Professional Documents
Culture Documents
ON
MANAGEMENT THESIS II
BY
KEYUR A. PRAJAPATI
8NBVD062
ON
MANAGEMENT THESIS II
SUBMITTED BY:
KEYUR A. PRAJAPATI
8NBVD062
(MBA 2008-2010)
(Class of 2008-10)
VADODARA
Submitted to-
MR. AMOL RANADIVE
Acknowledgement……………………………………………………………..04
Preface………………………………………………………………………….05
Introduction........................................................................................................06
Objectives of Study…………………………………………………………....08
Value addition…………………………………………………………………09
Research Methodology………………………………………………………..10
Mutual Funds……………………………………………………15
Equity shares..…………………………………………………...24
Insurance…………………………………………………………26
Government Securities…………………………………………..29
Bonds……………………………………………………………...35
Commodities……………………………………………………...38
Bibliography..…………………………………………………………………56
This project report is an outcome of sincere efforts and cooperation of everyone who helped
me. I conducted this fieldwork program under the supervision of two respectful guides.
I also express my deep and heartily gratitude and respect to my soft skills trainer Mrs. Durba medam
and Centre Head Mr.Ghosh Sir for their continuous guidance and support.
I am also very much thankful to all for giving me support, guidance and cooperation in conducting
this project. I am grateful to my college and University which gave me an opportunity to get a
practical exposure and understand the theoretical aspects more clearly by placing me in such a reputed
an renowned company and helping me to understand more clearly marketing & finance concepts.
This training would not have been successful without the support and cooperation of my parents,
friends and everyone who ahs helped me in carrying out fieldwork successfully.
This is an accepted fact that each and every work has two aspects and this universal truth is
also applicable so far as education is concerned, it also has two aspects one is theoretical and the other
is practical. Theoretical knowledge with practical experience is must for every students of
management. Thus practical experience plays a vital role in acquiring the real knowledge in
management study.
After looking to the importance of the practical study, INC Baroda outlined the Management
Thesis – II in IV SEM which is helpful for me to explore my self and analyze investors’ behavior for
investment preferences during normal time vis-à-vis recessionary period with reference to 50
investors in vadodara city.
From this report I have learnt how to outline the best Thesis on time. How I draft a
management thesis in way that it include objective of this thesis, limitations of this thesis,
methodology of this thesis, schedule and reference of this thesis.
Savings form an important part of the economy of any nation. With the savings invested in various
options available to the people, the money acts as the driver for growth of the country. Indian
financial scene too presents a plethora of avenues to the investors. Though certainly not the best or
deepest of markets in the world, it has reasonable options for an ordinary man to invest his savings.
One needs to invest to and earn return on your idle resources and generate a specified sum of money
for a specific goal in life and make a provision for an uncertain future. One of the important reasons
why one needs to invest wisely is to meet the cost of inflation. Inflation is the rate at which the cost of
living increases.
The cost of living is simply what it cost to buy the goods and services you need to live. Inflation
causes money to lose value because it will not buy the same amount of a good or service in the future
as it does now or did in the past. The sooner one starts investing the better. By investing early you
allow your investments more time to grow, whereby the concept of compounding increases your
income, by accumulating the principal and the interest or dividend earned on it, year after year. The
three golden rules for all investors are:
• Invest early
• Invest regularly
• Invest for long term and not for short term
This project will also help to understand the investors facet before investing in any of the investment
tools and thus to scrutinize the important aspects of the investors before investing that further helped
in analyzing the relation between the features of the products and the investors’ requirements.
According to business management theories, investment refers to tangible assets like machinery and
equipments and buildings and intangible assets like copyrights or patents and goodwill. The decision
for investment is also known as capital budgeting decision, which is regarded as one of the key
decisions.
In finance, investment refers to the purchasing of securities or other financial assets from the capital
market. It also means buying money market or real properties with high market liquidity. Some
examples are gold, silver, real properties, and precious items.
Financial investments are in stocks, bonds, and other types of security investments. Indirect financial
investments can also be done with the help of mediators or third parties, such as pension funds,
mutual funds, commercial banks, and insurance companies.
Personal Finance:
According to personal finance theories, an investment is the implementation of money for buying
shares, mutual funds or assets with capital risk.
Real Estate:
According to real estate theories, investment is referred to as money utilized for buying property for
the purpose of ownership or leasing. This also involves capital risk.
Commercial real estate involves a real estate investment in properties for commercial purposes such
as renting.
This is the most basic type of real estate investment, which involves buying houses as real estate
properties.
This analysis will help to strengthen investor intimacy. This analysis will also throw light on various
investment avenues available in India that will help in many ways like,
Ø It will help to understand the expectations of the investors about their company from the
perspective of financial performance and corporate social responsibility.
Ø It will provide fresh insights which can help their business continue to flourish.
Ø The expectations of different types of investors regarding particular service requirements can
be identified.
Ø The common problem areas faced by the investors can be understood.
Ø It also enhances new services initiatives.
Ø This study will help in gaining a better understanding of what an investor looks for in an
investment option.
Ø It can be used by the financial sector in designing better financial instrument customized to
suit the needs of the investor.
Ø It will also help the agents and brokers in marketing the existing financial instruments.
Ø It will provide knowledge to the investors about the various financial services provided by the
company to their investors.
Ø It will also help the company to understand what is the requirement and expectations of
different categories of investors.
This analysis will be originated in order to empower the investors with detailed research on various
investments avenues available in India. The impact of different stages of economic cycle such as
depression, recession, recovery and inflation, on the perception and behavior of the investors. The
awareness level of the investors about the various investment options and what is the perception of the
investors with regard to the investments they want to make. The analysis also includes investor’s
behavior patterns reflected under different circumstances placed in front of them.
Sampling technique
Initially, a rough draft will be prepared keeping in mind the objective of the research. A pilot study
will be undertaken in order to know the accuracy of the questionnaire. The final questionnaire will be
arrived at only after certain important changes are incorporated. Convenience sampling technique will
be used for collecting the data from different investors. The investors are selected by the convenience
sampling method. The selection of units from the population based on their easy availability and
accessibility to the researcher is known as convenience sampling. Convenience sampling is at its
best in surveys dealing with an exploratory purpose for generating ideas and hypothesis.
Sampling unit:
The respondents who will be asked to fill out the questionnaires are the sampling units. These
comprise of employees of MNC’s, government employees, self employed and other investors.
Sampling size:
The sample size will be restricted to only 50, which comprised of mainly people from different
regions of vadodara due to time constraints.
Sampling area:
This analysis is based upon investors’ behavior for investment preferences during normal time vis-à-
vis recessionary period. This analysis would be focusing on the information from the investors about
their knowledge, perception and behavior on different financial products. The various limitations of
the study are:
Ø The total number of financial instruments in the market is so large that it needs a lot of
resources to analyze them all. There are various companies providing these financial
instruments to the public. Handling and analyzing such a varied and diversified data needs a
lot of time and resources.
Ø Reluctance of the people to provide complete information about them can affect the validity
of the responses.
Ø Due to time and cost constraint, study will be conducted in only selected areas of vadodara.
Ø The lack of knowledge of customers about the financial instruments can be a major limitation.
During recession careful financial decisions should be done to ensure survival from the economic
challenges. Work and career is on the line and they are often thought to be very fragile since
businesses in certain industries will tank because of their inability to deal with recession.
No matter how hard one works for the company or the industry, there are external factors that will
close down the business. For that reason, investors have to be prepared for the worst – investors have
to save as much as they can today.
But saving is not a good way to get the most of money. If you take your money to the bank for your
savings account, you can be assured that your money is safely deposited and could be extracted
anytime. But considering the current unemployment and recession, inflation will slowly diminish your
money’s ability to buy things that you need. Even if your money collects an annual interest, it is not
enough to cushion the blow of inflation.
What you need to do is to SMARTLY invest your hard earned savings. Most people think that the
word investment would mean risking your money in stocks hoping without any assurance of success.
But there are actually ways on safe and smart investing. Through these options, you can safely
address inflation and have enough money to use during recession.
• Certificate of Deposit – Forget the savings and time-bound accounts, Certificate of Deposit is one
the smart ways bankers and investors do to stay afloat. In gist, COD enjoys better interest rates which
should be more than enough to address inflation. However, you should remember that this form of
investment is more like time bound accounts. You can withdraw the money earlier but the penalties
are higher.
• T-Bills - Treasury bills, especially in stable countries is a good way to ensure the safety of your
funds while gaining a little interest in return. This transaction could be done with a government
certified bank that sells T-Bills. In this transaction, you loan the government some money to use and
in return, you will be gaining some interest as the country improves. The interest rate is a low but if
you are thinking of investing for a very long time, this would be a viable option.
What you will find here is small companies needing investment. This might be risky but the shares are
too low that a little investment is worth it. Different industries are well represented in pink sheets so
do your research a little bit in these companies before you commit your money. If done right, you
might be one of the shareholders of one of the biggest companies in the future.
Smart Investment
Investment is not like your regular savings account. For you to earn and gain enough interest, you
need to give it time. Before you agree to any of the mentioned investment options, you have to be
prepared to stick it its maturity date.
STEP 1- Pick companies with low debt, steady growth, and strong earnings. In order to pick the best
stock from a list of strong companies, pick the one that is farthest from its 52 week high. This is called
Value Investing. Many of the country's wealthiest entities made their money from snatching up
bargained stocks and holding on to them until the market recovered. If you are able to leave your
investments to grow over a 5 to 10 year period, it is pretty likely that you will earn a decent profit.
You simply need to search for well established companies that are sure to be around and stable in the
next 5 to 10 years. Think of companies such as Coca-Cola, General Electric, Proctor and Gamble, and
the like.
STEP 2- Break up your purchasing throughout the year. Do not use all of your investing money to buy
up as many shares as you can at once. In a recession, stocks are likely to continue decreasing in price.
By the end of the year, you will have more stocks for your money than if you would have purchased
them all at once.
STEP 3- Look towards industries that thrive no matter how the economy is doing. People always need
to eat. People always need household supplies, even if they aren't spending as much on them. They
always need utilities. Invest in these companies.
STEP 4- Buy under priced stocks of a company that is estimated to thrive during a recession. These
will be companies that provide a product or service that is "needed" rather than "wanted". Also, since
people spend less money during a recession and usually hesitate to put out cash for large luxury items,
they will more than likely spend on accessories for the items they already have. This can include
video games, digital camera components, mp3 player accessories, etc. Look to invest in these types of
companies.
STEP 5- Implement these tips and use sound judgments before jumping into any investment, your
finances should begin to show promising growth and security in this unstable economic time.
Above mentioned strategy would surely be helpful in making profitable investment during
recessionary period. Now the further discussion will be diverted to the available investment avenues
in India as its detailed knowledge is also essential for selecting the best investment avenue.
Mutual fund schemes may be classified on the basis of its structure and its objective:-
Based on structure:-
Open-ended Funds:-
An open-end fund is one that is available for subscription all through the year. These do not have a
fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related
prices. The key feature of open-end schemes is liquidity.
Closed-ended Funds
A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is
open for subscription only during a specified period. Investors can invest in the scheme at the time of
the initial public issue and thereafter they can buy or sell the units of the scheme on the stock
exchanges where they are listed. In order to provide an exit route to the investors, some close-ended
funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV
related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the
Investor.
Interval Funds:-
Interval funds combine the features of open-ended and close-ended schemes. They are open for sale
or redemption during pre-determined intervals at NAV related prices.
Load Funds:-
A Load Fund is one that charges a commission for entry or exit. That is, each time you buy or sell
units in the fund, a commission will be payable. Typically entry and exit loads range from 1% to 2%.
It could be worth paying the load, if the fund has a good performance history.
No-Load Funds:-
A No-Load Fund is one that does not charge a commission for entry or exit. That is, no commission is
payable on purchase or sale of units in the fund. The advantage of a no load fund is that the entire
corpus is put to work.
ABOUT SHARES:-
At the most basic level, stock (often referred to as shares) is ownership, or equity, in a company.
Investors buy stock in the form of shares, which represent a portion of a company's assets (capital)
and earnings (dividends).
As a shareholder, the extent of your ownership (your stake) in a company depends on the number of
shares you own in relation to the total number of shares available For example, if you buy 1000 shares
of stock in a company that has issued a total of 100,000 shares, you own one per cent of the company.
While one per cent seems like a small holding, very few private investors are able to accumulate a
shareholding of that size in publicly quoted companies, many of which have a market value running
into billions of pounds. Your stake may authorize you to vote at the company's annual general
meeting, where shareholders usually receive one vote per share.
In theory, every stockholder, no matter how small their stake, can exercise some influence over
company management at the annual general meeting. In reality, however, most private investors'
stakes are insignificant. Management policy is far more likely to be influenced by the votes of large
institutional investors such as pension funds.
a) STOCKS SYMBOLS:-
A stock symbol, or 'Epic' symbol, is the standard abbreviation of a stock's name. You can find stock
symbols wherever stock performance information is published - for example, newspaper stock listings
and investment websites. Company names also have abbreviations called ticker symbols. However,
it's worth remembering that these may vary at the different exchanges where the company is quoted.
b) PERFORMANCE INDICATORS:-
Here is a list of the standard performance indicators
Closing price: - The last price at which the stock was bought or sold.
High and low: - The highest and lowest price of the stock from the previous trading day.
52 week range: - The highest and lowest price over the previous 52 weeks.
Volume: - The amount of shares traded during the previous trading day High and Low.
Net change: - The difference between the closing price on the last trading day and the
closing price on the trading day prior to the last.
People need insurance in the first place. An insurance policy is primarily meant to protect the income
of the family’s bread earners. The idea is if any one or both die their dependents continue to live
comfortably. The circle of life begins at birth follower by education, marriage and eventually after a
lifetime of work we look forward to life of retirement. Our finances too tend to change as we go
through the various phases of life. In the first twenty of our life, we are financially and emotionally
dependents on our parents and there are no financial commitments to be met. In the next twenty years
we gain financial independence and provide financial independence to our families. This is also the
stage when our income may be unable to meet the growing expenses of a young household. In the
next twenty as we see our investments grow after our children grow and become financially
independent. Insurance is a provision for the distribution of risks that is to say it is a financial
provision against loss from unavoidable disasters. The protection which it affords takes form of a
guarantee to indemnify the insured if certain specified losses occur. The principle of insurance so far
as the undertaking of the obligation is concerned is that for the payment of a certain sum the guarantee
will be given to reimburse the insured. The insurer in accepting the risks so distributes them that the
total of all the amounts is paid for this insurance protection will be sufficient to meet the losses that
occur. Insurance then provide divided responsibility. This principle is introduced in most stores where
a division is made between the sales clerk and the cashiers department the arrangement dividing the
risks of loss. The insurance principle is similarly applied in any other cases of divided responsibility.
As a business however insurance is usually recognized as some form of securing a promise of
indemnity by the payment of premium and the fulfillment of certain other stipulations.
Types of insurance
• Term insurance plans
Term insurance is the cheapest form of life insurance available. Since a term insurance contract only
pays in the event of eventuality the life cover comes at low premium rates . Term insurance is a usefu
tool to purchase against risk of early death and protection of an asset.
• Endowment plans
Endowment plans are savings and protection plans that provide a dual benefit of protection as well as
savings. Endowment plans pay a death benefit in the event of an eventuality should the customer
survive the benefit period a maturity benefit is paid to the life insured.
• Pension plans
Pension plans allow an individual to save in a tax deffered manner. An individual can either
contribute through regular premiums or make a single premium investments. Savings accumulate over
the deferment period. Once the contract reaches the vesting age , the individual has the option of
choosing an annuity plan from a life insurance company. An annuity is paid till the life the lifetime of
the insured or a pre-determined period depending upon the annuity option chosen by the life insured.
ü Mortality Charges:
These are charges for the cost of insurance coverage and depend on number of factors such as age,
amount of coverage, state of health etc
ü Administration Charges:
This is the charge for administration of the plan and is levied by cancellation of units.
ü Surrender Charges:
Deduction is made for pre-mature partial or full encashment of units.
Government securities (G-secs) are sovereign securities which are issued by the Reserve Bank of
India on behalf of Government of India, in lieu of the Central Government's market borrowing
program.
The term Government Securities includes:
• Central Government Securities.
• State Government Securities
• Treasury bills
The Central Government borrows funds to finance its 'fiscal deficit'.The market borrowing of the
Central Government is raised through the issue of dated securities and 364 days treasury bills either by auction
or by floatation of loans.
In addition to the above, treasury bills of 91 days are issued for managing the temporary cash
mismatches of the Government. These do not form part of the borrowing program of the Central
Government.
(a) Dated Securities are generally having fixed maturity and fixed coupon securities usually
carrying semi-annual coupon. These are called dated securities because these are identified by
their date of maturity and the coupon, e.g., 11.03% GOI 2012 is a Central Government
security maturing in 2012, which carries a coupon of 11.03% payable half yearly. The key
features of these securities are:
• They are issued at face value.
• Coupon or interest rate is fixed at the time of issuance, and remains constant till
redemption of the security.
• The tenor of the security is also fixed.
• Interest /Coupon payment is made on a half yearly basis on its face value.
• The security is redeemed at par (face value) on its maturity date.
National Savings Certificate, popularly known as NSC, is a time-tested tax saving instrument that
combines adequate returns with high safety. NSCs are an instrument for facilitating long-term
savings. A large chunk of middle class families use NSCs for saving on their tax, getting double
benefits. They not only save tax on their hard-earned income but also make an investment which are
sure to give good and safe returns.
ü How to Invest
National Savings Certificates are available at all post-offices. The application can be made either in
person or through an agent. Post office agents are active in nooks and corners of the country.
Following types of NSC are issued:
Single Holder Type Certificate: This can be issued to: (a) An adult for himself or on behalf of a
minor (b) A Trust.
Joint 'A' Type Certificate: Issued jointly to two adults payable to both holders jointly or to the
survivor.
Joint 'B' Type Certificate: Issued jointly to two adults payable to either of the holders or to the
survivor.
ü Maturity
Period of maturity of a certificate is six years. Presently interest paid is 8 % per annum half yearly
compounded. Maturity value of a certificate of any other denomination is at proportionate rate.
ü Tax Benefits
Interest accrued on the certificates every year is liable to income tax but deemed to have been
reinvested.
Income Tax rebate is available on the amount invested and interest accruing under Section 88 of
Income Tax Act, as amended from time to time.
Income tax relief is also available on the interest earned as per limits fixed vide section 80L of Income
Tax, as amended from time to time.
them. The balances in PPF account cannot be attached by any authority normally.
ü Tabs on Investment
Minimum deposit required in a PPF account is Rs. 500 in a financial year. Maximum deposit limit is
Rs. 70,000 in a financial year. Maximum number of deposits is twelve in a financial year.
ü Maturity
The maturity period of the account is 15 years.
Rate of interest is 8% compounded annually.
One deposit with a minimum amount of Rs.500/- is mandatory in each financial year.
ü Lapse in Deposits
If deposits are not made in a PPF account in any financial year, the account will be treated as
discontinued. The discontinued account can be activated by payment of the minimum deposit of
Rs.500/- with default fee of Rs.50/- for each defaulted year.
ü Account Transfer
The Account is transferable from one post Office / bank to another and from post Office to bank or from a bank
to a post office.
ü Tax Benefits
Ø Deposits in PPF are eligible for rebate under section 80-C of Income Tax Act.
Ø The interest on deposits is totally tax free.
Ø Deposits are exempt from wealth tax.
A bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on
the terms of the bond, is obliged to pay interest (the coupon) and/or to repay the principal at a later
date, termed maturity. It is a formal contract to repay borrowed money with interest at fixed intervals.
Thus a bond is like a loan: the issuer is the borrower, the bond holder is the lender, and the coupon is
the interest. Bonds provide the borrower with external funds to finance long-term investments, or, in
the case of government bonds, to finance current expenditure. Certificates of deposit (CDs) or
commercial paper are considered to be money market instruments and not bonds. Bonds must be
repaid at fixed intervals over a period of time. Bonds are issued by public authorities, credit
institutions, companies and supranational institutions in the primary markets. The most common
process of issuing bonds is through underwriting. In underwriting, one or more securities firms or
banks, forming a syndicate, buy an entire issue of bonds from an issuer and re-sell them to investors.
The security firm takes the risk of being unable to sell on the issue to end investors. However
government bonds are instead typically auction.
(a) The convertible bond lets a bondholder exchange a bond to a number of shares of the
issuer's common stock.
(b) The exchangeable bond allows the exchange for shares of a corporation other than the
issuer.
(c) The Fixed rate bonds have a coupon that remains constant throughout the life of the bond.
(d) The Floating rate notes (FRNs) have a coupon that is linked to an index. Common indices
include: money market indices, such as LIBOR or Euribor, and CPI (the Consumer Price
Index). Coupon examples: three month USD LIBOR + 0.20%, or twelve month CPI + 1.50%.
FRN coupons reset periodically, typically every one or three months. In theory, any Index
could be used as the basis for the coupon of an FRN, so long as the issuer and the buyer can
agree to terms.
(e) Zero-coupon bonds don't pay any interest. They are issued at a substantial discount to par
value. The bond holder receives the full principal amount on the redemption date. An
example of zero couponbonds are Series E savings bonds issued by the U.S. government.
A commodity is a normal physical product used by everyday people during the course of their lives,
or metals that are used in production or as a traditional store of wealth and a hedge against inflation.
For example, these commodities include grains such as wheat, corn and rice or metals such as copper,
gold and silver. The full list of commodity markets is numerous and too detailed. The best way to
trade the commodity markets is by buying and selling futures contracts on local and international
exchanges. Trading futures is easy, and can be accessed by using the services of any full or on-line
futures brokerage service. Traditionally, there is an expectation when trading commodity futures of
achieving higher returns compared to shares or real estate, so successful investors can expect much
higher returns compared to more conventional investment products.
The process of trading commodities, as mentioned above, must be facilitated by the use of trading
liquid, exchangeable, and standardized futures contracts, as it is not practical to trade the physical
commodities. Futures contracts give the investor ease of use and the ability to buy or sell without
delay. A futures contract is used to buy or sell a fixed quantity and quality of an underlying
commodity, at a fixed date and price in the future. Futures contracts can be broken by simply
offsetting the transaction. For example, if you buy one futures contract to open then you sell one
futures contract to close that market position.
The execution method of trading futures contracts is similar to trading physical shares,
but futures contracts have an expiry date and are deliverable.Futures contracts have an expiry date and
need to be occasionally rolled over from the current contract month to the following contract month.
The reason is because the biggest advantage to trading commodity futures, for the private investor is
the opportunity to legally short-sell these markets. Short-selling is the ability to sell commodity
futures creating an open position in the expectation to buy-back at a later time to profit from a fall in
the market.
If you wish to trade the up-side of commodity futures, then it will simply be a buy-to-open and sell-to-
close set of transactions similar to share trading.
Inference: the sample consists of 50 investors belonging to different age group. As the chart shows
that the majority of respondents belong to the age group of 26-35 years i.e., 44%, followed by the age
group of 36-51 years i.e., 30% and then 14% contribution by the age group of 51 years & above and
12% by the age group of 18-25 years. The major long term decisions generally executed between the
ages of 26-45 years.
Inference: as per the above chart, its evident that the majority is dominated by the respondents
engaged in private service i.e., 27(54%), followed by government employees i.e., 12 (24%). The
analysis also covers up 2 entrepreneurs and 9 respondents engaged in other businesses not falling
under above categories.
Inference: according to income group of investors, maximum no. of investors is in income group of 3
lac – 5 lac i.e., they constitute approximately 34% which is followed by the income group falls in the
range between 1.2 lac – 3 lac (28%) and 22% are in the income group of 5 lac & above and remaining
falls in the income group of below 1.2 lac.
Insurance 92%
commodities 17%
(G) While investing, which of the following factor or factors would you consider the
most?
Liquidity 80%
Tips 10%
News 45%
Equity 20%
Debt 55%
balanced 90%
Inference: as it can be witnessed from the above graph that 90% preference is given to the balanced
portfolio because of simple reason that is diversification among debt and equity stocks in such a way
that it will provide optimum return for the degree of risk undertaken by the investors. The second
preference is given to debt as it provides steady return no matter how volatile the market is. And
investment in equity is awarded with 20% weight, as such investment would be made by short term
investors anticipating to get volatile return and they commonly have short position over such
investment.
Options Preference
To withdraw 05
To invest 14
Inference: as the graph depicts that 22 investors would like to take the advice of professionals in case
of bear market situation. There are 9 investors who would like to wait till market recovers. There are
14 investors who believe that this is the right time to invest money keeping in mind long term
objectives in mind and 5 investors would like to withdraw from the market before situation gets more
worst for their investments. Here one interesting fact is that mutual fund has become the most
convenient source of investment over the past couple of years because it provides variety of stocks
under one roof and the investment can be made according to the objectives of individual. This distinct
feature has changed the behavior of investors to a considerable extent.
In order to understand investor behavior while executing investment decision, I have qualified three
major elements that an investor has to consider or take into consideration. These three elements are
given below:
I have made an attempt to understand each of the above mentioned elements in detail and tried to
explain the same with some unique examples under different situations to reflect how investor
behaves in respective situations.
Asset allocation not only matters, it is one of the most important factors driving long-term
performance. Yet, many investors are not applying the principle of asset allocation and diversification
as beneficially as they could.
• Investors on diversification
All too often decision making about investing is influenced by emotions and unconscious biases that
cause people to make sub-optimal choices. Among the most damaging are those biases that drive
individuals to chase strong investment returns, which make investors reluctant to rebalance portfolios
and cause them to overreact to short-term volatility. Following are some sample of behaviors that
undermine success.
Choice A Choice B
In the example shown above, an investor can choose option A, wherein there is an 80% chance of
receiving Rs. 4000 and a 20% chance of receiving nothing (expected value Rs. 3200) or the investor
can choose option B and receive Rs. 3000 with certainty. It shows that 80% chose the option B even
though option A had a greater expected value.
Choice A Choice B
popularity 92% 8%
In this example, an investor can choose option A, wherein there is an 80% chance of losing Rs. 4000,
but a 20% chance of experiencing no loss (expected loss Rs. 3200) or the investor can choose option
B, wherein the investor will incur a Rs. 3000 loss. The result shows that 92% chose option A over the
certain loss even though the expected value of the gamble is actually a larger loss.
• A disproportionate trade-off
It is evident that the losses loom larger than the gains. For most of the investors, the pain of a given
loss significantly exceeds the pleasure of an equivalent gain. In fact, analysis shows that investors
equate losses and gains in a ratio of about 2:1.
Investors receiving
Investors receiving
In this case when two groups, monthly returns and yearly returns, received data that never included a
negative report, this resulted in identical stock allocations for each group. It is clear that excessive
emphasis on near-term returns will almost surely lead investors to make sub-optimal choices when it
comes to volatile assets.
• Misjudging longevity
Another less than optimal decision is made by investors when they are asked to estimate their life
expectancy. The majority of retiring males think they will live to age 80 or less years.
One way to take the emotion out of investing is to invest in diversified portfolios with low-correlation
assets. There are five basic steps to maximize investor returns over the long run.
Step 4: rebalance
50% in growth
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1. From the following age group, could you tell me which applies to you?
o a) 18 - 25
o b) 26 -35
o c) 36 - 50
o d) 51 Above
o a) Undergraduate
o b) Graduate
o a) Government service
o b) Private Service
o c) Entrepreneurs
o d) Others
o a) Below 120000
o b) 120000 - 300000
o c) 300000 - 500000
o a) 5% - 10%
o b) 10% - 20%
o a) Mutual funds
o b) Equity shares
o c) Insurance
o d) Government securities
o e) Real estate
o f) Commodities
7. While investing, which of the following factor or factors would you consider the most?
o a) Liquidity
o b) Low risk
o d) Capital appreciation
8. Which factors from the below induces you to invest in a particular investment avenues?
o a) Tips
o b) News
o c) Research report
o d) Personal homework
o a) High risk
o b) Medium risk
o c) Low risk
o d) No risk/safe investment
10. Which pattern from the below would suit your pattern of investing or trading?
o a) Equity
o b) Debt
o c) Balanced
13. According to you, what would you prefer from the mentioned below options during bear market
situation?
o b) To withdraw
o d) To invest
o a) Large Caps
o b) Mid Caps
o c) Small Caps
o d) Depends
15. Are you a panic buyer or seller while investing or trading in a stock?
o a) Yes
o b) No
o c) Depends on Stocks