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Chapter 1 Introduction to Project

1. Introduction to project
Savings from 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 presents a plethora of avenues to the investors. Though certainly not the best or deepest of the markets in the world, it has reasonable options for an ordinary man to invest his savings. Investment benefits both the economy and the society. For the economy as whole, aggregate investment sanctioned in the current period is a major factors in determining aggregate demands and hence the level of employment. In the long term current investment determines the economys future productive capacity and ultimately a growth in the standard of living. By increasing personal wealth, investing can contribute to higher overall economic growth and prosperity. The process of investing helps to create financial markets where companies can raise capital. This too, contributes to greater economic growth and prosperity. Specific types of investments provide other benefits to society as well.

1.1 Investments
Investment is putting money into something with the hope of profits. More specifically, investment is the commitment of money or capital to the purchase of financial instruments or other assets so as to gain profitable returns in the form of interest, income (dividends), or appreciation of the value of the instruments. It is related to savings or differing consumption. Investment is involved in many areas of the economy, such as business management and finance no matter for households, firms, or governments. An investment involves the choice by an individual or an organization, such as a pension funds, after some analysis or thoughts, to place or lend money in a vehicle, instruments or assets, such as property, commodity, stock, bond, financial derivatives (e.g. futures or options), or the foreign assets denominated in foreign currency, that has certain level of risk and provides the possibility of generating returns over a period of time. Investment comes with the risk of the loss of the principal sum. The investment that has not been thoroughly analyzed can be highly risky with the respect to the investment owner because the possibility of losing money is not within the owners control. The difference between speculation and investment can be subtle. It depends on the investment owners mind whether the purpose is for lending the resources to someone else for economic purpose or not.

In the case of investment, rather than store the goods produced or its money equivalent, the investors chooses to use that goods either to create a durable consumer or produced good, or to lend the original saved goods to another in exchange for either interest or a share of the profits. In the first case, the individual creates durable consumer goods, hoping the services from the good will make his life better. In the second, the individual becomes an entrepreneur using the resource to produce goods and services for others in the hope of a profitable sale. The third case describes a lender, and the fourth describes for that last asset by recording an equivalent liability also change. An asset is usually purchased, or equivalently a deposit is made in a bank, in hope of getting a future return or interest from it. The word originates in Latin vestis, meaning garment, and refers to the act of pitting things (money or other claims to resources) into others, pockets. The basic meaning of term being an asset held to have some recurring or capital gains. It is an asset that is expected to give returns without any work on the asset per se .The term Investment is used differently in economics and in finance. Economists refer to a real investment (such as money that is to put in a bank or the market, which may then be used to buy a real asset. In economic theory or in macroeconomics, investment is the amount purchased per unit time of goods which are not consumed but are to be used for future production. Examples include railroad or factory construction. Investment in human capital includes costs of additional schooling or on-the-job training. Inventory investment refers to the accumulation of goods inventories; it can be positive or negative, and it can be intended or unintended. In measures of national income and output, gross investment (represented by the variable I) is also a component of Gross domestic product (GDP), given in the

formula GDP = C + I + G + NX, where C is consumption, G is government spending, and NX is net exports. Thus investment is everything that remains of total expenditure after consumption, government spending, and net exports are subtracted (i.e. I = GDP - C - G - NX).

Non-residential fixed investment (such as new factories) and residential investment (new houses) combine with inventory investment to make up I. Net investment deducts depreciation from gross investment. Net fixed investment is the value of the net increase in the capital stock per year. Fixed investment, as expenditure over a period of time ("per year"), is not capital. The time dimension of investment makes it a flow. By contrast, capital is a stock that is, accumulated net investment to a point in time (such as December 31). Investment is often modeled as a function of Income and Interest rates, given by the relation I = f(Y, r). An increase in income encourages higher investment, whereas a higher interest rate may discourage investment as it becomes more costly to borrow money. Even if a firm chooses to use its own funds in an investment, the interest rate represents an opportunity cost of investing those funds rather than lending out that amount of money for interest. The investment decision (also known as capital budgeting) is one of the fundamental decisions of business management: Managers determine the investment value of the assets that a business enterprise has within its control or possession. These assets may be physical (such as buildings or machinery), intangible (such as patents, software, goodwill), or financial (see below). Assets are used to produce streams of revenue that often are associated with particular costs or outflows. All together, the manager must determine whether the net present value of the investment to the enterprise is positive using the marginal cost of capital that is associated with the particular area of business. In terms of financial assets, these are often marketable securities such as a company stock (an equity investment) or bonds (a debt investment). At times, the goal of the investment is to produce future cash flows, while at others it may be for the purpose of gaining access to more assets by establishing control or influence over the operation of a second company (the investee). The dictionary meaning of investment is to commit money in order to earn a financial return or to make use of the money for future benefits or advantages. People commit money to investments with an expectation to increase their future wealth by investing money to spend in future years. For example, if you invest Rs. 1000 today and earn 10 %over the next year, you will have Rs.1100 one year from today.

An investment can be described as perfect if it satisfies all the needs of all investors. So, the starting point in searching for the perfect investment would be to examine investor needs. If all those needs are met by the investment, then that investment can be termed the perfect investment. Most investors and advisors spend a great deal of time understanding the merits of the thousands of investment options available in India. Little time, however, is spent understanding the needs of the investor and ensuring that the most appropriate investments are selected for him.

1.2 The Investment Needs of an Investor By and large, most investors have eight common needs from their investments: 1. Security of Original Capital; 2. Wealth Accumulation; 3. Comfort Factor; 4. Tax Efficiency; 5. Life Cover; 6. Income; 7. Simplicity; 8. Ease of Withdrawal; 9. Communication.

1.3 Choosing the Right Investment Options After understanding the concept of investment, the investors would like to know how to go about the task of investment, how much to invest at any moment and when to buy or sell the securities, this depends on investment process as investment policy, investment analysis, valuation of securities, portfolio construction and portfolio evaluation and revision. Every investor tries to derive maximum economic advantage from his investment activity.

1.4 Financial Instrument


It is a tradable asset of any kind, either cash; evidence of an ownership interest in an entity; or a contractual right to receive, or deliver, cash or another financial instrument. It is a document with monetary value. Examples include cash and cash equivalents, but also securities such as bonds and stocks which have value and may be traded in exchange for money. A financial instrument is a physical or electronic document that has intrinsic monetary value or transfers value. For example, cash is a financial instrument, as is a check. Listed and unlisted securities, loans, insurance policies, interests in a partnership, and precious metals are also financial instruments. A contractual obligation is also a financial instrument as is a deed that records home ownership. Financial instruments can be categorized by form depending on whether they are cash instruments or derivative instruments:

Cash instruments are financial instruments whose value is determined directly by markets.

They can be divided into securities, which are readily transferable, and other cash instruments such as loans and deposits, where both borrower and lender have to agree on a transfer.

Derivative instruments are financial instruments which derive their value from the value and

characteristics of one or more underlying entities such as an asset, index, or interest rate. They can be divided into exchange-traded derivatives and over-the-counter (OTC) derivatives. Alternatively, financial instruments can be categorized by "asset class" depending on whether they are equity based (reflecting ownership of the issuing entity) or debt based (reflecting a loan the investor has made to the issuing entity). If it is debt, it can be further categorized into short term (less than one year) or long term.

1.5 Financial Instruments in Ludhiana City


Ludhiana City is a commercial capital of Punjab. There is an adverse type of criteria of investors in Ludhiana City about the preference towards the financial instruments. Major investments are done in below commonly used financial instruments:

1. Fixed Deposits
This investment option is most popular and safest option available in the LDH market. With almost every working people invest in fixed deposits; this investment option leads various investment options because of its safety and popularity. Though the amount of return is much lower but this is preferred because it has almost no risk of losing the invested amount. Also the trust factor of people is very high. There are mainly three types of fixed deposits available in the market, namely, viz. 1. Fixed deposits offered by Banks 2. Fixed deposits offered by Post Offices 3. Company fixed deposits

1. Fixed deposits offered by Banks: Considered as the safest of all options, banks have been the roots of the financial system in India. Promoted as the means of social development, banks in India have indeed played an important role in not only urban areas, but also in rural up liftment. For an ordinary person though, banks have acted as the safest avenue wherein a person deposits money and earns interest on it. The two main modes of investment in banks, savings accounts and fixed deposits have been effectively used by one and all.

(2). Fixed deposits offered by Post Offices: Just like banks, post offices in India have a wide network. Spread across the nation, they offer financial assistance as well as serving the basic requirements of communication. Added to it, is the fact that the investments are safe with the department being a Government of India entity.

(3). Company fixed deposits: Another oft-used route to invest has been the fixed deposit schemes floated by companies. Companies have used fixed deposit schemes as a means of mobilizing funds for their options and have paid interest on them.

2. Government Bonds
The Central and State Governments raise money from the market through a variety of Small Saving Schemes like national saving certificates, Kisan Vikas Patra, Post Office Deposits, Provident Funds, etc. These schemes are risk free as the government does not default in payments. But the interest rates offered by them are in the range of 7% -9%.

Kisan Vikas Patra or KVP is a sort of savings, which is regulated with the help of government and post offices. This Kisan Vikas Patra KVP is a plan, which allows the investors to make their investments up to double amount in a less duration of time in comparisons to the other governmental plans. The plan and subscription for Kisan Vikas Patra is now available at every post offices that are regulated through government. Kisan Vikas Patra KVP plan too the interest is given which is up to the rate of 8 percent and also assures to double the amount in approximately 9years.

Public Provident Fund: in Ludhiana City 1. The Public Provident Fund Scheme is a statutory scheme of the Central Government of India. 2. The Scheme is for 15 years. 3. The rate of interest is 8% compounded annually. 4. The minimum deposit is 500/- and maximum is Rs. 70,000/- in a financial year. 5. One deposit with a minimum amount of Rs.500/- is mandatory in each financial year.

6. The deposit can be in lumpsum or in convenient installments, not more than 12


installments in a year or two installments in a month subject to total deposit of Rs.70,000/-.

3. Stock Market
Indian stock markets particularly the BSE and the NSE, had been a preferred destination not only for the Indian investors but also for the Foreign investors. People have earned fortunes from the stock markets, but there are people who have lost everything due to incorrect timings or selection of fundamentally weak companies.

Indian Stock Market


The Indian Stock Market is also the other name for Indian Equity Market or Indian Share Market. The forces of the market depend on the monsoons, global funding flowing into equities in the market and the performance of various companies. The market of equities is transacted on the basis of two major stock indices, National Stock Exchange of India Ltd. (NSE) and The Bombay Stock Exchange (BSE), the trading being carried on in a dematerialized form. In Indian market scenario, the large FMCG companies reached the top line with a double-digit growth, with their shares being attractive for investing in the Indian stock market. Such companies like the Tata Tea, Britannia, to name a few, have been providing a bustling business for the Indian share market.

Ludhiana Stock Market


The Ludhiana Stock Exchange Limited was established in 1981, by Sh. S.P. Oswal of Vardhman Group and Sh. B.M. Lal Munjal of Hero Group, leading industrial luminaries, to fulfill a vital need of having a Stock Exchange in the region of Punjab, Himachal Pradesh, Jammu & Kashmir and Union Territory of Chandigarh. Since its inception, the Stock Exchange has grown phenomenally. The Stock Exchange has played an important role in channelizing savings into capital for the various industrial and commercial units of the State of Punjab and other parts of the country. The Exchange has facilitated the mobilization of funds by entrepreneurs from the public and thereby contributed in the overall, economic, industrial and social development of the States under its jurisdiction.

Ludhiana Stock Exchange is one of the leading Regional Stock Exchange and has been in the forefront of other Stock Exchange in every spheres, whether it is formation of subsidiary for providing the platform of trading to investors, for brokers etc. in the era of Screen based trading introduced by National Stock Exchange and Bombay Stock Exchange, entering into the field of Commodities trading or imparting education to the Public at large by way of starting Certification Programmed in Capital Market. The vision and mission of Stock Exchange is: "Reaching small investors by providing services relating to Capital Market including Trading, Depository Operations etc and creating Mass Awareness by way of education and training in the field of Capital Market to create educated investors and fulfilling the gap of skilled work force in the domain in Capital Market."

How people earn from the investment in shares


Shares can give us returns in two forms. 1. Appreciation in share prices: Investors buy shares with the belief that their price will increase and that when this happens they will be able to sell off the shares and earn profit.

2. Dividend: When a company makes profits, it can choose to share part of its profits with its shareholders by paying out dividend. This dividend is paid as a percentage of the face value of the share. For example, a company may declare a dividend of 25%. Then if the face value of its share is Rs10, investor will get Rs2.50 for every share owned by him of that company, irrespective of the market price. The best thing about dividends is that they are tax-free in the hands of investors.

Advantages of investing in shares


There are lots of advantages of investment in share market. Some of these are: Dividend income: Investment in shares are attractive as dividend is paid by the company.

Tax advantages: Shares appear as the best investment option if investors also consider the unbeatable tax benefits that they offer. First, the dividend income is tax-free in the hands of investors. Second, investor is required to pay only a 10% short term capital gains tax on the profits made from investments in shares, if investor books profits within a year of making the purchase. Easy liquidity: Shares can also be made liquid anytime from anywhere and the gains can be realized in just T+2 days.

Disadvantage of investing in shares:


Risks ---the only disadvantage in investing in shares There are two types of risk associated with this kind of investment: Company specific risk and Market risk. Examples of company specific risk: bad management, bad marketing strategies, sector disturbances that have an impact on industry etc. Examples of market risk: political instability, high inflation, rupee depreciation, rising interest rates, global incidents like wars and disasters that throttle the nation's economy etc.

4. Real Estate
Returns are almost guaranteed because property values are always on the rise due to a growing world population. Residential real estate is more than just an investment. Real estate is one of the fastest growing sectors in India. Market analysis pegs returns from realty in India at an average of 14% annually with a tremendous upsurge in commercial real estate on account of the Indian BPO boom. Lease rentals have been picking up steadily and there is a gaping demand for quality infrastructure. A significant demand is also likely to be generated as the outsourcing boom moves into the manufacturing sector. Further, the housing sector has been growing at an average of 34% annually, while the hospitality industry witnessed a growth of 10-15% last year. Some real estate firms are: 1. Bansal Land Developers 2. Singla Properties

5. Mutual Funds
Mutual funds offer a better route of investing in equities for investors. These funds are collective investments which gather money from different investors to invest in stocks, short term money market financial instruments, bonds and other securities and distribute the proceeds as dividends. The Securities Exchange Board of India regulates the Mutual Funds in India. The share value of the Mutual Funds in India is known as net asset value per share (NAV). The NAV is calculated on the total amount of the Mutual Funds, by dividing it with the number of shares issued and outstanding shares on daily basis.

Mutual funds in India:


The Mutual Funds in India offer flexibility by means of dividend reinvestment, systematic investment plans and systematic withdrawal plans. These funds are available in small units, so they are affordable to the small investors. These funds have the option of redeeming or withdrawing money at any point of time. The Mutual Funds in India have low risk as it is managed professionally.

Benefits of Mutual Funds:Investing in mutual has various benefits, which makes it an ideal investment avenue. (1). Professional investment management: One of the primary benefits of mutual funds is that an investor has access to professional management. A good investment manager is certainly worth the fees you will pay.

(2).Diversification: A crucial element in investing is asset allocation. It plays a very big part in the success of any portfolio. However, small investors do not have enough money to properly allocate their assets.

(3). Low Cost: A mutual fund let investor participate in a diversified portfolio for as little as Rs.5, 000, and sometimes less.

(4). Convenience and Flexibility: Investing in mutual funds has its own convenience. While investor owns just one security rather than many, he still enjoys benefits of a diversified portfolio and a wide range of services.

(5). Transparency: Regulations for mutual funds have made the industry very transparent. Investor can track the investments that have been made on his behalf and the specific investments made by the mutual fund scheme to see where his money is going

(6). Variety: There is no shortage of variety when investing in mutual funds. Investor can find a mutual fund that matches just about any investing strategy he opts. There are funds that focus on blue-chip stocks, technology stocks, bonds or a mix of stocks and bonds.

6. Insurance
The business of insurance is related to the protection of the economic values of the assets. Every asset has a value. The asset would have been created through the efforts of the owner. The asset is valuable to the owner, because he expects some benefits from it. But every asset is expected to last for a certain period of time during which it will provide the benefits. After that the benefit may not be available. The owner is aware of this and he can so manage his affairs that by the end of that period or life-time, a substitute made available. Thus he makes sure that the benefit isnt lost. Here comes the thought of insurance.

Life insurance is a contract between an insurance policy holder and an insurer, where the
insurer promises to pay a designated beneficiary a sum of money (the "benefits") upon the death of the insured person. Depending on the contract, other events such as terminal illness or critical illness may also trigger payment. The policy holder typically pays a premium, either regularly or as a lump sum. Other expenses (such as funeral expenses) are also sometimes included in the premium; however, in Australia the predominant form simply specifies a lump sum to be paid on the policy holder's death.

Purpose of insurance:
Assets are insured, because they are likely to be destroyed or made non-functional before the expected life time, through accidental occurrences are called perils. Fire, floods, breakdowns, lightning, and earthquakes such things are called perils.

A comparison with other forms of savings will show that life insurance has the following advantages: In the event of death, the settlement is easy. The heirs can collect the money quicker, because of the facility of nomination and assignment. Loans can be raised against the policy.

7. Investments in Public Provident Fund (PPF):


Like NSC, Public Provident Fund (PPF) is also supported by the Indian government. An investment of minimum Rs 500 and maximum Rs 70, 000 is required to be deposited in a fiscal year. The prospective investor can create it PPF account in a GPO or head post office or in any sub-divisions of the centralized bank. PPF also falls under Section 80C of IT Act so investors could gain income tax deduction of up to Rs 1, 00,000. The rate of interest of PPF is evaluated yearly with a lock in tenure of maximum 15 years. The basic rate of interest in PPF is 8%.

8. Investments in Gold Deposit Scheme:


Controlled by SBI, Gold Deposit Scheme was instigated in the year 1999. Investments in this scheme are open for trusts, firms and HUFs with no specific upper limit. The investor can deposit invest minimum of 200 gm in exchange for gold bonds holding a tariff free rate of interest of 3% - 4% on the basis of the period of the bond varying with a lock in period of 3 to 7 years. Moreover, Gold bonds are not entitled of capital gains tax and wealth tariff. The sum insured can be accrued back in cash or gold, as per the investor's preference

Chapter 2 Review of Literature

2. Review of literature
A literature review discuses published information in a particular subject area within a certain time period .It might give a new interpretation of old material or combine new with old interpretations or it might trace the intellectual progression of the field ,including major debates. And depending on the situation, the literature review may evaluate the sources and advise the reader on the most pertinent or relevant. The different studies tell the perception of investors i.e. where they want to invest and what they see at the time of investment.

National Council of Applied Economic Research (NCEA) (1961) Urban


Saving survey noticed that irrespective of occupation followed and educational level and age attained, households in each group thought saving for the future was desirable. It was found that desire to make provision for emergencies were a very important motive for saving for old age.

Diamond and Dybvig (1983):


According to this study, the investors or savers choose between an illiquid, high-return project and a liquid, low-return project. A fraction of savers receive shocks, access their savings before illiquid project produces. Prohibitive information (verification) cost creates incentives for financial markets to emerge.

Tamilkodi (1983) has stated that small savings schemes have a psychological appeal and it provides an opportunity for ordinary men, women, and even children to park their savings. It reaches a large number of people and covers a wide range of areas. She also suggested that efforts should be taken to simplify the procedure of small savings schemes to suit the needs of illiterate and socially downtrodden people. Further, she suggested an increase in the rate of interest of small savings schemes to meet the challenges of commercial banks.

Dunham

(1984) admits that although personality factors can change over an

extended period of Time, the process is slow and tends to be stable from one situation to another. Therefore, these factors are expected to influence the decision making behavior of an individual. Barn wall (1987) finds that an individual investor can be found by lifestyle characteristics, risk aversion, control orientation and occupation. Barn wall (1988) suggests the use of psychographics as the basis of determining an individuals financial services needs and takes one closer to the truth from the customers perspective of need to build a marketing program.

Stat man (1988) observed that people trade for both cognitive and emotional reasons. They trade because they think they have information, when in reality they make nothing but noise and trade only because trading brings them joy and pride. Trading brings pride when decisions made are profitable, but it brings regrets when they are not. Investors try to avoid the pain of regret by avoiding realization of losses, employing investment advisors as scapegoats and avoiding stocks of companies with low reputations. Harlow and Brown

(1990) observes that psychologists tend to believe that an


assume that there is some individual

individuals choice is primarily determined by factors unique to the particular decision setting, whereas economists

specific mechanism playing a common role in all economic decisions

Greenwood and Jovanovich (1990):


This study points out the effective information processing (entrepreneurs / projects) induces higher growth. It captures the link between risk-sharing, capital accumulation and growth that how more risk increases capital accumulation and growth. It points out effective information processing and Captures the dynamic interaction between finance and growth. Intermediaries plays crucial role in improving resource allocation and foster growth. Growth > more individuals can afford to join intermediaries > improves efficiency of intermediaries

Gupta L. C (1993) conducted a retail investor survey with 150 participants with the objective to provide data on investor preference on mutual funds and other financial assets.

Acemoglu and Zilibotti (1997): This study points out to Captures the interaction between risk-diversification, capital accumulation and growth, it tells risk diversification like to invest in different instruments accumulate growth in capital. It emphasizes endogenous risk generation in the growth process. It also points out financial systems allow agents to hold a diversified portfolio of risk like to invest in various instruments. According to that more investments in high-return projects, higher growth.

Allen and Gale (1997):


Long-lived intermediaries can facilitate intergenerational risk sharing: invest with a long-run perspective; according to this study which instruments offer returns that are relatively low in boom times and high in slack times.

Macgregor, Slavic, Berry and Even sky (1999) focused on how the financial decision-making process is linked to various aspects of investments/asset classes, specifically experts perceptions of returns, risk, and risk/return associations. A survey was mailed to financial advisors in which, the 265participants that responded were asked to provide their assessment of a series of 19 asset classes with 14 specific variables. The main findings revealed with the utilization of multiple regression analysis with perceived risk as the dependent variable revealed that three significant factors (worry, volatility, and knowledge) explained 98% r-square of the experts risk perception.

Gavini and Athma (1999) found that social considerations, tax benefits, and provision for old age were the reasons cited for saving in urban areas, whereas to provide for old age was the main reason in rural areas. Among the post office schemes, Indira Vikas Patra (IVP), KVP and Post Office Recurring Deposit Account (PORD) were the most popular, in both urban and rural areas.

Securities and Exchange Board of India (SEBI) and NCAER (2000) 'Survey of Indian Investors' has reported that safety and liquidity were the primary considerations which determined the choice of an asset. Ranked by an ascending order of risk perception fixed deposit accounts in bank were considered very safe, followed by gold, units of UTIUS64, fixed deposits of nongovernment companies, mutual funds, equity shares, and debentures. Households' preference for instruments in which they commonly invested matched the risk perception. Bank deposits, which had an appeal across all income classes and tax-saving schemes, were preferred by middle-income and higher-income groups. There was a correlation between the income levels and investments of households in market-related securities.

Warren et al. (1990) and Rajarajan (2000) predict individual investment choices (e.g., stocks, bonds, real estate) based on lifestyle and demographic attributes. These investors see rewards as contingent upon their own behavior (Rajarajan, 2002). Gupta (1991) argues that designing a portfolio for a client is much more than merely picking up securities for investment. The portfolio manager needs to understand the psyche of his client

while designing his portfolio. Risk tolerant investors behave as though they can control risk.

Barber and Odean (2000) explored the impact of intuitive thinking on investment reference to study the experience of actual investors. The ET Retail Equity Investor Survey (2004) in the secondary market identified different categories of investors based on their characteristics and attitude towards secondary market investments. A study by on 245 Kuala Lumpur Stock Exchange individual investors from Kula Lumpur and Pedaling Jaya, reveal that there are some differences between active and passive investors in terms of

demographic and psychographics, investment characteristics as well as investment behavior.

Brabazon.T, (2000) Investments are made with an avowed objective of maximizing the wealth. Investors need to make rational decisions for maximizing their returns based on the information available by taking judgments free from emotions.

Karthikeyan (2001) has conducted research on Small Investors Perception on Post office Saving Schemes and 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),and the Overall Score Confirmed that the level of awareness among investors in the old age group was higher than in those of young age group. NO differences were observed among male and female investors except for NSS and KVP. Rajarajan .V, 2003, investors demographic and risk capacity, the objective of the study is to develop a profile of sample individual investor in term of their demographics and to know their risk tolerance level. He observed 150 samples by using chi-square methodology. He found that irrespective of gender, 41% are found low risk tolerance and 34%have high risk tolerance level. From his findings and solutions investors prefers to invest in financial products which give low risk returns like PPF, FD, bonds etc.

Ricciardi V, 2005 Behavioral finance is a new paradigm of finance which seeks to supplement the standard theories of finance by introducing behavioral aspects to the decision making process of investors. This field merges the concepts of financial economics and cognitive psychology in an attempt to construct a more detailed model of human behavior in financial markets. ascertains that behavioral finance investigates the cognitive factors and emotional issues that individuals, financial experts and traders exhibit within the securities market. Corter and Chen, 2006, the success or failure of past investor experience influences the tendencies of investors towards risk and risk perception, and further affects decision making behavior. (Shanmugasundaram V and Balakrishnan V, 2006) otherwise he can choose the mutual fund route or portfolio manager and operate through systematic plan, where his investments will attain its real worth.

Nalini Prava Tripathy (2006) in her empirical study Market Timing Abilities and Mutual Fund Performance- An Empirical Investigation into Equity Linked Saving Schemes evaluated the market timing abilities of Indian Fund managers of thirty-one tax planning schemes in India over the period December, 1995 to January, 2004 by using Jensen and Mazuy Model and Henriksson and Merton model. The study indicates that the Fund

managers have not been successful in reaping returns in excess of the market; rather they are timing the market in the wrong direction.

P. Hnaumantha Rao and Vijay KR. Mishra (2007) in their article Mutual Fund: A Resource Mobiliser in Financial Market made a critical study of the role performed by Mutual Funds as a financial service in Indian Financial Market. Gajendra Sidana and Debashis Acharya (2007) in their article Classifying Mutual Funds in India: Some Results from Clustering made an attempt to classify hundred Mutual Funds employing cluster analysis and using a host of criteria like the 1 year annualized return, 3 year annualized return, 5 year annualized return, alpha, beta, R-squared, Sharpes ratio, mean and standard deviation etc. Yesh Pal Davar and Suveera Gill (2007) An analysis was made on the perceptual views of investors in Investment Decision Making: An empirical study of perceptual View of Investors The results of this study suggest that investors preferences are supposedly related to the actual performance of investments and the same is taken into account while forming an opinion about making future investment decision. Marwaha(2007) in his article titled Fixed Income Securities Accounting of Income has supported the application of alternate accounting procedure in which buying and selling goes continuously .The internet rates are also calculated on daily product basis. It is also recommended that the purchase time of the security matters the most to the investor irrespective of the accounting procedure.

Arvind

O.I.

Hoffmann

(2007) the

behavioral

finance

literature

argued

that investors may care about more than risk and returns. Investing may offer value-expressive benefits like status and social responsibility besides utilitarian benefits like low risk in combination with high returns. Tastes differ and different investors like stocks for different reasons as they try to satisfy different needs with their investments. We have performed an empirical study on the different needs investors aim a important fine-grained to satisfy by between investing. these

Our investment survey different needs and showed

made

distinction for

differences

male and female,

old and young investors, and investors with knowledge and experience and investors with a low level of investment-related knowledge and experience. Mukhopadhyay and Veena (2007) in their study Mutual Funds in India Emerging Trends have done many tests like the regression analysis and Pearson correlation test to find trends in the MF market. Those have come to the conclusion that deregulation of financial industry, increased penetration of the rural market, offering writing facility etc. will drive the MF industry in future. S.K Miglani (2007) in his study made an attempt to understand the Mutual Fund industry and its implications on the common investors on one hand and its returns and performance on the other.

S. Sudalaimuthu and P. Senthil Kumar (2008) In their study entitled A study on Investors perception towards Mutual Fund investments, was concentrated on highlighting the investor awareness and preference in Mutual Fund schemes, factor that influences the investor in selecting Mutual Fund scheme, the level of satisfaction on the investment of Mutual Fund, problems faced by Mutual Fund investors and the investment objectives, preference among Fund types (balanced, growth, dividend etc.).

Sunaya Khurana (2008) analyzed the customer preference in life insurance industry in India. She had analyzed the customer preference regarding plans and company, their purpose of buying insurance policies, satisfaction level and their future plans for the new insurance policy. Steinbacher, 2008 Investments are made with an avowed objective of maximizing wealth. Investors need to make rational decisions for maximizing their returns based on the information available by taking judgments free from emotions. Investors' behavior is characterized by over excitement and overreaction in both rising and falling stock markets. Most of the investments and financial theories are based on the idea that everyone takes careful account of all available information before making investment decision. This research is conducted to analyses the factors influencing the behavior of investors in capital market. Empirical evidence suggests that demographic factors influence the investors' investment decisions. This research article also investigates how investor interprets and acts on various capital market information to make informed investment decisions.

Waweru N M et al. (2008) investigated the role of behavioral finance and investor psychology in investment decision making and identified that certain behavioral factor affected the decision making behavior of the investors. It acquired importance because in stock market, decisions are not guided by rationality or prudence, but the emotions, greed and insufficient knowledge in stock market operations in the highly overloaded information environment Mittal M and Vyas R.K (2008) explored the relationship between various demographic factors and the investment personality exhibited by the investors. Empirical evidence suggested that factors such as income, education and marital status affect an individuals investment decision. Further the results revealed that investors in India can be classified into four dominant investment personalities namely casual, technical, informed and cautions.

Dhanda and Shoekand(2008) in their study titled Recent Trends in Indian Primary Capital Market found out that the private sector companies were on the top position in opening the new issues in primary market in India during the period of study. They also concluded that the banking/financial institutions sector continued to dominate the primary market both in terms of number of issues and amount raised. Mahajan and Singh (2008) in their study titled Return, Volume and Volatility Analysis in Indian Stock Market have tried to examine the relationship between return, volume and volatility in Indian stock market. The results of this study indicate inefficiency and information asymmetry in the market. Stock price behavior reflects the average change in the investors beliefs due to the arrival of new information in the market whereas the trading volume reflects the sum of investors reactions. The stock price-volume relation can be used as evidence for or against the efficiency of stock markets.

Singh (2008) in her study titled Beta Estimation in the stock Market: Stability, Stationary and Computational Considerations has studied 158 stocks over a twelve year period of 19922002. In her study she has analyzed that effect of the time over which the beta was calculated, the size of portfolios and the value of the beta over this period etc. methods have an effect on the beta estimations calculations.

Tiwari (2008) in his study titled Primary Market Investments Decisions concluded that there are various measures to revive the investor assurance to make the Indian equity primary market efficient. This study revolves around the decisions taken by the investors while investing in the primary markets. The field of behavioral finance which looks into psychological factors is the main driving force behind this research. Senthil and Sudalaimuthu (2008) in their study titled A study on Investors perception towards Mutual Fund Investments have found out the factors like investor awareness and preference that influence the investor in selecting a mutual fund scheme.

(Cianci A.M, Iyer B and Baskar R.K, (2008) Investor behavior is characterized by overexcitement and overreaction in both rising and falling stock market and various factors influences their decision making processes. Investment decisions are also affected by investor psychology. Investors make investment decisions before outcomes are certain. Psychologists have found that as decisions become more difficult and involve higher levels of uncertainty the decisions tend to be more greatly influenced by emotions and feelings for e.g., investors are reluctant to sell a stock at a loss. They often want to hold a stock until it goes back up to the price paid for it no matter how long it takes. Such a decision is based not much on the opinion that the stock is a greater investment opportunity for them but more on the desire to avoid that awful feeling associated with admitting a mistake. Successful investors are able to understand and overcome these adverse psychological influences).

Nicolosi G et al., (2009) analyzed individual investors learning behavior from two perspectives, the first being based on the relation between trade performance and trading behavior and presented strong evidence that individual investors learn from their trading experiences. Further they posit that not only do excess portfolio returns improve with account tenure, but they also found that trade quality significantly increases with experience and concluded that individual stock investors do learn, and they consequently adjust their behavior and thus effectively improve their future investment performance.

Chaubey D.S and Dimri R.P (2009) in their empirical investigation identified that investment perception and various factors which influence the investors in their selection of the investment avenues. They found that the behavior of investors for designing effective investment policies which indicated that investors choice of their investment scheme is associated with the demographic factors like age ender, marital status, occupation and income but it is not associated with their level of education, family size and annual savings. They concluded that physiological profiling is the most important aspect which needs to be taken care for various investment avenues.

Nagpal S and Bodla B.S. (2009) attempted to bring out the life-style characteristics of the respondents through an empirical analysis and their influence on investment preferences and found that in-spite of the phenomenal growth in the security market and quality IPOs, the individual investors prefer less risky investments viz., life insurance policies, fixed deposits, and post office savings, PPF and NSC. They also found that investors are in the trap of some kind of cognitive illusions such as overconfidence and narrow framing. They considered multiple factors and seek diversified information before executing some kind of investment transaction. They further concluded that financial dailies, TV channel and peer groups can play a pivotal role in making investment decisions and also psychographics play an important role in determining investment behavior and preferences of individual investors.

Bharathi (2009) in his study titled A Study on Motives of Equity Investors has analyzed the motive of the investors in making equity investments. Also the researcher has made an attempt to study the socio-economic status of the equity investor and to find out the relation between the motives and factors influencing the decision making. Kalia and Rangnekar(2009) in their study titled An empirical study on Marketing of Financial Services and Products remarked that commercial banking industry has undergone a considerable change in the last fifteen years. The study focuses on finding out the significance of the factors that have made an impact on the marketing of the financial services and products.

Maini and Sharma (2009) in their study titled Information Needs of Investors have made an effort to analyze the different information needs related to the investment of the investors in accordance to the various capital market measures taken by government and SEBI .The study found out that the information provide by the companies to the investors should not be restricted to the annual financial statements only, but the qualitative information or non-financial should also be provided to take the right decision at the right time.

Singh and Singh (2009) in their research paper titled Volatility in Indian Stock Market : An Analysis of Individual Stocks Listed at NSE have made an attempt to the test the volatility in the individual stocks listed at National Stock Exchange using daily closing prices of 29 companies. The research reveals that ACC,HDFC,ITC,MTNL,SBIN and SIEMENS have been comparatively less volatile than other securities .On the other side securities like Bajaj Auto , DR. Reddy , Glaxo , Grasim and some others were highly volatile in the same period of 1996-97 to 2006-07.

(Shanmugasundaram V and Balakrishnan V, 2009) A prudent investor who can control his emotions can use his money for hedging against inflation by identifying sources of right analytical presentations and by sparing sufficient time for investment decision for directly partaking in the stock market operation including futures and options,

Love D.A (2010) investigated the impact of demographic shocks on optimal decisions about savings, life insurance and most certainly assets allocation and found that marital status transitions could have important effects on optimal household decisions, particularly in the cases of widowhood and divorcee. He also found that children also play a fundamental role in portfolio choice, and the literature on optimal portfolio choice over the life cycle has focused on the roles of housing costs and background risks due to labour income. His empirical evidence shows that divorce and widowhood have particularly strong effects on allocations, and that these effects differ significantly by gender, age and number of children. Syed. Tabassum Sultana (2010) An Empirical Study of Indian Individual Investors Behavior was an attempt to know the profile of the investors and also to know their characteristics so as to know their preference with respect to their investments. The study also tried to unravel the influence of demographic factors like gender and age on risk tolerance level of the investors.

Bodla ,Yadav and Kumar(2010) in their study titled Impact of Holding Period on risk and return: A Study of Emerging Stock Markets analyzed the risk-return pattern of several short as well as long holding periods over a period of twelve years .The study in the end reveals that it is good for the investors to hold investment for a long period. N.Bharathi (2010) in his study titled Decision Making: Equity Investment has tried to present those factors which affect the investment decision making by the equity investors in particular The study reveals that there are several factors other than return on investment ,scope for trade and level of competition that affect the investors decision .These factors are market environment, financial health of the corporate ,nature of business, corporate policy and earning quality.

Sriniwas (2010) in his article titled The mind of Market has remarked that there are four
factors which are looked into to see read the mind of the investor .First is the investor sentiment measured by the sense , second is the liquidity which comes from FIIs inflows. The third is the earnings which need to be good at least and fourth is the valuations. In this article writer says that the market is going to be pulled in all these four directions for the next two quarters.

(Shanmugasundaram V and Balakrishnan V, 2010)

The ability to understand the

judgement heuristics like rationality or irrationality of the investment pattern and behavior will enable the investor to act with caution as the consequences are likely to affect the asset value, lifestyle, relationship with others and social interaction. Investors in various places acknowledge the role of emotions in investment decision making and their empirical results suggested that the demographic factors influence the investors investment decision.

Chapter 3 Research Methodology

3. Research Methodology
Research in common parlance refers to a search for knowledge. One can also define research as a scientific and systematic search for pertinent information on a specific topic. In fact, research is an art of scientific investigation. This inquisitiveness is the mother of all knowledge and the method, which man employs for obtaining the knowledge of whatever the unknown, can be termed as research. It will give an overall view of the method of conducting the research .Next, it will describe in detail as to how the required relevant facts, figures and data will be collected for the research work.

3.1 Objectives of the study


The purpose of research is to discover answers to questions through the application of scientific procedures. The main aim of research is to find out the truth which is hidden and which has not been discovered as yet. 1. To study the preference of the respondents towards different financial instruments and to evaluate the awareness about various investment opportunities. 2. To understand the mostly preferred mode of investment. 3. To estimate the relationship between the annual income and the annual savings. 4. To study the factors considering while taking investment decisions and sources of information influencing the choice of a particular financial instrument.

3.2 Scope of the study


This research has been conducted in Ludhiana city on those respondents who have been investing money for at least 1 year.

3.3 Population
All the investors who are investing money for at least one year in Ludhiana city.

3.4 Sample size


100 samples were collected from Ludhiana city.

3.5 Research Design


Research design is a framework or blueprint for conducting my research. It details the procedures necessary for obtaining the information needed to structure or solve research problem. In this research project Descriptive Research Design has been used .It has been used because it is a fact-finding investigation with adequate interpretation.

3.6 Sampling Tools and Techniques


Sampling tools and techniques are used which is suitable for the research i.e. Percentage method, Garrett ranking (to access investors preference), Bar Graph method, Correlation analysis (to find the correlation between different factors), Chi-square testing and technique is Convenience sampling.

3.6.1 Henry Garrett Ranking Techniques


This technique was used to evaluate the problems faced by the policy holders of Health Insurance policy. In this method, the policy holders were asked to rank the given problem according to the magnitude of the problem. The orders of merit given by the respondents were converted into ranks by using the following formula. Percentage Position =
100R ij 0.5 Nj

Where, Rij = Rank given for ith item jth individual Nj = Number of items ranked by jth individual The percentage position of each rank thus obtained was converted into scores by referring to the table given by Henry Garrett. Then for each factor the scores of individual respondents were added together and divided by the total number of respondents for whom the scores were added. These mean scores for all the factors were arranged in the order of their ranks and inferences were drawn.

3.6.1.1 Henry Garretts Ranking Table


Percentage 0.09 0.20 0.32 0.45 0.61 0.78 0.97 1.18 1.42 1.68 1.96 2.28 2.63 3.01 3.43 3.89 4.38 4.92 5.51 6.14 6.81 7.75 8.33 8.17 10.16 11.03 12.04 13.11 14.25 15.44 16.69 18.01 19.39 20.93 Score 99 98 97 96 95 94 93 92 91 90 89 88 87 86 85 84 83 82 81 80 79 78 77 76 75 74 73 72 71 70 69 68 67 66 Percentage 22.32 23.88 25.48 27.15 28.86 30.61 32.42 34.25 36.15 38.06 40.01 41.97 43.97 45.97 47.98 50.00 52.02 54.03 56.03 58.03 59.99 61.94 63.85 65.75 67.48 69.39 71.14 72.85 74.52 76.12 77.68 79.12 80.61 81.99 Score 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 Percentage 83.31 84.56 85.75 86.89 87.96 88.97 89.94 90.83 91.67 92.45 93.19 93.86 94.49 95.08 95.62 96.11 96.57 96.99 97.37 98.72 98.04 98.32 98.58 99.82 99.03 99.22 99.39 99.55 99.68 99.80 99.91 100 Score 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0

3.6.2 Chi square testing Chi-square test or test, is any statistical hypothesis test in which the sampling distribution of

the test statistic is a chi-squared distribution when the null hypothesis is true, or any in which this is asymptotically true, meaning that the sampling distribution (if the null hypothesis is true) can be made to approximate a chi-squared distribution as closely as desired by making the sample size large enough. Formula: = (O E)2 E Where, O = Observed frequency E = Expected frequency

3.7 Data Collection


Data has been collected from both primary and secondary sources in Ludhiana City. Primary has been collected from Structured Questionnaire and secondary data has been collected from Journals, magazines, articles and Internet also.

3.8 Primary Data


Primary method involves data observed or collected directly from first-hand experience is called primary data. In this research Structured Questionnaire are used for collecting the investors preference towards the financial instruments.

3.9 Secondary Data


Secondary data is a published data and the data collected in the past or other parties is called secondary data. For this Ill use Journals, magazines, articles and Internet also.

3.10 Design of research methodology


Research Research Design Survey Sampling Technique Sample tools Descriptive research Structured Questionnaires Convenience sampling Percentage Method, Garrett ranking (to access investors preference), Bar graph method, Correlation analysis, Chisquare testing All the investors who are investing money for last one year in Ludhiana city. Sample Size Data Collection Primary Sources Secondary Sources 100 investors Primary Sources, Secondary Sources Personal interviews Journals, magazines, books, articles and Internet also. Methodology

Sample Population

3.11 Focus of the study


The present financial environment provides ample opportunities of investment to the investors. The decision to invest in right instrument is too complex which can meet their expectations perfectly. So a study has been done which explain about the perception of investors about various financial instruments what they exactly see at the time of investment which includes their tendency, preference and factors through which an investor influenced. The study also focuses on analyzing the investment patterns of the investment.

3.12 Significance of the study


The increasingly complex nature of business and government has focused attention on the use of research in solving operation problem. Significance of research is as follows: 1) Research has its special significance in solving various operational and planning problems of business and industry. 2) Research provides the basis for nearly all government policies in our economic system. 3) Research is equally important for social scientists in studying social relations answer to various social problems. 4) Research may mean the generalizations of new theories.

3.13 Limitations of the study


1. Total number of financial instruments in the market is so large that it needs a lot of resources to analyze them all. 2. 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. 3. As the project is also based on secondary data, possibility of unauthorized information cannot be avoided. 4. Reluctance of the people to provide complete information about them can affect the validity of responses.

Chapter - 4 Data Analysis and Interpretation

Table: 1 Number of respondents of different age group (N=100)

Age group range

20-25 years

25-30 years

30-35 years

35-40 years

above 40 years

No. of Respondents

41

19

10

11

19

45 40 35 30 25 20 15 10 5 0

41

19 10 11

19

20-25 years

25-30 years

30-35 years No. of respondents

35-40 years

above 40 years

Figure 1: Showing respondents of different age group


Analysis and interpretation It can be analyzed that most of the respondents are in the age group of 20-25 years and respondents falling in other age groups are also interested in investing.

Table 2: Showing education level/qualification of respondents (N=100)

Education level/qualification

School level

Graduate

Post Graduate

No. of Respondents

61

38

70 61 60 50 40 30 20 10 1 0 School level graduate No. of respondents post graduate 38

Figure 2: Showing qualification of respondents Analysis and Interpretation It can be analyzed that 61 respondents are graduate and 38 of respondents are post graduate. Thus most of the responses have come from the investors whose educational qualification is graduation.

Table 3: Showing occupation of the respondents (N=100).

Occupation

Student

Business man/women

Serviceman/women Unemployed

No of Respondents

18

40

37

45 40 35 30 25 20 15 10 5 0 Student 18

40

37

Business man/women

Service man/women

Unemployed

No. of respondents

FIGURE 3: Showing occupation of the respondents. Analysis and Interpretation Out of the total 100 respondents, the maximum number of responses has come from business class and then service class. Thus it can be interpreted that the findings of the study are influenced by the preferences of business and service class people.

TABLE 4: Showing different sources of information preferred (N=101)

Sources of information

Family/ Friends/ Relatives

Advertisin g

Brokers

Financial Consultants

Magazines/ Newspaper

Internet

No. Of Respondents

39

17

10

18

10

45 40 35 30 25 20 15 10 5 0

39

17 10

18 6 10

No. of respondents

Figure 4: Showing different sources of information preferred Analysis and Interpretation Out of total responses about different sources of information, 39 responses of information is gathered from family/friends/relatives and 17 responses are taken from Advertisement and 18 from financial consultants and least information is taken from brokers, Internet and magazines & newspapers respectively. It is clear that Friends/Relatives, advertisement and magazines & newspapers are the most commonly used and popular media to get information about different investment options.

Table 5: Showing preferred mode of communication. (N=100)

Preferred Mode of communication No. of respondents

Automated response

Personal Visit

Telephone

no preference

15

19

63

70 60 50 40 30 20 10 0 Automated response Personal Visit 15 19

63

3 Telephone no preference

No. of respondents

Figure 5: Showing preferred mode of communication

Analysis and Interpretation Out of total responses about different preferred mode of communication, largest respondents are preferred Telephone mode of communication.

Table 6: Showing different income groups of respondents (N=100) Annual income No. of respondents 33 14 14 19 20 1.00 2.00 3.00 4.00 Lakh 4.00 5.00 Lakh above 5.00 Lakh

2.00 Lakh 3.00 Lakh

35 30 25 20 15 10 5 0

33

19 14 14

20

1-2 lakh

2-3 lakh

3-4 lakh No. of respondents

4-5 lakh

above 5 lakh

Figure 6: Showing different income groups of respondents Analysis and Interpretation The maximum number of respondents falls in the income group of Rs.1.00 - 2.00 Lakh and above 5 Lakh and the minimum number of respondents lie in the income group of Rs. 2.00 -3.00 and 3.00 4.00 Lakh. It can be interpreted that in this study investment options taken by Lower Middle Income and Middle Income Group.

Table 7: Showing different annual savings range of respondents (N=100)

Annual savings range

less than 50,000

50000-1 Lakh

1 lakh-1.5 Lakh

more than 1.5 Lakh

No. of respondents

37

27

14

22

40 35 30 25 20 15 10 5 0

37

27 22 14

less than 50,000

50000-1 lakh

1 lakh-1.5 lakh

more than 1.5 lakh

No. of respondents

Figure 7: Showing different annual savings range of respondents Analysis and Interpretation The maximum number of respondents falls in the saving range group of less than 50,000 and more than 1.5 Lakh and the minimum number of respondents lay in the saving group of Rs. 1.00 -1.5 Lakh. It can be interpreted that in this study investment options taken by Lower Middle Income and Middle Saving Group.

Table 8: Showing different objectives of saving of money of respondents (N=100)

Objectives No. of respondents

Post retirement benefits

Contingencies

asset purchase

education of children

tax deduction

19

13

34

10

24

40 35 30 25 20 15 10 5 0 Post retirement Contingencies asset purchase education of benefits children No. of respondents tax deduction 19 13 10 24 34

Figure 8: Showing different objectives of saving of money of respondents

Analysis and Interpretation The maximum number of respondents saves money for asset purchase and some for tax deduction but minimum number of respondents saves for education of children. In that case 34% respondent saves for asset purchase and only 10% respondents saves for education of children.

Table 9: Showing different preferences towards financial instruments in Ludhiana City (N=100) (with Garrett ranking 1 - 11)

Preference towards F.I's


160 140 120 100 80 60 40 20 0 FD's Mean Score

Life Postal Equity Gold Real Mutua Bonds insura saving shares &Silver estate l funds nce s 42.74 7 58.38 4 63.48 2 55.32 5 52.74 6 40.07 8 3

IPO's 33.17 11

Pro. Fund 38.49 9

Govt. sec. 36.78 10

Mean score 134.18 61.95 Ranks 1

Analysis & Interpretation Insurance and Banks are highly preferred by the people of Ludhiana as investment options. Equity Shares, Bonds, IPOs and Government Securities are less preferred by the common people of Ludhiana. Real Estate and Gold are highly preferred by people of Ludhiana as investment option.

Table 10: Showing management of savings of respondents (N=100)

Horizon

Manage by itself

Handled by professional advisor

Both

No. of respondents

35

57

60 50 40 30 20 10 0 Manage by itself Handled by professional advisor No. of respondents 8 35

57

Both

Figure 10: Showing management of savings of respondents Analysis and Interpretation The maximum number of respondents manage their investments from both itself and by help of professional advisor. The minimum number of the respondents manage there investments through professional advisors.

Table 11: Showing Factors taken into consideration while taking investment decision (N=100) rate of returns 42 risk tolerance 10 more security 28 market trends 8 12

Factors No. of respondents

transparency

45 40 35 30 25 20 15 10 5 0

42

28

10

12 8

No. of respondents

Figure 11: Showing Factors taken into consideration while taking investment decision Analysis and Interpretation The maximum number of respondents was taking rate of return and more security factor while taking investment decision. The minimum number of the respondents goes for transparency.

Table 12: Showing Gender and Factor correlation (N=100) &check the significant level by Chi-square testing technique. Step 1: Step 2:

Observed values Factors Rate of returns Risk tolerance More security Transparency Market trends Grand Total Male 29 5 22 5 11 72 Female 13 5 6 3 1 28 Grand Total 42 10 28 8 12 100 Factors Rate of returns Risk tolerance More security Transparency Market trends Grand Total

Expected values Male 30.24 7.2 20.16 5.76 8.64 72 Female 11.76 2.8 7.84 2.24 3.36 28 Grand Total 42 10 28 8 12 100

Formula:

Row total*column total No. of respondents

Step 3:

Gender & Factors correlation


No. of respondents 35 30 25 20 15 10 5 0

Male Female

Factors Figure 12: Showing Gender and Factor correlation

Step 4: Chi -square testing 1. Ho: there is no significant difference between Gender and factors considered while taking investment decisions 2. H1: there is significant level. 3. Level of significance: = 5% 4. Test statistics: -test (MS-Excel) 5. Computation of observed & expected frequency: Male Factors Rate of returns Risk tolerance More security Transparency Market trends (O) 29 5 22 5 11 (E)
30.24 7.2 20.16 5.76 8.64

, = 1%

Female (O) 13 5 6 3 1 (E)


11.76 2.8 7.84 2.24 3.36

6. Application of

-test at 5% level and 1% level

a) Degree of freedom = (5-1) (2-1) = 4 *1 = 4 b) CV TV (95% confidence level, CV<TV CV TV (1% confidence level, CV<TV 0.21121971 9.48772904

c)

0.21121971 13.2767041

7. Analysis: since CV < TV so difference is insignificant. Ho (null hypothesis) is accepted and there is no significant difference between Gender and Factor.

Table 13: Showing Age and Objectives correlation (N=100) &check the significant level by Chi-square testing technique. Step 1: Objectives of saving Actual values Age group range 20-25 25-30 30-35 35-40 8 3 1 2 8 2 2 0 14 5 5 4 1 4 1 1 10 5 1 4 41 19 10 11 above 40 5 1 6 3 4 19 Grand Total 19 13 34 10 24 100

Post retirement Contingencies Asset purchase Education of children Tax deduction Grand Total Step 2: Objectives of saving

Expected values Age group range 20-25 7.79 5.33 13.94 4.1 9.84 41 25-30 3.61 2.47 6.46 1 4.56 19 30-35 1.9 1.3 3.4 1 2.4 10 35-40 2.09 1.43 3.74 1.1 2.64 11 above 40 3.61 2.47 6.46 1.9 4.56 19 Grand Total 19 13 34 10 24 100

Post retirement Contingencies Asset purchase Education of children Tax deduction Grand Total

Step 3: Figure 13: Showing Age and Objectives correlation

Age & Objectives correlation


16 14 12 10 8 6 4 2 0
20-25 25-30 30-35 35-40 above 40 No. of respondents

Post retirement Contingencies Asset purchase Education of children Tax deduction

Age group range

Step 4: Chi -square testing 1. Ho: there is no significant difference between Age and Objectives of saving of money. 2. H1: there is significant level. 3. Level of significance: = 5% 4. Test statistics: -test (MS-Excel) 5. Computation of observed & expected frequency: Age group range 25 - 30 30 - 35 35 - 40 (O) (E) (O) (E) (O) (E) 3 3.61 1 1.9 2 2.09 2 2.47 2 1.3 0 1.43 5 6.46 5 3.4 4 3.74 4 5 1 4.56 1 1 1 2.4 1 4 1.1 2.64 , = 1%

Objectives Post retirement Contingencies Asset purchase Education of children Tax deduction 6. Application of

20 - 25 (O) (E) 8 7.79 8 5.33 14 13.94 1 10 4.1 9.84

above 40 (O) (E) 5 3.61 1 2.47 6 6.46 3 4 1.9 4.56

-test at 5% level and 1% level

a) Degree of freedom = (5-1) (5-1) = 4 *4 = 16 b) CV TV (95% confidence level, CV<TV 0.2230356 26.2962276

c) CV TV (1% confidence level, CV<TV 0.2230356 31.99992691

7. Analysis: since CV < TV so difference is insignificant. Ho (null hypothesis) is accepted and there is no significant difference between Age and Objectives.

Table 14: Showing Education level and factors correlation (N=100) &check the significant level by Chi-square testing technique. Step 1: Actual values Educational level School Post level Graduate graduate 0 23 19 0 5 5 1 21 6 0 4 4 0 8 4 1 61 38

Factors Rate of returns Risk tolerance More security Transparency Market trends Grand Total

Grand Total 42 10 28 8 12 100

Step 2:

Factors Rate of returns Risk tolerance More security Transparency Market trends Grand Total Step 3:

Expected values Educational level School Post level Graduate graduate 0.42 25.62 15.96 0.1 6.1 3.8 0.28 17.08 10.64 0.08 4.88 3.04 0.12 7.32 4.56 1 61 38

Grand Total 42 10 28 8 12 100

Education & Factors correlation


No. of respondents 25 20 15 10 5 0 School level Graduate Post graduate

Factors

Figure 14: Showing Education level and factors correlation

Step 4: Chi -square testing 1. Ho: there is no significant difference between Education level and factors considered while taking investment decisions. 2. H1: there is significant level. 3. Level of significance: = 5% 4. Test statistics: -test (MS-Excel) 5. Computation of observed & expected frequency: Education Level Graduate (O) (E) 23 25.62 5 6.1 21 17.08 4 4.88 8 7.32 , = 1%

Factors Rate of returns Risk tolerance More security Transparency Market trends 6. Application of

School level (O) (E) 0 0.42 0 0.1 1 0.28 0 0.08 0 0.12

Post graduate (O) (E) 19 15.96 5 3.8 6 10.64 4 3.04 4 4.56

-test at 5% level and 1% level

a) Degree of freedom = (5-1) (3-1) = 4 *2 = 8 b) CV TV (95% confidence level, CV<TV 0.48246 15.5073

c) CV TV (1% confidence level, CV<TV 0.48246 20.0902

7. Analysis: since CV < TV so difference is insignificant. Ho (null hypothesis) is accepted and there is no significant difference between Education level and Factors.

Table 15: Showing Occupation and Objectives correlation (N=100) &check the significant level by Chi-square testing technique. Step 1: Actual values Occupation Business Service man/women man/women 4 14 4 4 16 10 5 11 40 2 7 37

Objectives Post retirement Contingencies Asset purchase Education of children Tax deduction Grand Total Step 2:

Student 1 3 7 1 6 18

unemployed 0 2 1 2 0 5

Grand Total 19 13 34 10 24 100

Objectives Post retirement Contingencies Asset purchase Education of children Tax deduction Grand Total

Student 3.42 2.34 6.12 1.8 4.32 18

Expected values Occupation Business Service man/women man/women 7.6 7.03 5.2 4.81 13.6 12.58 4 9.6 40 3.7 8.88 37

unemployed 0.95 0.65 1.7 0.5 1.2 5

Grand Total 19 13 34 10 24 100

Step 3: figure 15: showing occupation and objectives correlation.

Occupation & objectives correlation


No. of respondents 20 15 10 5 0 Student Business man/women Service man/women unemployed

Objectives

Step 4: Chi -square testing 1. Ho: there is no significant difference between Occupation and Objectives of saving of money. 2. H1: there is significant level. 3. Level of significance: = 5% 4. Test statistics: -test (MS-Excel) 5. Computation of observed & expected frequency: Occupation Business Service man/women man/women (E) (E) (O) (O) 4 7.6 14 7.03 4 5.2 4 4.81 16 13.6 10 12.58 5 11 4 9.6 2 7 3.7 8.88 , = 1%

Objectives Post retirement Contingencies Asset purchase Education of children Tax deduction 6. Application of

Student (E) (O) 1 3.42 3 2.34 7 6.12 1 6 1.8 4.32

Unemployed (O) (E) 0 0.95 2 0.65 1 1.7 2 0 0.5 1.2

-test at 5% level and 1% level

a) Degree of freedom = (5-1) (4-1) = 4 *3 = 12 b) CV TV (95% confidence level, CV<TV 0.017987 21.02607

c) CV TV (1% confidence level, CV<TV 0.017987 26.21697

7. Analysis: since CV < TV so difference is insignificant. Ho (null hypothesis) is accepted and there is no significant difference between Occupation and Objectives.

Table 16: Showing Annual income and Objectives correlation (N=100) &check the significant level by Chi-square testing technique. Step 1: Actual values Annual income 2.00 3.00 4.00 3.00 Lakh 4.00 Lakh 5.00 Lakh 1 1 4 2 0 3 8 3 7 2 1 14 4 6 14 0 5 19

1.00 Objectives 2.00 Lakh Post retirement 9 Contingencies 8 Asset purchase 7 Education of children 2 Tax deduction 7 Grand Total 33 Step 2:

more than 5.00 Lakh 4 0 9 2 5 20

Grand Total 19 13 34 10 24 100

1.00 Objectives 2.00 Lakh Post retirement 6.27 Contingencies 4.29 Asset purchase 11.22 Education of children 3.3 Tax deduction 7.92 Grand Total 33

Expected values Annual income 2.00 3.00 4.00 3.00 Lakh 4.00 Lakh 5.00 Lakh 2.66 1.82 4.76 1.4 3.36 14 2.66 1.82 4.76 1.4 3.36 14 3.61 2.47 6.46 1.9 4.56 19

more than 5.00 Lakh 3.8 2.6 6.8 2 4.8 20

Grand Total 19 13 34 10 24 100

Step 3: Figure 16: showing annual income and objectives correlation

Annual income & objectives


10 8 6 4 2 0 1.00 - 2.00 lakh Post retirement 2.00 - 3.00 lakh Contingencies 3.00 - 4.00 lakh Asset purchase 4.00 - 5.00 lakh Education of children more than 5.00 lakh Tax deduction

Step 4: Chi -square testing 1. Ho: there is no significant difference between Annual income and Objectives of saving of money. 2. H1: there is significant level. 3. Level of significance: = 5% 4. Test statistics: -test (MS-Excel) 5. Computation of observed & expected frequency: Annual income range 2.00 - 3.00 3.00 - 4.00 4.00 - 5.00 Lakh Lakh Lakh (O) (E) (O) (E) (O) (E) 1 2.66 1 2.66 4 3.61 2 1.82 0 1.82 3 2.47 8 4.76 3 4.76 7 6.46 2 1 1.4 3.36 4 6 1.4 3.36 0 5 1.9 4.56 , = 1%

Objectives Post retirement Contingencies Asset purchase Education of children Tax deduction 6. Application of

1.00 - 2.00 Lakh (O) (E) 9 6.27 8 4.29 7 11.22 2 7 3.3 7.92

more than 5.00 Lakh (O) (E) 4 3.8 0 2.6 9 6.8 2 5 2 4.8

-test at 5% level and 1% level

a) Degree of freedom = (5-1) (5-1) = 4 *4 = 16 b) CV TV (95% confidence level, CV<TV 0.034698 26.29623

c) CV TV (1% confidence level, CV<TV 0.034698 31.99993

7. Analysis: since CV < TV so difference is insignificant. Ho (null hypothesis) is accepted and there is no significant difference between Annual income and Objectives.

Table 17: Showing Annual income and Annual savings correlation (N=100) & check the significant level by Chi-square testing technique. Step 1:
Annual savings 1.00 - 2.00 Lakh 32 1 0 0 33 Actual values Annual income 2.00 - 3.00 3.00 - 4.00 4.00 - 5.00 Lakh Lakh Lakh 4 0 1 10 10 5 0 0 14 3 1 14 9 4 19

Less than 50,000 50,000 - 1,00,000 1,00,000 1,50,000 More than 1,50,000 Grand Total

More than 5.00 Lakh 0 1 2 17 20

Grand Total 37 27 14 22 100

Step 2:
Expected values Annual income 2.00 - 3.00 3.00 - 4.00 4.00 - 5.00 Lakh Lakh Lakh 5.18 3.78 1.96 3.08 14 5.18 3.78 1.96 3.08 14 7.03 5.13 2.66 4.18 19

Annual savings Less than 50,000 50,000 1,00,000 1,00,000 1,50,000 More than 1,50,000 Grand Total

1.00 - 2.00 Lakh 12.21 8.91 4.62 7.26 33

More than 5.00 Lakh 7.4 5.4 2.8 4.4 20

Grand Total 37 27 14 22 100

Step 3: figure 17: showing annual income and annual savings correlation.

Annual Income & savings correlation


35 30 25 20 15 10 5 0 1.00 - 2.00 2.00 - 3.00 3.00 - 4.00 4.00 - 5.00 More than lakh lakh lakh lakh 5.00 lakh Annual income No. of respondents

Less than 50,000 50,000 - 1,00,000 1,00,000 - 1,50,000 More than 1,50,000

Step 4: Chi -square testing 1. Ho: there is no significant difference between Annual income and annual savings of money. 2. H1: there is significant level. 3. Level of significance: = 5% 4. Test statistics: -test (MS-Excel) 5. Computation of observed & expected frequency: Annual savings range Less than 50,000 50,000 1,00,000 1,00,000 1,50,000 More than 1,50,000 1.00 - 2.00 Lakh (O) (E)
32 1 0 0 12.21 8.91 4.62 7.26

, = 1%

Annual income 2.00 - 3.00 3.00 - 4.00 Lakh Lakh (O) (E) (O) (E)
4 10 0 0 5.18 3.78 1.96 3.08 0 10 3 1 5.18 3.78 1.96 3.08

4.00 - 5.00 Lakh (O) (E)


1 5 9 4 7.03 5.13 2.66 4.18

More than 5.00 Lakh (O) (E)


0 1 2 17 7.4 5.4 2.8 4.4

6. Application of

-test at 5% level and 1% level

a) Degree of freedom = (4-1) (5-1) = 3 *4 = 12 b) CV TV (95% confidence level, CV<TV 2.83501E-26 21.02606982

c) CV TV (1% confidence level, CV<TV 2.83501E-26 26.21696731

7. Analysis: since CV < TV so difference is insignificant. Ho (null hypothesis) is accepted and there is no significant difference between Annual income and Annual savings.

Chapter 5 Findings & Suggestions

5.1 Results and Findings


All the survey findings have been explained through the above tables and graphs. After completing the survey and analysis of responses I have come to this conclusion: Investment is generally preferred by the investors who fall in the age group of 20 - 25 years. The maximum number of respondents falls in the income group of Rs.1.00 - 2.00 Lakh and above 5 Lakh. It can be interpreted that in this study investment options taken by Lower Middle Income and Middle Income Group. Before investment investors do have focus on Rate of return, More Security, and less no. of respondents focus on risk tolerance & Market trends , how quickly will they able to increase wealth and market sentiments etc. Investors get most of the information about various investment options available for different income and age groups from Family/Friends/Relatives and advertisements made by the company and financial consultants. Investors are aware of different instruments available for investment. But more people are aware of Banking instruments, Insurance sector, Post office savings as compare to other options available. It can be seen that from the above graph that most of the people would manage their money own and taking help from professional advisors but not only rely upon professional advisors. Thus most of the responses have come from the investors whose educational qualification is graduation. Most of the investments are made by Business Class & Service Class people as compare to other classes. IPOs are less preferred by the people in Ludhiana City. Insurance and Banks are highly preferred by the people of Ludhiana as investment options. Equity Shares, Bonds and Government Securities are less preferred by the common people of Ludhiana. Real Estate and Gold are highly preferred by people of Ludhiana as investment option. From the study we come to know that people of Ludhiana are satisfied from the returns earned from their different investments.

Conclusion
Investors are much aware of different investment options available in the market and they take various steps in order to save money by investing money in different investment options. They consider various factors while investing their money in different investment options for e.g. Rate of return, more security, Tax savings, and market trends before taking decision to invest because they want security and safety of investment principle in the long term as well as short term. Investors generally prefer to invest money in insurance, banks, Gold &Silver and real estate. This preference is mainly because of safety of investment and monthly returns generated by this investment options.

Chapter 6 References & Bibliography

References:
Books: 1. Khan M.Y. and Jain P.K (2001), Financial Management, Tata McGraw Hill.

2. Kothari, C. R. (1978), Quantitative Technique, Vikas Publishing House Pvt.limited,NewDelhi

3. Pandey I.M. (2003), Financial Management, Tata McGraw Hill

Websites:

http://www.bizmove.com/finance/m3b3.htm http://www.hsbcinvestdirect.co.in/ http://www.indiainfoline.com/Markets/Company/Background/Key-Executives/HSBCInvestDirect-India-Ltd/532653 http://www.hsbc.com/1/2/newsroom/news/2010/investdirect-results-q1-2010 http://www.moneycontrol.com/financials/hsbcinvestdirectindia/capital-structure/HSB01 http://myiris.com/shares/company/financial.php?icode=HINSANIN http://www.indiastockmarket.com/ http://www.sharemarketbasics.com/Terms/index.php http://www.business-standard.com/stockpage/stock_details.php?stk_id=500187

BIBLIOGRAPHY
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Questionnaire A Study on investors preference towards financial instruments in Ludhiana City


Name Mobile no

1. What is your age group?


a) 20 25 years d) 35 40 years b) 25 30 years e) Above 40 years c) 30 35 years

2. What is your Gender?


a) Male b) Female

3. What is your Education Level?


a) School Level c) Post Graduate b) Graduate d) others, if any then specify

4. What is your Occupation?


a) Student d) Unemployed b) Business man c) Service man

e) others, if any then specify

5. Do you invest in financial market?


a) Yes b) No

6. Do you have awareness about various investment options?


a) Aware b) Not aware

7. What are the Sources of information toward investment decisions?


a) Family/Relatives/Friends d) Financial Consultants f) Internet b) Advertising c) Brokers

e) Magazines & Newspapers g) others, if any then specify

8. What is your preferred mode of communication?


a) Automated response c) Telephone b) Personal visit d) No preference

9. What is your Annual Income?


a) 1.00 - 2.00 Lakh c) 3.00 4.00 Lakh e) More than 5.00 Lakh b) 2.00 - 3.00 Lakh d) 4.00 5.00 Lakh

10. What is your Annual Savings Range?


a) Less than 50000 c) 100000 150000 b) 50000 100000 d) More than 150000

11. What are the Objectives of saving of money?


a) Post-Retirement benefits c) Asset purchase e) Tax deduction b) Contingencies d) Education of children f) others, if any then specify

12. Tell me about your Preference towards different financial instruments (Give ranks 1- 11)
a) Fixed Deposits d) Postal Savings g) Mutual Funds j) Pension & provident fund b) Life Insurance e) Gold & Silver h) Bonds k) Govt. Securities c)Equity Shares f) Real Estate i) IPOs

l) Others, if any then specify..

13. Which investment horizon is preferred by you?


a) Manage by itself c) Both b) Handled by professional advisors

14. Which factors taken into consideration while taking investment decisions?
a) Rate of returns c) More security e) Market trends b) Risk tolerance d) Transparency f) others, if any then specify..