A STUDY ON INVESTORS PERCEPTION TOWARDS INVESTMENT IN STOCK

MARKET

Chapter 1: Introduction

1.1 INTRODUCTION

For the development of any country capital markets plays a critical and
significant role. The developed capital markets provide various benefits like high
economic growth, high employment, infrastructural development and developed
financial sectors. Developed markets not only benefits a country but also offers
ample opportunities to retail investors for wealth generation and maximization.

The total market cap of all the Indian companies is nearly 65%of the GDP today
as compared to the US at nearly 90% as reflected in a study titled Deepening of
capital markets by the Boston Consulting Group and Confederation of Indian
Industry in December 2012.

In India the household savings rate is increasing and almost fifty percent of the
savings are in physical assets like gold, real estate and the rest fifty percent is in
financial assets. In India the private equity has grown substantially. The value of
private equity investments in the country grew more than 20 times in less than a
decade. The performance of Market has registered a significant upward trend in
recent times. Retail investors who are investing in small stocks to make a quick
gain, are changing their approach and now placing their money in quality stocks.
According to (Mascarenhas, 2015) companies such as SBI, ICICI Bank, Axis
Bank, ITC, ONGC, Infosys, Asian Paints and Tata Power, have seen a sharp
rise in the number of individual retail investors— between 50,000 and 3.5 lakh —
at the end of March 2015 compared with the previous year.

The NSE has specified that it has seen retail investor participation increase
dramatically in the last one year, with Maharashtra recording the highest rate of
increase.

On the NSE platform, Maharashtra had the most number of people trading in the
last one year (up 38 per cent) while Gujarat witnessed the highest jump in value
terms, by more than 50 per cent.
Maharashtra, Goa and Gujarat together witnessed 32 per cent spurt in the
number of people actively trading in the last one year. India has around 2.5 crore
registered clients across exchanges, according to the NSE statement.

With rising trend of popularity of stock market in general as a place where one
can earn good returns in less time has given a push to a common man to be a
part of this market. In academics term an Individual who commits money to any
source of investment with the expectation of financial return is being recognized
as an Investor. The prime concern of an Individual Investor is usually to have
more profit with minimum risk. As oppose to this a speculator is always willing to
expect a higher level of risk in the hopes of collecting higher than average profits.
An individual with the various levels of needs and level of risks being taken is
being classified in different categories of Investors. Some categories of Investors
are mutually exclusive and some are not. The classification which not mutually
exclusive mainly includes gambling , Angel Investors , some equity Investors,
Investment Trust, Mutual Funds, Hedge Funds, Sovereign Wealth Fund.

With the growing pace of Investment alternatives availability in the market the
awareness and knowledge level of the Investors have also increased many folds.
An Individual usually willing to relocate their surplus amount of funds with the
Government Securities, Banks, and LICs as they were being recognized as safe
mode of keeping the savings and also to earn a decent return on the deployed
funds. Gradually the scenario has taken a shift which leads to the introduction of
market linked securities with moderate component of risk and other investment
opportunities with flexible level approach. This gave an opportunity to an
individual investor to diverse his/her portfolio to earn a higher rate of return with
calculated amount of risk. Gradually the shift is being observed in the nature of
Investor towards their investment pattern. During the 1980’s the noise of Stock
Market operations had become prominent among the society. With a bit
hesitation individuals started shelling out the small segment of their earning into
the share purchasing with a feel of having fast and maximum return in a short
span of time. Over a period it is being realized that the Stock Market has made
its footage as an identity of Market which gives maximum return but with rich
component of risk in a short span of time.
 1.2 NEED FOR THE STUDY

In India, when a person is asked about investment the sole answer that one gets
is either fixed deposit or gold. According to various surveys only 2.5% of the total
population of 1.3 billion which means only people in the metro cities are aware of
investment apart from the traditional fixed deposit or gold. Following study is
carried out to know the extent and awareness among people related to various
investment alternatives and also their perception towards stock market
investment. This study will help us to know about how aware an individual is
about the various investment avenues available in India and also about the
various factors that affect an individual while investment of their wealth. The
importance and relevance of this study is that it will give us an idea of how
individual invest and save their money so that they can fetch good returns. This
study will provide us information on what factors drive an individual while
investing. This study would also focus on individual who have started working for
the past 1-2 years and to know what is their perception towards investment inn
stock market and level of awareness.
 1.3 SUPPORTING LITERATURE

Smita Mazumdar (2014) Individuals invest rationally with intention of maximizing

utility for given level of risk. This study examines the relationship between
investment behaviour and level of knowledge. Financial knowledge leads to
investing in different investment avenues such as equity, gold, real estate, fixed
deposits etc. study examines the aggressive investors, averse investors and
moderate risk taker with the help of financial knowledge.

N. Geetha, M. Ramesh (2015) This study Examines the factors responsible for
investment behaviour of people and different investment options available. Equity
are high risk and high return investment with liquidity, debts are low risk and fixed
return instruments, Mutual funds and bonds are low risk with normal returns
instruments, Company deposits and bank deposits has low risk and low returns,
post office savings , PPF and insurance policies are no risk investment with low
returns, Real estate and Gold has no returns on investment but has capital
appreciation.

Rajeshwari Jain (2014) Investment is the consumption and saving opportunity in

future expressed in monetary terms. Two classes of investments like Fixed
income statements i.e. Preference shares , Bonds, fixed deposits and Variable
income investment i.e. equality capital, proprietary ownership. Data shows that
respondents between the age group of 26 years to 35 years are involve in
investment activities.

Santi Swarup K,(2015) had indicated that the investors gave importance to their
own analysis as compared to brokers’ advice. They also considered market price
as a better indicator than analyst’s recommendations. The study also identified
factors that were affecting primary market situation in India. Issue price,
information availability, market price after listing and liquidity had emerged as
importance factors in the study. The study suggested that investors need to be
assured of some return and the level of risk associated with investment in the
market was very high. They have bad experience in terms of lower market price
after listing and high issue price. A number of measures in terms of regulatory
price level and market oriented reforms were suggested to improve the investor
confidence in equity primary markets. However, this study did not highlight the
measures for improving investors’ confidence in the secondary market.

E. Bennet et al (2015) found the average value of the five factors namely, return
on equity, quality of management, return on investment, price to earnings ratio
and various ratio of the company had influenced the decision makers. Further
other five factors such as recommendation by analysts, broker and research
report, recommended by friend, family and peer, geographical location of the
company and social responsibility were given the lowest priority or which had low
influence on the stock selection decision by the retail investors.
 1.4 OBJECTIVE AND HYPOTHESIS

1. To understand the investors preference towards investment.

2. To identify the factors influencing investor while investing in stock market.
3. To know level of awareness of the various investment avenues available in India.

HYPOTHESIS

The following null hypotheses were framed and they were tested with the help of
statistical tools mentioned at the end of this chapter.

 There is no association between gender of the investor and their preference

of investment.
 There is no association between the occupation of the investor and the
percentage of investment.
 There is no association between the age of the investor and their preference
of investment.

1.5 METHODOLOGY

Research Design: The research was exploratory in nature and survey method
was used to conduct the study.
Sample Size: For the purpose of the study a sample size of 80 respondents
were covered in the study.
Methods of data collection: The research is based on primary data. A well-
structured questionnaire was used for collecting primary
data. For the study both primary and secondary data has
been used.
Tools used: Statistical tools, MS excel, Google form.
 1.6 PROJECT OUTLINE

This project is undertaken to know what investment avenues investors are aware
of and invest in. It gives an idea on how investors perceive investment in stock
market. This study even shows the various factors that are considered by
individuals while investing in stock market is concerned.
Chapter 2: Theoretical Development

INTRODUCTION TO INVESTMENT
The word "investment" can be defined in many ways according to different
theories and principles. It is a term that can be used in a number of contexts.
However, the different meanings of "investment" are more alike than dissimilar.

Generally, investment is the application of money for earning more money.

Investment also means savings or savings made through delayed consumption.
According to economics, investment is the utilization of resources in order to
increase income or production output in the future.

An amount deposited into a bank or machinery that is purchased in anticipation

of earning income in the long run are both examples of investments. Although
there is a general broad definition to the term investment, it carries slightly
different meanings to different industrial sectors. According to economists,
investment refers to any physical or tangible asset, for example, a building or
machinery and equipment.

On the other hand, finance professionals define an investment as money utilized

for buying financial assets, for example stocks, bonds, bullion, real properties,
and precious items.

According to finance, the practice of investment refers to the buying of a financial

product or any valued item with an anticipation that positive returns will be
received in the future. The most important feature of financial investments is that
they carry high market liquidity. The method used for evaluating the value of a
financial investment is known as valuation.

According to business theories, investment is that activity in which a

manufacturer buys a physical asset, for example, stock or production equipment,
in expectation that this will help the business to prosper in the long run.
CHARATERISTICS OF INVESTMENT

The characteristics of investment can be understood in terms of as

- return,
- risk,
- safety,
- liquidity etc.

Return: All investments are characterized by the expectation of a return. In fact,

investments are made with the primary objective of deriving a return. The return
may be received in the form of yield plus capital appreciation. The difference
between the sale price & the purchase price is capital appreciation.
The dividend or interest received from the investment is the yield. Different types
of investments promise different rates of return. The return from an investment
depends upon the nature of investment, the maturity period & a host of other
factors.

Risk: Risk is inherent in any investment. The risk may relate to loss of capital,
delay in repayment of capital, non payment of interest, or variability of returns.
While some investments like government securities & bank deposits are almost
risk less, others are more risky. The risk of an investment depends on the
following factors.

 The longer the maturity period, the longer is the risk.

 The lower the credit worthiness of the borrower, the higher is the risk.

The risk varies with the nature of investment. Investments in ownership securities
like equity shares carry higher risk compared to investments in debt instrument
like debentures & bonds.

Safety: The safety of an investment implies the certainty of return of capital

without loss of money or time. Safety is another features which an investors
desire for his investments. Every investor expects to get back his capital on
maturity without loss & without delay.
Liquidity: An investment, which is easily saleable, or marketable without loss of
money & without loss of time is said to possess liquidity. Some investments like
company deposits, bank deposits, P.O. deposits, NSC, NSS etc. are not
marketable. Some investment instrument like preference shares & debentures
are marketable, but there are no buyers in many cases & hence their liquidity is
negligible. Equity shares of companies listed on stock exchanges are easily
marketable through the stock exchanges. An investor generally prefers liquidity
for his investment, safety of his funds, a good return with minimum risk or
minimization of risk & maximization of return.
INVESTMENT OPTIONS FOR INVESTORS

Investment Avenues is in which an investor can place his surplus funds with the
objectives of having certain gains in the future. This organization may be well
organized like a bank, financial institution, mutual funds and company or in an
unorganized manner like chit fund organization, Nidhis (a type of non-banking
finance company) or curry (a type of non-banking finance company in southern
India). Different investment avenues have different features; few offer a fixed
return and certain others offer stock market based returns and yet certain others
offer a mix of these two. Few of these have an element of safety and yet others
do not have any kind of safety. In certain cases these are in negotiable form and
in other cases these are non-negotiable. Investment avenues of a country are
subject to different rules and regulations of either the government or some apex
body like Reserve Bank of India, NABARD, SEBI or Companies Act. Following
are the features of investment avenues.
 A place where one can invest his surplus
 Fixed or floating return
 Security vs. Non-security form
 Investment accepting organization might have an obligation or not
 Negotiable vs. Non-negotiable
 Risk is the inherent part of every avenue
 May be in an organized form or unorganized form
 Regulation
 Market oriented vs. others

Investment avenues can be broadly divided into following types.

 Security form
 Non-security form
 Traditional form
 Other emerging avenues
SECURITY FORMS
These are the instruments or securities through which a company or issuing
authority like government raises finance. Majority of these are in negotiable form,
i.e. these are sellable in the market by the holder of the securities.
Companies/Government issues these in capital market or money market to raise
funds directly from the providers of the funds. Some of these have maturity for a
very long period and others have for either medium term or short term. Security
form can further be divided into money market securities and capital market
securities.

MONEY MARKET SECURITIES

It is the market in which liquid funds as well highly liquid securities are traded in
for a very shorter duration. The main participants in this market are banks and
financial institutions. The banks deal in this market to fulfill their CRR (Cash
Reserve Ratio) and SLR (Statutory Liquidity Ratio) requirements. However, few
corporate houses, insurance companies, mutual funds, provident funds trusts
and non-banking finance companies also play an active role in this market. This
market provides liquidity support to banking system. At the same time, the central
bank of the country – Reserve bank of India- uses this market to exercise
monetary control in the economy and credit control in the country.

Money market can be divided into two parts, call money market and government
securities/gilt-edged securities market. Call money market in which surplus cash
of banks and corporate houses is traded in for a very short maturity period,
generally not exceeding one fortnight. The main transactions are carried on by
banks to fulfill their liquidity, as well as CRR requirements. The main participants
in market are banks, financial institution, mutual funds, corporate houses and
other organizations as allowed by Reserve bank of India from time to time. Banks
are allowed to play the role of both the seller as well as the buyer of funds. A
seller of funds is the one who provides it to another party and the party receiving
it is identified as the buyer of the funds. For making funds available, the seller
charges interest, which is decided mutually.
The charges in a call money market are influenced by the demand and supply of
money available in this market. Call rates fluctuate very frequently due to the
volatile nature of this market. The provider of funds can call back his money at a
short notice; which is why it is called call money market. The market for
government securities is known as gilt-edged securities market. Government
securities are either issued by the central government or state government or
any of the agencies of these governments. The government guarantees payment
of interest and repayment of the principal amount in gilt-edged securities.
Developed banks and financial institutions trade in this market to fulfill their SLR
(Statutory Liquidity Ratio) requirement. The feature of safety and liquidity in these
securities is as safe as good as that of gold; hence, these are called as gilt-
edged securities. Following are the main instruments in this market.

TREASURY BILLS

Treasury bills are very useful instruments to deploy short term surplus depending
upon the availability and requirement. Even funds which are kept in current
accounts can be deployed in treasury bills to maximize returns. These treasury
bills have a maturity period not exceeding 364 days. These bills do not carry any
interest rate; instead these are issued at a discount to face value, and redeemed
at par on the maturity. Treasury bills have a unique maturity period of 91 days,
182 days, and 364 days. Recently RBI issued treasure bills for a maturity of 14
days and 28 days too. Banks do not pay any interest on fixed deposits of less
than 15 days, or balances maintained in current accounts, whereas treasury bills
can be purchased for any number of days depending on the requirements. This
helps in deployment of idle funds for very short periods as well.

Further, since every week there is a treasury bills auction, investor can purchase
treasury bills of different maturities as per requirements so as to match with the
respective outflow of funds. Treasury bills are of two types, regular treasure bills
issued to the general public, including banks, financial institutions and corporate
houses through a notification by RBI. Ad-hoc treasure bills are issued in the
favour of RBI, and these bills never issued or sold subsequently to anyone in the
secondary market. Nowadays RBI issues only regular treasure bills; ad-hoc
treasure bills are not issued. At times when the liquidity in the economy is tight,
the returns on treasury bills are much higher as compared to bank deposits even
for longer term. Another important advantages of treasury bills over bank deposit
are that the surplus cash can be invested depending upon the staggered
requirements.

Advantage of treasury bills includes; no tax deducted at source, zero default risk
being sovereign paper, highly liquid money market instrument, better return
especially in the short term, transparency, simplified settlement, high degree of
tradability and active secondary market facilitate meeting unplanned fund
requirements. Limitations of treasury bills includes restrictions and penalties
associated with redeeming treasure bonds too early, depending on the type of
bond the rate of return may not exceed the average annual inflation rate of 3
percent thus mitigating the interest gains.

CERTIFICATE OF DEPOSITS

Certificate of deposits are offered to investors by banks just like normal deposits.
But the difference is certificate of deposits are short term wholesale deposits and
they are tradable. An investor holding the certificate of deposit can sell it to
another investor. Because of liquidity interest rates on certificate of deposits are
normally less than that on „sight‟ deposits, investor can compare certificate of
deposits with treasury bills as they are short term, tradable, discounted bonds.
But the difference is treasure bills are issued by government and certificates of
deposits are issued by banks, financial institutions etc. The lender of a certificate
of deposits could be another bank, corporate or financial institution. Certificates
of deposits are rated by approved rating agencies (e.g. CARE, ICRA, CRISIL,
and FITCH) which considerably enhance their tradability in the secondary
market, depending upon demand.

The term of certificate of deposit is fixed and it is usually 3 months, 6 months, 1

year or 5 years. In India certificate of deposits are introduced in July 1989.
Maturity period is minimum 7 days and maximum 12 months for certificate of
deposits issued by banks. For certificate of deposits issued by financial
institutions, maturity is minimum 1 year and maximum 3 years. Minimum amount
to invest in a certificate of deposit is Rs. 100000 and in the multiples of Rs.
100000 thereafter. Loan against collateral of certificate of deposit is not permitted
but it is possible in „sight fixed deposits. Premature withdrawal is not allowed but
can be sold to other investors. Interest rate can be fixed or floating and they are
issued at a discount to face value like zero coupon bonds.

Advantages of certificate of deposits

 Since one can know the returns from inception, the certificates of deposits are
considered much safe.

 One can earn more as compared to depositing money in savings account.

 The central insurance corporation guarantees the investments in the certificate

of deposit.

Disadvantages of Certificate of deposits

 As compared to other investments the return is less. 4

 Money is tied along with the long maturity period of the certificate of deposit.

 Huge penalties are paid if one gets out of it before maturity.

COMMERCIAL PAPER

Commercial paper is short-term loan that is issued by a corporation for financing

accounts receivable and inventories. Commercial papers have higher
denominations as compared to the treasury bills and the certificate of deposit.
The maturity period of commercial papers is minimum 15 days to maximum of
one year. Commercial papers do not carry any interest rate; instead these are
issued at a discount to face value and redeemed at par on maturity. The
difference between issue price and maturity value is the interest compensation
for the buyer of commercial papers. These are negotiable in nature – these can
easily and freely be transferred from one party to another party. They are very
safe since the financial situation of the corporation can be anticipated over a few
months.
Commercial paper is a money market security sold by banks and corporations.
Commercial paper is a low-cost alternative to bank loans. It is a very safe
investment and can be used for inventory purchases or working capital. Use of
commercial paper can efficiently raise large amounts of funds quickly and without
expensive registration by selling paper, either directly or through independent
dealers, to a large and varied pool of institutional buyers. Competitive, market-
determined yields in notes, whose maturity and amounts can be tailored to
specific needs, can be earned by investing in commercial paper. The essential
quality of this type of investment is short-term maturity typically three to six
months, an automatic or self-liquidating nature, and non-speculativeness in origin
and purpose of use. The two main methods of issuing commercial paper are
selling them directly to an investor, or selling them to a dealer who then sells
them in the market.

Commercial paper is issued by large creditworthy borrowers, which means it's

typically less risky than some other investments. Also, the rating provided by
credit rating agencies gives an indication to investors about how risky the
investment is, which helps them better gauge the investment. As a tradeoff for
the relative safety of this investment, it yields a lower rate than riskier
investments, such as stocks. Another advantage is that commercial paper
issuers usually can't buy back the paper before its due date without a penalty.
This means they can't buy back the paper before its maturity without
compensating the investor for the early purchase. Investors can thus count on a
steady yield from commercial paper, unlike in the case of certain bonds that
investors can retire before their maturity.

These funds also charge management fees and expenses, for giving the
convenience of investing in market-rate, short-term, fixed-income securities.
Therefore, investor could obtain slightly higher yields on their money if they
invest in commercial paper directly. However this is not a very liquid investment
and there is no active secondary market, this makes it difficult for the investor to
sell off the commercial paper before its scheduled maturity date.
DATED SECURITIES OF GOVERNEMT

Government securities are issued by the government for raising a public loan or
as notified in the official gazette. They consist of government promissory notes,
bearer bonds, stocks or bonds held in bond ledger account etc. They may be in
the form of treasury bills or dated government securities. Government securities
are mostly interest bearing dated securities issued by RBI on behalf of the
government of India. Government of India uses these funds to meet its
expenditure commitments. These securities are generally fixed maturity and fixed
coupon securities carrying semi - annual coupon. Since the date of maturity is
specified in the securities, these are known as dated government securities.

The dated government securities market in India has two segments; primary
market consists of the issuers of the securities, viz., central and state
government and buyers include commercial banks, primary dealers, financial
institutions, insurance companies & co-operative banks. RBI also has a scheme
of non-competitive bidding for small investors. Secondary market includes
commercial banks, financial institutions, insurance companies, provident funds,
trusts, mutual funds, primary dealers and reserve bank of India. Even corporate
and individuals can invest in government securities. The eligibility criteria are
specified in the relative government notification.

Following are the main features of government securities.

i. Issued at face value.

ii. No default risk as the securities carry sovereign guarantee.
iii. Ample liquidity as the investor can sell the security in the secondary
market.
iv. Interest payment on a half yearly basis on face value.
v. No tax deducted at source.
vi. Can be held in dematerialized form
vii. Rate of interest and tenure of the security is fixed at the time of issuance
and is not subject to change.
viii. Redeemed at face value on maturity
ix. Maturity ranges from of 2-30 years.
Auctions for government securities are normally multiple-price auctions either
yield based or price based. In yield based type of auction, RBI announces the
issue size or notified amount and the tenure of the paper to be auctioned. The
bidders submit bids in term of the yield at which they are ready to buy the
security. If the bid is more than the cut-off yield then its rejected otherwise it is
accepted where in price based type of auction RBI announces the issue size or
notified amount and the tenure of the paper to be auctioned, as well as the
coupon rate.

The bidders submit bids in terms of the price. This method of auction is normally
used in case of reissue of existing government Bids at price lower than the cut off
price are rejected and bids higher than the cut off price are accepted. Price
based auction leads to a better price discovery then the yield based auction.
Government securities, state development loans & treasury bills are regularly
sold by RBI through periodic public auctions. It gives investors an opportunity to
buy government securities/treasure bills at primary market auctions of RBI
through its invest scheme. Investors may also invest in high yielding government
securities through buy and sell facility for selected liquid scripts in the secondary
markets.
CAPITAL MARKET SECURITIES

The capital market is a market for financial assets which have a long or indefinite
maturity. Unlike money market instruments the capital market instruments
become mature for the period above one year. It is an institutional arrangement
to borrow and lend money for a longer period of time. It consists of financial
institutions like IDBI, ICICI, UTI, LIC, etc. These institutions play the role of
lenders in the capital market. Business units and corporate are the borrowers in
the capital market. Capital market involves various instruments which can be
used for financial transactions. Capital market provides long term debt and equity
finance for the government and the corporate sector. Capital market can be
classified into primary and secondary markets. The primary market is a market
for new shares, where as in the secondary market the existing securities are
traded. Capital market institutions provide rupee loans, foreign exchange loans,
consultancy services and underwriting. Capital market securities issued by the
companies in the primary market to raise the finance. Issue of the securities is
completely regulated by the provisions of SEBI. A company can issue the
following securities in this market.

 Equity shares

 Preference shares

 Debentures

EQUITY SHARES

Equity is the term commonly used to describe the ordinary share capital of a
business. Ordinary shares in the equity capital of a business entitle the holders to
all distributed profits after the holders of debentures and preference shares have
been paid. Ordinary shares are issued to the owners of a company. The ordinary
shares of Indian companies typically have a nominal or 'face' value between
rupees 10 to 100. However, it is important to understand that the market value of
a company's shares has little relationship to their nominal or face value. The
market value of a company's shares is determined by the price another investor
is prepared to pay for them. In case of publicly quoted companies, this is
reflected in the market value of the ordinary shares traded on the stock
exchange. In case of privately owned companies, where there is unlikely to be
much trading in shares, market value is often determined when the business is
sold or when a minority shareholding is valued for taxation purposes.

"Deferred ordinary shares" are a form of ordinary shares, which are entitled to a
dividend only after a certain date or only if profits rise above a certain amount.
Voting rights might also differ from those attached to other ordinary shares. An
equity holder become the owner of the company and enjoys voting rights also.
Besides capital appreciation, he is entitled to get dividend also. Equity shares are
listed on stock market and can easily converted into cash whenever required. But
equity investments are the most risky form of investment where there are
chances of going money into 100 percent loss. Besides, investors will get his
money back when all the parties have been paid their dues to company at the
time of liquidation.

PREFERENCE SHARES

A preference shares means shares which carries preferential rights in respect of

dividend at fixed amount or at fixed rate before the holders of the equity shares
have been paid. It also carries preferential right in regard to payment of capital
on winding up or otherwise. It means the amount paid on preference share must
be paid back to preference shareholders before anything in paid to the equity
shareholders. In other words, preference share capital has priority both in
repayment of dividend as well as capital. Following are the main types of
preference shares.

 Non – Cumulative Preference Shares or simple preference shares gives

right to fixed percentage dividend of profit of each year. In case no
dividend thereon is declared in any year because of absence of profit, the
holders of preference shares get nothing nor can they claim unpaid
dividend in the subsequent year or years in respect of that year.
 Cumulative preference shares however give the right to the preference
shareholders to demand the unpaid dividend in any year during the
subsequent year or years when the profits are available for distribution. In
 this case dividends which are not paid in any year are accumulated and
are paid out when the profits are available.
 Redeemable Preference Shares are preference shares which have to be
repaid by the company after the term for which the preference shares
have been issued.
 Irredeemable preference shares means preference shares need not to
repay by the company except on winding up of the company. However,
under the Indian companies act, a company cannot issue irredeemable
preference shares. In fact, a company limited by shares cannot issue
preference shares which are redeemable after or more than 10 years from
the date of issue. In other words the maximum tenure of preference
shares is 10 years. If a company is unable to redeem any preference
shares within the specified period, it may, with consent of the company
law board, issue further redeemable preference shares equal to redeem
the old preference shares including dividend thereon. A company can
issue the preference shares which from the very beginning are
redeemable on a fixed date or after certain period of time not exceeding
10 years.
 Participating Preference Shares are entitled to a preferential dividend at a
fixed rate with the right to participate further in the profits either along with
or after payment of certain rate of dividend on equity shares. A non-
participating share is one which does not such right to participate in the
profits of the company after the dividend and capital has been paid to the
preference shareholders.
 Convertible Preference Shares are the one which have a provision of
conversion into the equity shares of the issuing company; the conversion
takes place on pre-specified date. The terms and conditions of conversion
are specified at the time of issue of these shares. Holders of these have
the benefit of preference shares till the date of conversion, thereafter
these have the benefits of equity shares, due to this dual nature these are
called hybrid securities.
 Non-convertible preference shares are those in which a provision of
conversion into the equity shares of the issuing company is not provided,
 these might be redeemable or irredeemable, redemption, if any, take
place according to the terms and conditions of the issue of these
preference shares. For the investor, preference shares are less attractive
than loan stock because they cannot be secured on the company's
assets, the dividend yield traditionally offered on preference dividends has
been too low to provide an attractive investment compared with the
interest yields on loan stock in view of the additional risk involved. 2.

DEBENTURES AND BONDS

Debentures and bonds are similar except for one difference that bonds are more
secure than debentures. In case of both, investors are paid a guaranteed interest
that does not change in value irrespective of the fortunes of the company.
However, bonds are more secure than debentures, but carry a lower interest rate.
The company provides collateral for the loan. Moreover, in case of liquidation,
bond holders will be paid off before debenture holders. In India, the terms
„corporate bonds‟ and „debentures‟ are interchangeably used. Though different
countries have different interpretations of both the terms „corporate bonds‟ and
„debentures‟, our companies act (section 2(12)) identifies both as same. Investor
may find a corporate bond similar to a fixed deposit in a bank or a post office
scheme or any such fixed‐return instrument. However, every type of investment is
different in its own way and has its own features, advantages and disadvantages.

In India, both public and private companies can issue corporate bonds. A
company incorporated in India, but part of a multinational group, can also issue
corporate bonds. However, a company incorporated outside India cannot issue
corporate bonds in India. A statutory corporation like LIC can also issue corporate
bonds. For investors those who are looking for an investment that generates fixed
income periodically, corporate bonds may be an ideal investment. It normally
offers a higher rate of interest as compared to fixed deposits or postal savings or
similar investments. Listed bonds can also sell in the secondary market before its
maturity. While a bond is usually not designed for capital appreciation; a listed
bond may also earn capital appreciation i.e. investor can sell bond at a price
higher than cost price in the market.

A corporate bond may offer a fixed or floating rate of interest and accordingly
investor may earn a fixed or varying amount of interest periodically. A fixed rate
bond will pay fixed amount periodically as per the interest rate set out when the
bonds were issued. This interest is determined as a percent of the face value of
the bond. Such fixed interest payments are sometimes also called coupon
payments. A floating rate bond has its interest rate pegged to a benchmark rate
i.e. (Benchmark rate) +/‐ (some percent). The benchmark rate may be government
bond/MIBOR. As the benchmark rate changes, the interest rate on the bond will
vary accordingly. Hence, a floating rate bond is considered to be relatively risky
since return is dependent on the movement of the benchmark rate. If investor wish
to receive fixed amount periodically, a fixed rate bond is advisable. However, a
fixed interest rate bond may earn less than a floating rate bond due to lesser risk
involved. If investor plans to invest in a floating rate bond, return will depend on
the movement of benchmark rate which may move in either direction substantially.

An investor in corporate bonds receives his interest payments periodically. The

interest may be received yearly or half yearly or quarterly or even monthly
depending upon the period set at the time of issue. The interest payment dates
are usually specified in the prospectus. On the maturity date, the issuer pays back
the investor face value of the bonds held by him along with the interest accrued on
the same.
FIXED DEPOSITS RECEIPTS (FDR)

Banks offer a low interest on the deposited money in savings bank account and
current account, but these accounts offer the convenience of making partial
withdrawal anytime at demand. In contrary to this FDR is a deposit scheme which
offers a higher interest rate with the condition to maintain the deposit for a fixed
time period. It is not like an account wherein any time any amount can be added
instead a fixed amount is deposited by mentioning the time period till which no
withdrawal is allowed. If the deposit continues till the specified maturity period then
interest for the full period along with the principal amount is paid. These also offer
the convenience of premature withdrawal, in such case interest is paid at a low
rate and few banks charge a panel interest also.

FDR can be pledged with the issuing bank to obtain a loan against the FDR or it
can be pledged to open a cash credit account. In case a loan is taken against the
FDR then bank gives the interest on the amount of FDR and charges the interest
on the loan amount. Fixed deposit is a financial instrument for investors to deposit
money for a fixed duration ranging from 15 days to 10 years. Therefore, the
depositors are supposed to continue such FDR for the duration of time for which
the depositor decides to keep the money with the bank. However, in case of need,
the depositor can ask for closing the fixed deposit in advance by paying a penalty.
Soon some banks have even introduced variable interest fixed deposits. The rate
of interest in such deposits will keep on varying with the prevalent market rates i.e.
it will go up if market interest rate goes and it will come down if the market rates
fall.

POST OFFICE DEPOSITS/ POST OFFICE SAVINGS CERTIFICATE

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 hardearned income but also make an investment which assures good and
safe returns.
National savings certificate (NSC) is a fixed interest, long term instrument for
investment. NSCs are issued by the department of post, government of India.
Since they are backed by the government of India, NSCs are a practically risk free
avenue of investment. They can be bought from authorized post offices. They offer
a fix rate of return per annum. This interest is calculated every six months, and is
merged with the principal. That is, the interest is reinvested, and is paid along with
the principal at the time of maturity. NSCs qualify for investment under Section
80C of the income tax act. Even the interest earned every year qualifies under Sec
80C.

National savings certificates are available in the denominations of Rs. 100, Rs

500, Rs. 1000, Rs. 5000 & Rs. 10000 throughout the year. There is no maximum
limit on the purchase of the certificates. So it is investor to decide how much
amount to invest in the NSCs. This is of course a huge benefit for investor as he
can decide as much as budget allows. There are various investment schemes
available in post offices, like KVP (KisanVikas Patra), Post Office Monthly Income
Scheme (MIS), Post Office Time Deposits (TD), Post Office Recurring Deposits
(RD), National Savings Certificates (NSC) and National Saving Schemes (NSS)
etc. All these schemes are completely risk-free and do not need to have large sum
of money to start investing in these schemes. Some schemes offer tax-saving
benefits and some gives tax-free returns. So investors need to find out scheme as
per requirements.

PUBLIC PROVIDENT FUND (PPF)

PPF is a 30 year old constitutional plan of the central government happening with
the objective of providing old age profits security to the unorganized division
workers and self-employed persons. Any individual salaried or non-salaried can
open a PPF account. Investor may also pledge on behalf of a minor, HUF, AOP
and BOI. Even NRIs can open PPF account. A person can contain only one PPF
account. Also two adults cannot open a combined PPF account. The collective
annual payment by an individual on account of himself his minor child and
HUF/AOP/BOI cannot exceed Rs.70000 or else the excess amount will be
returned without any interest.

The yearly contribution to PPF account ranges minimum Rs.500 to a maximum of

Rs.70000 payable in multiple of Rs.500 either in lump sum or in convenient
installments, not exceeding 12 in a year. The account will happen to obsolete if the
required minimum of Rs.500 is not deposited in any year. The account can be
regularized by depositing for each year of default, arrears of Rs.500 along with
penalty of Rs.100.

A PPF account can be opened at any branch of State Bank of India or its
subsidiaries or in few national banks or in post offices. On opening of account a
pass book will be issued wherein all amounts of deposits, withdrawals, loans and
repayment together with interest due shall be entered. The account can also be
transferred to any bank or post office in India. Deposits in the account earn
interest at the rate notify by the central government from time to time. Interest is
designed on the lowest balance among the fifth day and last day of the calendar
month and is attributed to the account on 31st March every year. So to derive the
maximum, the deposits should be made between 1st and 5th day of the month.

MUTUAL FUNDS

A Mutual fund is an investment tool that allows small investors to access a

welldiversified portfolio of equities, bonds and other securities. Each shareholder
participates in the gain or loss of the fund. Units are issued and can be redeemed
as needed. A mutual funds is a professionally managed firm of collective
investments that pools money from many investors and invests it in stocks, bonds,
short-term money market instruments, and/or other securities. In a mutual funds,
the fund manager, who is also known as the portfolio manager, trades the fund's
underlying securities, realizing capital gains or losses, and collects the dividend or
interest income. The investment proceeds are then passed to the individual
investors. The value of a share of the mutual funds, known as the net asset value
per share (NAV), is calculated daily based on the total value of the fund divided by
the number of shares currently issued and outstanding.

Factors Affecting Investment Decisions

1. Framework of Investments in India:

The Indian investment scene has many schemes to offer to an individual. On an

analysis of these schemes, it appears that the investor has a wide choice. A vast

range of investments are in the Government sector. These are mostly risk free
but low return yielding.

Several incentives are attached to it. The private sector investments consist of
equity and preference shares, debentures and public deposits with companies.

These have the feature of high risk. Ultimately, the investor must make his
investment decisions.

The predominance of Government securities serves the purpose of bringing

about confidence to the individual investor, but before an investor can make a

choice, he must realize the controlled nature of investments. In most

investments, the return on investments is controlled by the Government and not

according to the free play of demand and supply of investments.

2. Inflation:

The Indian investor is faced with a high rate of inflation. Price rise has been very
high since January 2008. The prices of all essential commodities rose. The

prices of milk and milk products, spices and edible oils increased. Petrol prices
increased.

Under these conditions, the investor has to consider the investment opportunities

in the economy. It is to be expected that the rise in prices will reduce the ability of
an average investor to make investments and he will save not out of willingness
to save, but will make forced savings in those outlets which will give him
maximum benefit out of his limited resources.

3. Taxation:

The Indian investor is to a great extent affected by the taxation policy of the

Government. He would plan his investments in a manner so that he would have

to pay a minimum direct tax. His investments would be directed to those

schemes which would give him tax relief. For example, Life Insurance premium,

provident fund, units and National Savings Certificates enable the investor to
save from the tax point of view.

The taxation system in the country is such that it takes away whatever surplus an

individual has unless he saves in the investment schemes which give him tax

relief. Thus, the Indian investor is forced to invest in those outlets which give him

tax relief. Currently up to Rs. 1,00,000 in specified investments can get tax relief
for an investor.

4. Stock Market Conditions:

The stock market is the nerve centre of investments in a country. The Indian

investor has seen the stock exchange undergoing several changes in 2007. Due

to government policies, there was a positive climate and an individual investor’s

mood and sentiment was for investing in corporate securities, from 2005-2997.

In January 2008, the stock market crashed, and the market kept moving low up

to April. Although prices of both new companies and blue chip companies

crashed, the Indian investor is thus faced with a sluggish state of stock market at

the present juncture and it is in this context this behaviour and attitude towards
investments must be judged.
5. Manipulation of Share Prices:

Another factor which affects the Indian investor is the helpless and inadequate

nature in which he deals with the investment climate in the country. An investor

who has power either through position, status or money has great control over
the investment outlets in the country.

It is the ordinary middle class investor who suffers a great deal because he is

unprotected in the Indian environment. Despite SEBI regulations, crashes and

scams continue in the stock market in India.

What care should one take while investing?

Before making any investment, one must ensure to:

1. Obtain written documents explaining the investment

2. Read and understand such documents

3. Verify the legitimacy of the investment

4. Find out the costs and benefits associated with the investment

5. Assess the risk-return profile of the investment

6. Know the liquidity and safety aspects of the investment

7. Ascertain if it is appropriate for your specific goals

8. Compare these details with other investment opportunities available

9. Examine if it fits in with other investments you are considering or you have
already made

10. Deal only through an authorised intermediary

11. Seek all clarifications about the intermediary and the investment

12. Explore the options available to you if something were to go wrong, and then,
if satisfi ed, make the investment.

These are called the Twelve Important Steps to Investing.

CHAPTER 3: Literature Review

The research dimension of the related literature and the relevant information
begins from an explanatory perspective, approaching towards specific studies
which are related to judging the imitations and informational gaps in data from the
secondary sources. This analysis may reveal conclusions from past studies to
realise the reliability of the secondary sources and their creditability. This in turn
enables one to rely on a comprehensive review for the study.
A few studies had been made which were indirectly helpful to this
investigation. Reviews of such studies are presented below:

Abhijeet Chandra (2015). In this literature, the author has analyzed the impact of
competence of individual investors on their trading behavior in the stock market.
Individual investors take trading decisions based on their self-perceived
competence that is influenced by several factors. The study examined the factors
that determine the competence level of individual investors. Age, education, and
income were found to be the most influencing factors of the individual investors'
competence in the stock market activities and trading behavior. The results of the
study reveal that a person invests as per his/her own judgments once he/she
perceives himself/herself more knowledgeable about investing. It finds that
investors having high, high to moderate income and professional qualification are
supposed to be more confident about their competence when it comes to trading
in stock markets. Thus, it can be said that competence effect rules the trading
behavior of individual investors.

Kaushal Bhatt (2015) Utilization of resources in order to increase income or

production output in future is kwon as investment. Data analyses states that
Graduates are more intended to save money and they are aware about various
investment avenues. Business man tend to invest more as compared to salaried
man. Respondent want more safety and securities to their money.
Ravi Vyas (2015) This study finds the form of investments preferred by investors.
Mutual fund investment is a secured investment with good returns on
investments. Data analyses shows that maximum respondent invest in Gold
followed by bank deposits and Insurance schemes. Mutual fund investments are
very limited. For Safety, Liquidity, Reliability, Tax benefits and high returns
Mutual fund has average score among investors.

Priyanka Jain (2015) The study analyses the various investment avenues
available for the investors. It state Equity shares has low return but high capital
appreciation, risk liquidity, Marketability, tax benefit, Debentures has high return
but low risk liquidity and marketability. Bank deposits have moderate returns but
low capital appreciation and risk liquidity.

Nayak (2015) seeks to examine the nature of investor’s grievances and also to
evaluate the role of grievance redressal agencies. Using convenient random
sampling technique he collects primary data on the investor’s demographic
profile, knowledge about various grievances, awareness about the functions of
various grievances redressal agencies, loading of complain and their satisfaction
level in Valsad district of Gujarat State. By using chi square analysis he shows
that there is significant difference between the various demographic variables
and investor’s knowledge of grievances, awareness of functions of redressal
agencies, loading of complain and their satisfaction level.

Varadharajan and Vikkraman (2014) focus on identifying the investors’

perceptions towards investment decision in equity market. Using ANOVA on a
sample size of 50 investors in Coimbatore they study their attitude towards
selection of stock, company, risk, equity portfolio, financial affairs and their
expected return. They find that there exists an independency between the
demographics, majority of the factors and the returns obtained.
Kadariya (2014) analyzes the market reactions to tangible information and
intangible information in Nepalese stock market to examine the
investors’opinions in Nepalese stock market issues. After analysis of a sample of
185 stock investors he finds that the capital structure and average pricing method
is one factor that influence the investment decisions, the next is political and
media coverage, the third factor is belief on luck and the financial education, and
finally the forth component for stock market movement is trend analysis. Thus, he
concludes that both the tangible and intangible information are essential to
succeed in Nepalese capital market.

Chaudhary (2014) examines the meaning and importance of behavioural finance

and its application in investment decisions. He has also discussed some trading
approaches for investors in stocks and bonds to assist them in manifesting and
controlling their psychological roadblocks.

Gaurav Chhabra, Ankesh Mundra (2014)The study state various invest options
available with the investors. In earlier time because of non availability of banking
system investors use to keep hard cash, gold and silver ornament , precious
stones etc as savings. Now investment are made through bank, insurance
policies, mutual funds , pension funds, collective investment schemes,
investment clubs.

T. N. Murty, P. V. S. H Sastry (2014) Investors choice with the objective of return

optimization is investment in the stock market instruments or securities. Stock
market securities are affected by various internal and external factors. Study
examines the perception of small investment investors towards returns on
investment.

A. N. Paunikar (2014) Equity Linked Saving Schemes are similar to equity

diversification schemes with tax saving benefit under section 80C. The study
aims at understanding scheme- wise benefits under Equity Linked Saving
Schemes for tax saving. Data analysis shows that Equity Linked Saving
Schemes has better returns on investments.
Avinsah N (2014) The study analyses the investment behaviour by examining
various invest avenues. Data analyses reveals that Most of the respondents have
selected bank deposit as their first option for investment followed by real estate.
Below 30 years respondents invest more in real estate whereas above 60 years
preferred LIC policies. Full time salaried people are more aware about different
investment avenues.

Nidhi Walia and Ravi Kiran (2014) studied that to satisfy the needs of investors‟
mutual funds are designing more lucrative and innovative tools considering the
appetite for risk taking of individual investors. A successful investor is one who
strives to achieve not less than rate of return consistent with risk assumed. They
also argued as per observation by survey responses of the individual investor‟s
fact is clear that overall among other investment avenues capital market
instruments are at the priority of investors but level of preference varies with
different category/ level of income, and an association exists between income
status of investors and their preference for capital market instrument with return
as objective.

Ashok Kumar (2014), suggested that majority of investors preferred to invest in

Fixed deposit with banks followed by gold, units of UTI, fixed deposit of non-
government companies, mutual funds, equity shares and debenture for safety
and liquidity. The above literature shows the important contribution on investors
perception towards’ various investment avenues. It is also evident from the above
literature that majority of the investors prefer fist safety and security for the
investment and secondly they interested to get maximum benefits for their
investments. In light of above literature, the present study attempts to identify the
problems on the perception of investors towards investment avenues in Vellore
city, Tamil Nadu.

Vinayakam and Charumathi (2014) in their study observed that equity cult had
spread to different parts of the country and millions of Indian investors invested
their savings in the booming stock markets. What was once considered as the
exclusive game of the rich and privileged class is now becoming a matter of day
interest for millions of middle and low income groups of investing public in India.
In spite of such widespread interest of Indian investors in shares, investment
knowledge is very much lacking in them. This is evident from the fact that most of
them usually get attracted towards the stock exchanges like moths to a candle in
periods of boom and rising prices in a bid to become rich quickly. When the boom
bursts and a depression sets in, most of such new entrants prove a menace to
themselves and to the general public ultimately.

Elke U. Weber Richard A. Milliman (2014), had stated that commuters changed
their preferences for trains with risky arrival times when the alternative involved
gains with changes in the perception of the riskiness of the choice of alternatives.
This had left the perceived risk attitudes of majority of commuters unchanged.
Similarly, they had investigated changes in risk perception, information
acquisition and stock selection as a function of outcome viz., returns. Investors’
stock selection and their perception of the risk of the same stock were different in
series of decisions in which they lost money than in series in which they made
money.

Santi Swarup (2014) had indicated that the investors gave importance to their
own analysis as compared to brokers’ advice. They also considered market price
as a better indicator than analyst’s recommendations. The study also identified
factors that were affecting primary market situation in India. Issue price,
information availability, market price after listing and liquidity had emerged as
importance factors in the study. The study suggested that investors need to be
assured of some return and the level of risk associated with investment in the
market was very high. They have bad experience in terms of lower market price
after listing and high issue price. A number of measures in terms of regulatory
price level and market oriented reforms were suggested to improve the investor
confidence in equity primary markets. However, this study did not highlight the
measures for improving investors’ confidence in the secondary market.

Manoj Kumar Dashl (2014) Factors Influencing Investment Decision of

Generations in India: An Econometric Study This study aims to gain knowledge
about key factors that influence investment behavior and ways these factors
impact investment risk tolerance and decision making process among men and
women and among different age groups. The individuals may be equal in all
aspects, may even be living next door, but their financial planning needs are very
different. It is by using different age groups along with Gender that synergism
between investors can be generated. In this context, demographics alone no
longer suffice as the basis of segmentation of individual investors. Hence keeping
this in mind, the present study is an attempt to find out Factors which affects
individual investment decision and Differences in the perception of Investors in
the decision of investing on basis of Age and on the basis of Gender. The study
concludes that investors’ age and gender predominantly decides the risk taking
capacity of investors.

James E. Corter (2014) had concluded that risk tolerance and uncertainty
tolerance can be distinguished not only theoretically but empirically and that both
types of attitudes affected investing behaviour. While higher levels of risk
tolerance led to riskier portfolios and thus to higher exposure to losses, it seemed
that investors’ emotional reactions to losses were not mitigated by higher level of
risk tolerance. It suggested that a high level of risk tolerance insulated a client
from neither the actual nor the emotional consequence of market losses.

Sohan Patidar (2014), found that as per the age-wise classification, the investors
in the age group of below 35 years were actively participating in the speculation
trade and the age group of above 55 hesitated to take risks. Professional people
were not interested in the share market and investors falling under the income
group below Rs 20, 000 showed more interest in investing their earnings in the
share market.

Manjunatha T and Gopi K.(2014), found that every investor had his own
investment objectives, risk acceptance level, inflows and outflows of money and
other constraints. Their study showed that the decision of retail investors in
primary market were influenced by issue price, information availability, broker
advice, recommendations of the analysts, secondary market situation, disclosure
by market participation and other factor. The study suggested that wealth
maximisation criteria was important to retail investors while investing in the
primary market, the recommendation of brokerage house analysts, issue price,
IPOs grading, promoters’ reputations and other factors go largely were
considered in the primary market.

Bandgar P.K75, (2014), in his study entitled, “A Study of Middleclass Investor’s

Preferences for Financial Instruments in Greater Bombay”, studied the existing
pattern of financial instruments in India and the performance of middle class
investors, their behavior and problems. Questionnaire was administered to collect
data. Average, skewness, chi-square test and Fisher Irving test were used to
analyze the data. The study revealed that only 16% of the investors were facing
difficulties in buying and selling securities. Middle-class investors were highly
educated but they were lacking skill and knowledge to invest. Female investors
preferred to invest in risky securities as compared to male investors. The study
also revealed that there was a moderate and continuing shift from bank deposits
to shares and debentures, and a massive shift towards traditional financial
instruments namely, life insurance policies and government securities.

Kannadasan (2014) in his “ Risk appetite and Attitudes of Retail Investors with
Special reference to Capital Market” analyzed the behavioral pattern of the Retail
Investors, based on various dependent variables viz., Gender, age, marital
status, 71 educational level, income level, awareness, preference and risk
bearing capacity. The following are the major findings of the study :
a. Only 25 per cent of the sample respondents were aware of all the investment
avenues available in the capital market. However, all of them are aware of at
least one avenue.
b. 90 per cent of the retail investors are not aware of the measures taken by the
Government to protect the interest of the investors.
c. 79 per cent of the retail investors are interested to invest in Shares and
Debentures as well.
d. The risk bearing capacity of the retail investors was not influenced by their
age. The retail investors’ age is not a criterion to decide their investment behavior
and investment option.
e. The investment strategy of the investors is influenced by their income level.
The retail investors’ income level is playing a predominant role to decide their
investment behavior and investment strategy as well.
f. The major attributes of risk in investment are dividend, redemption period and
Value appreciation. Value appreciation is an important factor among the three.

Security Exchange Board of India (SEBI) along with National Council of Applied
Economic Research (NCAER), conducted a comprehensive survey of the Indian
investor households entitled, “Survey of Indian Investors”, in order to study the
impact of the growth of the securities market on the households and to analyze
the quality of its growth. 25,000 investors were drawn from places all over India
and the data was collected by administering questionnaire and through personal
interviews. The survey was carried out with the major objective of drawing a
profile of the households and investors and to describe the demographics,
economic, financial and equity ownership characteristics. The study also focused
to understand the investor’s investment preference for equity as well as other
savings instruments, their perception about market risk, their expectations, nature
of their grievances, and difficulties, to estimate the number of household which
had refrained from investing in the equity market and the reasons for their
reluctance. The survey 72 revealed that age, education, occupation and income
were found to influence the attitude of an investor towards investment. The urban
investor households had higher proportion of investment in equity shares,
debenture and mutual funds as compared to the rural households. Income levels
and investment of the households in capital market were found to be associated.
Majority of the equity investors had long term motive of investment. Investors
revealed that they had a number of broker related problems than the issuer
related problems.
Panda K, Tapan N.P and Tripathi, (2014), in their study entitled, “Recent Trends
in Marketing of Public Issues: An Empirical Study of Investors Perception”,
attempted to identify the investors’ awareness and attitude towards public issues.
One hundred and twenty five investors covering the salaried and business class,
from the city of Bhuvaneshwar were selected at random. The data was collected
by administering a questionnaire and was analysed using simple percentage and
weighted average analysis. The study revealed that majority of the investors
relied on newspapers as the source of information. Financial journals and
business magazines were ranked next to newspapers. A large number of
investors were of the opinion that they were not in a position to get the required
information from the company in time. A sizable number of investors were found
to face problems while selling securities. ‘Safety and Regular Return’ stood first
and second with regard to the factors associated with investment activities.
Equity shares were preferred for their higher rate of return by the investors.

Muraleedhran (2014) “Pattern of Household Income, Savings and Investment”

analyzed the pattern of investment preference among the different income
groups in physical and financial assets. The relevant findings of the study are as
follows:
a. The composition of savings reveals that savings in financial asset (63.47%) is
higher than savings in physical assets.
b. Among the savings in financial assets savings in chit funds is the highest
(44.58%).
c. In physical assets, consumer durables are the highest (28.33%).
d. For around 23.62% of the households, the saving motive is the educational
and marriage purposes of their children.
e. The average propensity to save shows that the level of savings is related to
the level of income.

Selvam M (2014), in their study entitled, “Equity Culture in Indian Capital Market’,
examined the need for promoting equity culture, which deserves special attention
for the development of economic growth. The study discussed in detail the
current trend of equity culture, its implications and its revival and remedial
measures. The study suggested intervention by government, SEBI and RBI and
evaluation of suitable credit policy for projects in order to assure safety and
assured returns to the investors, in order to restore investor confidence.

Jasim Y Al-Ajmi (2014) in “Risk tolerance of Individual Investors in an Emerging

Market” explores the relationship between risk tolerance and the demographic
characteristics of the investors. The study was conducted to investigate the effect
of gender, education, age and wealth of the investors on their risk tolerance level.
Major findings of the study are as follows :
a. Men are less risk averse than women.
b. Less educated investors are less likely to take risk.
c. The effect of age on risk tolerance is complex.
d. Wealthy investors are more risk tolerant than the less-wealthy investors.

Hon (2012) investigates the behaviour of small investors in Hong Kong’s

derivatives markets. The study period covers the global economic crisis of 2011-
2012, and he focuses on small investors’ behaviour during and after the crisis.
He attempts to identify and analyse the key factors that capture small investor’s
behaviour in derivatives markets in Hong Kong. He collects data 524
respondents through a questionnaire survey. Exploratory factor analysis rotated
principal component loadings, scree test, KMO and Bartlett’s test, and a reliability
test show that the behaviour of small investors in derivatives markets in Hong
Kong consistently indicates the ascending order of importance of return
performance, reference group, and personal background

Verma.P. (2012) found that awareness of various equity oriented securities

among Indian investors is increasing due to various investor education
programmes conducted by Securities and Exchange Board of India (SEBI) and
Association of Mutual Funds in India (AMFI). He stated that, due to the increased
awareness about equity oriented securities, the number of new investors is
growing at a healthy rate in India. He further stated that, increased awareness is
also motivating the equity investors to acquire knowledge on various investment
strategies and risk minimisation techniques.
Heena Kothari (2012) The study analyses the investment behaviour towards
investment avenues in Indore city. The study is consisting of private and public
banking employees as they have regular income, retirement benefits, safety and
security of income. Analyses of data states that Younger people invest more than
Middle age people

Szyska Adam (2008) analysed how investors’ psychology changes the vision of
financial markets and discussed the consequences of the new view of finance by
capital market practitioners-investors, corporate policy makers and concluded
with some thoughts on the future development of the capital market theory.

Hvidkjaer S (2008) analysed the relationship between retail investor trading

behaviour and the cross section of future stock returns. The result suggests that
stocks favoured by retail investors subsequently experience prolonged
underperformance relative to stock out of favour with them. This results link the
systematic component of retail investor behaviour to future returns, i.e., informed
investors might begin selling stocks that they believe to be overvalued. The
overvaluation that these investors perceived could be driven by changes in firms
fundamental values.
CHAPTER 4 RESEARCH METHODOLOGY

Research Methodology is a way to systematically solve the research problem.

The Research Methodology includes the various methods and techniques for
conducting a research. Research is an art of scientific investigation. In other word
research is a scientific and systematic search for pertinent information on a
specific topic. The logic behind taking research methodology into consideration is
that one can have knowledge about the method and procedure adopted for
achievement of objective of the project.

RESEARCH DESIGN:
Research design is the conceptual structure within which research is conducted.
It constitutes the blueprint for collection, measurement and analysis of data was a
descriptive research. Descriptive research involves collecting numerical through
self-reports collected, through questionnaires or interviews (person or phone), or
through observation. For present study, the research was descriptive and
conclusion oriented.

SAMPLING DESIGN:
Universe - The Universe is most commonly defined as everything that physically
exists: the entirety of space and time, all forms of matter, energy and momentum,
and the physical laws and constants that govern them. All those persons who
make investment.
 Theoretical Universe: It included investors make investment in all over
world.
 Accessible Universe: It included investors make investment in Indian
Stock Market.

Sampling unit - The target population must be defined that has to be sampled.
The sampling unit of research included students and professionals residing in
Mumbai city
Sample size – This refers to number of respondents to be selected from the
universe to constitute a sample. The sample size of 100 Investors was taken.

Sampling Technique – Convenience Sampling was used to select the sample.

Convenient sampling is a non probability sampling technique that attempts to
obtain a sample of convenient elements . In this project, Questionnaire Method
was used for the collecting the data. With the help of this method of collecting
data, a sample survey was conducted.

DATA COLLECTION AND ANALYSIS:

Data Collection - Information has been collected from both Primary and
Secondary Data.
 Secondary sources- Secondary data are those which have already been
collected by someone else and which already had been passed through
the statistical process. The secondary data was collected through web
sites, books and magazines.
 Primary sources- Primary data are those which are fresh and are collected
for the first time, and thus happen to be original in character. The primary
data was collected through direct personal interviews (open ended and
close ended questionnaires)
CHAPTER 5 ANALYSIS

Table 1: To know about the age of the respondents

Age No. of respondents

5
Less than 20 years
31
20-40 years
64
Greater than 40 years

Analysis & Interpretation:

As observed in Table 1, majority of the respondents constituting 64 per cent of the

total sample belong to the age group above 40 years, while 31 per cent of the
sample are aged between 20-40 years and the remaining 5 per cent individual are
below 20 years. This indicates that majority of the sample belong to the working
class and thus would involve in invesment.
 Table 2: To know about the gender of the respondents

No. of respondents
Gender
58
Male
42
Female

Analysis & Interpretation:

According to Table 2 with respect to gender distribution of respondents, it is

observed that, majority of the respondents constiututing 58 per cent of the
sample were males while the remaining 42 per cent of the respondents were
females.
 Table 3: To know about the qualifications of the respondents.

No. of respondents
Occupation
7
Matric
11
Under Graduate
13
Diploma
44
Graduate
25
Post Graduate

Analysis & Interpretation:

According to Table 3 with respect to occupation of respondents, major individual
are graduate which equal to 44 per cent, post graduate is the 2nd highest
response with 25 per cent while diploma and under graduate are 13 and 11 per
cent respectively. The least of all is matric that total to 7 per cent.
 Table 4: To know about the occupation of the respondents.

No. of respondents
Occupation
42
Service
23
Profession
17
Business
11
Student
7
Others

Analysis & Interpretation:

According to Table 4, the respondents are majorly into service constituting 42

percent, whereas individuals with profession and business as occupation
equated to 23 and 17 per cent respectively. 11 per cent of the respondents were
students and the remaining 7 per cent consisted of 1 spoken english trainer,1
Tutor, 2 home makers, 1 e-commerce sales executive, 1 unemployed and 1
retired.
 Table 5: To know about the income (per month) of the respondents.

Income (Per Month) No. of respondents

Less than 20000 16

20000-40000 29

Greater than 40000 55

Analysis & Interpretation:

According to Table 5, majority of the respondents had income above 40000 that
consituted 55 per cent of the responses whereas 29 per cent responses were
between the range of 20000-40000 and the rest which can be assumed as
students and home makers who accounted to 18 per cent of the responses.
 Table 6: To know about whether respondents invest in stock market

Investment Decision No. of respondents

Yes 66

No 34

Analysis & Interpretation:

According to Table 6, 66 per cent of the individuals invest in stock market while
the other 34 per cent do not invest in stock market.
Table 7: Type of investment options respondents are aware of.

Types of investment No. of respondents

instruments
Shares 82
Mutual Funds 88
Debentures 42
Bonds 52
Derivatives 25
Others 19

Analysis & Interpretation:

This question had a checkbox answer where respondents were allowed to select
as many investment alternatives they were aware of. According to the Table 7,
88 per cent and 82 per cent of the respondents are aware of mutual funds and
shares as an investment alternative while 42 and 52 percent individuals are
aware of debentures and bonds respectively while derivatives constituted to 25
per cent of the responses. The option others which included investments in Fixed
deposits, Public provident funds, National pension scheme, Gold constituted to
19 per cent.
Table 8: To know the type of investment option the respondents are investing.

Investment alternatives No. of respondents

Shares 61
Mutual Funds 79
Debentures 12
Bonds 14
Derivatives 7
Others 25

Analysis & Interpretation:

This question had a checkbox answer where respondents were allowed to select
as many investment alternatives they invest in. According to Table 8, 79 per cent
invest in mutual funds while 61 per cent invest in shares while 12 per cent invest
in debentures, 14 per cent invest in bonds and only 7 per cent invest in
derivatives. Also 25 per cent invest in Fixed deposits, Public provident funds,
National pension scheme, Gold. Thus, it can be stated that maximum people
invest in Mutual Funds whereas shares are having 2nd importance.
 Table 9: To know the rates at which the investment grow.

Investment Growth Rate No. of respondents

Steadily 15

At an average rate 79

At fast rate 6

Analysis & Interpretation:

According to Table 9, 79 per cent of respondents have return at an average rate

while 15 per cent and 6 per cent indiviual conclude that their investment grow at
steady and fast rate respectively
 Table 10: To know about the frequency of the investment.

Frequency of Investment No. of respondents

Daily 2
Weekly 2
Monthly 69
Yearly 27

Analysis & Interpretation:

From the above Table 10 & chart it was found that 69 respondents invest
monthly, 29 invest yearly and there were 2 respondents who invest daily and 2
respondents who invest yearly. Thus, it can be stated that majority of the
investors invest monthly.
Table 11: To know about the percentage of income the respondents invest monthly.

Monthly Income Invested No. of respondents.

Upto 10% 31
10-15% 34
15-20% 22
Above 20% 10
No investment 3

Analysis & Interpretation:

From the above Table 11 & chart, it was found that 34 respondents invest 10-
15% of their monthly income, 31 respondents invest 10% of their annual income,
22 respondents invest up to 15-20% of their income, 10 respondents invest up
above 20% of their income in different investment avenues while 3 respondents
do not make any monthly investment. Thus, it can be concluded that majority of
investors invest 10% to 20% of their monthly income.
Table 12: To know about the respondent’s influence on investment decision.

Sources No. of respondents

Self 75
Friends & Relatives 41
Service providers & consultants 30
Newspapers & Advertisments 27
Agents 33
Workshop & Seminars 9
Tax Rebate` 1
None 1

Analysis & Interpretation:

This question had a checkbox answer where respondents were allowed to select
as many factors that infuence their decision of investment. From the above Table
12 & chart, it was found that multiple aspects for investing influenced
respondents.75% respondents take investment decision on the basis of their
personal evaluation where as 41% respondents invest because of influence of
friends & relatives, the agent influences 33% respondents, the consultants
influences 30% respondents and the advertisement influences 27%
respondents.It can be stated that majority of the persons are influenced by their
own while opting for investments.
 Table 13: To know about the factors that are considered while investing.

Investment Factors No. of respondents

Return on investment 77
Tax benefits 57
Capital appreciation 52
Maturity period 31
Risk 42
Safety of principal 45
Liquidity 39

Analysis & Interpretation:

This question had a checkbox answer where respondents were allowed to select as
many factors while investing. From the survey it was found that the maximum
respondents considered return on investment was most important factor, 57% and
52% respondents considered tax benefits and capital appreciation as an important
factor respectively and 42% respondents considered risk as an important factor
while 45% and 39% considered safety of principal and liquidity as an important
factor respectively. It can be stated that majority of investors were consider return
as an important factor while investing
 Table 14: To know about the respondents action in case of stock market drop.

Preference in case of losses No. of respondents

Cut losses & transfer funds into secure 12

investment
Wait to see if investment improves 62

Invest more funds 20

Withdraw funds & stop investing 6

Analysis & Interpretation:

From the survey it was found that maximum respondents would wait to see if their
investment improves and start generating funds, 20% respondents would invest
more funds, 12% respondents would transfer funds into secure investment and
12% respondents would stop investing. It can be stated that majority of investors
would like to wait to see whether investment improves or they can invest more
funds.
 Table 15: To know whether the respondent finds capital market risky.

Decision No. of respondents

Yes 88
No 12

Analysis & Interpretation:

From the survey majority of the respondents i.e 88 per cent feel that capital
market is risky wheras 12 per cent agree that capital market is not risky.
CHAPTER 6: FINDINGS & CONCLUSIONS

Following findings were generated from the study:-

 Most investors are above the age of 40

 Most 58% of respondents are males.
 44% of respondents are graduates while 25% are post graduates.
 Majority 42% are into service whereas 23% are professionals.
 Most of the respondents have income above 40000 monthly.
 Maximum investors are aware of all the investment options.
 Investors do not invest in a single avenue. They prefer different avenues and
maximum investors prefer to invest in shares, mutual funds & bonds.
 Maximum investors feel their investment grow at an average rate.
 The investment decision of investors is influenced majorly by their own
decision and through friends & relatives.
 Different factors considered by investors while investing are return on
investment, tax benefits, capital appreciation and the most prominent factor is
the return on any investment avenue.
 Majority of investors invest 10-20% of their monthly income.
 Maximum investors invest on monthly basis.
 The investors find that capital market is risky for investment.