Investment Pattern amongst the residents of Navi Mumbai PGDM 2011-13

Submitted to: Prof.Prachi Gupta

(Asst.Professor)

Submitted by: Group 7

ChirashreeSengupta(15) Amandeep Chabbra(16)
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Taru Walia(25) Roma Motwani(30) Priyanka Singh(32) Ishu Rungta(39) Sandeep Poduval(42)
Preface

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Contents Executive Summary .. 1 Literature Review ..... 2 Objectives ...3 Hypothesis .. 4 Research Methodology .. 5 Data Analysis .. 6 Findings ... 7 Conclusion .. 8 Bibliography ... 9

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Executive Summary This study aims to identify key factors that influence investment behavior and ways these factors impact investment risk tolerance and decision making process among men and women and among different age groups in different income brackets. This study is aimed at understanding the investing and saving habits found among the residents of upcoming residential and commercial satellite cities. These cities have experienced massive investment in terms infrastructure and it reflects in the real estate boom experienced by them. Navi Mumbai is a classic example of it. With increasing financial literacy and educational acess, there has been a significant access available for individuals seeking debt financing for housing and automobiles as well as higher education. This study has confirmed that most of the respondents we contacted had availed loans either to build or buy a house or car or invest in order to meet future expenses for their children or remain liquid in emergency situations. The study shows that residents of Navi Mumbai have a very high financial literacy in terms of Fixed deposits, Loans, Insurance and a very high inclination towards investing in physical assets in favour of financial assets in all age groups except those below the age of 25 years and understandably so. Mutual Funds was one area in which investment across all age group is very scant and their financial literacy with respect to financial products like Mutual funds and other securities is slowly catching up. In the age bracket of 36 to 50 years, it was observed that women invest more in PPF and Gold. The above 50(>50) group of investors rely on FDs, Government Bonds, PPFs along with insurance for investing. These are relatively less risky and provide good and constant returns. It is seen that 50 percent of the sampling units falling under the category of below 25 reveal that the reason for investing is to maximize their wealth and increase the sources of income and overall income. Also, 26.9 percent of the units in this category are convinced that investing helps maximize the liquidity of their assets and 19.2 percent of the units in this category invest with an aim to save Tax. In the age group of 26 -35 years, 34.3 percent of the sampling population acknowledge that liquidity is what they aim for while investing whereas 31.42 percent look for increasing their wealth. Similar results are seen in the investors of the age group 36 to 50 years. It is notable that majority of Indians place a very high priority to liquidity. Investors rate Fixed deposits, real
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estate and government bonds and gold as safe vehicles of investment. Tax, Child plan, Property and Retirement emerged as major resons for savings and investment amongst all age groups above the age of 25 years.

Literature Review There is very little literature available in the public domain to understand the individual savings and investment behavior although there has been extensive studies on institutional investors. According to a research conducted by a reputed Magazine Businessweek Household savings rate in India is 34.7 percent. In an independent study conducted by Sumit Agarwal, Senior Financial Economist in the Research Department at the Federal Reserve Bank of Chicago Indians use about 38% of monthly income to cover monthly expenses -- they save or invest 62% of their salary.i1 Most of the respondents invest heavily in Physically Assets in favour of Financial Assets. NCAERs research paper (2008) titled Indians are Wise Savers but Poor Investorsii highlights that 65 percent of Households Savings are in Liquid Assets, 23 percent in Physical Assets and only 12 percent in Financial Instruments. This phenomenon is prevalent across all income levels in the Indian urban as well as poor households. A staggering 37 percent still prefer to keep cash at home instead of a bank account. The survey also revealed that 78 percent of respondents were financially aware of Life Insurance but only 24 of households have a life insurance policy. Another very interesting highlight was that about 83 percent households saved for an emergency and 81 percent saved to finance childrens education. 69 percent of respondents saved for retirement and 63 percent kept money aside for marriages, birth and other social ceremonies. About 47 percent respondents saved money to invest in house, property or family business and only 22 percent respondents saved to invest in consumer durable items. Evidence is available to indicate that women are more risk averse then men in general and this results in making investment decisions favour of less risky assets. (Julie R. Agnew,either,2003). Another research paper titled Factors Influencing Investment Decision of Generations in India:An Econometric Studyiii (2010) by Manoj Dash analysed investment behavior of respondents across gender and age-groups based on the following parameters: security, awareness, hedging, opinion, benefit and duration. It found that demographic characteristics significant affect investment behavior and majority of investor have some reference groups or source for reference in financial decision making.

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Study undertaken by Davar, Yesh Pal et al titled Antecedents of Households' Investment Decision-Making Process:A Study of the Indian Households (2009) established that familiarity, satisfaction, opinion and demographics form the dimensions of investment avenues of households investments in India. A research titled Small Investors Perception on Post office Saving Schemes by Karthikeyan (2001) found that there was significant difference among the four age groups, in the level of awareness for Kisan Vikas Patra (KVP), National Savings Scheme (NSS), and Deposit Scheme for Retired Employees (DSRE). The level of awareness among the investors belonging to old age group was higher than in those of young age group. However, no differences were observed among male and female investors except for NSS and KVP. Securities and Exchange Board of India (SEBI) and NCEAR (2000) Survey of Indian Investors found that Safety and Liquidity were the primary consideration which determined the choice of an asset of a household or individual. The present study aims to highlight the different types of financial products chosen by residents in upcoming satellite cities like while making investment decisions. It tries to put some focus on the key factors that influence the investment decision making behavior amongst individuals across age groups and gender. The study also investigates the loan taking behavior of respondents in terms of gender, income level and occupation, unlike previous studies undertaken in this field

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Objectives To understand factors contributing to savings and investments across gender, different age groups and income levels of individuals To understand whether residents of Navi Mumbai are risk bearing or risk averse in terms of gender. To understand attitude of residents of Navi Mumbai towards stock markets in terms gender, age and income group. Configure the safest investment option in the opinion of Navi Mumbai residents.

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Hypothesis Testing Following the hypotheses that were considered in this study: A) Age and Investments There is no correlation between age and investment in equities, but there is a significant correlation between age group and investment in Mutual Funds, Fixed Deposits, Government Bonds, Insurance and Gold. There is no correlation between age and investment in property or physical asset. B) Income Level and Investments There is no correlation between income level and investments in equity but there is a significant correlation between income level and investments in Property, Fixed Deposits, Gold, Government Bonds, Mutual Funds and Insurance. C) Occupation and Motive of Investment There is a significant relationship between Occupation and saving or investing habit for sake of liquidity and saving taxes but not increase in wealth. D) Income Group and Goal of Investment Decisions There is no significant correlation between income levels and a desire for maintaining liquidity or increasing wealth but it exists for saving taxes. E) Gender and percentage of Income dedicated to Investments There is a correlation between the percentage of of income dedicated to investments undertaken by the residents of Navi Mumbai and their gender, Occupation and income level but it a similar relationship does not exist in terms of Age Group. There is a significant correlation between the gender of the individuals and availing of the loan facility in Navi Mumbai. The Chi Square test undertaken to establish a causal relationship indicates that there is significant relation between gender and the investment in Equities unlike, the income level and investment in Equities.

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Research Methodology This study was undertaken as per the survey research methodology. We undertook exploratory research to understand the pattern of savings and investment. Based on our literature review and objectives set in the study, a questionnaire was designed to measure the investment pattern and factors affecting investment pattern and loan appetite of residents of Navi Mumbai in terms of gender, age-group, occupation and income levels. The questionnaire was administered to 120 respondents out of which 88 respondents replied. We rejected data received from 8 because they were incomplete. The data was analysed and relationships were established among different variables using standard techniques of statistical analysis like correlation and chi-square test. Correlation enabled us to identify any linear dependence between two variables that we took for our study like age and investment options etc. Sample: The target group chosen for this study was individuals who were employed or in case of housewives, if they received a generous allowance from their husbands and had a say in the savings and investment patterns of the households. We also looked for housewives who participated in kitties and saved money in informal ways as a group. It included residents from Navi Mumbai and we adopted means of convenient sampling and took responses from those residing in Kharghar region of Navi Mumbai only due to paucity of time. The target group is diverse in terms of profession, gender, age and income groups. The sample consists of individuals who are educated and a majority has completed their graduation and they belong to urban areas only. The Questionnaire consisted of 13 broad questions where demographic information, such as age, gender, profession, income etc were sought along with, investment and savings pattern as per the instruments of savings and investment available in the market financial markets. We also sought information about the access to loan and whether individuals have ever availed any loan and for what purpose. The questionnaire also had questions related to the purpose of investment decisions that the individuals and the households make in the area of Navi Mumbai. Each question had answers in Yes or No and the opinions of respondents for the same was asked of they were comfortable about discussing their choice of Yes/No. To obtain reliable information, our group of researchers administered the questionnaires themselves and interacted with respondents to garner relevant information and useful information, as well as help respondents if any confusion or ambiguity arose in their mind.

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Data Analysis The data collected from the respondents was scored and entered in the computer for analysis by the SPSS (20.0) package. Results relating to the sample characteristics are reported in coming sections. Details of Respondents: Gender Males Females Below 25 26 -35 36 -50 Above 50 Business Government Job Private Job Others (self employed or housewives etc.) 53 27 18 27 21 14 14 17 35 14

Age Category

Occupation

Income Category (Monthly, INR)

<5000 5000 -20000 20000 - 45000 45000 -60000 >60 000

10 20 23 14 13

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Findings To determine the investment pattern of the residents of Navi-Mumbai, this research was conducted and data regarding their present investments, favoured investment instruments and the reason for investing was collected. These findings were correlated with their age, gender, occupation and financial literacy. A pattern between the age and the investment instrument employed by the units was sought and the following graphs were formed based on the data acquired. The following graphs show the current investments by the sampling units classified according to the age group and gender:

From the above graph we can deduce that 25% of male units falling in the category of <25 years of age preferred Insurance above all the other investment options available. Gold was the second most favourable investment option with 15.9% and, Equities and FDs (Fixed Deposits) were the next favourites with 13.6% each. Male units under the age of 25 were least partial to PPF (Public
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Provident Funds) and MFs (Mutual Funds) when it came to investing. 11 % of the male units below the age of 25 preferred Properties (Real Estate) and Government Bonds as investment options. In case of Female Units below the age of 25, 16.6% favoured FDs and Government Bonds and the remaining66.8% were equally divided among the rest of the investment options.

The favoured investment option of sampling units falling under the age category of 26 to 35 years of age is displayed above. 16.32% of Male units in this age category prefer Insurance and Equities as an investment option whereas 14.28% have investment in Gold and Property. The percentage of the Male units in these age category having invested in FDs, Government Bonds and PPF is 10.20% each. Only 6.12% in this category have investments through MFs 41.17% of female units in this age category invest through other investment options. Otherwise PPF and FDs are preferred by 17.64% of the female units.

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Investments of people between age 36 to 50

OTHERS INSURANCE EQUITIES MF GOLD PROPERTY FD GOVERNMENT BONDS PPF INVESTMENT 0 2 4 0 1 2 6 5 5 6 6 8 10 12 14 1 1 1 1 2 3 7 5 9 female male 6 13

Investment pattern of Kharghar residents falling in the age group of 36 to 50 is shown in the above graph. 22.4% of the male units in this age category have invested through Insurance instrument. 15.51% use Gold as an investment. Property is the third favourable with 12.06% of the male units investing in Real Estates. Equities, FDs and PPF are used as an investment channel by 10.3% of the male samples in the provided age group. MFs and Government Bonds are used by 8.6% of the male population in the sample. When it comes to female units in the above age category, 35.7% make use of PPF as an instrument for investment, with 21.42% using Gold as an investment. Equities and FDs are least utilized as an investment by the female units (only 14.2% each)

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The above graph displays the pattern in the units belonging to the age group 50 and above. 17.3% of male in this age category use FDs to invest whereas Gold and Insurance is used by 15.38% each. MF is used as an Investment option by 13.46% of the male sample population in this age class and Government Bonds are used by 11.54%. Only 7.7% of the population opt for Equities as an investment instrument. 20% of the female sampling units in this age category have invested through Government Bonds and PPF investment. The following graphs display the various reasons given by the sampling units for their choice of investment options. Once more the data is categorized on the basis of age so as to determine the risk appetite and aim/goals of the sampling units for using various investing options. CONCLUSION OF THE FINDINGS From the above data we conclude that the current investment plans of all the age groups include Insurance as a major investment instrument. The below 25 and 26-35 age group which is considered risk taking also relies on insurance for investment channels though with an aim to maximize their wealth and to some extent, to maintain liquidity. Equities are not the most popular means of investment for the young investors who want to maximize their wealth. The above 50(>50) group of investors rely on FDs, Government Bonds, PPFs along with insurance for investing. These are relatively less risky and provide good and constant returns.

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50% of the sampling units falling under the category of below 25 reveal that the reason for investing is to maximize their wealth and increase the sources of income and overall income. 26.9% of the units in this category are convinced that investing helps maximize the liquidity of their assets and 19.2% of the units in this category invest with an aim to save Tax.

Goals for investment of people between age 26 to 35

OTHERS 0 1 2 9 Female INCREASING WEALTH 1 10 8 4 0 2 4 6 8 10 12 Male

SAVING TAX

LIQUIDITY

The above graph displays the investment aim of the sampling units in the category of 26-35 years. 34.3% of the sampling population acknowledge that liquidity is what they aim for while investing whereas 31.42% look for increasing their wealth. Saving Tax is one another reason for investing among these sampling units.
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Goals for investment of people between age 36 to 50

OTHERS 1 1 2 6 Female INCREASING WEALTH 2 10 4 5 0 2 4 6 8 10 12 Male

SAVING TAX

LIQUIDITY

When it comes to sampling units in the age category of 36 to 50, 38.7% look forward to maximizing their assets when investing. 29.03% hope to increase liquidity of their assets by investing and 25.8% invest with an aim to save in their Taxes.

Goals for investment of people above age 50

OTHERS 0 1 1 1 Female INCREASING WEALTH 2 9 2 4 0 2 4 6 8 10 Male

SAVING TAX

LIQUIDITY

Majority of sampling units are interested in increasing their wealth by investing, almost 55% of the sampling population in the age category of above 50. 30% of the sampling units look to increase liquidity and the remaining 10% hope to save Taxes.

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From the above data, we conclude that the major reason or aim of investors is to maximize wealth and increase liquidity of their assets, no matter what age group they belong to. The investors belonging to the age group of 26-35 and 36-50 also think about saving Taxes while investing.

The following graphs show the investor perception towards different investment options when it comes to safety of their investments. Once again the data is classified on the basis of age.

Investors perception on safest option -of people below age 25

INSURANCE EQUITIES MUTUAL FUNDS GOLD PROPERTY AND REAL ESTATE FIXED DEPOSITS GOVERNMENT BONDS PPF 0 0 1 2 1 2 3 4 5 6 7 1 2 0 0 0 2 3 3 4 6 4 Female Male 1

24.13% of the units in <25 age category find government Bonds to be the safest bet. Gold also finds the same amount of support when it comes to safety of the investments i.e. 24.1% consider gold as a safe choice of investment. 20.7% consider FDs as a safe bet for their investments and 13.8% find Property and Real Estate safer. MFs attract only 6.8% when it comes to safety of the investments and so does PPF. Equities have no takers as its considered as one of the riskiest investment instruments among the investors in Kharghar.

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Investors perception on safest option -of people between age 26 to 35

INSURANCE EQUITIES MUTUAL FUNDS GOLD PROPERTY AND REAL ESTATE FIXED DEPOSITS GOVERNMENT BONDS PPF 0 2 0 0 0 0 1 1 1 3 4 4 4 6 8 10 3 8 1 2 5 Female Male 2

In the age group of 26 to 35, 25.71% of investors find FDs as the safest option to invest in. 20% consider PPF as the best way to go when safety of the investments is on the line. 14.28% of the investors in this category are partial towards Gold as a safety investment. 11.42% of the investors in this category find Property and Real estate to be safer. Once again we find that Insurance, MFs and Equities have no takers among investors who look for safety in their investment options.

Investors perception on safest option -of people between age 36 to 50

INSURANCE EQUITIES MUTUAL FUNDS GOLD PROPERTY AND REAL ESTATE FIXED DEPOSITS GOVERNMENT BONDS PPF 0 1 2 0 2 3 3 4 5 6 7 0 1 1 4 2 6 6 6 1 1 2 3 Female Male 4

Investor perception on the safest option in the age category of 36-50 is shown in the above graph and it can be deduced that 23.8% of the investors find FDs to be the safest bet. 14.28% of the investors in this category would go for Government Bonds for safe investments. 11.9% of the
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sampling units in this category prefer PPF or Insurance as a safe option. The remaining 21% is equally divided among

Investors perception on safest option -of people above age 50

INSURANCE EQUITIES MUTUAL FUNDS GOLD PROPERTY AND REAL ESTATE FIXED DEPOSITS GOVERNMENT BONDS PPF 0 2 1 2 3 4 6 8 10 0 0 0 0 1 1 1 2 2 2 2

Female Male 4 8

31.03% Investors in this category consider Government Bonds as a safe investment instrument. 20.68% would rely on FDs for the safety of their investments. 28.6% of the female investors in this age category would opt for Gold, PPF or FDs for the safety of their investments. 17.24% of the total sampling units in this category would go for PPF to ensure the safety of their investment and 6.9% would either go for MFs or Insurance as an investment channel. It can be noted from the above data and figures that the investors find FDs, Government Bonds, Property and Real Estate to be the safest investment options. But the current investment pattern that was deduced from the earlier graphs show that rather than going for the safest option, the investors, no matter what their age is, are ready to take risks in order to maximize their risk.

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% of income invested
25%-50% 1 1

10%-25%

3 15

Female Male 23 37

<10%

10

20

30

40

The above graph shows quantitative data regarding the percentage of income invested by the sampling units of all age categories. The graph shows that 75% of the total sample invests only 10% or lower of their income in the various investment options discussed above. 22.5% invest 10% to 25% of their income. And only 2.5 % invest more than 25 % of their income. Following graphs show age wise differentiation of the percentage of income invested by the sampling units.

% of income invested by people below age 25

25%-50% 1 0

10%-25%

1 1

Female Male 3 12

<10%

10

12

14

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% of income invested by people between age 26 to 35

0 1

25%-50%

10%-25%

1 1

Female Male 10 14

<10%

10

15

% of income invested by people between age 36 to 50

0 0

25%-50%

10%-25%

1 6

Female Male

<10%

6 8 0 2 4 6 8 10

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% of income invested by people above age 50

0 0

25%-50%

10%-25%

0 7

Female Male

<10%

4 3 0 2 4 6 8

From a quick glance at the data and the resultant graphs, a realization can be made that major proportion of young investors invest below 10% (<10%) of their earnings. The reason may be the lack of financial literacy among the investors of the varied form of investment options. Correlating the above graphs with the occupation and income data, we can deduce that the percentage of >50 age group sample units who invest 10%-25% of their earnings are from the business sector or are earning more than Rs. 60,000 (>60,000) monthly

Following Graphs have been added for references and deduction. 1. Saving plan

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Reasons for saving of people below age 25

TAX PLAN EDUCATION CHILD PLAN RETIREMENT PROPERTY 0 2 2 4 6 8 10 0 0 1 3 4 10 11 12 Female Male 1 2

Reasons for saving of people between age 26 to 35

TAX PLAN EDUCATION CHILD PLAN RETIREMENT PROPERTY 0 0 0 5 1 1 3 3 5 10 8 6 14 15 Female Male

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Reasons for saving of people between age 36 to 50

TAX PLAN EDUCATION CHILD PLAN RETIREMENT PROPERTY 0 2 2 4 6 8 1 1 3 5 9 10 12 11 8 10 12 14 Female Male

2. Occupation

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Occupation of people below age 25

others 1 1 1 1 Female Private Job 1 3 0 2 4 6 8 10 2 8 Male

Gov Job

Business

Occupation of people between age 26 to 35

others 5 0 4 3 Female Private Job 1 10 1 3 0 2 4 6 8 10 12 Male

Gov Job

Business

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Occupation of people between age 36 to 50

others 2 1 1 6 Female Private Job 0 2 0 1 2 3 4 5 6 7 4 5 Male

Gov Job

Business

Occupation of people above age 50

others 1 3 1 0 Female Private Job 0 3 0 0.5 1 1.5 2 2.5 3 3.5 2 3 Male

Gov Job

Business

3. INCOME

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Earnings[per month] of people below age 25

>60000 45000-60000 20000-45000 5000-20000 <5000 0 0 1 1 2 3 4 5 6 7 0 1 1

2 2 5 6 Female Male

Earnings[per month] of people between age 26 to 35

>60000 45000-60000 20000-45000 5000-20000 <5000 0 0 0 1 1 2 4 9 5 5 2 4 6 8 10 Female Male

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Earnings[per month] of people between age 36 to 50

>60000 45000-60000 20000-45000 5000-20000 <5000 0 1 1 1 1 3 1 2 3 4 5 6 7 5 6 3 Female Male 0 0

Earnings[per month] of people above age 50

>60000 45000-60000 20000-45000 5000-20000 <5000 0 0 1 1 1 1 2 3 4 5 1 4 3 Female Male 3

4. Loans

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Loan taken by people below age 25

3 NO 6 Female Male 2 Yes 7

Loan taken by people between age 26 to 35

8 NO 6 Female Male 3 Yes 10

10

12

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Loan taken by people between age 36 to 50

2 NO 3 Female Male 5 Yes 11

10

12

Loan taken by people above age 50

1 NO 2 Female Male 3 Yes 8

10

Conclusion The most significant takeaways from this survey are in the realm of financial behavior. Most of the residents in Navi Mumbai seem to be risk averse as indicated by their preference for Equities and they are not comfortable about taking risks. However, the residents of Navi Mumbai make significant investments in Gold and means that offer liquidity. The degree of Insurance amongst the residents of Navi Mumbai is very high. Navi-Mumbaikars are extremely attuned to their initiatives in investments that can help them save taxes. A large majority of them have availed loans to buy physical assets like House and Car. In fact, Majority of people residing in Navi Mumbai take loan only for a House or Car, followed by Educational Loan.

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Bibliography

1)Decisions of Indian Investors Financial Literacy & Investment . 2) Indians are wise savers but poor investors. 3) Factors Influencing Investment Decision of Generations in India:An Econometric Study. 4) Determinants of Individual Investor Behaviour: An Orthogonal Linear Transformation Approach. 5) Antecedents of Households' Investment. 6) Do Behavioral Biases Adversely Affect the Macro-Economy? 7) Household Leverage and the Recession of 2007 to 2009 8) Household Investments in Structured Financial Products: Pulled or Pushed? 9)Google.com 10)Scribd.com

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ii

http://www.ncaer.org/downloads/MediaClips/Press/RajeshShukla-Articles-11-02-08.pdf

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