TABLE OF CONTENTS

CHAPTER TITLE PAGE No.

1 INTRODUCTION TO FINANCIAL MARKET 2

2 CLASSFICATION OF FINANCIAL MARKET 13

3 INVESTMENT AVENUES 17

4 INVESTMENT AVENUES FOR INDIAN 28

INVESTORS

5 RESEARCH METHODOLOGY 30

6 ANALYSIS AND INTERPRETATION 38

7 CONCLUSION 45

8 BIBLIOGRAPHY 48

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INTRODUCTION

FINANCIAL MARKET

A financial market is a market in which people trade financial

securities, commodities, and other fungible items of value at low transaction costs and at
prices that reflect supply and demand. Securities include stocks and bonds, and
commodities include precious metals or agricultural products.

In economics, typically, the term market means the aggregate of possible buyers and
sellers of a certain good or service and the transactions between them.

The term "market" is sometimes used for what are more strictly exchanges, organizations
that facilitate the trade in financial securities, e.g., a stock exchange or commodity
exchange. This may be a physical location (like the NYSE, BSE, NSE) or an electronic
system (like NASDAQ). Much trading of stocks takes place on an exchange; still,
corporate actions (merger, spinoff) are outside an exchange, while any two companies or
people, for whatever reason, may agree to sell stock from the one to the other without
using an exchange.

Trading of currencies and bonds is largely on a bilateral basis, although some bonds trade
on a stock exchange, and people are building electronic systems for these as well, similar
to stock exchanges.

Types of financial markets

Within the financial sector, the term "financial markets" is often used to refer just to the
markets that are used to raise finance: for long term finance, the Capital markets; for
short term finance, the Money markets. Another common use of the term is as a catchall
for all the markets in the financial sector, as per examples in the breakdown below.

Capital markets which to consist of:

o Stock markets, which provide financing through the issuance of shares or
common stock, and enable the subsequent trading thereof.

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 o Bond markets, which provide financing through the issuance of bonds, and
enable the subsequent trading thereof.

Commodity markets, which facilitate the trading of commodities.

Money markets, which provide short term debt financing and investment.

Derivatives markets, which provide instruments for the management of financial

risk.[1]

Futures markets, which provide standardized forward contracts for trading

products at some future date; see also forward market.

Foreign exchange markets, which facilitate the trading of foreign exchange.

Spot market

Interbanks market

The capital markets may also be divided into primary markets and secondary markets.
Newly formed (issued) securities are bought or sold in primary markets, such as during
initial public offerings. Secondary markets allow investors to buy and sell existing
securities. The transactions in primary markets exist between issuers and investors, while
secondary market transactions exist among investors.

Liquidity is a crucial aspect of securities that are traded in secondary markets. Liquidity
refers to the ease with which a security can be sold without a loss of value. Securities
with an active secondary market mean that there are many buyers and sellers at a given
point in time. Investors benefit from liquid securities because they can sell their assets
whenever they want; an illiquid security may force the seller to get rid of their asset at a
large discount.

Raising capital

Financial markets attract funds from investors and channel them to corporationsthey
thus allow corporations to finance their operations and achieve growth. Money markets

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allow firms to borrow funds on a short term basis, while capital markets allow
corporations to gain long-term funding to support expansion (known as maturity
transformation).

Without financial markets, borrowers would have difficulty finding lenders themselves.
Intermediaries such as banks, Investment Banks, and Boutique Investment Banks can
help in this process. Banks take deposits from those who have money to save. They can
then lend money from this pool of deposited money to those who seek to borrow. Banks
popularly lend money in the form of loans and mortgages.

More complex transactions than a simple bank deposit require markets where lenders and
their agents can meet borrowers and their agents, and where existing borrowing or
lending commitments can be sold on to other parties. A good example of a financial
market is a stock exchange. A company can raise money by selling shares to investors
and its existing shares can be bought or sold.

The following table illustrates where financial markets fit in the relationship between
lenders and borrowers:

Relationship between lenders and borrowers

Lenders Financial Intermediaries Financial Markets Borrowers

Interbank Individuals
Banks
Stock Exchange Companies
Individuals Insurance Companies
Money Market Central Government
Companies Pension Funds
Bond Market Municipalities
Mutual Funds
Foreign Exchange Public Corporations

Lenders

The lender temporarily gives money to somebody else, on the condition of getting back
the principal amount together with some interest/profit or charge.

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Individuals & Doubles

Many individuals are not aware that they are lenders, but almost everybody does lend
money in many ways. A person lends money when he or she:

Puts money in a savings account at a bank

Contributes to a pension plan

Pays premiums to an insurance company

Invests in government bonds

Companies

Companies tend to be lenders of capital. When companies have surplus cash that is not
needed for a short period of time, they may seek to make money from their cash surplus
by lending it via short term markets called money markets. Alternatively, such companies
may decide to return the cash surplus to their shareholders (e.g. via a share repurchase or
dividend payment).

Borrowers
Individuals borrow money via bankers' loans for short term needs or longer term
mortgages to help finance a house purchase.
Companies borrow money to aid short term or long term cash flows. They also
borrow to fund modernization or future business expansion.

Governments often find their spending requirements exceed their tax revenues. To
make up this difference, they need to borrow. Governments also borrow on behalf
of nationalized industries, municipalities, local authorities and other public sector
bodies. In the UK, the total borrowing requirement is often referred to as the
Public sector net cash requirement (PSNCR).

Governments borrow by issuing bonds. In the UK, the government also borrows from
individuals by offering bank accounts and Premium Bonds. Government debt seems to be

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permanent. Indeed, the debt seemingly expands rather than being paid off. One strategy
used by governments to reduce the value of the debt is to influence inflation.

Municipalities and local authorities may borrow in their own name as well as receiving
funding from national governments. In the UK, this would cover an authority like
Hampshire County Council.

Public Corporations typically include nationalized industries. These may include the
postal services, railway companies and utility companies.

Many borrowers have difficulty raising money locally. They need to borrow
internationally with the aid of Foreign exchange markets.

Borrowers having similar needs can form into a group of borrowers. They can also take
an organizational form like Mutual Funds. They can provide mortgage on weight basis.
The main advantage is that this lowers the cost of their borrowings.

Derivative products

During the 1980s and 1990s, a major growth sector in financial markets was the trade in
so called derivative products, or derivatives for short.

In the financial markets, stock prices, bond prices, currency rates, interest rates and
dividends go up and down, creating risk. Derivative products are financial products
which are used to control risk or paradoxically exploit risk.[2] It is also called financial
economics.

Derivative products or instruments help the issuers to gain an unusual profit from issuing
the instruments. For using the help of these products a contract has to be made.
Derivative contracts are mainly 4 types:[3]

1. Future
2. Forward

3. Option

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 4. Swap

Seemingly, the most obvious buyers and sellers of currency are importers and exporters
of goods. While this may have been true in the distant past,[when?] when international trade
created the demand for currency markets, importers and exporters now represent only
1/32 of foreign exchange dealing, according to the Bank for International Settlements.[4]

The picture of foreign currency transactions today shows:

Banks/Institutions
Speculators

Government spending (for example, military bases abroad)

Importers/Exporters

Tourists

Analysis of financial markets

See Statistical analysis of financial markets, statistical finance

Much effort has gone into the study of financial markets and how prices vary with time.
Charles Dow, one of the founders of Dow Jones & Company and The Wall Street
Journal, enunciated a set of ideas on the subject which are now called Dow theory. This is
the basis of the so-called technical analysis method of attempting to predict future
changes. One of the tenets of "technical analysis" is that market trends give an indication
of the future, at least in the short term. The claims of the technical analysts are disputed
by many academics, who claim that the evidence points rather to the random walk
hypothesis, which states that the next change is not correlated to the last change. The role
of human psychology in price variations also plays a significant factor. Large amounts of
volatility often indicate the presence of strong emotional factors playing into the price.
Fear can cause excessive drops in price and greed can create bubbles. In recent years the
rise of algorithmic and high-frequency program trading has seen the adoption of

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momentum, ultra-short term moving average and other similar strategies which are based
on technical as opposed to fundamental or theoretical concepts of market Behaviour.

The scale of changes in price over some unit of time is called the volatility. It was
discovered by Benot Mandelbrot that changes in prices do not follow a Gaussian
distribution, but are rather modeled better by Lvy stable distributions. The scale of
change, or volatility, depends on the length of the time unit to a power a bit more than
1/2. Large changes up or down are more likely than what one would calculate using a
Gaussian distribution with an estimated standard deviation.

Financial market slang

Poison pill, when a company issues more shares to prevent being bought out by
another company, thereby increasing the number of outstanding shares to be
bought by the hostile company making the bid to establish majority.
Bips, meaning "bps" or basis points. A basis point is a financial unit of
measurement used to describe the magnitude of percent change in a variable. One
basis point is the equivalent of one hundredth of a percent. For example, if a stock
price were to rise 100bit/s, it means it would increase 1%.

Quant, a quantitative analyst with advanced training in mathematics and statistical

methods.

Rocket scientist, a financial consultant at the zenith of mathematical and computer

programming skill. They are able to invent derivatives of high complexity and
construct sophisticated pricing models. They generally handle the most advanced
computing techniques adopted by the financial markets since the early 1980s.
Typically, they are physicists and engineers by training.

IPO, stands for initial public offering, which is the process a new private company
goes through to "go public" or become a publicly traded company on some index.

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 White Knight, a friendly party in a takeover bid. Used to describe a party that
buys the shares of one organization to help prevent against a hostile takeover of
that organization by another party.

Round-tripping

Smurfing, a deliberate structuring of payments or transactions to conceal it from

regulators or other parties, a type of money laundering that is often illegal.

Spread, the difference between the highest bid and the lowest offer.

Role in the economy

One of the important sustainability requisite for the accelerated development of an

economy is the existence of a dynamic financial market. A financial market helps the
economy in the following manner.

Saving mobilization: Obtaining funds from the savers or surplus units such as
household individuals, business firms, public sector units, central government,
state governments etc. is an important role played by financial markets.
Investment: Financial markets play a crucial role in arranging to invest funds thus
collected in those units which are in need of the same.

National Growth: An important role played by financial market is that, they

contribute to a nation's growth by ensuring unfettered flow of surplus funds to
deficit units. Flow of funds for productive purposes is also made possible.

Entrepreneurship growth: Financial market contribute to the development of the

entrepreneurial claw by making available the necessary financial resources.

Industrial development: The different components of financial markets help an

accelerated growth of industrial and economic development of a country, thus
contributing to raising the standard of living and the society of well-being.

Functions of financial markets

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 Intermediary functions: The intermediary functions of financial markets include
the following:
o Transfer of resources: Financial markets facilitate the transfer of real
economic resources from lenders to ultimate borrowers.

o Enhancing income: Financial markets allow lenders to earn interest or

dividend on their surplus invisible funds, thus contributing to the
enhancement of the individual and the national income.

o Productive usage: Financial markets allow for the productive use of the
funds borrowed. The enhancing the income and the gross national
production.

o Capital formation: Financial markets provide a channel through which

new savings flow to aid capital formation of a country.

o Price determination: Financial markets allow for the determination of

price of the traded financial assets through the interaction of buyers and
sellers. They provide a sign for the allocation of funds in the economy
based on the demand and to the supply through the mechanism called
price discovery process.

o Sale mechanism: Financial markets provide a mechanism for selling of a

financial asset by an investor so as to offer the benefit of marketability and
liquidity of such assets.

o Information: The activities of the participants in the financial market result

in the generation and the consequent dissemination of information to the
various segments of the market. So as to reduce the cost of transaction of
financial assets.

Financial Functions

o Providing the borrower with funds so as to enable them to carry out their
investment plans.

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o Providing the lenders with earning assets so as to enable them to earn
wealth by deploying the assets in production debentures.

o Providing liquidity in the market so as to facilitate trading of funds.

o Providing liquidity to commercial bank

o Facilitating credit creation

o Promoting savings

o Promoting investment

o Facilitating balanced economic growth

o Improving trading floors

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Components of financial market

Based on market levels

Primary market: Primary market is a market for new issues or new financial
claims. Hence its also called new issue market. The secondary market deals with
those securities which are issued to the public for the first time.
Secondary market: Its a market for secondary sale of securities. In other words,
securities which have already passed through the new issue market are traded in
this market. Generally, such securities are quoted in the stock exchange and it
provides a continuous and regular market for buying and selling of securities.

Simply put, primary market is the market where the newly started company issued shares
to the public for the first time through IPO (initial public offering). Secondary market is
the market where the second hand securities are sold (securitCommodity Marketies).

Based on security types

Money market: Money market is a market for dealing with financial assets and
securities which have a maturity period of up to one year. In other words, its a
market for purely short term funds.
Capital market: A capital market is a market for financial assets which have a long
or indefinite maturity. Generally it deals with long term securities which have a
maturity period of above one year. Capital market may be further divided into: (a)
industrial securities market (b) Govt. securities market and (c) long term loans
market.

o Equity markets: A market where ownership of securities are issued and

subscribed is known as equity market. An example of a secondary equity
market for shares is the Bombay stock exchange.

o Debt market: The market where funds are borrowed and lent is known as
debt market. Arrangements are made in such a way that the borrowers

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 agree to pay the lender the original amount of the loan plus some specified
amount of interest.

Derivative markets: A market where financial instruments are derived and traded
based on an underlying asset such as commodities or stocks.

Financial service market: A market that comprises participants such as

commercial banks that provide various financial services like ATM. Credit cards.
Credit rating, stock broking etc. is known as financial service market. Individuals
and firms use financial services markets, to purchase services that enhance the
working of debt and equity markets.

Depository markets: A depository market consists of depository institutions that

accept deposit from individuals and firms and uses these funds to participate in
the debt market, by giving loans or purchasing other debt instruments such as
treasure bills.

Non-depository market: Non-depository market carry out various functions in

financial markets ranging from financial intermediary to selling, insurance etc.
The various constituency in non-depositary markets are mutual funds, insurance
companies, pension funds, brokerage firms etc.

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 CLASSIFICATION OF FINANCIAL MARKETS

Figure 3.1: Classification of financial markets

Source: Investment analysis and portfolio management
Author: Prasanna Chandra
Figure 3.1 shows the classification of financial markets. From this figure we can interpret
that there are different ways of classifying financial market.
One is to classify financial market by the type of financial claim. The debt market is
the financial market foe fixed claims (debt instrument) and the equity market is the
financial market for residual claims (equity instruments)

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 The second way is to classify financial markets by the maturity of claims. The market
for short term financial claims is referred to as the money market and the market for
long term financial claims is referred to as the capital market.
The third way to classify financial markets is based on whether the claims represent
new issues or outstanding issues. The market where issues sell new claims is referred
as primary market and the market where issues sell outstanding claims is referred as
secondary market.
The fourth way to classify financial markets is by the timing of delivery. A cash or
spot market is one where the delivery occurs immediately and forward or futures
markets are those markets where the delivery occurs at a pre determined time in
future.
The fifth way to classify financial markets is by the nature of its organizational
structure. An exchange traded market is characterized by a centralized organization
with standardized procedures and an over the counter market is a decentralized
market with customized procedures.
These markets are further explained in detail.

3.3 MONEY MARKET

The money market is a market for short-term funds, which deals in financial
assets whose period of maturity is up to one year. It should be noted that money market
does not deal in cash or money as such but simply provides a market for credit
instruments such as bills of exchange, promissory notes, commercial paper, treasury bills,
etc. These financial instruments are close substitute of money. These instruments help the
business units, other organizations and the Government to borrow the funds to meet their
short-term requirement.
Money market does not imply to any specific market place. Rather it refers to the
whole networks of financial institutions dealing in short-term funds, which provides an
outlet to lenders and a source of supply for such funds to borrowers. Most of the money
market transactions are taken place on telephone, fax or Internet. The Indian money
market consists of Reserve Bank of India, Commercial banks, Co-operative banks, and
other specialized financial institutions. The Reserve Bank of India is the leader of the

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money market in India. Some Non-Banking Financial Companies (NBFCs) and financial
institutions like LIC, GIC, UTI, etc. also operate in the Indian money market.

3.4 CAPITAL MARKET

Capital Market may be defined as a market dealing in medium and long-term
funds. It is an institutional arrangement for borrowing medium and long-term funds and
which provides facilities for marketing and trading of securities. So it constitutes all long-
term borrowings from banks and financial institutions, borrowings from foreign markets
and raising of capital by issue various securities such as shares debentures, bonds, etc.
The market where securities are traded known as Securities market. It consists of
two different segments namely primary and secondary market. The primary market deals
with new or fresh issue of securities and is, therefore, also known as new issue market;
whereas the secondary market provides a place for purchase and sale of existing
securities and is often termed as stock market or stock exchange.

3.4.1 PRIMARY MARKET

The Primary Market consists of arrangements, which facilitate the procurement of
long-term funds by companies by making fresh issue of shares and debentures. You know
that companies make fresh issue of shares and/or debentures at their formation stage and,
if necessary, subsequently for the expansion of business. It is usually done through
private placement to friends, relatives and financial institutions or by making public
issue. In any case, the companies have to follow a well-established legal procedure and
involve a number of intermediaries such as underwriters, brokers, etc. who form an
integral part of the primary market. You must have learnt about many initial public offers
(IPOs) made recently by a number of public sector undertakings such as ONGC, GAIL,
NTPC and the private sector companies like Tata Consultancy Services (TCS), Biocon,
Jet-Airways and so on.

3.4.2 SECONDARY MARKET

The secondary market known as stock market or stock exchange plays an equally
important role in mobilizing long-term funds by providing the necessary liquidity to

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holdings in shares and debentures. It provides a place where these securities can be
encashed without any difficulty and delay. It is an organized market where shares and
debentures are traded regularly with high degree of transparency and security. In fact, an
active secondary market facilitates the growth of primary market as the investors in the
primary market are assured of a continuous market for liquidity of their holdings. The
major players in the primary market are merchant bankers, mutual funds, financial
institutions, and the individual investors; and in the secondary market you have all these
and the stockbrokers who are members of the stock exchange who facilitate the trading.
After having a brief idea about the primary market and secondary market let see the
difference between them.

3.5 DISTINCTION BETWEEN PRIMARY MARKET AND SECONDARY MARKET

The main points of distinction between the primary market and secondary market
are as follows:
1. Function: While the main function of primary market is to raise long-term funds
through fresh issue of securities, the main function of secondary market is to provide
continuous and ready market for the existing long-term securities.
2. Participants: While the major players in the primary market are financial institutions,
mutual funds, underwriters and individual investors, the major players in secondary
market are all of these and the stockbrokers who are members of the stock exchange.

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 Investment Avenues:
Contents

a)Non Marketable fixed Income avenues

Bank Deposit, Corporate Fixed Deposit
Provident Fund including PPF, National Saving Certificate
b)Marketable Avenues: Equity Shares, Preference Shares, Fully Convertible
Debentures, Non-Convertible Debentures, Bonds, RBIs Tax Free Bonds, Gilt
Edged Securities, Private Equity & Venture Capital,
c)Other Avenues: Units of Mutual fund, Life Insurance, Non-Security Forms of
Investment, Real Estate, Money Market Instruments

Transactions:
Usually saving accounts have low transactions while current accounts have large
transactions.
Handling:
Savings accounts involve personal handling of assets, while current accounts are aimed to
make the account holder free of personal handling of
Liquid funds:
The current account facility helps the business to run without hurdles due to non
availability of funds and short term deficits.
Interest Income:
Usually the current accounts don't earn interests, while saving accounts earn interest at
specified interest rate
. The interest is compounded half yearly.
(Please note that in case of death of the current account holder his legal heirs are paid
interest at the rates applicable to Savings bank deposit from the date of death till the date
of settlement)

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Overdrafts:
As discussed above saving accounts have no overdraft facility, Current accounts have.
The money can be borrowed for short term and to be paid back with interest.
Minimum Balance:
Usually saving accounts need a minimum balance in the banks to keep the account active
(however No Frill accounts require either nil or low minimum balance to be maintained).
In current accounts there are no minimum balance requirements.

CORPORATE FIXED DEPOSIT

Company Deposits:
Large and well reputed companies generally call for fixed deposit from public.
These fixed deposits collected from public represents unsecured loans and are regulated
by company law board and RBI.
This instrument is similar to that of bank FDs
-money will be parked for a fixed duration at a predetermined rate of interest.
Does this mean investors should overlook this investment instrument completely?
The key to investing in this instrument is to manage risks effectively. The key risk is the
risk of default by corporate.

So if you find a way to effectively pick those instruments where default risk is very low,
investing in this instrument will help you earn higher returns.

PROVIDEND FUND INCLUDING PPF

Employee Provident Fund
A provident fund is created with a purpose of providing financial security and stability to
elderly people. Generally one contributes in these funds when one starts as employee; the
contributions are made on a regular basis (monthly in most cases).
Its purpose is to help employees save a fraction of their salary every month, to be used in
an event that the employee is temporarily or no longer fit to work or at retirement.
The investments made by a number of people / employees are pooled together and inve
sted by a trust.

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The purpose of the scheme is to provide for
1) Superannuation Pension
:Member who has rendered eligible service of 20 years and retires on attaining the age of
58 years.
2) Retiring Pension
:member who has rendered eligible service of 20 years and retires or otherwise ceases to
be in employment before attaining the age of 58 years.
3) Permanent Total Disablement Pension
4) Short service Pension
:Member has to render eligible service of 10 years and more but less than 20 years.

NATIONAL SAVING CERTIFICATE:

National Saving Certificates, also known as NSC is an Indian Government Savings Bond,
Primarily used for small savings and tax saving investments in India. It is a part of the
postal savings system of Indian Postal Service.
NSC comes in denomination of Rs.100, 500, 1000 and there is no maximum limit.
This investment avenue has
Limited Risk
Choice
:Earlier there was a single instrument that was available for investors and this was a 6
year National Savings Certificate. The key for the instrument was that there was an
accumulation of the earnings over the life of the instrument so that there was no payout
that was available.
This meant that the entire money including the earnings came to the investor only at the
time of maturity of the instrument. The money was compounding on a half yearly basis.
This is different from most bonds and fixed deposits that offer a cash payout as well as a
cumulative option as here there is no option for taking a cash payout.
There is a 5 year instrument and there is a 10 year instrument. The interest rate that is
currently available on the 5 year instrument is 8.6 per cent and that on the 10 year

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instrument is 8.9 per cent. Both these instruments have their specific term and they will
earn at a different rate of interest that has been set for each of them.
Rate of interest
:A key part of the entire investment process is the rate of interest that will be earned on
the investment and this has been set differently for the two instruments. For the 5 year
NSC the interest rate is 8.6 per cent and it is 8.9 per cent for the 10 year instrument.
Tax benefit
:Another aspect of the entire investment process into a NSC is that there is a tax benefit
that is available when the investment is made into the instrument. The amount invested is
allowed as a deduction under Section 80C of the Income Tax Act and this is part of the
overall Rs 1 lakh limit that is present here.
Suitability
:This instrument is suitable for all those who want to keep their money away for a slightly
longer time period and want this figure to compound.
b): Marketable Avenues:
These are the instruments available to investors which can be sold in market and there
is no restriction on the transparence of these instruments. These are quite risky in nature
and provide good return if compared with non marketable fixed income avenues.
Investment in such instruments requires investors to do a lot of analysis and study of
financial market of country and globe.

Equity Shares:
Equity shares also known as Ordinary shares. Equity shares represent the ownership
position in a company. The shareholders of equity shares are the legal owner of the
company. Equity shares are the source of the permanent capital since they do not have a
maturity date.
Shareholders are entitled for dividend. The amount or rate of dividend is not fixed: the
companys board of directors decides it. An ordinary share is known as variable income
security
.Authorized Share Capital represents the maximum amount of capital, which a company
can raise from shareholders. The portion of the authorized share capital, which has been

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offered to shareholders, is called Issued Share Capital. Subscribed Share Capital
represents that part of the issued share capital, which has been accepted by shareholders.
The amount of subscribed share capital actually paid up by shareholders to the company
is called Paid -Up Share Capital. The companys earnings, which have not been
distributed to shareholders and have been retained in the business, are called Reserves
and Surplus.

Features of Equity Shares:

1.Maturity:
Equity shares provide permanent capital to the company and cannot be redeemed during
the life time of the company
2.Claims on Income:
Equity shareholders have a residual claim on the income of a company. They have a
claim on income left after paying dividend to preference shareholders.
3.Claim on Assets:
Ordinary shareholders have a residual claim on the companys assets in the case of
liquidation.
4.Right to control:
Ordinary shareholders have the legal power to elect directors on the board. Ordinary
shareholders are able to control management of the company through their voting rights
and right to maintain proportionate ownership.
5.Voting rights
: Ordinary shareholders are required to vote for election of directors and change in the
memorandum of association. An ordinary share holder has votes equal to the number of
shares held by him. Shareholders may vote in person or by proxy. A proxy gives a
designated person right to vote on behalf of a shareholder at the companys annual
general meeting.

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Types of Equity Shares for investment purpose:
1.Momentum Share
2.Growth Share
3.Value Shares
4.Cyclical Shares
5.Defensive Shares
6.Income Shares

PREFERENCE SHARES:
Preference share dividend has to be paid before any dividend payment to ordinary equity
shares.
Preference shares have fixed dividends.
Also preference dividends are not tax deductible.
Preference over Equity
Features of Preference Shares
:Fixed Dividends
Preference shareholders cannot claim on the residual earnings and residual assets.
at the time of liquidation also, these shares would be paid before equity shares.
No Share in Earnings
Preference share dividend is paid out of the profits left after a ll expenses
and even taxes. It requires that all past unpaid preference dividend be paid before any
ordinary dividends are paid.
Dividend from PAT Like debt, preference shares also have fixed maturity date.

Fully-convertible debentures (FCDs):

FCDs are converted into shares as per the terms of the issue, with regard to the price
and time of conversion.

Non -convertible debentures (NCDs):

NCDs are pure debentures without a feature of conversion. They are repayable on

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maturity. The investor is entitled for interest and repayment of principal.

Bonds :
A company needs funds to expand into new markets, while governments need money
for everything from infrastructure to social programs. The solution is to raise money by
issuing bonds (or other debt instruments) to a public market. Thousands of investors
then each lend a portion of the capital needed. Really, a bond is nothing more than a
loan for which you are the lender. The organization that sells a bond is known as the
issuer.

RBI Tax Free Bonds :

Tax
-saving bonds are one among the important tax saving options available to individuals.
Interest incomes generated by them are tax deductible and this is over and above the Rs 1
lakh tax exemption investors can avail of under section 80C of the I-T Act. A
disadvantage of tax-saving bonds is that the interest rates offered are not adjusted for
inflation which, at current 10% level, can significantly erode the value of bond
investments. The bonds are for individuals with low risk appetite, who are looking to
primarily preserve income and earn returns on the same as a secondary goal. Tax
-saving bonds are issued by RBI and organizations belonging to both public and private
sectors.

Gilt Edged Securities:

Gilt
-edged securities also called as government securities. The government security market of
India is an integral part of the stock exchange.
Many forms of the government securities like stock certifications, promissory note and
bearer bonds.
The Gilt Edge Market refers to the market for government and semi government
securities, backed by the Reserve Bank of India (RBI).
Government securities are tradeable debt instruments issued by the government

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authorities for meeting its financial requirements.
The term Gilt Edged means of the best quality. This is because the Government
securities do not suffer from risk of default and are highly liquid (as they can be easily
sold in the market at their current price). The open market operations of the RBI are also
conducted in such securities.
Gilt -edged securities are bonds issued by certain national governments . The term
is of British origin, and originally referred to the debt securities issued by the Bank of
England, which had a gilt (or gilded ) edge. Hence, they are known as gilt -edged
securities, or gilts for short.

Private Equity:
Investment strategy that involves the purchase of equity or equity linked securities in a
company
Investment is made through a negotiated process
By sophisticated investors with financial and operating expertise
The goal is to acquire undervalued or promising assets and realize profits in 3-5 years
after the acquisition
Information asymmetry and inefficiencies are important factors Venture Capital Early
Stage
: Firms with substantial risk of failure -business models and marketing approach
are yet to be proved
Small and illiquid investments with size of $500k -$2 million
The smallest type is the entrepreneur who needs the financing to conduct initial research
and development
The most mature type are those firms that are starting to turn profits but need capital for
expansion
Angel capital is an important source of funding Venture Capital
-Late Stage
:Firms with more certain business models
Proven technology and market
Profitable and need expansion capital

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General size of $2
-$15 million
IPO or Sale expected/feasible in near term
Original investors may achieve some liquidity
Because the risk is generally lower and the liquidity higher, later
-stage investments require lower returns than early
-stage investments

c) Other Avenues:

Mutual Fund:
A mutual fund is professionally managed type of collective investment scheme that pool
money from many investors and invest typically in investment securities(stock, bond,
cash,).
Mutual fund sells their share to the investors ; invest the proceeds in a wide choice of
securities in the financial market.
Thus reduce risk by diversification.
A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal.
The money thus collected is then invested in capital market instruments such as shares,
debentures and other securities.
The income earned through these investments and the capital appreciation realized are
shared by its unit holders in proportion to the number of units owned by them.
Thus a Mutual Fund is the most suitable investment for the common man as it offers an
opportunity to invest in a diversified, professionally managed basket of securities at a
relatively low cost.

Life Insurance:
Life Insurance can be termed as an agreement between the policy owner and the insurer,
where the insurer for a consideration agrees to pay a sum of money upon the occurrence

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of the insured individuals or individuals death or other event, such as terminal illness,
critical illness or maturity of the policy. They are one of the important parts of good
investment portfolios. Life insurance is an investment for security of life. The main
objective of other investment avenues is to earn return but the primary objective of life
insurance is to secure our families against unfortunate event of our death. It is popular in
individuals. Other kinds of general insurances are useful for corporate. There are different
types of insurances which are as follows:
Endowment Insurance Policy
Money Back Policy
Whole Life Policy
Term Insurance Policy
General Insurance for any kind of assets.

Non-Security Forms of Investment:

Security investments are traded in the market and are transferable in nature. Ex: Shares,
Debentures etc.
Non Security investments are neither traded nor transferable. Ex: Post office savings
deposits, Deposits with commercial banks, etc
. Real Estate

:Real Estate:
Every investor has some part of their portfolio invested in real assets. Almost every
individual and corporate investor invests in residential and office buildings respectively.
Apart from these, others include:
Agricultural Land
Semi -Urban Land
Commercial Property
Raw House
Retail
Farm House etc
Industrial Property

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Manufacturing Only
Warehousing
Retail/Showroom/office

Money Market Instruments

Debt instruments that have maturity period of less than one year, are called Money
Market Instruments.
These instruments are highly liquid and have negligible risk.
The major money market instruments are Treasury Bills, Certificate of Deposits,
Commercial Paper and Repos.
Govt., Banks, Financial Institution and Companies dominate the money market while
individual investors do not participate in money market directly. A brief description of
money market instruments is as follow

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Investment Avenues for Indian Investors

Equity

Please note that investments in equity should only be done for the long term (anything
more than 5 years) to earn decent returns. Risk of investing in equities is high and so the
returns are also high. You could dabble in the stock market broadly in three ways.
1. Directly by buying and selling shares on the stock exchanges BSE/NSE
2. Take the plunge via the Mutual Fund route wherein the options available are :
equity diversified, balanced, tax saving ELSS funds, thematic, exchange traded or
index funds

3. Investing in ULIPs(insurance plans) via their equity funds.

Debt

Debt investment can be done for the short term and long term as well. Risk here is very
low and so return is low as well. Investing in debt can be done by the following ways.

1. Fixed Deposits, POMIS, NSC, PPF, NPS, Bonds, Kisan Vikas Patra, Senior
Citizen Saving Schemes
2. Debt mutual funds (balanced, floating rate, gilt, liquid and liquid plus) also offer
another way to do so.

3. Traditional insurance policies (money back, whole life, endowment) and the debt
portions of ULIPs can be a mechanism as well.

Real Estate

This is again for the long term with a high risk and very low liquidity factor. Liquidity is
defined as the ease with which you could sell your investment for cash quickly. Investing
in property can be done by :

1. Buying apartments and plots in either residential or commercial areas

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 2. Or buying Real Estate Mutual Funds.

Commodities

For small investors, exposure to gold is the right step to invest into commodities. The
risk is moderate/high in this class of investment and it is highly volatile as well.

1. One could buy gold and silver bars/coins or jewellery and

2. Invest in Gold exchange traded mutual funds.

Art

Investment into Arts is not every small investors first dream but having invested into the
first four, one could think of putting their money into art as well. This should be on less
priority as compared to the above four.

These broadly define the options available with investors for investing their hard earned
money.

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 RESEARCH METHODOLOGY

INTRODUCTION

Indian investor today have to endure a slow-moving economy, the steep market
declines prompted by declining revenues, alarming reports of scandals ranging from
illegal corporate accounting practices like that of Satyam to insider trading to make
investment decisions. Stock markets performance is not simply the result of intelligible
characteristics but also due to the emotions that are still baffling to the analysts. Despite
loads of information coming from all directions, it is not the calculations of financial
wizards, or companys performance or widely accepted criterion of stock performance
but the investors irrational emotions like overconfidence, fear, risk aversion, etc., seem
to decisively drive and dictate the fortunes of the market.
The market is so volatile that its behaviour is unpredictable. In the past couple of
years, the movement of share prices exceeded all the limits and had gone remarkably low
and high levels. These dramatic prices of the shares ruin the concept of intrinsic value
and rational investment behaviour. The traditional finance theories assume that investors
are rational but they are unable to explain the behaviour and pricing of the stock market
completely.
Many research studies have validated the relationship between a dependent
variable i.e., risk tolerance level and independent variables such as demographic
characteristics of an investor. Most of the Indian investors are from high income group,
well educated, salaried, and independent in making investment decisions and from the
past trends it is also seen that they are conservative in nature. Television is the media that
is largely influencing the investors decisions. Hence, in the present project report an
attempt has been made to study the relationship between risk tolerance level and
demographic characteristics of Indian investors.

STATEMENT OF THE PROBLEM

This study on investors behaviour is an attempt to know the profile and the
characteristics of the investors so as to understand their preference with respect to their
investments. The main focus of the study is to discover the influence of demographic

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factors like gender and age on risk tolerance level of the investor. The study mainly
concentrates on the factors that influence an individual investor before making an
investment. It also studies the various patterns in which investors like to invest their
money based on their risk tolerance level and other demographic factors like income
level, occupation etc.

REVIEW OF LITERATURE
The literature review section examines the importance of research studies,
company data or industry reports that serve as a foundation for the setup of study. The
research dimension of the related literature and the relevant information begins from an
explanatory perspective, approaching towards specific studies which do related to judge
the limitations and informational gaps in data from the secondary sources. This analysis
may reveal conclusions from past studies to realize the reliability of the secondary
sources and their credibility. This in turn enables one to rely on a comprehensive review
for the study.

Literature suggests that major research in the area of investors behaviour has
been done by behavioural scientists such as Weber (1999), Shiller (2000) and Shefrin
(2000). Shiller (2000) who strongly advocated that stock market is governed by the
market information which directly affects the behaviour of the investors. Several studies
have brought out the relationship between the demographics such as Gender, Age and
risk tolerance level of individuals. Of this the relationship between Age and risk tolerance
level has attracted much attention.
Horvath and Zuckerman (1993) suggested that ones biological, demographic and
socioeconomic characteristics; together with his/her psychological makeup affects ones
risk tolerance level. Malkiel (1996) suggested that an individuals risk tolerance is related
to his/her household situation, lifecycle stage and subjective factors. Mittra (1995)
discussed factors that were related to individuals risk tolerance, which included years
until retirement, knowledge sophistication, income and net worth. Guiso, Jappelli and
Terlizzese (1996), Bajtelsmit and VenDerhei (1997), Powell and Ansic (1997),
Jianakoplos and Bernasek (1998), Hariharan, Chapman and Domain (2000), Hartog,

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Ferrer-I-Carbonell and Jonker (2002) concluded that males are more risk tolerant than
females.
Wallach and Kogan (1961) were perhaps the first to study the relationship
between risk tolerance and age. Cohn, Lewellen et.al found risky asset fraction of the
portfolio to be positively correlated with income and age and negatively correlated with
marital status. Morin and Suarez found evidence of increasing risk aversion with age
although the households appear to become less risk averse as their wealth increases. Yoo
(1994) found that the change in the risky asset holdings were not uniform. He found
individuals to increase their investments in risky assets throughout their working life
time, and decrease their risk exposure once they retire. Lewellen et.al while identifying
the systematic patterns of investment behaviour exhibited by individuals found age and
expressed risk taking propensities to be inversely related with major shifts taking place at
age 55 and beyond. Indian studies on individual investors were mostly confined to
studies on share ownership, except a few.
The RBI's survey of ownership of shares and L.C. Gupta's enquiry into the
ownership pattern of Industrial shares in India were a few in this direction. The NCAER's
studies brought out the frequent form of savings of individuals and the components of
financial investments of rural households.
The Indian Shareowners Survey brought out a volley of information on
shareowners. Rajarajan V (1997, 1998, 2000 and 2003) classified investors on the basis
of their demographics. He has also brought out the investors characteristics on the basis
of their investment size. He found that the percentage of risky assets to total financial
investments had declined as the investor moves up through various stages in life cycle.
Also investors lifestyles based characteristics has been identified. The above discussion
presents a detailed picture about the various facets of risk studies that have taken place in
the past. In the present study, the findings of many of these studies are verified and
updated.
Latha Krishnan (2006) explained as Investments come in many forms. While
some people consider hard assets such as land, house, gold and platinum as investments,
others look to monetary instruments such as stocks and bonds as ways to make their
money grow.

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 A cautious or conservative investor is unlikely to play carelessly with his hard-
earned money. So he keeps to safe investments that guarantee the return of his capital and
still earn good returns in a stipulated period if the product in which he invested gains in
that period. In such an investment, even if the markets go down and he does not gain
much, he also does not suffer a heavy loss.
A wealthy person with more money to invest can take more risks and invest in a
variety of products that major financial players provide. A wealth of information on these
as well as comments and criticisms on their performances and profitability is readily
available.
Perception of investors towards capital market instruments globally by John
Marshall and Investment analysis and Portfolio management by Punithavathy Pandian.
John Marshalls study was at global scale and it explains the perception of people across
globe towards capital market instruments and Pandian explains the theoretical aspects of
capital market instruments and use of various investment avenues to build a strong
portfolio.

NEED FOR STUDY

Investing money is a crucial and deciding the avenues where to invest needs a lot
of planning. In India people are more conservative and hence prefer investments that are
less risky. Similarly there are other demographic factors like age, income level, gender
which affect their decision. As the availability of financial products increase, perception
of investors towards such avenues changes over a period of time. It becomes important
for a marketer to understand the perception of investors towards investment avenues to
successfully pitch the product. Marketing is known as meeting needs profitably. If the
marketer is able to understand the mindset of investor towards a product then he/she will
be in a position to market the product. This report attempts to study the behavior of
Indian investors while making an investment. Here we also look upon other factors that
influence them while making investment decisions. Innovations in financial products like
derivatives, unit linked insurance products, fund of funds likewise are not easily
understood by the investor. Hence the need for this study arises to understand what
exactly an Indian investor thinks before investing his/her money and how much risk

Page | 34
he/she is willing to take. This report gives the marketer and other peers to successfully
market the financial products which are more popular, as it gives information regarding
the perception of investors towards investment avenues in India.

OBJECTIVES OF THE STUDY

1 Primary Objectives
To study the investment characteristics of investors
To study the objectives of investment plan of an investors
To study the demographic information of investors
2 Secondary Objectives
To know the preferred investment avenues of investors
To identify the preferred sources of information influencing investment decisions
To understand the risk tolerance level of the investors and suggest a suitable
portfolio
To study the dependence/independences of the demographic factors (Gender, Age,
income level) of the investor and his/her risk tolerance level

SCOPE OF STUDY
Based on previous research in related areas, a questionnaire was constructed to
measure the investment pattern of individuals on the basis of demographic characteristics
and the risk tolerance of investors was also calculated. It helped us to understand how an
Indian investor behaves while investing. This study will be helpful to mutual fund
companies and other investment companies to understand individual behaviour of
investors so that they could build suitable investment options for them individually. Also
this study will help the investor to decide the areas where they could invest.

HYPOTHESIS
A hypothesis describes the relationship between or among variables. A good
hypothesis is one that can explain what it claims to explain, is testable and has greater
range, probability and simplicity than its rivals. There are two approach of hypothesis
testing:
1) Classical or sampling theory statistics and 2) The Bayesian approach

Page | 35
 In the present dissertation chi square test has been used to find out the
dependence/independence of various factors that influence investment decision.
Hypothesis has been found between following factors:
Gender and risk tolerance of respondents
Age and preferred investment avenues by the respondents
Income and investment avenues preferred by the respondents
Age of respondents and time horizon for investment
Age and risk tolerance of the respondents

RESEARCH DESIGN
Research methodology is a way to systematically solve the research problem. It may
be understood as a science of studying how research is done scientifically.
Research type
Many investors were reluctant to reveal their investment details especially the
amount of money invested so, referral sampling method is used for this study.
Sample description
The sample was drawn from the population of the potential investors from India.
A survey was conducted to understand the investors behaviour with the help of
questionnaire. It was carried out with a sample size of 250 investors.

TOOLS OF DATA COLLECTION

Primary data: The data has been collected directly from respondent with the help of
structured questionnaires.
Secondary data: The secondary data has been collected from various magazines, journals,
newspapers, text books and related websites.

METHOD OF ANALYSIS
Statistical techniques like Chi square test, simple percentage method are used to
analyze and interpret raw data. Chi square was used to show the
dependency/independency of various factors.
After collecting the data its variable having defined character, it was tabulated and
analyzed with the help of charts and graphs in Microsoft Excel 2007.

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LIMITATIONS OF STUDY
Sample size is small because of the time constraint
Respondent may be hesitant to provide their investment details
Behavior of investors doesnt remain same for long time
Time for the study is limited

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Page | 38
ANALYSIS & INTERPRETATION

Data analysis and interpretation

Table 4.1: Gender wise classification of Respondents

Gender Number of Percentage (%)

Respondents
Male 200 80
Female 50 20
Total 250 100

Interpretation:
Table 4.1 shows the Gender wise classification of Respondents. It was found that 80% of
the Respondents are men and the rest are females. Generally males bear the financial
responsibility in Indian society, and therefore they have to make investment decisions to
fulfil the financial obligations.
On the other hand females are not involved in such activities as majority of them are busy
with their household activities. Also there are very less houses which depend on a female
income most of them are male dominated households. Hence investment activities are
more seen in males than females.

Figure 4.1: Gender wise classification of Respondents

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Table 4.2: Age wise classification of Respondents

Age( in years) Number of Percentage (%)

Respondents
Below 35years 92 36.7
36-50years 133 53.3
51-60years 17 6.7
above 60years 8 3.3
Total 250 100

Interpretation:
Table 4.2 shows the Age wise classification of Respondents. When it comes to age, it was
found that 37% are young i.e. of age group below 35 years and 53% of them are in the
age group of 35 to 50. Other than these 7% of them belong to age group of 51 to 60 and
rest them belongs to age group above 60. This shows that age group of 35 years an above
are more interested in investments while people above 51 years make less investments as
most of them would retire at age of 60 and would start planning for retirement.

Figure 4.2: Age wise classification of Respondents

Table 4.3: Classification of Respondents on the basis of their Marital Status

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 Marital Number of Percentage (%)
status Respondents
Single 55 22
Married 195 78
Total 250 100

Interpretation:
Table 4.3 shows classification of Respondents on the basis of their Marital Status. It was
found that marital status of 78% of the Respondents was found to be married and the rest
22% are unmarried. This is because a married individual is considered to have
dependents so they are involved in making financial investments. Whereas Respondents
who are unmarried mostly invest to generate wealth but they do not have any financial
responsibility.

Figure 4.3: Classification of Respondents on the basis of their Marital Status

Table 4.4: Classification of Respondents on basis of Occupation

Occupation Number of Percentage (%)

Respondents

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 Government 73 29
Employee
Businessman 70 28
Private Sector 90 36
Student 5 2
Others 12 5
Total 250 100

Interpretation:
Table 4.4 shows classification of Respondents on basis of Occupation. From the above
graph indicates that 36% of the Respondents are working in private sector, 29% of them
are government employees, 28% of them are self employed, 2% of them are students and
rest are working in other sectors. Respondents who work in private sectors are involved
in investments as the income would be lesser in private sectors.

Figure 4.4: Classification of Respondents on basis of Occupation

Table 4.5: Classification of Respondents on basis of Annual Income

Annual Income Number of Percentage (%)

Respondents
Below 2 Lakhs 0 0
2 Lakhs 4 Lakhs 10 4
4 Lakhs 6 Lakhs 58 23.3
6 Lakhs 8 Lakhs 61 24.3

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 above 8 Lakhs 121 48.4
Total 250 100

Interpretation:
Table 4.5 shows the classification of Respondents on basis of Annual Income. It was
found that 48% of Respondents with annual earnings above 8 Lakhs are interested in
investments because their savings are more which they invest to generate wealth, 23% of
them are earning 4 to 6 Lakhs annually, the other 25% are earning between 6 to 8 Lakhs
in a year, 4% of them earn 2 to 4 Lakhs in an year but there were no respondents with
annual income below 2 Lakhs as they do not have savings to invest.

Figure 4.5: Classification of Respondents on basis of Annual Income

Table 4.6: Classification of Respondents on basis of Education Level
Education Level Number of Percentage (%)
Respondents
Under Graduate 25 10
Graduate 108 43.3
Post Graduate 117 46.6
and above
Total 250 100

Interpretation:
Table 4.6 shows the classification of Respondents on basis of Education Level. It
indicates that 47% of the Respondents covered in the study are postgraduates; 43%
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Respondents are graduates and 10% of the Respondents are undergraduates. Investors
with post graduate degree would be more exposed to market situation which make them
more interested in investments. Also graduates would have fair knowledge about
investments. Whereas Respondents who are undergraduates mostly do not invest due to
unfamiliarity to investment avenues or unavailability if information about investments.

Figure 4.6: Classification of Respondents on basis of Education Level

Table 4.7: Classification of Respondents on basis Influence on Investment Decision

Investment Decisions are Number of Percentage (%)
Respondents
Taken on own initiative 185 74
Taken on own initiative but 45 18
with help from an expert
Made by expert on investors 20 8
behalf
Total 250 100

Interpretation:
Table 4.7 shows classification of Respondents on basis Influence on Investment Decision.
It was found that most Respondents tend not to depend upon expert advice and help while
making investment decisions. However, the majority of the Respondents i.e. 74% make
investment decisions without the help and advice from experts; only 18% investors

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consult some experts, for advice in investment decisions. And the rest of them allow the
expert to take decision on their behalf.

Figure 4.7: Classification of Respondents on basis Influence on Investment Decision

CONCLUSION

The nature and workings of the direct real estate investment market differ from those of
the other main asset classes. Unlike other major categories of investment where there are
well-developed markets in which homogeneous investments are regularly traded, real
estate is a heterogeneous asset. No two properties are the same, whether in terms of
physical size, accommodation, structure, condition, differences in tenure or simply
location. There is a paucity of information within the direct real estate market,
exacerbated by there being no central market place for its transactions. Even where prices
are published e.g. auction results, the full details of a deal are rarely made known.

The supply of real estate, certainly in the short-term, is relatively fixed. Thus in periods
of strong demand, returns from real estate will contain a high element of economic rent.
Conversely, low demand should reduce the economic rent. However the normal UK
institutional lease provides for upwards-only rent reviews, which often act as a floor to
the income generated. As a consequence, returns from real estate tend to be more volatile

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upon an upturn in an economy than the performance of that economy as a whole. In
addition, the cost of acquiring or disposing of real estate is relativelyhigh and hindered by
the complex legal structure of real estate rights, both in the UK and overseas. Properties
also require maintenance, suffer from depreciation, and are often physically indivisible.
The increasing effect of technological advancements on their usage and thus value, is also
an issue.

Some evidence shows that real estate offers a long-term hedge against inflation. How-
ever, the changing structure of debt financing -to short-term fixed or variable rate -
combined with forecasts of a future low inflation environment, may have weakened this
ability. In addition, the liberalisation of constraints on investment overseas, coupled with
the enormous growth of derivative securities, has provided alternatives with which
institutions can diversify UK equities.

However, almost all studies that employ conventional investment theory advocate the
inclusion of real estate within a multi-asset portfolio. Those that do not, often depend on
an excessive degree of unsmoothing. Although as they almost all do, by usingreal estate
indices they implicitly assume that investors hold a `diversified' real estate portfolio.

The last 20 years has seen smaller funds gain a larger share of the total pension market.
These funds are less likely to invest directly in real estate because of the difficulties in
creating a sufficiently diversified real estate portfolio. However, the strength of this point
is weakened when considered within the context of a multi-asset portfolio. Investors do
not need to hold a fully diversified real estate portfolio in order to obtain exposure to the
benefits of diversification. The degree of such benefits will however be linked to the level
of diversification.

The liability structure of life and pension funds defines their natural preference for long-
term financial assets. In contrast, however, institutions have been placing less weight on
the long-term stability of returns, and relatively more weight on short-term portfolio
performance. As fund managers face shorter time horizons over which their performances
is judged. They are increasingly forced to optimise their investment strategy in order to

Page | 46
best meet these performance targets, which real estate investment may not assist in the
attainment of. Although, within this framework the concept of pricing only systemic risk
relies on a reasonably long investment horizon. Therefore, shortening investment
horizons also affect the quality of expected returns and asset correlation estimates, and
reduce the validity of assuming the multivariate normal dis- tribution of returns. The
comparatively poor availability and quality of information on the real estate market -
compounded by the reduction in institutional involvement which further reduces
information - has increased the relative risk of real estate investment. Short-term
investment horizons, however, should not be of concern when considering the structure
of life insurance and pension fund liabilities.

Taking cognisance of the above discussion, direct real estate investment encompasses a
collection of characteristics not found in competing asset classes. As outlined, many
researchers have considered the benefits of real estate investment. Almost all concluded
that the variety of risks attached to real estate, within the framework of conventional
investment theory, are not necessarily a sufficient explanation of its low weighting. While
the case for investment in real estate by small or mature funds may be weak, there seems
little support for its current (low) weighting in medium to large funds.

However, within the context of the optimal long-term portfolio mix, two issues remain
unconsidered. Firstly, asset pricing models are volatile in their allocation of assets from
period to period. As discussed, real estate portfolios suffer from considerable inertia, and
it is thus impractical to reallocate funds on a monthly or even quarterly basis. When
revision does occur, reallocation takes time. Secondly, few of the studies on the optimal
amount of real estate to be held in institutional portfolios have taken into account investor
attitudes towards risk. It may be argued from the discussion in section 2.3 that institutions
are risk-averse, weighing this `natural' tendency against the benefits of real estate.

Therefore, in an attempt to supplement those areas inadequately dealt with in the

literature discussed above, the following chapter will briefly review optimum portfolio
selection. This will lead to consideration of constraints on investment in real estate,

Page | 47
differing investor attitudes towards risk, and their effects on portfolio composition and
fund performance.

Page | 48
 BIBLIOGRAPHY

Books
C K Kothari, Research Methodology, Wishwa Prakashan Publishing, 1996,
Second Edition
Herbert B. Mayo, Investments, Chennai Micro Print pvt. Ltd Chennai, 2006
Punithavathi Pandyan, Security Analysis and Portfolio Management, Tata Mc
Graw-Hill Publishing Company Ltd , New Delhi,2008 Third Edition
Prasanna Chandra, Investment Analysis And Port Folio Management, Tata Mc
Graw-Hill Publishing Company Ltd , New Delhi,2008
Prasanna Chandra, Financial Management, Tata Mc Graw Hill Publishing
Company Ltd , New Delhi2007

Journals
Asian Journal Of Management
Global Journal of Finance and Management
Indian Journal of Finance
The IUP Journal of Behavioural Finance,
Barberis, N. and Thaler, R. H. (2002) A Survey of Behavioural Finance

Websites Reference
www.indiafinance&investmentguide.com
www.wikipedia.org
www.nseindia.com
www.capitalmarkets.com
www.bseindia.com
www.financeindia.org/article

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