1.

INTRODUCTION

The Indian capital market has been growing tremendously with the reforms of the industrial policy, reforms of public sector and financial sector and new economic policies of liberalization, deregulation and restructuring. The Indian economy has opened up and many developments have been taking place in the Indian capital market and money market with the help of financial system and financial institutions or intermediaries which foster savings and channels them to their most efficient use. One such financial intermediary who has played a significant role in the development and growth of capital markets is Equity or stocks investment. An equity investment generally refers to the buying and holding of shares of stock on a stock market by
individuals and firms in anticipation of income from dividends and capital gains, as the value of the stock rises. Most of the trading in the Indian stock market takes place on its two stock exchanges: the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The BSE has been in existence since 1875. The NSE, on the other hand, was founded in 1992 and started trading in 1994. However, both exchanges follow the same trading mechanism, trading hours, settlement process, etc. At the last count, the BSE had about 4,700 listed firms, whereas the rival NSE had about 1,200. Out of all the listed firms on the BSE, only about 500 firms constitute more than 90% of its market capitalization; the rest of the crowd consists of highly illiquid shares. Almost all the significant firms of India are listed on both the exchanges. NSE enjoys a dominant share in spot trading, with about 70% of the market share, as of 2009, and almost a complete monopoly inderivatives trading, with about a 98% share in this market, also as of 2009. Both exchanges compete for the order flow that leads to reduced costs, market efficiency and innovation. The presence ofarbitrageurs keeps the prices on the two stock exchanges within a very tight range. (To learn more, see The Birth Of Stock Exchanges.) Trading Mechanism Trading at both the exchanges takes place through an open electronic limit order book, in which order matching is done by the trading computer. There are no market makers or specialists and the entire process is order-driven, which means that market orders placed by investors are automatically matched with the best limit orders. As a result, buyers and sellers remain anonymous. The advantage of an order driven market is that it brings more transparency, by displaying all buy and sell orders in the trading system. However, in the absence of market makers, there is no guarantee that orders will be executed. All orders in the trading system need to be placed through brokers, many of which provide online trading facility to retail customers. Institutional investors can also take advantage of the direct market access (DMA) option, in which they use trading terminals provided by brokers for placing orders directly into the stock market trading system.

2. STATEMENT OF THE PROBLEM There is always a hope to gauge equity market sentiments before investing in stocks..which is a
problem in stock predictions of a company. Since predicting equity markets and stock movements are not easy, it is difficult for equity analysts to predict market movements. Prediction of stock prices It is very difficult to judge the stock prices movement as it is related not only to fundamental and technical analysis but the global cues and the government reforms.

Volatility of the market The share market is very volatile it moves mostly on global sentiments and the government reforms.It is very difficult to know whether the market will open in green or red.This volatility makes the stock more volatile whether the stock will go up or down from the current market price.

Convincing the investors to

EXPERT TIP: Invest in realty stocks with care This can be extended to a stock index too. One can calculate the aggregate dividend yield of an index, compare it with past dividend yields and see if the current yield is low or high. A low dividend yield indicates an overpriced market and vice versa. Let's demonstrate it by a simple calculation. According to the National Stock Exchange data, the average dividend yield of the Nifty in the last couple of months has been around 1.5 per cent. On 2 November 2011, the Nifty closed at 5,263. The current dividend yield is Rs 79. EXPERT TIP: The problem which an investor faces. The tips given by expert analyst mostly goes on the other way.If the expert advices to buy stock the price of that stock goes down and vice e versa .This generally traps the investor and take the decision according to the expert tips which is the main problem among the investors. **Insider Moves** Though the name smells of something unlawful, not all insider trades are illegal. According to Indian laws, an insider is a top official, director or shareholder who owns 10 per cent or more shares and has access to unpublished price-sensitive information about the company.

A member of the board, merchant banker, share transfer agent, debenture trustee, broker, portfolio manager, investment advisor, sub-broker or even a relative of any such individuals is also an insider.

Insider trading based on unpublished price-sensitive information is illegal. An 'insider' can buy or sell shares provided they inform the stock exchanges on which the stock is listed if the transaction goes beyond a certain threshold. If the shareholding of an insider changes by more than Rs 5 lakh in value, 25,000 shares or 1 per cent of total shares or voting rights, it has to be brought to the notice of stock exchanges and the company. Information on insider trading is available on websites of stock exchanges and can be used to predict future prices. Here's how. Studies suggest that while an insider may have many reasons to sell, the only reason for buying can be that he is bullish on the prospects of the company.

3. LITERATURE REVIEW Table 3.1 4. OBJECTIVES OF THE STUDY The study has the following general Objectives: A-1: To assess the savings objectives among individual investors. A-2: To identify the preferred savings avenue among individual investors. A-3: To understand the preferential feature in the savings instrument among individual investors. A-4: To assess Equity investment conceptual awareness among present investors. The study also attempts to test/assess other specific objectives such as: B-1: To assess the fund/ scheme preference of investors. B-2: To evaluate fund qualities that would affect the selection of equity. B-3: To perceive the preferred communication mode of investors. B-4: To understand the fund sponsor qualities influencing the selection of various equity. B-5: To identify the information sources influencing the equity selection decision of investors. B-6: To identify the most popular equity among individual investors. B-7: To assess the influence of personal variables on the Equity conceptual awareness level of individual investors. 5. METHODOLOGY 5.1 Data and Data Sources: The study mainly deals with the financial behaviour of Individual Investors towards Equity/stocks in Mumbai city. The required data was collected through a pretested questionnaire administered on a combination of simple random and judgement sample of 30 educated individual investors. Judgement sample selection is due to the time and financial constraints. . Respondents were screened and inclusion was purely on the basis of their knowledge about Financial Markets, stocks in particular. This was necessary, because the questionnaire presumed awareness of some basic terminology about Equity. The purpose of the survey was to understand the behavioural aspects of individual investors,

mainly their fund selection behaviour, various factors influencing this behaviour and also the conceptual awareness level among individual investors. The survey was conducted during March 2013, among 30 educated, geographically dispersed individual investors of Mumbai city. Sample of the questionnaire is given in Annex I and Distribution of individual investors by Demographic factors is given in Annex II, A 2.1. 5.2 Limitations of the Study: 1. Sample size is limited to 30 educated individual investors in the city of Mumbai. The sample size may not adequately represent the national market. 2. Simple Random and judgement sampling techniques is due to time and financial constraints. 3. This study has not been conducted over an extended period of time having both ups and downs of stock market conditions which a significant influence on investor s buying pattern and preferences. 6. FINDINGS OF THE STUDY: The survey conducted during February-March, 2013, in Mumbai, to capture investor behaviour pattern in equity/stocks, reveals the following.6 1. Savings Objective of Individual Investors Savings Objective of the majority of Individual Investors is to provide for Retirement , thus throwing light on the nature of risk averse investors. AMC can attract a pool of investors by designing products for Risk-Averse investors. 2. Stock prefenece among the investor(sector or particular stock) Asset preference pattern of investors provides an insight into the investment attitude of investors, which will influence the Equity for garnering the individual savings. The study reveals that Equity are the most popular Investing instrument among individual investors of Mumbai, as it is one of the few financial products, which enable an average salaried person to get high return on high risk. 3. Current Attitude of Individual Investors towards the Following Financial

Instruments, In the Indian Capital Market. Every asset class has different characteristics. Stocks have the potential to provide high total returns with proportionate level of risk, while bonds may provide lower risks along with regular income. The attitude of every individual investor may be influenced by their investment goals, risk tolerance, time horizon, personal circumstances or performance aspect of the asset class. The Financial instruments i.e. Shares, mutual Funds, Bonds and debentures were rated on a 5-point scale. Shares were rated as Favourable at 3.65 and MFs, Bonds and Debentures were rated in the Somewhat Favourable category. It is inevitable that there is a wide opportunity for MFs rated at 3.34 to slip into the Favourable slot, as the MF sector is poised for growth. The MF industry has evolved in many aspects i.e. product innovation, distribution reach, investor education or leveraging technology for enhancing service standards. As MF is an ideal vehicle for both Debt and Equity products, it has the potential to emerge as one of the major growth drivers of the market in future. 11. Stock Awareness Level of Individual Investors Investors, while taking their investment decisions use unique internal characteristics (influenced by their cognitive domain) and also yield to the environmental pressures of the external financial markets. Awareness belongs to the cognitive domain. Hence, it is essential for the AMCs to know the level of awareness about Stock among the investing public. This will enable them to create an external environment that can influence investment decisions of investors. The study reveals that the general awareness level among individual investors of the concept and functioning of Stock is good. The number of respondents who have good awareness level of Stock results to 53%.

13. Factors Influencing Equity Selection by Individual Investors

The retail investors consider their investment needs, goals, objectives and constraints in making investment decisions, but it is not possible to make a successful investment decision at all times. Their attitude is influenced by various factors such as dividend, get rich quickly strategy, stories of successful investors, online trading, investor awareness programme, experience of other successful investors etc.. A better understanding of behavioral processes and outcomes is important for financial planners because an understanding of how investors generally respond to market movements should help investment advisors indevising appropriate asset allocation strategies for clients. Hence this study attempts to find out the factors influencing investors attitude towards investing in equity stocks

Table 6.2 Classification of Investor Groups Investor Types Risk Profile Expectations Professional Takes Necessary Risks Maximum Return Ambitious Highly Risk Taking High Short Term Returns Moderate Comfortable Levels of Risk Good, Steady Return Conservative Risk Averse Regular Income rather than Capital Gains Cautious Extremely Risk Averse Minimum Return/ Capital Preservation 7. PRINCIPAL SUGGESTIONS Since the investors need for liquidity is found to be high, we suggest that more of the new schemes opening for subscription be Open-ended. AMCs should continuously design suitable schemes to meet the triple needs of adequate returns, safety and liquidity in a balanced proportion and develop infrastructure to reach to the investors. They should also simplify the operational environment. AMCs should open more investor service branches or arrange with other banks to provide over-the-counter redemption facility across the country through their banking network. Mutual fund companies should segment their target customers and position their various products based on the target segment they propose to address. The target segment can be broadly divided into institutional segment and individual investor segment. The institutional segment consisted of treasury departments of Corporate, Trusts etc and suitable products such as14 Institutional Income schemes and Money Market schemes can be targeted at them. The

individual investor can be in turn divided into various segments such as Young Families with small or no children, Middle-aged People saving for retirement and Retired People looking for steady income. Suitable products such as Growth and Balanced schemes for young families and Income schemes with sure and steady returns for retired people can be marketed. By proper segmentation and by targeting the right product to the right customer, Mutual Fund companies can hope to win the confidence of their customers and 'own' them for a lifetime. The mutual fund industry in India is constrained by law from offering full-fledged pension plans on the lines of the 401 K plans, a popular MF product available in the United States. Funds like UTI and Kothari Pioneer are some of the mutual funds offering full-fledged Pension Plans with benefit under Section 88. While UTI offers Retirement Benefit Plan, Kothari Pioneer Mutual Fund offers KP Pension Plan. Retirement schemes similar to 401K plan will attract a large number of small investors who seek regular income after retirement. The average projected life span of an Indian after retirement (that is, after 60) is expected to go up from 15 years to 20 years. And the number of the elderly (those over 60) is expected to increase significantly from 6.8 per cent of the population in 1991 to 8.9 per cent in 2016 and further to 13.3 per cent by 2026. One of the key recommendations of the expert committee of Project OASIS (Old Age Social and Income Security) constituted by the government on pension reforms in 1999 is the creation of a privately managed, individual choice based, voluntary Pension system. Pension funds are likely to be a big driver for the MF industry. AMC/AMFI/SPONSORS should effectively convey the message that among the multitude of investment options available, MFs are better geared to offer the balanced mix of return, safety and liquidity to the investors. Negative perceptions about MFs require to be tackled through appropriate investor education measures. It is suggested that AMFI may set aside a percentage of membership fee that it collects from the AMCs and create a fund for Investor Education Programmes. AMC/AMFI/SPONSORS should develop investor education literature specially tailored to suit the regional needs to create/increase the awareness level of the investors. Employers can influence the investment decision of the employees by providing financial

education as a benefit to employees. Employers can be objective in hiring an independent financial advisor to conduct an education programme on long-term investment strategies. Employers have ready access to employees and the cost can be spread over many employees. Advisory services are becoming more critical to investors and independent financial advisors and planners are gaining ground. The US accreditation body for Financial Planners was set up in Delhi in the name of Association of Financial Planners (AFP) and soon professional Certified Financial Planners (CFPs) will be available to investors to assist them in their financial planning needs. Banks are planning to enter into advisory services in a big way. An entirely new distribution channel can be created consisting of professional advisors who will exert substantial influence on what products investors will buy. E-commerce is gradually showing signs of gaining acceptance and electronic sale of financial products is especially gaining volumes. There is a likelihood of the volumes reaching a significant size, thereby spawning a new distribution paradigm. Therefore AMCs should establish friendlier and easily accessible Automated Response Systems . These systems should not only effectively convey information on products and services but also efficiently redress investor grievances. Funds should also induce technology that reduces the turnaround time for services like investments, redemptions and transfers and bring them on par with banks in turnaround time. Suggestions for Further Research: The MF operational environment is becoming more competitive. Hence, the impact of emerging competition on investor behaviour/behavioural changes needs to be studied further.15 Developments in technology influence the behaviour of investors. Hence, the impact of technology on financial behaviour is another potential area for close study. Since the industry is still struggling to win the investors confidence, an in-depth analysis into investor s expectations from MF products, its performance, management, service and other related areas could be done. A study is required to examine the trading behaviour of MF investors. Further research can be

done to identify whether MF investors chase past returns or employ a current performance momentum to pick up their funds i.e. whether they are active or passive trend chasers. This study reveals that MF investors feel that currently the two major benefits, which MFs purport to offer, namely, diversification benefits and professional management are not satisfactorily delivered. In spite of this, MF industry is growing and we attribute this to investor behaviour and other macroeconomic factors. Further research can be done to understand the reasons for growing popularity on one side and the struggle to win investors confidence on the other side. 8. CONCLUSIONS THE emergence of an array of savings and investment options and the dramatic increase in the secondary market for financial assets in the recent years in India has opened up an entirely new area of value creation and management. An average Indian investor is a greenhorn when it comes to financial markets, the causes may be many: the lack of opportunity, lack of conceptual understanding and the influence of a fixed-income orientation in the Indian culture. Salaried person's savings are most often deposited in mutual funds; the theory behind this is that by pooling together a huge aggregation of individual savings and investing them, using the professional judgment of the fund manager, one spreads risk, takes advantage of volume buying and scientific data analysis, expertise and so on. Therefore it is seen as the ideal option for an individual who does not have the time, knowledge or experience to make a succession of judgments involving his hard-earned savings. MF industry in India has a large untapped market in urban areas besides the virgin markets in semi-urban and rural areas. This market potential can be tapped by scrutinizing investor behaviour to identify their expectations and articulate investor's own situation and risk preference and then apply to an investment strategy that combines the usual four: cash and equivalents, Government-backed bonds, debt, and equity.

Presently, more and more funds are entering the industry and their survival depends on strategic marketing choices of mutual fund companies, to survive and thrive in this highly promising industry, in the face of such cutthroat competition. In addition, the availability of more savings instruments with varied risk-return combination would make the investors more alert and choosy. Running a successful MF requires complete understanding of the peculiarities of the Indian Stock Market and also the psyche of the small investor. Under such a situation, the present exploratory study is an attempt to understand the financial behaviour of MF investors in connection with scheme preference and selection. Studies similar to this, if conducted on a large scale at regular intervals by organizations like AMFI/SEBI, will help capture the changing perceptions and responses of these groups, and thus provide early warning signals to enable implementation of timely corrective measures. It is hoped that the survey findings of the study will have some useful managerial implications for the AMCs in their product designing, marketing and management of the fund. Results of the study may help in making cost effective strategic decisions and hence would be of interest to both existing and new MFs; Fund managers; and individual investors. In the words of Morgan Stanley Dean Witter4, "In the end, not all asset management (mutual fund) companies will survive, [but] for firms that have built a 'culture of excellence' over the years, have segmented their customers efficiently, built brand, and delivered performance, the ongoing opportunities to take market share have never been more significant." ***********16 Annex I QUESTIONNAIRE TO PRESENT INVESTORS IN EQUITY MARKET Dear Sir/Madam, Equity have opened new vistas to millions of small investors. The scientific investment approach and investor oriented benefits has made the industry grow to $27.4 trillion by year end 2012.

We are currently engaged in a study on Investors attitude towards Stock investment .In this connection we request You to read the following items carefully and answer them. The answers your give will be heldconfidential and used purely for academic purpose. Please put a tick mark in the square 5 corresponding your choice. I thank you for your time. PART A: Personal Data 1.1) Name (Optional) : 1.2) Sex : Male 5 Female 5 1.3) Age in completed years: Below 30 5 31 40 5 41 50 5 Above 50 5 1.4) Academic Qualifications: School Final 5 Graduate 5 Post Graduate 5 Professional Degree5 1.5) Marital Status: Married 5 Unmarried 5 Widow 5 Widower 5 Divorced 5 1.6) Occupation: Professional 5 Business 5 Salaried 5 Retired 5 1.7) Annual Income in Rs: Below Rs 1, 00, 000 5 Rs1, 00,001 3, 00,000 5 Rs 3, 00,0015, 00,000 5 Above Rs 5, 00,000 5 1.8) How much do you save annually (in Rs. Approx) Less than Rs 50,000 5 Rs 50,001 to Rs 100000 5 Above Rs 100000 5 1.9) Objectives of your savings are : To provide for Retirement 5 For tax reduction 5 To meet contingencies 5 For children s education 5 For purchase of assets 5 1.10) What is your current preference of savings avenue? (Rank from 1 first preference to 10 last preference) Currency 5 Bank Deposit 5 Life Insurance 5 Pension & Provident Fund 5

Shares 5 Units of UTI & Mutual funds 5 Postal Savings 5 Chits 5 Real Estate 5 Gold 5 B. JOURNALS AND PERIODICALS: Bhatt, M. Narayana, Setting standards for investor services, Economic Times, 27 Dec.1993. Ferris, S.P., and D.M.Chance, The effect of 12b-1 fees on Mutual Fund expense ratio: A Note, The Journal of Finance, 42, 1987, 1077-82. Kahneman, Daniel and Amos Tversky, "Prospect Theory: An Analysis of Decision Making Under Risk," Econometrica, 1979. Kahneman, Daniel and Mark Riepe, Aspects of Investor Psychology, Journal of Portfolio Management, Summer 1998. Raja Rajan V Investment size based segmentation of individual investors, Management Researcher, 1997b, 21-28; Stages in life cycle and investment pattern, The Indian Journal of Commerce, 51 (2 & 3), 1998, 27 36; Investors demographics and risk bearing capacity, Finance India, 17(2), June 2003, pp.565 576; Chennai Investor is conservative, Business Line, 23 Feb.1997a. Shankar, V., Retailing Mutual Funds: A consumer product model, The Hindu, 24 July 1996, 26. C. WEBSITES: AMFI-Mutual fund industry, < http://www.amfiindia.com/mutualind.html 12/12/2004. Investor Home- Psychology and Behavioural Finance, 17/5/99, Investor Home Online < http://www.investorhome.com/psych.htm , 21/12/2004. Nofsinger John R., Does Investor Sophistication Influence Investing Behaviour and Trading Performance? Evidence from China, John_nofsinger@wsu.edu , 23/11/2004. Ramachander, S., Needed: A savings behaviour model, 30/9/2004, The Hindu Business line < http://www.thehindubusinessline.com, 27/10/2004 The golden nest egg What s the right investment mix for you?, 13/9/2004, Online< http://www.personalfn.com ,27/11/2004.

The SEBI-NCAER investor survey, 28/8/2000, The Rediff Money Special < http://www.rediff.com/money/2000/aug/28spec.htm, 2/11/2004. Tripathy Nalini P.,Mutual funds in India- A Financial Service in Capital Markets, Online < http://www.iif.edu/data/fi/journal/FI101/FI101Art6.pdf, 20/12/2004. Author Profile: Kavitha Ranganathan earned her M.Phil in Commerce from Madurai Kamaraj University. M.Com from Mumbai University and B.Com (Hons.) from Sri Sathya Sai Institute of Higher Learning.