Essay: Individual Investor Behavioural Analysis

EXECUTIVE SUMMARY
In today modern and complex era of the financial world, investors are flooded with a wide variety of choices that encourage them to invest in various avenues and make hefty returns in return for undertaking some amount of risk. The decision making process of the individual is not only based upon the rationality i.e. making maximum taking while taking minimum amount of risk but certainly there are other factors that take shape the investor behaviour and attitude.
The main purpose of the study is to find the various demographics that shape the investor behaviour. It aims to analyse various factors like age, educational qualification, risk perception etc. and various preference in term of objectives as well awareness level while investing. The study also highlights the various factors that can act as a deterrent for the investor while investing as well as the potential problems faced by the individuals while investing. These factors combined will help analyse the various factor that guide the investor behaviour and attitude apart from the rationality of profit making.
The study is conducted by means of a questionnaire filled by people from various demographics and investment domains so as to find out the similarities s well differences in their investment behaviour and patterns. The diversified sample includes people from various backgrounds like students pursuing professional qualification, corporate people, business man, young budding investors etc.
The results indicate the presence and influence of independent psychological factors in the decision making process. With the change in age, education level, marital status etc. the change in investment avenues and risk tolerance capacities of individual change.
Not only this there are many factors apart from psyche that guide investment behaviour which include saving objective, availability of means to gather information etc. all affect the confidence level of an investor while he makes investment.
INTRODUCTION
With the changing times and landscapes of the financial world, the investors are faced with a wide variety of choices when it comes to investing. Various new avenues are coming up day by day thereby exposing the investors to a wide array of risk as they have never been exposed before. This calls for careful scrutiny and selection of investment basket so as to be judicial while making gains. The benefits as well as losses have also expanded their horizon to include at times either significant gains or shattering losses. Thus, with growing uncertainty and ambiguity investors need to be extra cautious while making a choice between various investment avenues and trade off the rusks with the benefits provided by them.
This study aims to understand the awareness level of the investors while they invest their hard earned money into other ventures for gains. It takes into account the understanding and preference of various parameters that almost all the investors take into account while investing. These parameters include the benefits that form the basis for investment. These can be either short term benefits or long term depending upon the investor profile. Besides this, the risk perception, demographics, education qualification, knowledge of various investment analysing parameters help in understanding the retail investor’s behaviour and attitude while investing. The study takes into account the diversified sample including people from all backgrounds like students having work experience, students with no work experience, people having professional qualification like CA, CS, CFA etc. as well people with low educational qualification but with much greater experience in investment.
Today in our highly diversified portfolio in the financial sector, it is necessary to identify a common trend and pattern that binds many individual investors together either in terms of objectives of investment or risk perception etc. The strategies of one investor differs from other investors in many ways but yet the study aims to identify a link that integrates all the individual investors whether these are household members, service class or business men. Some people investment for wealth creation while others for retirement benefits while others investment for their children future. Many are ready to take high risk in return for high benefits while other do not trade with risk and return and choose to be on safer side with a moderate level of risk or no risk at all. Thus the study is an exploratory research to clear the ambiguity in the investor behaviour and attitude that pertains in today’s complex financial world.
LITERATURE REVIEW
Since decades it was believed that the investor’s decision was based upon the rationality giving validation to the theory of modern portfolio building and the efficient market hypothesis which explains all forms of investor awareness levels. But nowadays researchers seem to have contrasting results when it comes to investor behaviour. They believe it is guided by factors other than the standard criteria of expected return (mean), standard deviation and correlation.
The researchers are of the opinion that factors like risk perception, preference for various forms of investment, savings objective, awareness level as well demographics need to be listed and analysed while studying the investment behaviour pattern and attitudes of individual investors.
The various factors affecting the investment behaviour as analysed from various academic sources is tabulated as follows:
FACTORS INFLUENCING THE INDIVIDUAL INVESTMENT BEHAVIOUR
Demographic factors: Investor’s age, gender, marital status, education, income, occupation etc.
Stock Fundamentals: Beta ,past risk, EPS, firm size, share price, share turnover, market equity ratio
Lifestyle Characteristics: Personal Ability, Confidence level and dependence level on investors
Psychological Influences: Desires, goals, prejudices, biases and emotions that guide investor decisions
Risk Bearing Capacity: Parameters of safety, liquidity, capital appreciation, return and risk coverage
Personal Values: Socially and Religiously expressive characteristics that determine the attitude of an investor towards controversial stocks, stocks with environmental records, stocks with progressive practices for women, minorities, homosexual and sin stocks(firms that profit from alcohol, tobacco and gambling.
Other factors:
(a) Neutral Information: Information about government holders, information from internet, fluctuations in stock market, coverage in press, recent price movements ,statement by government officers and Economic Indicators
(b) Accounting Information: Information about stock merchantability, expected corporate earnings, Financial position, dividend paid, expected dividend and past performance
(c) Self-image/Firm image: Co-incidence: Information regarding the product and service, Reputation of the firm in the Industry, Firm status and efforts made by the form for the development of the community
(d) Advocate Recommendation: Advice or recommendation from the broker, Family members, friends and stock holder.
(e) Personal Financial Needs: Diversifications, Easy availability of funds when needed, need to minimize risk and loss and maximize the return.
Thus there are many factors apart from traditional theories that come into picture to identify the trend that clearly defines the changing investment behaviour and attitude. Many researchers have used various models to defy such behavioural modelling.
Lovric Metal (2008) explained this phenomenon through a descriptive model in which he reinstated that the investment behaviour is impacted by the investment environment which is composed of many independent variables of its own. The constant interactions and interactive processes between the individual and his external environment determine his behaviour and attitude.
Mittal M and Vyas R.K. (2008) stated the relationship between the various demographics and the personal traits that determine the investment behaviour. Various empirical evidences and studies conducted clearly show that factors like income, marital status, age etc. do have an influence over the investment decisions. He classified the Indian investors into four categories:
(a) Casual: They are tit a bit lazy type and rely on gut feelings for decision making. They usually end up taking high risk ventures as they do not bother much about money and invest for their hobby only.
(b) Technical: Goes into a lot of technicalities before making an informed investment decision. They are mostly professional players who have in depth knowledge of working in the financial markets
(c) Informed: These use and refer to a lot of information sources before making a single decision. They usually compare lot of avenues and weigh them before making one informed decision.
(d) Cautious: Usually Conservative and generally avoid very highly risky ventures. They give much thought before investing and do not hurry over investment decisions.
Szyska Adam (2008) predicted that the future of capital markets is shaped by the way investors perceive the markets to be. Thus, investor’s psychology has a deep down effect on the future of the Indian capital market and hence determines its future.
Attitudes to RISK
Many researches have been conducted to understand the risk bearing capacity and its relation to the investor attitude while they make their decisions. It is found that investment decisions are not independent but based on a variety of psychological and personal factors inherited in the individual person that influence his risk bearing and decision making capabilities. These studies indicate that the investor’s perception to risk is influenced by many factors like age, marital status, income, education level, lifestyle, personal traits, gender etc. (Conquest research Limited, 2004)
The general finding that attribute to investment behaviour can be described as below:
1.) In case of gender differentiation, women tend to be more risk averse than men.
2.) People within the age group of 30 are willing take more risks than those with later ages having greater experience. These come under the category of casual investors.
3.) People usually tend to less informed while making decisions and lack rationality.
4.) The influence of peers makes a significant contribution in guiding investment behaviour which is hidden by most people. They try to imitate others who make gains without going into the depth of that decision
Sharon Collard (2009) has identified in her report the six basic trends that act as an obstacle in the investment decision as follows:
Factors that hinder investment decision
Choice and information Overload
Lack of clarity in mind
Use of gut feelings or Rule of Thumb
Procrastination
Overconfidence/Lack of Confidence
Lack of professional advice
She said that the investor’s decision making is highly heuristics based and changes frequently on account of internal environment rather than the external economic changes. To illustrate the US investors are said to be very casual investors as maximum of the population basically youth invests on one stock or other heavily without taking into account various other factors that actually determine their profit margin.
Similarly various researchers have carried out on researches and concluded various result which is studies all together in this research.
‘ Kabra G.,Mishra P.K., and Dash M.K. (2010) laid emphasis on the various factors affecting investment and stated that the age and gender are the main factors which account for variability in the investment decision and risk tolerance capacity of the investors.
‘ Ajmi (2008) used the research methodology of questionnaire to collect data and concluded results on the basis of gender differences. According to his research, he founded that men are less risk averse than women who try to take least risk as possible. He also concluded that level of education has an influence on the risk taking capacity of the investor. People with comparatively lower educational background usually take up more risk than others.
‘ Some other investors surveyed typical Indian retail investors trading in the stock market and concluded five basic factors that account for psychological differences in the stock market. As per the survey, the five basic factors can be grouped as follows:
Thus, every literature review studies the presence of certain psychological factors other than that of standard portfolio building theories based on that of beta factor, standard deviation and the expected gain to make decisions. Various demographic factors and psychological studies account for the trend in the investor behaviour and attitude while investing in the stock market. These factors may vary across countries but on a general note demographic like age, income, marital status, education level etc. and do pose an influence on the investment making and risk tolerating capacity of the individual investors.
The rationale behind doing such study is to bring together various demographics on a single platform and judge it form the view of common Indian Individual household investors and how much these factors do influence their decision making process while investing. On an overall Indian level the various choices of investment parameters can be divided into 6 main categories:
1. Real Estate
2. Gold and Silver
3. Fixed Deposit
4. Insurance
5. Stock Market
6. Mutual Funds
INDIAN INVESTOR INVESTMENT PREFERENCES
Real Estate 30.25%
Gold and Silver 24.83%
Fixed Deposit 21.25%
Equity Linked Insurance Plans 7.33%
Mutual Funds 6.42%
Stock Market 4.67%
Others 5.25%
Source: PHD Research Bureau, A survey of Investment Patterns in India, October 2012
INDIAN INVESTOR INVESTMENT PREFERENCES ACROSS OCCUPATIONS
Occupation Real Estate Gold and Silver Fixed Deposit Equity Linked Insurance Plans Mutual Funds Stock Market Others
Businessman
33.67 25.67 10.00 8.33 4.00 10.33 8.00
Professionals 36.67 22.00 19.67 9.33 6.00 3.33 3.00
Salaried 21.67 23.00 30.00 7.33 12.33 3.33 2.33
Agriculturists 29.00 28.67 25.33 4.33 3.33 1.67 7.66
Source: PHD Research Bureau, A survey of Investment Patterns in India, October 2012
Thus, the current investment scenario will serve as a rational basis for judging the investor the reason behind such investment scenario. The data collected will serve to justify the earlier research hypothesis and exhibit various factors that truly affect the investor sentiment. It will help judge the preference as well as the risk tolerance capacity of the investors among various occupational domains as well as rural and urban investor sentiment differences.
OBJECTIVE OF STUDY
To study the awareness, perception, needs and investment behavior of the retail investors and the factors influencing their investment decision.
SUB-OBJECTIVES
‘ To have a brief understanding of the investor psychology while investing and what are the various factors that govern his investment decision.
‘ To study the risk tolerance capacity of various investor groups.
‘ To study the factors that encourage people to invest
‘ To investigate the awareness of various investment knowledge domains
‘ To find out the trends followed by retail investors while investing
RESEARCH METHODOLOGY
The primary data is collected by means of a questionnaire spread across people belonging to various domains both professional, businessmen as well as student. The age group has also been kept diverse to understand the risk tolerance and investment capability differences among the people.
The secondary data has also been used from newspaper articles and various other research articles to support the research results. The main objective of using secondary data is to correlate the results of the primary data with that of the secondary data.
The questionnaire was floated across many people working in MNC’s, business men as well students who have a keen interest in trading and investment. The no of responses have been limited to 60 to study every aspect of each individual investor in detail.
DATA DESCRIPTION
‘ The data calculated in the primary research is both metric and non-metric.
‘ Non metric data is used to judge factors that affect investor behaviour and attitude
‘ Metric data is used to find out the preference as well relative importance of various factors that investor take into account before investing.
‘ The data used is mostly nominal like age, gender, educational background, place and occupation.
‘ The preferences of investors have been judged on Likert 5 point scale using interval data. The interpretations for the same are as follows:
5 Most important
4 Important
3 Neutral
2 Less Important
1 Not Important
STATISTICAL TOOLS
The statistical tools used in this are mostly descriptive statistics and chi ‘square. In descriptive statistics, frequency, mean, median, mode, standard deviation and variance have been used to analyse the relative importance each variable in the decision making process.
In Chi-Square, Cramer’s V test has been used extensively to determine the relative strength of association between variables. Also used is the cross tabulation to analyse the expected dependency of one variable on another.
RESEARCH SAMPLING
The method used for sampling is stratified random sampling.
Strata of various people have been formed such that they are homogeneous within and heterogeneous outside. These are:
‘ People having professional qualification working in MNC.
‘ People belonging to the business class
‘ People pursuing post-Graduation degree
‘ People who have lesser educational qualification
The strata have also been formed on the basis of gender to find out the risk tolerance capacity of both male and female.
The strata are also formed on the basis of age of the people. People till the age of 30 are grouped as one stratum whereas people within the age of 30-50 as another and people above 50 as another group of people.
All these factors combined would help judge the psychological factors influencing investment and then analyse their awareness level on different investment parameters and the preference of various parameters while making sound investment decisions.
RESEARCH INSTRUMENTS
It is the most important part in any research design as it forms the basis for data collection and information gathering.
The research instrument used here is the questionnaire as it requires data which is difficult to collect just by physical observation. It requires patience and clear understanding on the part of the responder before filling out the questionnaire.
The questionnaire is a close ended questionnaire with two open ended questions if responder wishes to provide additional information on some parameters. It has mix of both nominal data like age, gender, place, educational background and occupation as well as interval to judge the relative importance of various investment preference categories.
DATA ANALYSIS AND INTERPRETATION
The data collected from multiple sources and have been aggregated and summed. The basic features of data collected are as follows:
PARAMETERS NO OF INVESTORS PERCENTAGE
GENDER
Male 45 78.9
Female 12 21.1
57 100
AGE GROUP
Up to 30 35 61.4
30-50 14 24.6
Above 50 8 14
57 100
EDUCATIONAL QUALIFICATION
Intermediate 4 7
Graduate 21 36.8
Post Graduate 27 47.4
Professional Qualification 5 8.8
57 100
OCCUPATION
Service Class 21 36.8
Business Men 16 28.1
Student 20 35.1
57 100
ANNUAL INCOME
Upto Rs 5 Lakh 21 36.8
5 Lakh-10 Lakh 17 29.8
10 lakh-15 lakh 12 21.1
15 lakh-20lakh 4 7
More than 20 lakh 3 5.3
57 100
RISK TOLERANCE
High Risk 5 8.8
Moderate Risk 14 24.6
Least Risk 32 56.1
No Risk at all 6 10.5
57 100
FREQUENCY OF TRANSACTIONS
Daily 6 10.5
Fortnightly 1 1.8
Half Yearly 3 5.3
Monthly 10 17.5
No transaction 4 7
Occasionally 17 29.8
Weekly 16 28.1
57 100
GENDER
‘ The investor market is mostly dominated by males making most of the investments.
‘ This is partly because of the Indian Culture where women are always presumed to handle the household work rather than work hand to hand in decision making in handling finances.
‘ Among the 60 households visited, there were hardly more than 15 females overall who invested or either had an inclination towards doing the same.
‘ The female intellectual capital is still unexplored by the Indian Financial Market which if attracted can lead to much better and judicious decision making.
AGE GROUP AND RISK CROSS TABULATION
AGE GROUP RISK BEARING CAPACITY
High Risk Moderate Least Risk No risk Total P-value
Upto 30 1 22 9 3 35 0.127
30-50 3 8 1 2 14 CRAMER’S
>50 1 2 4 1 8 0.3
The above table clearly indicates the following:
1.) People in the early age are more attracted to invest their money and are willing to take risks.
2.) On a general trend, nowadays people tend to moderate risk maximum of the times rather than going for high risk or no risk ventures.
3.) The Cramer’s V value of 0.3 indicates the presence of a medium association between age and Risk. The value is low due to comparatively low responses but still it indicates a sort of association that exists between age and the risk level.
4.) As the age level increases, investors turn from being casual to informed and prefer taking lesser risk than those with less experience and young in age
REGRESSION KEEPING RISK AS DEPENDENT AND AGE INDEPENDENT VARIABLE
Model R R Square Adjusted R Square
1 .033a .001 -.017
Pearson Correlation of Age with Risk Level= -0.33
The negative value of R square between Risk and age clearly states that as the age increases, investors turn form being casual to informed and technical. They had to shoulder much greater responsibilities and prefer taking lesser risk as age increases.
GENDER RISK CROSS TABULATION
GENDER RISK BEARING CAPACITY
High Risk Moderate Least Risk No risk Total P-value
Female 0 5 6 1 12 0.113
Male 5 27 8 5 45 CRAMER’S
TOTAL 5 32 14 6 57 0.35
‘ The data tends to highly skewed towards males taking maximum role and participation in financial market.
‘ Females tend to more risk averse and detest from investing or prefer to invest in options having the least risk or no risk at all.
‘ Males on the other hand usually prefer taking moderate risk and something high risk depending upon their financial capabilities and addition they expect from such risk bearing.
‘ The Cramer’s vale of 0.35 indicates the presence of a medium strength of association between the gender and risk tolerance capacity.
EDUCATIONAL QUALIFICATION RISK CROSS TABULATION
GENDER RISK BEARING CAPACITY
High Risk Moderate Least Risk No risk Total P-value
Intermediate 2 2 0 0 4 0.165
Graduate 1 11 7 1 20 CRAMER’S
Post Graduate 1 16 5 5 27 0.3
Professional 1 2 2 0 5
REGRESSION OF EDUCATIONAL BACKGROUND WITH RISK
Model R R Square Adjusted R Square
1 .265a .070 .053
‘ Though the data tends to be skewed more towards graduate and post graduate people, we can see that out of 4 people with intermediate responses, 50 per cent of the people prefer taking high risk.
‘ As from the literature review as well as collected data, the people with lesser educational background tend to take much higher risk than those who are more professionally qualification.
‘ Maximum of the educated people tend to take moderate level of risk during investment rather than going for high risk bearing instruments.
‘ This trend visibility is very low in the Indian Stock market as the stock market is mostly regulated by brokers and paid professionals advice rather than the people whose original money is invested.
OCCUPATION RISK CROSS TABULATION
GENDER RISK BEARING CAPACITY
High Risk Moderate Least Risk No risk Total P-value
Business 4 8 3 1 16 0.082
Service 1 10 8 2 21 CRAMER’S
Student 0 14 3 3 20 0.3
‘ The data tends to be more or less equally spread among the broad three occupational domains i.e. Business, Service and Student.
‘ The most high risk bearing people are the business class people who have comparatively wider access to financial resources and practical financial knowledge on what is the ongoing trend in the market.
‘ The service class tends to be more or less balanced between Moderate and less risk taking capabilities depending upon their income levels.
‘ The students on the younger side tend to take slightly higher risk and mostly prefer taking moderate risk.
SAVING OBJECTIVE
PARAMETERS NO OF INVESTORS PERCENTAGE
SAVING OBJECTIVE
Child Marriage 3 5.3
Education 4 7
Healthcare 2 3.5
House Purchase 6 10.5
Others 3 5.3
Retirement 5 8.8
Wealth Creation 34 59.6
TOTAL 57 100
The sentiment that is spread across maximum individual investors is that investment is directly correlated to wealth creation. The more you invest, more is the probability of earning wealth.
Wealth Creation is the most preferred objective than future benefits. This correlated Net Operating Income approach of Dividends where investors have a preference for current dividend rather than future capital gains.
IMPORTANCE OF VARIOUS BENCHMARKS IN SETTING PORTFOLIO
Nifty Sensex Exchange Rate Analysis Investors
N Valid 57 57 57 57 57
Missing 0 0 0 0 0
Mean 3.44 3.51 3.09 3.58 2.81
Median 4.00 4.00 3.00 4.00 3.00
Std. Deviation 1.402 1.325 1.286 1.401 1.231
Variance 1.965 1.754 1.653 1.962 1.516
Skewness -.757 -.784 -.117 -.693 -.332
Frequency Table (In Percentage) (5-Most Important and 1-No Importance)
1 2 3 4 5
Nifty 19.3 3.5 14.0 40.4 22.8
Sensex 14.0 8.8 12.3 42.1 22.8
Exchange Rate 14.0 19.3 26.3 24.6 15.8
Company Analysis 12.3 15.8 5.3 35.1 31.6
Other investors 22.8 15.8 21.1 38.6 1.8
‘ The Indian individual investor is basically guided by the four factors while making investment decision i.e. Nifty 50, Sensex, Company Analysis and other investors.
‘ The mean and median of company analysis is just equal to 4 with maximum investors laying much importance to it followed by Sensex with a mean ranking of 3.51.
‘ The exchange rate is less seen by investors as they think it concerns mostly to people trading abroad and also due to lack of awareness level the impact exchange rate fluctuations have on Sensex and the Nifty.
REASONS FOR NOT INVESTING
Statistics
Risky Losses Selection Knowledge Guidance
N Valid 57 57 57 57 57
Missing 0 0 0 0 0
Mean 3.25 2.39 2.89 3.19 2.74
Median 4.00 2.00 3.00 4.00 2.00
Std. Deviation 1.539 1.360 1.410 1.575 1.458
Variance 2.367 1.848 1.989 2.480 2.126
Skewness -.399 .316 -.243 -.359 .191
Frequency Table (In Percentage) (5-Most Important and 1-No Importance)
1 2 3 4 5
Risky 24.6 7.0 14.0 28.1 26.3
Heavy Losses 40.4 15.8 12.3 28.1 3.5
Difficulty in selection 28.1 10.5 14.0 38.6 8.8
Lack of Knowledge 26.3 10.5 5.3 33.3 24.6
Lack of Guidance 28.1 22.8 10.5 24.6 14.0
‘ The most common reason among the individual investors for not investing is the lack of sufficient and knowledge and expertise which ultimately leads to difficulty in scheme selection and hence deter investors from investing in the financing market and resorting to traditional modes of investment like fixed deposit.
‘ The Indian investors do not usually deter from heavy losses in the market as they believe that one or the other they will gain but maximum of the people lack the suffice knowledge which lowers their confidence to invest in the stock market.
INVESTOR RATING OF OBJECTIVE
Gain Appreciation Dividend Tax Hobby
N Valid 57 57 57 57 57
Missing 0 0 0 0 0
Mean 3.44 3.32 3.11 3.68 2.11
Median 4.00 4.00 3.00 4.00 2.00
Std. Deviation 1.296 1.270 1.345 1.242 1.160
Variance 1.679 1.613 1.810 1.541 1.346
Skewness -.779 -.735 -.426 -1.049 .499
Frequency Table (In Percentage) (5-Most Important and 1-No Importance)
1 2 3 4 5
Short Term Gain 14.0 10.5 10.5 47.4 17.5
Capital Appreciation 15.8 8.8 15.8 47.4 12.3
Dividend 21.1 8.8 21.1 36.8 12.3
Tax Benefit 10.5 8.8 7.0 49.1 24.6
Hobby 43.9 19.3 19.3 17.5 0
‘ As clearly seen, the tax benefits offered by the government is one of the most influential thing that propels people to invest in the stock market,
‘ Approximately 50% of the people lay importance to the tax benefits rather than short term gains as the motive for investment.
‘ With a mean of 3.44 and the preference for current gains, many investors lay importance to the short term gains also.
USEFULNESS OF VARIOUS SOURCES WHILE MAKING INVESTMENT DECISION
Journals Brokerage Periodicals Professionals Newspapers
N Valid 57 57 57 57 57
Missing 0 0 0 0 0
Mean 2.81 3.46 3.16 2.72 3.47
Median 3.00 4.00 4.00 2.00 4.00
Std. Deviation 1.355 1.211 1.347 1.398 1.255
Variance 1.837 1.467 1.814 1.956 1.575
Skewness
.007 -1.019 -.298 .159 -.865
Frequency Table (In Percentage) (5-Most Important and 1-No Importance)
1 2 3 4 5
Journals 24.6 17.5 21.1 26.3 10.3
Brokerage 14.0 5.3 14.0 54.4 12.3
Periodicals 15.8 19.3 14.0 35.1 15.8
Paid Professionals 26.3 24.6 10.5 28.1 10.5
Newspapers 14.0 5.3 17.5 45.6 17.5
‘ As clearly visible, brokerage and newspapers occupy the most preferential position to an individual investor.
‘ The broker houses are considered to be the most dominating people in the stock market. Their services are paid and valued a lot.
‘ On the other hand, newspapers are the most common available source of information in every household thereby holding such value.
PREFERENCE OF INVESTMENT PARAMETERS
Statistics
Credit Rating Lock In Returns Low Risk Liquidity Reputation
N Valid 57 57 57 57 57 57
Missing 0 0 0 0 0 0
Mean 3.28 3.33 3.75 3.11 3.25 3.68
Median 4.00 4.00 4.00 3.00 4.00 4.00
Std. Deviation 1.436 1.200 1.199 1.263 1.199 1.338
Variance 2.063 1.440 1.439 1.596 1.439 1.791
Skewness
-.403 -.618 -1.049 -.094 -.882 -.827
Frequency Table (In Percentage) (5-Most Important and 1-No Importance)
1 2 3 4 5
Credit rating 17.5 15.8 10.5 33.3 22.8
Lock In 10.5 15.8 15.8 45.6 12.3
High Returns 8.8 7.0 12.3 43.9 28.1
Low Risk 10.5 28.1 15.8 31.6 14.0
Liquidity 15.8 8.8 15.8 54.4 5.3
Company Reputation 10.5 12.3 8.8 35.1 33.3
‘ Liquidity i.e. the ease with which the investment can be converted into cash is the most important factor that attracts Indian investors. Smaller the time of investor with some gains is preferred as they consider it to be less risky than those with long maturity periods.
‘ Similarly, the lock in period while investing in equities or debt market is well acknowledged by investors as every investment made has an opportunity cost.
‘ Thirdly, company reputation is one factor which is also visisble as people lay their trust on big corporate houses like TATA’s ,Birla’s and Ambani’s.
REFERENCE GROUP
Statistics
Advertising Peers Banks Advisors Others
N Valid 57 57 57 57 57
Missing 0 0 0 0 0
Mean 2.98 3.84 3.14 3.79 1.96
Median 3.00 4.00 3.00 4.00 2.00
Std. Deviation 1.077 1.031 1.315 1.145 1.034
Variance 1.160 1.064 1.730 1.312 1.070
Skewness -.319 -1.493 -.122 -1.047 .674
Frequency Table (In Percentage) (5-Most Important and 1-No Importance)
1 2 3 4 5
Advertising 10.5 22.8 28.1 35.1 3.5
Peer Groups 7.0 3.5 8.8 59.6 21.1
Banks 12.3 24.6 17.5 28.1 17.5
Financial Advisors 7 7 14.0 43.9 28.1
Others 43.9 26.3 19.3 10.5 0
‘ Peer Group is the most common option that people prefer. If one person gains from one, other people invest seeing him and as results show with a mean of 3.79, peer group is the most influential factor in decision making.
‘ Next most important is the financial advisors as may household lack basic knowledge to make informed decision making and rest upon financial advisors for the same.
CONCLUSION
To conclude, the complexity of choices available in the Indian Financial market has opened various arrays of options for investors with no clarity on the pros and cons of various alternatives. This has led to the emergence of new group of people named professional financial advisors who play an important role in controlling the psyche of an individual investor. Not only this due to lack of sufficient knowledge and expertise, many of the investor decision are based on the gut feelings and are determined by the psychological feelings as shown above.
Age is one of the influential factor that effects the risk taking capability of a person, As the person grows with time he is shouldered with additional responsibility which make him extra cautious while investing this prompting him to take lesser risk than he took during his early ages.
Other than this, gender also plays an important role. The Indian financial market is male dominated with most of the financial decision taken by the male members. As a result, females tend to be much more risk averse than males.
On the basis of above study ,in order to increase the saving and investment cycle volume ,the government should focus on introducing tax benefits scheme as that is one of the most prominent driving force apart from short term capital gain to attract investors in to the capital market and drive capitalization and growth of the economy.
Thus, it is clearly visible that the growing complexity and vastness of the financial markets and increasing integration of the global economies has led to the emergence of psychics in decision making rather than pure reliance on logic based on beta factor, standard deviation, expected return and coefficient of variation.
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‘ Al-Tamimi, Hussein A Hassan, Factors Influencing Individual Investor Behaviour: An Empirical Study of the UAE Financial Markets, The Business Review, Campbridge, Volume 5 ,Issue(2), 2006
‘ Baker, Malcolm, and Jeffrey Wurgle, Investor sentiment in the stock market, Journal of Economic Perspectives, Volume 21 , Issue 2 ,129-151,2007
‘ Dr. John R .NofSingher, Investment patterns and performance of investor groups in Japan, Pacific-Basin Finance Journal, Volume 11,Issue 2,2003
‘ Milan Lovric, A conceptual Model on Investment Behaviour, Erasmus, Research Institute of Management, Volume 30,May 2008
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‘ www.rbi.org
APPENDIX -QUESTIONNAIRE
1) Name: _______________________________________
2) Age: _________________________________________
3) Gender: Male___ Female___
4) Place: ________________________________________
5) Education Background: a.) High School
b.)Intermediate
c.)Graduate
d.) Post Graduate
e.) Professional Qualification, if any
__________________________
6) Income Range: a.) Upto Rs 5 Lakh
b.) 10 lakh-15 lakh
c.) 15 lakh-20lakh
d.) More than 20 lakh
7) Occupation:___________________________________________________________________
8) Do you invest? Yes ___ No___
9) If yes, since how many years you are investing?______________________________________
10) If no, do you have any past investment experience? ________________________________________________________________________________________________________________
11.) The benchmark used by investor while setting up his portfolio?
a) Nifty 50
b) Sensex
c) Exchange rate
d) Industry Analysis
e) Follow other investors
Rate the questions on the scale of 1 to 5 with these meanings attached to these numbers:
1-Most Important
2-Important
3-Neutal
4-Not so Important
5- Not at all important
12.) What are the reasons for not investing or dropping investment?
a) Too Risky
b) Suffered heavy loss
c) Difficulty in selection of scheme
d) Lack of sufficient knowledge
e) Lack of proper guidance
f) Lack of Confidence
13.)The investor rating on a scale of one to five of the objectives to him of his investment common stock portfolio:
a) Short Term Capital Gain
b) Intermediate Capital Appreciation
c) Long term capital Appreciation
d) 4dDividend Income (interest)
e) tax Benefits
f) For hobby
14) Rate from one to five the usefulness of various sources while making an investment decision.
a) Investment Subscription Journal
b) Brokerage House Recommendations
c) Financial Periods
d) Paid professionals
e) Newspapers
15.)Preference of investment parameters (Rate on a scale of 1-5)
a) Credit rating
b) Lock in period
c) High return
d) Low risk
e) Liquidity
f) Company reputation
16.)The influence of reference group:
a) Advertising
b) Peer Group
c) Banks
d) Financial Advisors
e) Others
17.)Saving Objective
a) Children marriage
b) Healthcare
c) Education
d) Home Purchase
e) Wealth Creation
f) Retirement
g) Others
18.) The number of hours investor spends on investor analysis and decision making: ________
19.) The amount of money he spends yearly for
a) Financial Periodicals
b) Research Subscriptions
c) Professional Counselling
20.) The frequency of transactions:
a) Daily
b) Weekly
c) Monthly
d) Fortnightly
e) Half Yearly
f) Occasionally
21.) The kind of risk you take:
a) High Risk
b) Moderate Risk
c) Plays Safe
d) Least Risk
e) No risk at all
22.)Investment period
a) 1-2 years
b) 2-5 years
c) 5-10 years
d) More than 10 years