final theme paper

8/7/2019 final theme paper

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Personal wealth management

Personal wealth management- From Super rich to everyone..

In general, wealth management is more than just investment advice, as it can encompass

all parts of a person's financial life.

Wealth management is acquiring more and more attention and importance in the new

economy. We can see many asset management companies coming up and offering tailor

made services to the individuals. But this was not the trend few years ago. The reasons

for this development primarily are increased disposable income amongst people,

increasing awareness about savings, investment and returns, high inflation which will

force people to save so that the future is secured, varied investment options available etc.

Wealth management means more than just sticking to a budget. It helps people to plan for

the future. Investors can find a customized solution for their assets and follow the right

avenue to ensure that they achieve their financial goals.

Especially, in the present economic scenario of global melt down, millions and millions

of investors money is eroded. So, personal wealth management is becoming more and

more important.

Accumulating wealthas distinct from just making a big incomeis the key to your

financial independence. It gives you control over assets, power to help shape the

corporate and political landscape, and the ability to ensure a prosperous future for your

children and their heirs. (Rev. Jesse L. Jackson, Sr. and Jesse L. Jackson, Jr.,

Its About the Money!)

If you make a good income each year and spend it all, you are not getting wealthier.

You are just living high. (Thomas J. Stanley and William D. Danko, The Millionaire

Next Door).

The vital point for discussion - Is personal wealth management necessary for individuals?

If yes, their awareness, to what extent and how to construct a portfolio taking into

consideration different time horizons, risk, return relationship, income level etc.

Objectives:

The paper is aimed at discussing these important points with reference to personal wealth

management.

a) To analyse the awareness of investment avenues among the people.

b) To find the pattern of investment of the people.

INDIAN BUSINESS ACADEMY 2


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c) To assess the risk taking capacity among the people in relation to different time

horizons, risk, return relationship, income levels.

Methodology:

In order to meet the above objectives a questionnaire would be designed for the

collection of primary data. Appropriate statistical tools would be used for the analysis of

the data collected. Few case studies will also be discussed regarding portfolio

construction of different income groups.

Key words:

Individuals, Investors, Wealth management, Return-Risk, Time horizon, Financial goals

Investment options, Portfolio construction, Income groups.

Introduction:

Savings And Investment:

Savings are the excess of Income over expenditure for any economic unit.

Thus, S=Y- E, where S is the savings, Y is the income and E is the expenditure.

Secondly excess funds or surplus in profits or capital gains are also available for

investment.

Thus, S=W2-W1, where W2 is wealth in period 2 and W1 is the wealth in period 1.Savings is abstaining from present consumption for a future use. Savings are something

autonomous coming from households as a matter of habit. But bulk of the savings come

for specific objectives like interest income, future needs, contingencies, precautionary

purposes or growth in future wealth leading to rise in the standard of living etc.

When people start saving they search for various investment options t invest their

savings. During this process they consider various factors like risk, return, duration,

liquidity, tax planning, hedge against inflation, safety etc. In earlier days the investment

options available to investors were very limited like insurance, jewellery, fixed deposits,

debentures, shares etc. But in the liberalized economy there are many investment options,

which promises very high returns. After private players started operating in Insurance,there are many policies available which not only cover the risk , but they also promise

high return with gook capital appreciation.

The unit linked Insurance plans (ULIP) is highly demanded by the investors. Even the

Jewellery and real estate has become very profitable investment options, as there is a

very good capital appreciation.



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Even though it is said investors consider many things before investing most of the

investment decisions are influenced to some extent by prejudices and perceptions that do

not meet the criteria of rationality. Human beings often depart from rationality in a

consistent manner.

It becomes very important to understand why an investor behaves in a particular way and

why he gets prejudiced.

The study tries to understand the behavior of people while making investment decisions

by studying the behavior of investors in Bangalore city.

The primary investment options available before globalization were life insurance, fixed

deposits, shares and debentures, PPF, post office savings scheme etc. But now the

options are plenty.

There are number of private insurance players in the market, who offer ULIP products

which are widely in demand. Real estate is also most important investment option as

capital appreciation is very high. Apart from these there are many options like Americandepositary receipts, global depositary receipts, mutual funds, general insurance,

commercial paper, stock and debentures etc.

Whenever an investor is investing his savings he has to keep few things in his mind like

liquidity, profitability, risk, and tax benefit etc.

Objectives of the study:

The paper is aimed at discussing these important points with reference to personal wealth

management.

a) To analyze the awareness of investment avenues among the people.

b) To find the pattern of investment of the people.

c) To assess the risk taking capacity among the people in relation to different time

horizons, risk, return relationship, income levels.

Methodology:

In order to meet the above objectives a questionnaire is used for the collection of primary

data. Appropriate statistical tools are used for the analysis of the data collected.

Limitations:

1. Since the time was short, the sample size chosen is small.

2. The investors knowledge about the topic was limited; hence getting required

information was difficult.

3. Limited time for the study.



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Review of Literature

The topic Personal wealth management is covered under behavioral finance. The

researcher has reviewed the following literature for the study of the above stated topic.

1. A study on the investors behavior towards Securities Market in Bangalore.

This is a review of the case study conducted by A Mohammed Jaffar (Reader and

research coordinator, HKRH College, Uthamapalyam, Tamil nadu) and N Namasivayam

(professor and head, Dept of Commerce DDE, MKU, Madurai).

Retail investors participation in the Indian capital market is miniscule. There are many

reasons for their hesitation to invest in the market. This paper discusses research findings

in investors behavior with respect to the securities market.

The concept of investment means employment of funds to earn additional income or

growth in terms of value.

Investment in share market: A person can invest his money in the share market by

purchasing shares. A share market is a public institution and it serves the growth of the

capital market. In a stock market, purchase and sale of shares are made in conditions of

free competition. It is organized as voluntarily, non-profit making association of brokers

to regulate and protect their interests.

Whenever a company raises capital through public issue of securities, its securities are

required to be listed on the stock exchange within ten weeks of the closing of the

subscription list mainly to provide liquidity to the investors.

Profile of the Study area and sample investors: Bengaluru is the capital of the state of

Karnataka in India. Bangalore is India's third-largest city and has a population of

5,310,318 (2009). The sylvan surroundings of Bangalore are sure to soothe your weary

nerves.

Bangalore has earned sobriquets like 'Silicon Valley of India', 'Pub Capital of India', and

'City of Gardens'. With its beautiful parks, avenues, multiplexes and historical

monuments, Bangalore is bubbling with life and energy.

An attempt has been made to analyze the behavior of the selected investors regarding

their age, education, status, experience, family size, earnings etc.

Objectives:

1. To study the awareness of investors in the Bangalore city.

2. To analyze the attitude of investors in the study area

3. To find out investors behavior and stock market movement in the district



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4. To offer valuable suggestions on the basis of findings.

Methodology:

Keeping in mind the objectives of the study, the study was based on a sample survey of

individual investors in the security market. The data used are the first hand information

collected with the help of questionnaire from the set of respondents.

Findings:

1. The investors in the study area are interested in earning high return with minimum

risk.

2. As per the age-wise classification, the investors in the age group of below 35 years are

actively participating in the speculation trade. The age groups above 55 hesitate to take

risk and are not at all interested in the share trade.3. Technical degree/diploma holders and professional people are not interested to invest

their money in the security market.

4. There are more male investors than female investors.

5. Investors falling under income group below Rs 10000 show more interest in investing

their earnings in the security market.

6. Married persons are investing more than the unmarried people in the corporate

securities.

Conclusion:

Investing has been an activity confined to the rich and business class in the past. But,

today, it has become a household word and is very popular with people from all walks of

life.

2. Behavioral finance:

This is review of an article written by Arvind Agarwal, Radhika Jain, and Williams Paul

from IIM-Kolkata.

Behavioral finance is an emerging science that exploits the irrational nature of investors.

The base of behavioral finance is that humans often depart from rationality in a consistent

manner. Most of our investment decisions are influenced to some extent by our prejudice

and perceptions that do not meet the criteria of rationality. For decades, economists have

speculated, theorized and argued about the rational actora completely logical

creature who always makes the sensible financial choice. Now psychologists are

weighing in, and they are finding that real people often dont act that way. Psychology



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has a story to tell about investing, and its different from one the economics tell, says

Princeton psychologist Daniel Kahneman. These humans flaws are often consistent,

predictable, and can be exploited for profit.

Traps into which investors fall:

1. Too self-confident: people are overconfident in their own abilities, and investors and

analysts are particularly overconfident in areas where they have some knowledge.

However, increasing levels of confidence frequently show no correlation with greater

success.

2. Too bold: Professional and amateur investors alike tend to have an optimistic bias,

believing that their chances are better than the next guys. This bias is the base for the

whole stock trading industry.

3. Too afraid of loss: People hang on to their losing stocks because they dont want to

feel the pain of cost-loss discrepancy, which refer to the fact that investors are moreaversive to losses than costs.

4. Too quick to trade: A study shows that when an investor sells one stock and

immediately buys another stock, the one that was sold does better by an average of 3.4%

in the following year. People like to feel that they are actively bettering their financial

situationbut, if you hold onto a stock for a while, your chances of making money in it

are greater.

5. Casual reasoning: When confronting novel situations, people struggling to form a

coherent view are heavily influenced by the order in which they receive conflicting

information.

In laymans terms, various studies have concluded that behavioral finance postulates thefollowing:

Individual and institutional investors are susceptible to herd mentality, a tendency

at the root of many bubbles and crashes.

The pain of losing is generally much greater than the pleasure of earning

People tend to take a self-centered approach to investing.

Overconfident investors tend to trade too much and under perform the market.

People tend to be more optimistic when the market goes up and more pessimistic

when it goes down;

People are afraid to admit an error in judgment and are thus more likely to sellwinners in their portfolios than losers.

Conclusion: An investor cant be assumed to be a machine, always making logical

calculations and uninfluenced by psychological factors. People trade not only for profit

but for emotional and cognitive reasons as well.



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3. Personal Tax planning for an Individual:

This is the review of an article written by R K Gupta (professor of finance Punjab

University) and Jyoti (Research scholar, Maharshi Dayanand University, Rohtak).

Some people have a wrong notion that tax planning is useful only once you are well

settled in life. Rather, the best time to start tax planning is right from the day you start

earning any income in your name.

For any individual tax planning occupies a prominent position in the investment planning

process.

Tax Planning: Everyone is entitled to so arrange his affairs to reduce his tax liability,

but the arrangement must be real and genuine and not a sham. Thus tax planning ensures

not only the accrual of tax benefits within the four corners of law but also that the tax

obligations are properly discharged to avoid penal provisions. It should not be mixedwith tax evasion and tax avoidance.

Tax planning at different stages of life through various investments.

1. When a person starts earning he should start saving and investing. The better course

would be to invest in savings in Public Provident Fund (PPF) so that the money is

blocked and saved for a minimum period of 15 years. It is totally exempt from tax.

Also Insurance policy can be planned as deduction can be availed u/s 80

2. Next stage is to own a house. The biggest advantage of putting your money in

residential house property is tax haven in one hand while on the other hand; you get asecure place of your own to live in. The repayment of principal is deductible up to one

lakh in a year u/s 80.

3. Usually, a person has to spend a lot on the education of children. Tax planning can be

used as effective tool in this respect as it may ensure that the capital base is not eroded or

adversely affected. Sec 10(14) and rule 2BB provides for certain allowances that are

exempt according to the limit specified in respect of each such allowances.

4. Senior citizens can invest special Senior Citizens schemes launched by govt. of India.

Tax planning brings fiscal discipline in the functioning of a taxpayer and reduces the

transfer of money, from the person who has earned it by hard labor, to the govt. for waste

and ostentation. Thus the amount invested enhances the capacity of the taxpayers for

expansion and growth, which in turn increases the tax revenue of the govt.

4. Fundamentals of safe Investments: This article is written by Mr. Vikas Shrotriya

( Assistant professor, Finance, Yagyavalkya Institute of Technology, Jaipur)

Investments are not as simple as it sounds. Managing the same may be more perplexing.



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In todays fast changing and highly competitive world, it is quite difficult to earn an

impressive rate of return on personal investments. Personal investments arise out of the

funds saved by an ordinary individual. The quantum is usually not comparable to the

amount invested by large players such as the corporate houses. As individuals, we are

less aware of the risks associated with the investment avenues we select for investment.

Hence as intelligent investors we need to clearly grasp the major criteria of any personal

investment. Safety, returns, liquidity and value appreciation are the four major

parameters that we should keep in mind while making an investment decision.

Can we reduce risk?

We cannot eliminate the risk factor totally. The effort should be in the direction of

minimizing the risk to the possible extent. We can diversify the risk by investing in

varying investment avenues. The amount of risk we undertake should be commensurate

with the age, income, responsibilities and the financial needs. The amount of risk we takewill decide whether we are risk taker, risk averse or are indifferent to risk. Depending on

the risk level, we can select the investment avenues.

Data analysis and interpretation:

The data collected is through primary source i.e. with the help of a questionnaire. The

sampling is random sampling and sample size is 20. The parameters that were used are:

a) Age

b) Income

c) Marital status

d) Gender

Using the above parameters an analysis has been constructed for all the questions of the

questionnaire.

This table & graph shows the age of the respondents

Table 1: Represents the age of the respondents:

Age No. of respondents

20 30 830 40 3

40 50 2

50 60 2

60 70 3

70 80 2

Total 20



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Graph 1: Shows the age of respondents:

Age of the R esponde

0

1

2

3

4

5

6

7

8

9

20 - 30 30 - 40 40 - 50 50 - 60 60 - 70 70 - 8

Age

No. of

responden

No. o f res onden

This table & graph shows the income of the respondents

Table 2: Represents the income of the respondents:

Income (Rs. In Lakhs) No. of respondents

1.5 - 2.5 3

2.5 - 3.5 5

3.5 - 4.5 3

4.5 - 5.5 6

5.5 - 6.5 3

Total 20



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Income of Respondents

0

1

2

3

4

5

6

7

1.5 - 2.5 2.5 - 3.5 3.5 - 4.5 4.5 - 5.5 5.5 - 6.5

Income (Rs. in Lakhs)

No

ofrespondents

No. of res ondents

This table & graph shows the Marital Status of the respondents

Table 3: Represents the Marital Status of the respondents:

Marital Status No. of Respondents

Married 12Unmarried 8

Total 20

Marital Status of the Respondents

0

2

4

6

8

10

12

14

Married Unmarried

Marital Status

No.of

Respondents

No. of Respondents



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This table & graph shows the gender of the respondents

Table 4: Represents the Gender of the respondents:

Gender No. of Respondents

Male 7

Female 13

Total 20

Graph 4: Shows the Gender of the respondents:

Gender of the Respondents

0

2

4

6

8

10

12

14

Male Female

Gender

No.ofrespondents

No. of Res ondents

1. Do you maintain funds for long and short term investments?

- Long Term - Short Term

The respondents replied in the following manner:

a) Based On Age

Table 1.1

Age Long Term Short Term

20 30 4 4

30 40 2 1

40 50 2 0



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50 60 0 2

60 70 2 1

70 80 1 1

Total 11 9

b) Based On Income (Rs. In Lakhs)

Table 1.2

Income (Rs. In Lakhs) Long Term Short Term

1.5 - 2.5 1 1

2.5 - 3.5 2 4

3.5 - 4.5 2 0

4.5 - 5.5 4 3

5.5 - 6.5 2 1Total 11 9

c) Based On Marital Status

Table 1.3

d) Based On Gender

Table 1.4

Gender Long Term Short TermMale 3 4

Female 8 5

Total 11 9

2. What is the amount of savings of the family per annum?

o Below 1 lakh


Marital Status Long Term Short Term

Married 6 6

Unmarried 5 3

Total 11 9


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o 1 to 2 laks

o more than 2 to 3 lakhs

o Above 3 lakhs


a) Based on Age

Table 2.1

Age Below 1 lakh 1 - 2 lakhs > 2 -3 lakhs > 3 lakhs

20 30 6 3 0 0

30 40 1 2 0 0

40 50 0 2 0 0

50 60 0 1 0 0

60 70 3 0 0 0

70 80 2 0 0 0

Total 12 8 0 0

b) Based on Income (Rs. In Lakhs)

Table 2.2

Income (Rs. In Lakhs) Below 1 lakh 1 - 2 lakhs > 2 -3 lakhs > 3 lakhs

1.5 - 2.5 3 0 0 0

2.5 - 3.5 4 1 0 0

3.5 - 4.5 1 1 0 0

4.5 - 5.5 1 6 0 0

5.5 - 6.5 2 1 0 0

Total 11 9 0 0

c) Based on Marital Status:

Table 2.3

Marital Status Below 1 lakh 1 - 2 lakhs > 2 -3 lakhs > 3 lakhs

Married 5 7 0 0

Unmarried 6 2 0 0

Total 11 9 0 0

d) Based on Gender:

Table 2.4

Gender Below 1 lakh 1 - 2 lakhs > 2 -3 lakhs > 3 lakhs

Male 4 3 0 0

Female 7 6 0 0

Total 11 9 0 0



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3. Do you seek professional investment advice before making a decision on your

portfolio?

a. Yes

b. No


a) Based on Age

Table 3.1

Age Yes No

20 30 5 3

30 40 2 1

40 50 0 2

50 60 2 1

60 70 1 1

70 80 2 0

Total 12 8


Table 3.2

Income (Rs. In Lakhs) Yes No

1.5 - 2.5 2 1

2.5 - 3.5 4 1

3.5 - 4.5 1 14.5 - 5.5 4 3

5.5 - 6.5 1 2

Total 12 8

c) Based on Marital Status:

Table 3.3

Marital Status Yes No

Married 8 5Unmarried 4 3

Total 12 8

d) Based on Gender:

Table 3.4



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4. Which statement best describes your level of understanding about different types

of investment options and their behavior over long term?

a. No knowledge. I know nothing about investing and have little interest in

learning about different investment options. Dont find the subject that

interesting.

b. Minimal knowledge. I understand the basic terms, but dont understand

the differences among different types of investment. Dont know muchabout the financial world.

c. Somewhat knowledgeable. I am comfortable with general investing

concepts, but look to experts for more in-depth knowledge. Have a fair

comprehension of investing, but I would like to know more.

d. Highly knowledgeable. I have a very good understanding of different

investment options and the relative risks inherent in the markets, and about

the functioning of stock markets. I spend a considerable time keeping up

with the financial happenings.


a) Based on Age

Table 4.1

AgeNo

knowledge

Minimal

Knowledge

Somewhat

Knowledge

Highly

Knowledgeable

20 - 30 1 2 4 1

30 - 40 0 1 2 0

40 - 50 1 0 1 0

50 - 60 0 1 1 060 - 70 0 1 2 1

70 - 80 0 0 1 0

Total 2 5 11 2



Gender Yes No

Male 5 2

Female 7 6

Total 12 8


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Table 4.2

Income (Rs. In

Lakhs)

No

knowledge

Minimal

Knowledge

Somewhat

Knowledge

Highly

Knowledgeable

1.5 - 2.5 0 1 1 1

2.5 - 3.5 0 1 3 1

3.5 - 4.5 1 1 0 04.5 - 5.5 1 0 6 0

5.5 - 6.5 0 2 1 0

Total 2 5 11 2

c) Based on Marital Status

Table 4.3

Marital StatusNo

knowledge

Minimal

Knowledge

Somewhat

Knowledge

Highly

Knowledgeable

Married 1 2 8 1Unmarried 1 3 3 1

Total 2 5 11 2

d) Based on Gender

GenderNo

knowledge

Minimal

Knowledge

Somewhat

Knowledge

Highly

Knowledgeable

Male 0 3 3 1

Female 2 2 8 1

Total 2 5 11 2

5. What is the duration of investment preferred by you?

o Less than 2 years

o 2-5 years

o More than 10 years


a) Based on Age

Table 5.1

Age < 2 years 2 - 5 years > 10 years

20 - 30 5 4 0

30 - 40 0 2 0

40 - 50 0 2 0



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50 - 60 2 0 0

60 - 70 2 1 0

70 - 80 2 0 0

Total 11 9 0

b) Based on Income

Table 5.2

Income (Rs. In Lakhs) < 2 years 2 - 5 years > 10 years

1.5 - 2.5 2 1 0

2.5 - 3.5 4 1 0

3.5 - 4.5 1 1 0

4.5 - 5.5 2 5 0

5.5 - 6.5 2 1 0

Total 11 9 0


Table 5.3

Marital Status < 2 years 2 - 5 years > 10 years

Married 7 5 0

Unmarried 4 4 0

Total 11 9 0

d) Based on Gender

Table 5.4

4

Gender < 2 years 2 - 5 years > 10 years

Male 7 0 0

Female 4 9 0

Total 11 9 0

6. Rank the following factors you consider before making an investment in the

order of your preference.[1-6; 1- Good, 6-Poor]



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o Safety of income is my primary concern. The amount of capital

appreciation and income my investment earn are secondary objectives.

_______

o My investment should be relatively safe and emphasize current

income. _________

o My investments can be exposed to a moderate level of risk with the

primary goal of generating current income. Capitalappreciation over

time is a secondary objective.________

o My investment can be exposed to a risk and should emphasize growth

over time, but should also generate some current income.______

o My investments should be covered by tax benefit. _________

o My investments should be en-cashed within a short notice, (Liquidity).


Safety:

a) Based on Age

Table 6.1

Safety (Ranks 1-6; 1 - Good, 6 -

Poor)

Age 1 2 3 4 5 6

20 - 30 5 1 0 1 1 0

30 - 40 2 0 0 0 1 0

40 - 50 2 0 0 0 0 050 - 60 1 0 0 0 1 0

60 - 70 3 0 0 0 0 0

70 - 80 2 0 0 0 0 0

Total 15 1 0 1 3 0

b) Based on Income

Table 6.2

Safety (Ranks 1-6; 1 - Good, 6 - Poor)Income (Rs. In

Lakhs)1 2 3 4 5 6

1.5 - 2.5 3 0 0 0 0 0

2.5 - 3.5 4 0 0 0 1 0

3.5 - 4.5 1 0 0 1 0 0

4.5 - 5.5 5 1 0 0 1 0



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5.5 - 6.5 2 0 0 0 1 0

Total 15 1 0 1 3 0


Table 6.3

Safety (Ranks 1-6; 1 - Good, 6 - Poor)

Marital Status 1 2 3 4 5 6

Married 10 0 0 0 2 0

Unmarried 5 1 0 1 1 0

Total 15 1 0 1 3 0

d) Based on Gender

Table 6.4

Safety (Ranks 1-6; 1 - Good, 6 - Poor)

Gender 1 2 3 4 5 6

Male 5 0 0 1 1 0

Female 10 1 0 0 2 0

Total 15 1 0 1 3 0

Current Income

a) Based on Age

Table 6.5

Current Income (Ranks 1-6; 1 - Good, 6 - Poor)

Age 1 2 3 4 5 6

20 - 30 0 1 0 2 1 4

30 - 40 0 0 0 0 1 2

40 - 50 0 0 0 1 0 1

50 - 60 0 0 0 0 1 1

60 - 70 0 0 0 0 1 2

70 - 80 0 0 0 0 0 2

Total 0 1 0 3 4 12

b) Based on Income



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Table 6.6


Income (Rs. In

Lakhs)1 2 3 4 5 6

1.5 - 2.5 0 0 0 0 1 2

2.5 - 3.5 0 0 0 0 1 4

3.5 - 4.5 0 0 0 1 0 1

4.5 - 5.5 0 0 0 2 1 4

5.5 - 6.5 0 1 0 0 1 1

Total 0 1 0 3 4 12


Table 6.7

Current Income (Ranks 1-6; 1 - Good, 6 - Poor)Marital Status 1 2 3 4 5 6

Married 0 0 0 1 2 9


Total 0 1 0 3 4 12

d) Based on Gender

Table 6.8


Gender 1 2 3 4 5 6

Male 0 0 0 1 1 5

Female 0 1 0 2 3 7

Total 0 1 0 3 4 12

Capital appreciation

a) Based on Age

Table 6.9

Capital Appreciation (Ranks 1-6; 1 - Good, 6 - Poor)

Age 1 2 3 4 5 6

20 30 1 2 0 0 4 1

30 40 0 1 1 0 1 0

40 50 0 0 1 0 1 0

50 60 0 0 2 0 0 0



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60 70 0 0 0 3 0 0

70 80 0 0 0 2 0 0

Total 1 3 4 5 6 1

b) Based on Income

Table 6.10


Income (Rs. In

Lakhs)1 2 3 4 5 6

1.5 - 2.5 0 0 0 3 0 0

2.5 - 3.5 1 0 1 2 1 0

3.5 - 4.5 0 1 1 0 0 0

4.5 - 5.5 0 2 0 0 5 0

5.5 - 6.5 0 0 2 0 0 1Total 1 3 4 5 6 1

c) Based on Martial Status

Table 6.11



Married 0 1 3 5 3 0


Total 1 3 4 5 6 1

d) Based on Gender

Table 6.12


Gender 1 2 3 4 5 6

Male 0 1 2 3 1 0

Female 1 2 2 2 5 1

Total 1 3 4 5 6 1

Growth:

a) Based on Age

Table 6.13

Growth (Ranks 1-6; 1 - Good, 6 -

Poor)



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Age 1 2 3 4 5 6

20 - 30 1 3 3 1 0 0

30 - 40 1 0 0 1 0 0

40 - 50 0 1 0 0 0 1

50 - 60 0 2 0 0 0 0

60 - 70 0 1 3 0 0 070 - 80 0 1 0 0 1 0

Total 2 8 6 2 1 1

b) Based on Income

Table 6.14

Growth (Ranks 1-6; 1 - Good, 6 - Poor)

Income (Rs. In

Lakhs)1 2 3 4 5 6

1.5 - 2.5 0 1 1 0 1 0

2.5 - 3.5 0 4 1 0 0 0

3.5 - 4.5 1 1 0 0 0 0

4.5 - 5.5 1 1 3 0 0 1

5.5 - 6.5 0 1 1 2 0 0

Total 2 8 6 2 1 1


Table 6.15

Growth (Ranks 1-6; 1 - Good, 6 - Poor)


Married 1 5 4 1 1 1


Total 2 8 6 2 1 1

d) Based on Gender

Table 6.16Growth (Ranks 1-6; 1 - Good, 6 - Poor)

Gender 1 2 3 4 5 6

Male 1 3 1 1 1 0

Female 1 5 5 1 0 1

Total 2 8 6 2 1 1



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Tax Benefit

a) Based on Age

Table 6.17

Tax Benefit (Ranks 1-6; 1 - Good, 6 - Poor)

Age 1 2 3 4 5 6

20 - 30 1 1 2 2 0 2

30 - 40 0 1 0 1 0 0

40 - 50 0 0 1 0 2 050 - 60 0 0 0 1 0 1

60 - 70 0 0 0 0 2 1

70 - 80 0 1 0 0 1 0

Total 1 3 3 4 5 4

b) Based on Income

Table 6.18


Income (Rs. InLakhs)

1 2 3 4 5 6

1.5 - 2.5 0 1 0 0 1 1

2.5 - 3.5 0 0 1 1 1 1

3.5 - 4.5 0 0 0 0 1 1

4.5 - 5.5 1 1 2 1 1 1

5.5 - 6.5 0 1 0 2 1 0

Total 1 3 3 4 5 4


Table 8.19



Married 0 2 1 2 4 2


Total 1 3 3 4 5 4

d) Based on Gender



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Table 6.20


Gender 1 2 3 4 5 6

Male 0 2 0 1 2 2

Female 1 1 3 3 3 2

Total 1 3 3 4 5 4

Liquidity:

a) Based on Age

Table 6.21

Liquidity (Ranks 1-6; 1 - Good, 6 -

Poor)

Age 1 2 3 4 5 6

20 - 30 0 0 3 3 1 1

30 - 40 0 0 2 0 0 1

40 - 50 0 1 1 0 0 0

50 - 60 1 0 0 1 0 0

60 - 70 0 2 1 0 0 0

70 - 80 0 0 2 0 0 0

Total 1 3 9 4 1 2

b) Based on Income

Table 6.22Liquidity (Ranks 1-6; 1 - Good, 6 - Poor)

Income (Rs. In

Lakhs)1 2 3 4 5 6

1.5 - 2.5 0 1 2 0 0 0

2.5 - 3.5 0 1 2 2 0 0

3.5 - 4.5 0 0 2 0 0 0

4.5 - 5.5 0 1 3 2 0 1

5.5 - 6.5 1 0 0 0 1 1

Total 1 3 9 4 1 2


Table 6.23

Liquidity (Ranks 1-6; 1 - Good, 6 - Poor)


Married 1 3 6 2 0 0




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Total 1 3 9 4 1 2

d) Based on Gender

Table 6.24

Liquidity (Ranks 1-6; 1 - Good, 6 - Poor)

Gender 1 2 3 4 5 6

Male 1 1 4 1 0 0

Female 0 2 5 3 1 2

Total 1 3 9 4 1 2

7. Which of the following statements best reflect your views towards investment

risk and the effect of inflation (Price rise)?

Option 1. My main goal is to avoid loss, even though I may only keep pace with

the inflation.

Option 2. My main goal is to earn slightly more than inflation, while still

keeping risk to minimum.

Option 3.My main goal is to increase my portfolio value. To that end, I am

willing to accept short-term losses, but I am comfortable with extreme

performance volatility in my portfolio value.

Option 4.My main goal is to maximize my portfolio value and I am willing to

assume higher risk to do so.


a) Based on Age

Table 7.1

Age Option 1 Option 2 Option 3 Option 4

20 - 30 2 4 1 1

30 - 40 0 2 1 0

40 - 50 1 0 1 0

50 - 60 1 0 1 0

60 - 70 2 1 0 0

70 - 80 2 0 0 0Total 8 7 4 1

b) Based on Income

Table 7.2

Income (Rs. In Lakhs) Option 1 Option 2 Option 3 Option 4

1.5 - 2.5 2 1 0 0



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2.5 - 3.5 3 1 1 0

3.5 - 4.5 1 0 0 1

4.5 - 5.5 2 3 2 0

5.5 - 6.5 0 2 1 0

Total 8 7 4 1

c) Based on GenderTable 7.3

Gender Option 1 Option 2 Option 3 Option 4

Male 4 1 1 1

Female 4 6 3 0

Total 8 7 4 1

8. The chart below shows the highest one year gain and the highest one year loss on

four different hypothetical investments of Rs.100000. Given the potential gain or

loss in any one year, where would you invest your money?

o Portfolio one: You could gain up to Rs.4000 (4%)

o Portfolio two: You could lose RS.2000 (-2%) but gain up to Rs.7000 (7%)

o Portfolio three: You could lose Rs.50000 (-5%) but gain up to Rs.10000

(10%)

o Portfolio four: You could lose Rs.120000 (-12%) but gain up to Rs.14000

(14%)




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a) Based on Age

Table 8.1

Age Portfolio 1 Portfolio 2 Portfolio 3 Portfolio 4

20 30 3 3 1 1

30 40 1 1 1 0

40 50 0 1 1 0

50 60 1 0 1 0

60 70 3 0 0 0

70 80 1 0 1 0

Total 9 5 5 1

b) Based on Income

Table 8.2

Income (Rs. In Lakhs) Portfolio 1 Portfolio 2 Portfolio 3 Portfolio 4

1.5 - 2.5 2 0 1 0

2.5 - 3.5 3 2 0 0

3.5 - 4.5 0 1 0 1

4.5 - 5.5 3 1 3 0

5.5 - 6.5 1 1 1 0

Total 9 5 5 1

c) Based on Marital status

Table 8.3

Marital StatusPortfolio

1

Portfolio

2

Portfolio

3

Portfolio

4

Married 6 3 4 0Unmarried 3 2 1 1

Total 9 5 5 1

d) Based on Gender

Table 8.4



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Gender Portfolio

1

Portfolio

2

Portfolio

3

Portfolio

4

Male 4 0 1 1

Female 6 6 2 0

Total 10 6 3 1

Summary of findings

Most of the respondents are in the age group of 20 30. The respondents income

is 4.5 5.5 lakhs. The respondents are mostly married and they are mostly women.

The age group of 20 30 prefers both long term & short term investments

equally. But long term investments are more preferred to short term investments for all

age groups. Even based on income, marital status & gender long term investments are

most favored.

The amount of saving p.a of the family was mostly below 1 lakh. This was the

amount of savings most of the respondents have. This amount varies with income i.e. if

the respondent is earning more than they can save more.

60% of the respondents are seeking professional advice. The age group of 20 30

seeks more advice than the other groups. Even based on income, marital status & gender

they all prefer to seek professional advice.

55 % of the respondents have some knowledge of the various investment options.

The 25% of them have minimal knowledge. The remaining 20 % is equally divided

between respondents who have no knowledge and those who are highly knowledgeable.

55% of the respondents invest their funds separately. The age group of 20 30

prefers to invest separately. The income group of 4.5 5.5 invests separately. The

married respondents prefer to invest separately; most of the women respondents invest

separately.

Once again 55% of the respondents prefer to invest for a period of less than 2 yrs.

While none of the respondents preferred to lock their money for more than 10 yrs.



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90% of the respondents have a separate savings to cover major expenses; the most

popular form of investments was the bank deposits and 80% wanted to investments made

for a period of 1yr.

75% of the respondents ranked safety as no. 1. Liquidity, growth, capital

appreciation, tax benefit & current income were the other factors that are taken into

consideration by the respondents before making the investment.

Option 1: My main goal is to avoid loss, even though I may only keep pace with

the inflation, was highly favored by most of the respondents.

Option 2: My main goal is to earn slightly more than inflation, while still keeping

risk to minimum. This option was the next most favored option.

75% of the respondents play by using only these 2 options. The other 25% are

risk takers.

45% of the respondents chose Portfolio one. 50% of the respondents were equallydivided between portfolio two & three. Only 1 respondent chose portfolio four. Even

based on income, marital status & gender most of them preferred portfolio one.

80% of the respondents portfolio consists of less than 25% of their income. This

was highly favored across all age groups, levels of income, marital status and gender.

Mostly government securities and fixed income securities is ranked no.1

Real assets such as land and gold is ranked no.2

Life insurance is ranked no.3

Mostly stocks or equity mutual funds is ranked no. 4A mix of investments in money market, bonds, stocks and mutual funds is ranked no. 5

Conclusion

The respondents invest in long term investments, they save below 1 lakh. The

respondents seek the advice of a professional investor before making their investments as

they are aware of the pros & cons of investing in a bad investment option. Most of them

keep themselves updated with the new forms of investment. They are all educated and

like to invest separately.

The respondents do not like to lock their funds for more than 10 yrs. The

respondents like to invest mainly in bank deposits but at the same time also invest in

mutual funds & marketable securities. The term of investment preferred is 6 months 1

year.



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The respondents are more worried about the safety of their investments rather

than growth or capital appreciation. The respondents would like to avoid loss even

though they may only keep pace with inflation. As discussed earlier the respondents want

to play safe and avoid losses even though they have an opportunity to earn more.

We can conclude that this set of investors is not risk takers. They are happy with

the returns that they receive on their investment; they are also bothered about liquidity &

the period of its maturity.

Suggestions:

1. One of the important findings of the study is that the investors dont want toinvest for more than 10 years. But long term investments will certainly help the

investors at the time of retirement or for discharging other kind of family

responsibilities. Therefore investors should invest in instruments which have a

longer time horizon like fifteen to twenty years. The investment options that can

be considered are PPF, pension plans, life insurance plans, and various plans

available for childrens education, real estate etc.

2. Secondly, life insurance is ranked No 3 amongst the various investment options.

But while designing the portfolio, life insurance should be given at most

importance as it secures the life of the investor as well as his/her dependants.

3. Before starting the investment activity, it is always advisable to have a thorough

knowledge of the various investment options and the terms and conditions

associated with a particular investment option. It is also advisable to seek a good

professional advice.

4. The amount of savings and investment should be proportional to the annual

income. Every year the amount of investment should be increased to take care of

the inflation.

Questionnaire



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1. Do you maintain funds for long term or short term investments?

- Long Term - Short Term

2. What is the amount of savings of the family per annum?

o Below 1 lakh

o 1 to 2 laks

o more than 2 to 3 lakhs

o Above 3 lakhs

3. Do you seek professional investment advice before making a decision on your

portfolio?

a. Yes

b. No

4. Which statement best describes your level of understanding about different types

of investment options and their behavior over long term?

a. No knowledge. I know nothing about investing and have little interest in

learning about different investment options. Dont find the subject that

interesting.

b. Minimal knowledge. I understand the basic terms, but dont understand

the differences among different types of investment. Dont know much

about the financial world.

c. Somewhat knowledgeable. I am comfortable with general investing

concepts, but look to experts for more in-depth knowledge. Have a fair

comprehension of investing, but I would like to know more.

5. What is the duration of investment preferred by you?

o Less than 2 years

o 2-5 years



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o More than 10 years

6.Rank the following factors you consider before making an investment in the order

of your preference.[1-6; 1- Good, 6-Poor]

o Safety of income is my primary concern. The amount of capital

appreciation and income my investment earn are secondary objectives.

_______

o My investment should be relatively safe and emphasize current income.

_________

o My investments can be exposed to a moderate level of risk with the

primary goal of generating current income. Capital appreciation over

time is a secondary objective.________

o My investment can be exposed to a risk and should emphasize growthover time, but should also generate some current income.______

o My investments should be covered by tax benefit. _________

o My investments should be en-cashed within a short notice, (Liquidity).

7. Which of the following statements best reflect your views towards investment

risk and the effect of inflation (Price rise)?

Option 1. My main goal is to avoid loss, even though I may only keep pace with

the inflation.

Option 2. My main goal is to earn slightly more than inflation, while still

keeping risk to minimum.

Option 3.My main goal is to increase my portfolio value. To that end, I am

willing to accept short-term losses, but I am comfortable with extreme

performance volatility in my portfolio value.

Option 4.My main goal is to maximize my portfolio value and I am willing to

assume higher risk to do so.



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8. The chart below shows the highest one year gain and the highest one year loss on

four different hypothetical investments of Rs.100000. Given the potential gain or

loss in any one year, where would you invest your money?

o Portfolio one: You could gain up to Rs.4000 (4%)

o Portfolio two: You could lose RS.2000 (-2%) but gain up to Rs.7000 (7%)

o Portfolio three: You could lose Rs.50000 (-5%) but gain up to Rs.10000

(10%)

o Portfolio four: You could lose Rs.120000 (-12%) but gain up to Rs.14000

(14%)



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Bibliography

http://en.wikipedia.org/wiki/Behavioral_economics

http://www.journalofbehavioralfinance.org/journals/journals_main.html

http://www.finpipe.com/behave.htm

http://www3.interscience.wiley.com/journal/121355847/home?

CRETRY=1&SRETRY=0

http://www.hinduonnet.com/businessline/blbby/stories/2004042700200600.htm

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