. Generally males bear the financial responsibility in Indian society, and therefore they
have to make investment (and other) decisions to fulfil the financial obligations.

When it comes to age, it was found that 35% are young and significant number under the age
group of 20 30. 35% of them are in the age group of 30 to 40. 30% of them are above40
years of age. There are no investors below 20 years of age.

Nearly 52% of the investors belong to the salaried class, 22% were business class, 14%
were professionals, 11% were housewives and the rest were retired.

It was found that irrespective of annual income they earn all the investors interested in

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investments since today s inflated cost of living is forcing everyone to save for the ire
future needs, and invest those saved resources efficiently.

39(39%) of the individual investors covered in the study are postgraduates; 46(46%)
investors are graduates and 7(7%) of the investors are under-graduates, and 8(8%)
investors are categorized as others who are either illiterates, had less education than
under graduation or who are more qualified than post graduates. It is interesting to note
that most investors (covered in the study) can be said to possess higher education
(Bachelor Degree and above), and this factor will increase the reliability of conclusions
drawn about the matters under investigation.

37(37%) of the investors are earning less than 2 lakhs per annum, 31(31%) investors are
earning between 2 lakhs and 4 lakhs, 18(18%) investors are earning between 4 lakhs and 6
Lakhs, 14(14%) investors are earning more than 6 lakhs per annum. Since most of the
investors are below 4 lakhs annual earnings, many of them are non risk takers.

TABLE 2 OTHER CHARACTERISTICS OF SAMPLE

INVESTOR
Table 2.1 INVESTORS WILLING TO LOSE PRINCIPAL AMOUNT
PARAMETER NO OF INVESTORS PERCENTAGE
YES 5 5%
NO 95 95%
TOTAL 100 100%

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Interpretation: since many of the investors annual earnings are below 2 lakhs and 4
lakhs, many of them do not take the risk of losing their principal investment amount.
95% of the sample investors are not ready to lose their principal investment amount. 5% are
ready to take risk of losing their principal up to certain extent.
Table 2.2 TIME PERIOD PREFERED TO INVEST
PARAMETER NO OF INVESTORS PERCENTAGE
SHORT TERM 10 10%
MEDIUM 60 60%
LONG TERM 30 30%
TOTAL 100 100%

Interpretation: It s interesting to know that many of the investors prefer to invest their money
for medium term i.e. from 1 5 yrs, instead of short term or long term. 10% preferred

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short term, 60% preferred medium term, and 30% preferred long term.

Table 2.3 FREQUENCY OF MONITORING THE INVESTMENT

PARAMETER NO OF INVESTORS PERCENTAGE
DAILY 17 17%
MONTHLY 35 35%
OCCATIONALLY 41 41%
OTHER 7 7%
TOTAL 100 100%

Interpretation: Due to the busy life schedule, many of the investors are not able to spend
time in monitoring their investments, only 17% of the investors are monitoring their
investments daily, 35% are monitoring on a monthly basis, 41% , the majority investors are
monitoring their investments occasionally. Many of them who have invested in safe
investment avenues do not bother about their investments, some of them forget about the
investments for many years.

Table 2.4 INVESTMENTS IN EQUITY MARKET

PARAMETER NO OF INVESTORS PERCENTAGE
YES 30 30%
NO 70 70%
TOTAL 100 100%

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Out of the total sample investors only 70% of the investors invest in equity share market
through their DEMAT A/C, 30% of the investors never invested in equity shares. The
investors who invest in equity share market are asked another question, what would they do
if the stock market falls immediately after their investment, many of them replied that they
would wait till the market increases instead of selling them at a loss, very few
answered that they would average the investment by buying some more shares.

Table 2.5 FAMILY BUDGET

PARAMETER NO OF INVESTORS PERCENTAGE
YES 73 73%
NO 27 27%
TOTAL 100 100%

73% of the sample investors had a monthly family budget for their daily expenditure.
27% of the investors replied the y never thought of having a budget calculation, and few think
of having a budget but never implemented so far. Many people with excess money never cared
to make any family budgets.

Table 2.6 INVESTMENT TARGET

PARAMETER NO OF INVESTORS PERCENTAGE
YES 48 48%
NO 52 52%
TOTAL 100 100%

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It s interesting to know that almost same proportion of investors have different
thoughts, 48% of the investors have an investment target every year, and 52% of the
investors do not go for any targets for investment. On personal questioning many of the
investors who had an investment target every year are not able to reach their targets
due to contingent expenses. Few investors invest regularly but never thought of having a
target every year.

Table 2.7 FINANCIAL ADVISOR

PARAMETER NO OF INVESTORS PERCENTAGE
YES 23 23%
NO 77 77%
TOTAL 100 100%

77% of the investors never had a financial advisor, they never approached an advisor for
their financial needs, the reason may be inadequate income and excess expenditure, and
there wouldnt be surplus money to worry about. 23 % of the investors have financial
advisors, who manage their investments.

Table 3 Objectives of Investment

Table 3.1 SAVINGS OBJECTIVE
PARAMETER VOTES WEIGHTS RANKING
CHIDRENS EDUCATION 71 29 1
HEALTHCARE 57 23 2
RETIREMENT 47 19 3
HOME PURCHASE 38 15 4
CHIDRENS MARRIAGE 30 12 5

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OTHER 5 2 6
TOTAL 248 100

VOTES

Table 3.1 shows the savings objectives of the sample investors, investors are given
option to select one or more savings objectives, since there may be one or more
answers, weights are given for each parameter bases on the votes given by the investors,
the maximum weigthage represents many investors have that as main objective. Based
on the weights calculated ranks are given in the order of maximum weightage given by
investors. First rank is given to children s education, many investors feel that, investing
money for the future of the Childs education is very important than any other need.
Many of the investors are in the age group of 20 30 and 30 40 as of now they are thinking of
saving for their children s marriage. So children s marriage is given last rank. After children s
education investors are saving for their own health care. There is a greater need for Indians to
save for their health care who are living a mechanical life. Retirement and home purchase are
given subsequent ranks after health care.

Table 3.2 PURPOSES BEHIND INVESTMENT

PARAMETER VOTES WEIGHTS RANK
WEALTH CREATION 37 22 4
TAX SAVING 43 25 3
EARN RETURNS 45 27 1

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FUTURE EXPENDITURE 44 26 2
TOTAL 169 100 10

All the
investors
have very
common
purposes
for
investing,
they have
more than
one
purpose for investing their money. Salaried people invest for tax savings, and for future
expenditure, business people invest for the purpose of earning returns. Almost all the investors
have all the 4 purposes behind investing their money.

Table 3.3 FACTORS CONSIDERING BEFORE INVESTING

PARAMETER VOTES WEIGHTS RANKING
SAFETY OF PRINCIPLE 60 43 1
LOW RISK 35 25 2
HIGH RETURNS 27 19 3
MATURITY PERIOD 16 11 4
TOTAL 138 100

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When the investors are asked about the factors considering before investment many of them
have voted for safety of principal and low risk. First rank is given to safety of principal and 2
nd to low risk. Here there are some contradicting results, some investors expect high returns
at a very low risk, and this is not possible in practical Indian investment avenues.
Investment believes in a proved principle, higher the risk higher the returns, lower the
risk lower the returns . Investors need to know about this principle before investing.

Independent Variables and Dependent Variables

There are total four independent variables
1. Age group.
2. Occupation.
3. Qualification.
4. Annual income

There can be many dependent variables like

1. Level of risk tolerance
2. Percentage of income that can be invested
3. Time period that can be taken for investments
4. Savings objectives
5. Investment preference.

These independent variables can be compared with any dependent variables for finding

Page | 46
the relations between the parameters.

In my analysis I have taken occupation category for comparison with dependent

variable investment preference and age group comparing with the dependent variable
level of risk tolerance.

Below are the demographics of the sample investors based on the category occupation.
TABLE 4: DEMOGRAPHICS BASED ON OCCUPATION

I. SALARIED
PARAMETER NO: OF SALARIED PERCENTAGE
AGE GROUP
BELOW 20 0 0%
BETWEEN 20-30 22 42%
BETWEEN 30-40 18 35%
ABOVE 40 12 23%
TOTAL 52 100%
QUALIFICATION
UNDER GRADUATES 0 0%
GRADUATES 21 40%
POST GRADUATES 25 48%
OTHERS 6 12%
TOTAL 52 100%
ANNUAL INCOME
BELOW Rs. 2,00,000 15 29%
Rs. 2,00,000 - 4,00,000 15 29%
Rs. 4,00,000 6,00,000 17 33%
ABOVE Rs.6,00,000 5 10%
TOTAL 52 100%
II. BUSINESS
PARAMETER NO: OF - BUSINESS PERCENTAGE
AGE GROUP
BELOW 20 0 0%
BETWEEN 20 -30 2 9%
BETWEEN 30 40 10 45%
ABOVE 40 10 45%
TOTAL 22 100%
QUALIFICATION
UNDER GRADUATES 5 23%
GRADUATES 11 50%
POST GRADUATES 6 27%
OTHERS 0 0%
TOTAL 22 100%
ANNUAL INCOME
BELOW Rs. 2,00,000 11 50%
Rs. 2,00,000 4,00,000 5 23%

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Rs. 4,00,000 6,00,000 1 4%
ABOVE Rs. 6,00,000 5 23%
TOTAL 22 100%

III. PROFESSIONAL
PARAMETER NO: OF - PROFESSIONAL PERCENTAGE
AGE GROUP
BELOW 20 0 0%
BETWEEN 20 -30 8 57%
BETWEEN 30 40 2 14%
ABOVE 40 4 29%
TOTAL 14 100%
QUALIFICATION
UNDER GRADUATES 0 0%
GRADUATES 6 43%
POST GRADUATES 6 43%
OTHERS 2 14%
TOTAL 14 100%
ANNUAL INCOME
BELOW Rs. 2,00,000 2 14%
Rs. 2,00,000 4,00,000 8 57%
Rs. 4,00,000 6,00,000 1 7%
ABOVE Rs. 6,00,000 3 21%
TOTAL 14 100%

IV. HOUSEWIFE
PARAMETER NO: OF - HOUSEWIFE PERCENTAGE
AGE GROUP
BELOW 20 0 0%
BETWEEN 20 -30 4 36%
BETWEEN 30 40 3 27%
ABOVE 40 4 36%
TOTAL 11 100%

QUALIFICATION
UNDER GRADUATES 1 9%
GRADUATES 6 55%
POST GRADUATES 2 18%
OTHERS 2 18%
TOTAL 11 100%
ANNUAL INCOME
BELOW Rs. 2,00,000 9 82%
Rs. 2,00,000 4,00,000 1 9%
Rs. 4,00,000 6,00,000 0 0%

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ABOVE Rs. 6,00,000 1 9%
TOTAL 11 100%

ASSUMPTION
As a part of the analysis I assumed that preference for investment avenues is dependent on the
occupation of the investor. Hence preferred investment avenue are derived from the
demographics of the sample investor based on occupation.

Table 5: INVESTMENT PREFERENCE BASED ON

OCCUPATION
Table 5.1 Preferred investment avenues for salaried

INVESTMENT AVENUES VOTES WEIGHTS RANK

LIFE INSURANCE 35 16 1
GOLD 25 12 2
BANK FIXED DEPOSITS 24 11 3
MUTUAL FUNDS 23 11 4
REAL ESTATES 23 11 5
POST OFFICE SAVINGS 20 9 6
PPF 18 8 7
NSC 17 8 8
EQUITY SHARES 16 7 9
SAVING ACCOUNTS 14 7 10
TOTAL 215 100

Since the investor has an option to invest in more than one Investment Avenue,
weights are given on the basis of preference to investment avenues. The avenue which is
given maximum weightage by the investors is ranked first. First Ten ranks are given to
the first ten preferred investment avenues. First preference is given to life insurance, second to
investing in gold, third to bank fixed deposits. Tenth preference is given to bank savings

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account.

Table 5.2 Preferred investment avenues for business people

INVESTMENT AVENUES VOTES WEIGHTS RANK
BANK FIXED DEPOSITS 13 16 1
INSURANCE 13 16 2
REAL ESTATE 11 14 3
MUTUAL FUNDS 10 12 4
GOLD 8 10 5
EQUITY SHARES 7 9 6
CHIT FUNDS 6 7 7
POST OFFICE SAVINGS 5 6 8
SAVINGS ACCOUNT 4 5 9
NSC 4 5 10
TOTAL 81 100

Thinking of the business people is almost same to that of salaried people, both are
similar in preferring insurance and bank fixed deposits, but given third preference to
real estate. Gold is given 5th place here. Last place is given to national savings certificates.

Table 5.3 Preferred investment avenues for professionals

III. PROFESSIONAL
INVESTMENT AVENUES VOTES WEIGHTS RANK
BANK FIXED DEPOSITS 10 19 1
INSURANCE 10 18 2
GOLD 6 11 3
REAL ESTATE 6 11 4
POST OFFICE SAVINGS 5 9 5
SAVINGS ACCOUNT 4 7 6
MUTUAL FUNDS 4 7 7
PPF 3 6 8
BONDS 3 6 9
GOVT. SECURITIES 3 6 10
TOTAL 54 100

There is no much difference in the preferences of professionals when compared to salaried and
business people. Professionals does not prefer mutual funds(7 rank), where salaried and
business people prefer at 4th place. Professionals are more interested in post office savings
rather than mutual funds. As business people professionals also prefer bank fixed deposits
in the first place, then life insurance. Professionals does not prefer national saving

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certificates at all, eliminated it from the top 10.

Table 5.4 Preferred investment avenues for housewives

INVESTMENT AVENUES VOTES WEIGHTS RANK
GOLD 9 18 1
INSURANCE 9 18 12
BANK FIXED DEPOSITS 8 16 3
REAL ESTATE 5 10 4
POST OFFICE SAVINGS 5 10 5
CHIT FUNDS 4 8 6
EQUITY SHARES 4 8 7
SAVING ACCOUNT 3 6 8
NSC 2 4 9
MUTUAL FUNDS 1 2 10
TOTAL 5 100

Indian housewives love gold as much as themselves. Housewives have given first rank to
gold pushing insurance and bank fixed de posits to second and third place. House wives
gave least preference to mutual funds. They are more attracted to traditional investment
avenues like gold, real estate, post office savings and chit funds.

Table 5.5 Preferred investment avenues overall

INVESTMENT AVENUES VOTES WEIGHTS RANK

LIFE INSURANCE 67 17 1
BANK FIXED DEPOSITS 55 14 2
GOLD 50 13 3
REAL ESTATE 45 12 4
MUTUAL FUNDS 38 10 5
POST OFFICESAVINGS 35 9 6
EQUITY SHARES 29 8 7
SAVINGS ACCOUNT 25 6 8
NSC 25 6 9
PPF 22 5 10
TOTAL 391 100

HYPOTHESIS - Increase in Age decreases the Risk tolerance level.

Relation between Age and risk tolerance
Level of risk tolerance dependent on the age of the investor.
Risk tolerance of an investor shows a negative relation to the age of that investor

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 Lower the age higher the risk capabilities, higher the age lower the risk capabilities.

LEVEL OF RISK TOLERANCE WITH RESPECT TO AGE GROUP

For the purpose of analysis investors are placed under three categories.
1. Low risk category
2. Medium risk
3. High risk
Classification is done based on three factors
1. Past investments of the investor.
2. Investor experience in investing (level of experience).
3. Investor preference for investments.

First the total sample of 100 is divided in to 3 age groups.

Investors in each age group are classified in to 3 risk categories based on the above factors.

Table 6: Finding relationship between age group and level of risk tolerance
Table 6.1 risk tolerance of age group 20 - 30
PARAMETER 20 - 30 AGE GROUP
LEVEL OF RISK NO. OF INVESTORS PERCENTAGE
LOW 13 37%
MEDIUM 17 49%
HIGH 5 14%
TOTAL 35 100%

Table 6.2 risk tolerance of age group 30 - 40

PARAMETER 30 - 040 AGE GROUP
LEVEL OF RISK NO. OF INVESTORS PERCENTAGE
LOW 20 57%
MEDIUM 11 32%
HIGH 4 11%
TOTAL 35 100%

Table 6.3 risk tolerance of age group above 40

PARAMETER ABOVE 40 AGE GROUP
LEVEL OF RISK NO. OF INVESTORS PERCENTAGE

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LOW 21 70%
MEDIUM 6 20%
HIGH 3 10%
TOTAL 30 100%

OBSERVATIONS:
Observations from table 6.1, 6.2, 6.3

From the table 6.1 we find that 49% of Investors between the age group of 20 - 30 came under
medium risk category, where as the percentage of investors who came under medium
risk in the age group of 30 - 40 has decreased to 32%. It still came down in the case of
investors in the age group of 40 above, which is only 20%. We can see a decreasing
trend in the behaviour of investors towards medium risk when their age increased.

37% of the investors in the age group of 20 - 30 are in the low risk category, where as
Investors under the age group 30 - 40, 57% came under the low risk category, there is a large
increase in the investors who came under low risk category in this age group. It has
further increased, 70% of the investors in the age group above 40 came under the low
risk category. We can see an increasing trend with respect to low risk category as the age
increases.

Same observations are arrived at, when comparing the high risk category with respect to
the age groups. As the age increases the level of risk tolerance is coming down. 14%
came under the high risk category under the age group 20 - 30, when it came to age group
above 40 above only 10% came under the high risk category.

From the above observations we can conclude that there is a strong inverse or negative
relationship between risk tolerance and age group.

Attributes Risk Tolerance Level

Age -0.74
When Karl Pearson s correlation coefficient is calculated, it is found to be -0.74 by which we
can conclude that there is a strong negative correlation between Age and Risk
tolerance. Age accounts for the major differences in risk taking decisions by the
investors. The older an investor, the better seemed his/her performance in comparison

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to the younger ones. Over- confidence in their own investment ability among the
youngsters largely accounts for the excessive trading among younger investors leading to
lower returns and this direct to decline in the risk tolerance level.

CHAPTER -6
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 FINDINGS
&
SUGGESTIONS

Findings:
1. The study reveals that male investors dominate the investment market in India.
2. Most of the investors possess higher education like graduation and above.
3. Majority of the active and regular Investors belong to accountancy and related
employment, non-financial management and some other occupations are very few.
4. Most investors opt for two or more sources of information to make investment
decisions.
5. Most of the investors discuss with their family and friends before making an
investment decision.
6. Percentage of income that they invest depend on their annual income, more the income

more percentage of income they invest.

7. The investors decisions are based on their own initiative.
8. The investment habit was noted in a majority of the people who participated

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 in the study.
9. Most Investors prefer to park their funds in avenues like Life insurance, FD,

Gold and Real Estate.

10. Most of the investors get their information related to investment through
electronic media (TV) next to print media (News paper/ Business news paper/
Magazines)
11. Most of the investors are financial illiterates.
12. Increase in age decrease the risk tolerance level.
13. Women are attracted towards investing gold than any other investment avenue.

Risk tolerance level and Suggestion of Suitable Portfolio to the

Investors
The role of uncertainty and the knowledge about the return on Investment Avenue are
important components of any investment. The extent of an investor s ability to tolerate
these uncertainties of return is referred as risk tolerance level of an investor (Schaefer,
1978). Risk tolerance tends to be subjective rather than objective.

Schaefer described the relation this way: two persons may very well agree on the
riskiness of a set of gambles, but may nevertheless prefer different gambles, rank
ordering them differently according to their personal tolerance. There are two common
methods of estimating investors tolerance of risk. The first method is a clear understanding of
the investor and his/her history with investment securities. The second method is to use a
questionnaire designed to elicit feelings about risky assets and the comfort level of the
investor given certain changes in the portfolio or certain investment scenarios.

The second method is used to know the risk tolerance level of the investors. Based on the
responses to the questionnaire, the cumulative scale is constructed and scores are assigned to
each investor accordingly to categorize the respondents in to i.e. Low, Moderate and High risk
tolerance level. The investors are divide d into 3 categories i.e., A, B and C depending
on their risk tolerance starting with Low risk tolerance, Moderate risk tolerance and
High risk tolerance.

Generally investors with a low risk tolerance act differently with regard to risk than
individuals with a high risk tolerance. Investor with a high level of risk tolerance
would be comfortable with market volatility, while low risk-tolerance individuals require

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stability and are averse to uncertainties. (MacCrimmon & Wehrung, 1986). Individuals
with low levels of risk tolerance require lower chances of a loss, choose not to operate
in unfamiliar situations and require more information about the performance of an
investment (MacCrimmon & Wehrung).

Table. 7 SUGGESTED PORFOLIO

CONSTRUCTION
BASED ON AGE GROUP AND LEVEL OF RISK
PARAMETER LEVEL OF RISK - PERCENTAGE OF INCOME TO TOTAL
BE APPORTIONED
AGE GROUP LOW RISK MEDIUM RISK HIGH RISK
BETWEEN 20 - 30 30% 50% 20% 100%
BETWEEN 30 - 40 50% 35% 15% 100%
ABOVE 40 70% 20% 10% 100%
TOTAL 100% 100% 100% 100%

Portfolio construction:
Step 1: Identify the age group of the investor, check in which age group he comes
under. Suggest suitable portfolio from the above table.

Example: An investor of age 36 working in public sector Company has approached you to
invest his 8 lakhs of money in a suitable investment.

Advice : the investor comes under the age group 30 - 40.

His suitable portfolio will be
1. 50% invest in low risk investment avenues.
2. 35% invest in medium risk avenues.
3. 15% invest in high risk avenues.

Step 2: investment preference made from the table 5.5 or based on his occupation. Since he
comes under the occupation salaried he can choose the preferred investment avenues from
table 5.1

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CHAPTER -7
SUMMARY
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 &
CONCLUSION

Summary
This report is a reflection of the behaviour of various categories of investors.

Selection of a perfect investment avenue is a difficult task to any investor. An effort is made to
identify the tastes and preferences of a sample of investors selected randomly out of a
large population. Despite of many limitations to the study I was successful in
identifying some investment patterns, there is some commonness in these investors and
many of them responded positively to the study.

This report concentrated in identifying the needs of current and future investors,
investor s preference towards various investment avenues are identified based on their
occupation. Investors risk in selecting a particular avenue is dependent on the age of
that investor.

Conclusion
This study confirms the earlier findings with regard to the relationship between Age and risk

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tolerance level of individual investors. The Present study has important implications for
investment managers as it has come out with certain interesting facets of an individual
investor. The individual investor still prefers to invest in financial products which give
risk free returns. This confirms that Indian investors even if they are of high income,
well educated, salaried, independent are conservative investors prefer to play safe. The
investment product designers can design products which can cater to the investors who
are low risk tolerant and use TV as a marketing media as they seem to spend long time
watching TVs.

BIBILIOGRAPHY
BOOKS

1. The Mindful Investor, by Maria Gonzalez and Graham Bayron.

2. Understanding Indian Investors, by Jawaharlal Lal.
3. Security Analysis and Portfolio Management by Punithavathi Pandian.
4. Investment Analysis and Portfolio Management, by Prasanna Chandra.

RESEARCH PAPERS
An Empirical study on Indian individual investor s behaviour, by Syed Tabassum Sultana.

WEB SITES
www.tax4India.com
www.economictimes.Indiatimes.com
www.business-standard.com

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 www.Indiamoney.com
www.moneymanagementideas.com
www.savingwala.com

ANNEXURE 1

Questionnaire

1. Are you aware of the following investment avenues? (Tick which ever applicable in
the boxes).

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Safe/Low Risk Investment Avenues: High Risk Investment Avenues:
Savings Account. Equity Share Market.
Bank Fixed Deposits. Commodity Market.
Public Provident Fund. FOREX Market.
National Savings Certificates.
Post Office Savings. Traditional Investment Avenues:
Government Securities. Real Estate (property).
Gold/Silver.
Moderate Risk Investment Avenues: Chit Funds.
Mutual Funds.
Life Insurance. Emerging Investment Avenues:
Debentures. Virtual Real Estate.
Bonds. Hedge Funds.
Private Equity Investments.
Art and Passion.

2. What do you think are the best options for investing your money?

1.___________________________________
2.___________________________________
3.___________________________________
4.___________________________________
5.___________________________________
6.__________________________________

3. Reasons for selecting these options :

1____________________________________________________________________
2____________________________________________________________________

4. In the past, you have invested mostly in (write as many as applicable)

__________________________________________________________________
____________

__________________________________________________________________

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 ___________

5. In which sector do you prefer to invest your money?

Private Sector Government Sector Foreign Sector Public Sector

6. What are the important factors guiding your investment decisions? (Return,
safety of principle, diversification, progressive values, etc.)?
__________________________________________________________________
_________________________________________________________________
7. What are your savings objectives?
Childrens Education Retirement Home Purchase Childrens
Marriage
Healthcare Other ____________________.
8. What is your investment objective?
Long-term Growth Income and Capital Preservation
Growth and Income Short-term Gowth
Others__________________________________________________________________
_
9. What is the purpose behind investment?
Wealth Creation Tax Saving Earn Returns
Future Expenses
Others_____________________________________________________________
____________
10. Have you set aside funds specifically for the education and marriage of your
children?
If yes, please give amounts and how the funds are held
Education: Amount Rs.________________ invested in _______________________
Marriage: Amount Rs._________________ invested in________________________

11. Do you have a formal budget for family expenditure?

Yes No
12. Do you have a savings and investment target amount you aim for each year?
Yes if yes: Amount____________________________________________
No
13. At which rate do you want your investment to grow?
Steadily At an Average Rate Fast

14. Which factor do you consider before investing?

Safety of Principal Low Risk High Returns Maturity

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 Period
15. Do you invest your money in share market? (through a DEMAT A/C)
Yes No
If yes: Imagine that stock market drops after you invest in it then what will you
do?
Withdraw your money Wait to increase Invest more
in it
16. How often do you monitor your investment?
Daily Monthly Occasionally
17. What percentage of your income do you invest?
0-15% 15-30% 30-50%
18. What is the time period you prefer to invest?
Short-term (0-1yrs) Medium-term (1-5yrs) Long-term (>5yrs)
19. Can you take the risk of losing your principal investment amount?
Yes No
If yes: What percentage ________________________
20. What is your source of investment advice?
Newspapers News Channels
Family or Friends Books
Internet Magazines
Advisors Certified Market Professional/Financial Planners

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 Personal Details
(Personal details are kept highly confidential; these details will not be revealed to any
third party)
Name:__________________________________Designation:_____________________

Organization: ________________________________________

Age Group:
Below 20 Between 20-30 Between 30-40 Above40

Qualification:
Under Graduate Graduate Post Graduate Other:_________________________

Occupation (what category do you come under):

Salaried Business Housewife
Student Professional Retired
Other: ______________________________________________

Annual income:
Below Rs. 2,00,000 Rs. 2,00,000- Rs 4,00,000
Rs. 4,00,000-Rs 6,00,000 Above Rs. 6,00,000

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Do you have a financial advisor?
Yes No

Date:

Signature:

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