Investment Preferences of Salaried in Pune

SYMBIOSIS INSTITUTE OF MANAGEMENT STUDIES, PUNE
Investment Preferences and

Demographics of Salaried people in Pune
Date: 1
st
. Feb. 07

A Dissertation submitted towards partial fulfillment of Post
Graduate Diploma in Management by

Ridhi Dandona (57)
PGDM (Marketing & Finance)
SIMS, Pune

PRN 5711117
Email Ridhi.Dandona@Gmail.com

Investment Preferences and Demographics of Salaried People in Pune
Objective 2
OBJECTIVE
To find the investment avenues preferred by salaried people and the reasons
behind their preferences.
To determine and evaluate the relationship between various demographic
variables such as age, income, gender, education etc and the choice of
investments preferred by people in the city of Pune.
To determine various reasons that people have to opt for different kinds of
investment opportunities.
To find out the level of expenditure and savings made by an average consumer in
the city of Pune.

Acknowledgement 3

ACKNOWLEDGEMENT

This report bears impressions, guidance, contributions and co-operation of a slew of
people whom I am indebted to.

I will begin by thanking The Almighty for all the blessings that He has showered upon
me, not only for coming well through this dissertation but also for taking care of me at
every big or small step of my life.

My institute, Symbiosis Institute of Management Studies and its faculty deserve my
gratitude for ingraining in me various concepts, theories and dimensions of marketing
which I was able to apply during my study towards understanding various research
problems and analyses required therein. I would particularly like to thank Mr. S.K Vaze,
our Banking faculty, without whose guidance and course material, I would not have had
half as much of understanding as required for the successful completion of this study.
Next, I owe a word of gratitude to Mr. Prantosh Banerjee, our Market Research faculty,
who taught us various concepts in Market Research and their application.

I also gratefully acknowledge the co-operation extended by the management and
administration of Inox and Adlabs where a major part of the primary data was collected
through ticket counters and personal interviews.

Finally Im appreciative and really thankful to the students of Sadhna Institute of
Management who helped me formulate the research problem and questionnaire required
for collecting the requisite information.

Executive Summary 4

EXECUTIVE SUMMARY
The present report is prepared as a pre-requisite towards completion of our post-graduate
diploma in business management. The study involved finding out various factors that
determine choice of an investment vehicle for an investor. This was done through
questionnaires and personal interviews to determine the demographic factors associated
with various kinds of investors, the level of investments made in six different investment
vehicles considered viz., Bank Deposits, Insurance, Public Provident Fund, which are
considered to be relatively safer investment avenues and Mutual Funds, Shares and Gold
and Jewellery, which are considerably more risky investments with continuous price
fluctuations.

The study required structured, undisguised questionnaire and interview and the questions
were segregated under three broad pointers that is, Demographic Data, Investment Data
and Reasons therein.

To start off with, the study involved finding the right set of people that could be taken as
a representative of the entire population being studied that is, the population fitting into
the demographic set considered. An appropriate sample size was arrived at through
various calculations and primary data was collected largely by surveying people in
different multiplexes in the city of Pune. Multiplexes were chosen as the right sample
frame because they have an assortment of different kinds of people with different age
groups, income levels and education at any given point of time.

The final phase of the study involved compilation of data and application of various tests
on the data to determine the association between demographic variables and preference of
investment vehicles.

Regarding the organization of the report, it consists of Introduction to the Company,
followed by Approach and Introduction to the Project, Research Methodology used,
Interpretation and Analysis of Data and finally, the Findings and Limitations therein.

The report is primarily intended to serve as a guide with all its contents trying to present
an impartial and transparent picture of investment avenues in the market. It is hoped that
this report shall provide guidelines and prove to be fruitful to all those concerned.

Contents 5

CONTENTS
Sr. No. Title of chapter Page

1. Introduction 08
1.1 Investment Objectives
1.2 Features of Investment
1.3 Investment Opportunities

2. Approach to the Project 17

3. Research Methodology 18
3.1 Research Design
3.2 Data Collection
3.3 Questionnaire Design
3.4 Sampling
3.5 Hypothesis Test

4. Data Analysis and Interpretation 25
4.1 Income Categorisation
4.2 Spending Pattern
4.3 Investment Preference
4.4 Ranking of Investment Opportunities

5. Findings 40
6. Limitations 42
7. Conclusion 43
8. References 44
9. Annexure 45

Index of Tables and Figures 6

INDEX OF TABLES & FIGURES

Tables Name Pg.No.

1 Income Categorisation 27
2 Spending Pattern 27
3 Investment Preference 28
4 Ranking of Investment Opportunities 28
5 Relationship Between Age and Securities Preference 29
6 Relationship Between Income & Securities Preference 31
7 Relationship Between Gender & Securities Preference 34
8 Relationship Between Education and Preference 36

Figures Name Pg. No.

1 & 2 Securities Preference by Age Group 28
3, 4, 5 Securities Preference by Income Group 31
6 & 7 Securities Preference by Gender 32
8, 9, 10 Securities Preference by Education 35

Introduction

7

1. INTRODUCTION
Investment can be defined as an outlay of a sum of money to be used in such a way that a
profit or increase in capital may be expected. It is a sacrifice between present value of
money-in-hand for an uncertain future reward. It entails arriving at various decisions such
as type, mix, amount, timing, grade etc of investment and disinvestment. For best results,
this decision making has to be continuous and rational.

An investment decision is essentially a trade-off between risk and return. All investment
choices are made at a point of time in accordance with the personal investment needs,
capability and in contemplation of an uncertain future. Since investment in securities are
revocable, investment ends are transient and investment environment is fluid, the reliable
bases for reasoned expectations become more and more vague as one conceives of the
distant future. Investors in securities therefore revaluate and reappraise their investment
commitments from time to time in the light of new information, changed expectations
and ends.

Investment choices or decisions are found to be the outcome of three different but related
classes of factors. The first may be taken as Factual or Informational premises. The
factual premises of investment decision are provided by many streams of data which,
taken together, represent to an investor the observable environment and general as well as
particular features of the securities and forms in which investments may be made.

The second class of factors may be taken as Expectational Premises. Expectations
relative to the outcomes of alternative investments are subjective and hypothetical in any
case, but their foundations are necessarily provided by the environmental and financial
facts available to investors. These limit not only the range of investments which may be
undertaken, but also the expectations of outcomes which may legitimately be entertained.

Introduction

8
The final class of factors may be defined as Value Premises. For investors, these
comprise the structure of subjective preferences for the size and regularity of the income
to be received from and for the safety and negotiability of specific investments or
combination of investment, as appraised from time to time.

1.1 Four Investment Objectives Define Strategy
In broad terms, there are four main investment objectives for investors to accomplish
most financial goals. These investment objectives are important because certain products
and strategies work for one objective, but may produce poor results for another objective.
It is quite likely that an investor may use several of these investment objectives
simultaneously to accomplish different objectives without any conflict. These four
objectives are elaborated below.
1.1.1 Capital Appreciation
Capital appreciation is concerned with long-term growth. This strategy is most familiar in
retirement plans where investments work for many years inside a qualified plan.
However, investing for capital appreciation is not limited to qualified retirement
accounts. For a long-term objective of an investor, a typical strategy employs making
regular purchases.
1.1.2 Current Income
If an individual investor has the objective of increased current income, they will most
likely be interested in stocks that pay a consistent and high dividend. They may also
include some top-quality real estate investment trusts (REITs) and highly-rated bonds.
All of these products produce current income on a regular basis.
Many people who pursue a strategy of current income are retired and use the income for
living expenses. Other people take advantage of a lump sum of capital to create an
income stream that never touches the principal, yet provides cash for certain current
needs (college, for example).
Introduction

9

1.1.3 Capital Preservation
Capital preservation is a strategy often associated with elderly people who want to make
sure they dont outlive their money. Retired on nearly retired people often use this
strategy to hold on the detention has. For this investor, safety is extremely important
even to the extent of giving up return for security.
The logic for this safety is clear. If they lose their money through foolish investment and
are retired, it is unlike they will get a chance to replace it. Investors who use capital
preservation tend to invest in bank CDs, U.S. Treasury issues, savings accounts.
1.1.4 Speculation
The speculator is not a true investor, but a trader who enjoys jumping into and out of
stocks as if they were bad shoes. Speculators or traders are interested in quick profits and
used advanced trading techniques like shorting stocks, trading on the margin, options and
other special equipment.
They have no attachment to the companies they trade and, in fact may not know much
about them at all other than the stock is volatile and ripe for a quick profit. Speculators
keep their eyes open for a quick profit situation and hope to trade in and out without
much thought about the underlying companies. Many people try speculating in the stock
market with the misguided goal of getting rich. It doesnt work that way.
1.1.5 Increasing popularity of investments can be attributed to the following
factors
Increase in working population, larger family incomes, concepts of yuppies and
DINKs and consequently, higher savings and expendable income.
Provision of tax incentives in respect of investment in specified channels.
Hedging against inflation
Availability of large and attractive investment alternatives
Introduction

10
Increase in investment related publicity leading to greater awareness
Ability of investment to provide income and capita gains

1.2 Features of an Investment Programme
In choosing specific investments, investors need definite ideas regarding features which
their portfolios should possess. These features should be consistent with the investors
general objectives and I addition to that, should be affordable for the investor in terms of
incidental charges and conveniences. The following are the features of most opted for
investment avenues.

1.2.1 Safety of Principal
The safety sought by an investor while making an investment implies protection against
losses under reasonably likely conditions or variations. It calls for a careful review of
economic and industry trends before deciding types and timing of investment. Ideally, a
portfolio with various diversified investments is preferred to avoid errors resulting from
misinterpretation of such trends.

Adequate diversification of a portfolio refers to an assortment of investment
commitments in different ways. Diversification may be based on various factors such as
income, willingness to take risk, geography with certain areas being more prone to
natural calamities etc. Another approach to safeguard principal is the theory of Hedging
against inflation or deflation. However, extreme caution needs to be exercised towards
preventing over-diversification which would stand to compromise on better returns.

Adequate Liquidity and Collateral Value
An investment is a liquid asset if it can be converted into cash without delay at a
reasonably good value. For an investment to be liquid, it must satisfy the following two
criteria viz.
i.) Reversibility
ii.) Marketability

Introduction

11
To meet emergencies, every investor prefers to have a sound portfolio to be sure of
additional funds that can be arranged through liquid investments.

1.2.2 Stability of Income
While making an investment, an investor considers his ability to invest depending on his
income as well as stability of income. However, emphasis on stability of income is not
always consistent with other investment principles such as safety and liquidity.
Moreover, monetary income constraint works in inverse proportionality with the capital
growth and diversification factors. Thus, stability of income is an important factor for an
investor while making an investment, but not always to the same constraining level.

Tax Benefits
An investors investment decision also works parallel to his tax planning. The two major
factors considered here are largely concerned with
i.) the amount of income generated by the investment
ii.) the burden of income taxes upon the investment

When an investors income is small, he is anxious to have maximum cash returns on his
investment and thus, is also prone to take excessive risks. On the other hand, investors
who are not pressed for cash income often find that income taxes deplete certain types of
investment incomes less than the other, thus affecting their choices.

1.2.3 Capital Growth
Capital appreciation has also become an important principle. Recognising the relationship
between company and industry growth to large capital appreciation, investors and
advisors constantly seek growth stocks.

1.2.4 Purchasing Power Stability
Since an investment almost always involves the commitment of current funds with the
objective of receiving greater amounts of future funds, the investor also considers the
Introduction

12
purchasing power of the future fund. For maintaining purchasing power stability,
investors take the following into consideration
i.) the degree of price level inflation expected in the market
ii.) the possibility of gain or loss in the investment available to them
iii.) the limitations imposed by personal considerations

Depending on the above factors and affordability therein, is the final selection of
investment vehicle made.

1.3 Various Investment Opportunities
1.3.1 Bank Deposit
The different types of bank deposits depending upon their withdrawal restrictions can be
seen as

Savings Deposit
o Money Market Deposit Account

Time Deposit
o Certificates of Deposit
o Fixed Deposit
o Small-Denomination Time Deposit
o Large Denomination Time Deposit

Transaction Deposit
o Demand Deposit (Checking Deposit)
o Automatic Transfer Service (ATS) Deposit
o Negotiable Order of Withdrawal (NOW) Deposit

1.3.1.1 Savings Deposit
Savings deposits are accounts maintained by the banks, savings and loan associations,
credit unions and mutual savings banks that pay interest but cannot be used directly as
Introduction

13
money. These accounts let customers set aside a portion of their liquid assets that can be
used to make purchases. However, to make those purchases, savings accounts
transactions must be transferred to Transaction Deposits (or Checkable Deposits) or
currency. This transference is easy enough for savings accounts to be often termed as
near money. Savings accounts constitute a sizeable portion of M2 monetary aggregate.

1.3.1.1.1 Money Market Deposit Account
This is an interest bearing statement account from which withdrawals can be made in
accordance with certain prescribed restrictions. While there is no minimum deposit
required for opening Money Market Accounts, minimum balances are required to be
maintained to avoid monthly service charges. Interest will be paid on this account on a
variable rate which can change on a weekly basis depending upon market conditions. The
Bank reserves the right to change the rate at any time. There is no limitation as to the
percentage amount the interest rate may vary. The number of transfers permitted from
Money Market Deposit Accounts per period is six.

1.3.1.2 Time Deposit
A time deposit, also known as a term deposit, is a money deposit at a banking institution
that cannot be withdrawn for a certain "term" or period of time. When the term is over it
can be withdrawn or it can be held for another term. Generally speaking, the longer the
term the better the yield on the money.
1.3.1.2.1 Certificates of Deposit
A Certificate of Deposit (CD) is a promissory note issued by a bank. It is a time deposit
that restricts holders from withdrawing funds on demand. Although it is still possible to
withdraw the money, this action will often incur a penalty. A CD bears a maturity date, a
specified fixed interest rate and can be issued in any denomination. CDs are generally
issued by commercial banks and are insured by the FDIC. The term of a CD
generally ranges from one month to five years.

Introduction

14
1.3.1.2.2 Fixed Deposit
In a fixed deposit account, money is deposited for a fixed period and cannot be
withdrawn before the expiry of the said period. This period usually varies from three
months to five years. The rate of interest on these accounts increases with the period of
deposit. These deposits are also known as term deposits.

1.3.1.3 Transaction Deposit
Transactions deposit is a term used by the Federal Reserve for checkable deposits and
other accounts that can be used directly as cash without withdrawal limits or restrictions.
They are the only bank deposits that require the bank to keep reserves at the central bank.
"Time deposits" can also be called "transaction deposits".
1.3.1.3.1 Demand Account
A demand account, also called checking account or chequing account in North America
and Current account in UK and Commonwealth nations, is a deposit account held at a
bank or other financial institution, for the purpose of securely and quickly providing
frequent access to funds on demand, through a variety of different channels. A demand
account allows the account holder to make or receive payments by:
Cash Money (Bank Notes)
Cheque and money order (paper promise to pay)
Giro (funds transfer, direct deposit)
Direct debit (pre-authorized debit)
Standing order (automatic funds transfer)
Debit card or ATM card
EFTPOS (cashless direct payment at a store or merchant

Introduction

15
1.3.1.3.2 Automatic Transfer Service Account
An automatic transfer service account is a deposit account that allows the transfer of
funds from a savings account to a checking account in order to cover a check written or
to maintain a minimum balance.
1.3.1.3.3 Negotiable Order of Withdrawal Account
Negotiable Order of Withdrawal account (NOW account) is a deposit account that pays
interest, on which checks may be written. It is an interest-earning account. Withdrawals
from NOW accounts may be offered by commercial banks, mutual savings banks, and
savings and loan associations and may be owned only by individuals and certain
nonprofit organizations and governmental units.
1.3.2 Shares
Shares of stock represent units of ownership in a corporation or entity.

1.3.3 Mutual Fund
An investment company that acquires funds by selling shares of investors and then
invests the money in a diversified portfolio of investment securities. A major advantage
of investing in a mutual fund is that investors are able to diversify their holdings and
investment decisions are made by professional money managers.

1.3.4 Insurance
A form of contract whereby periodic payments (that is, insurance premiums) are made to
an insurance company in order to provide compensation to an individual or business in
the event of a loss or damage.

1.3.5 Pension Fund
A fund set up to collect regular premiums from employees and their employers, invest
these funds safely and profitably, and pay out a monthly income to employees who reach
a specified age and retire.
Introduction

16

1.3.6 Public Provident Fund
Public Provident Fund was started on 1
st
of July, 1968 so that people could enjoy the
benefit of rebate under income tax act. To avail this facility, an individual needs to open
his account in State Bank of India or one of its subsidiaries. Full withdrawal is possible
after 15 years, but in case of death of the subscriber, full repayment is made to the legal
heir of the nominee. Partial withdrawals and loans are also possible.
Approach to the Project

17
2. APPROACH TO THE PROJECT
Determining investment preferences of people in the city of Pune.
To ascertain the most prominent investment avenues sought after by people in
Pune and their reasons for opting for particular investment vehicles.

Formulating a Research Design for the problem at hand.
To formulate a research design to study the investment preferences of people in
Pune and the specific reasons therein. For this purpose, a questionnaire has been
designed covering various aspects of investment preferences of people required
for this study.

The questionnaire designed has been attached as an Annexure at the end of the
report.

Carrying out extensive surveys and Personal Interviews.
To determine the investment preferences and demographics of people in Pune and
considering their reluctance in filling up questionnaires, primary data was largely
connected through persona interviews of people at various multiplexes in Pune.

Studying the demographic factors about people in the city of Pune.
To study the demographic characteristics of people in Poona to determine the
different demographic set of factors that result n the choice of any particular
investment vehicle.

Determining the relationship, if any, between demographic variables and
investment preference of people in and around Pune through non-parametric tests.
After collecting the requisite data, the final step has been to determine the
relationship existent, if any, between the various investment vehicles opted for by
people and draw inferences therein through various applicable tests on the
specific data.

Research Methodology

18
3. RESEARCH METHODOLOGY
3.1 Research Design
Research is the search for and retrieval of existing information and discovery or creation
of new information or knowledge for a specific purpose. Marketing research consists of
gaining consumer input and data. It is the lifeline between companies and customers, and
it allows the application of scientific methods to gain knowledge about consumers,
buyers, competitors, markets and marketing.

A research design is a framework or a plan of study that guides the collection and
analysis of data. A good research design starts with a comprehensive problem definition,
followed by an estimate of time required for the research project together with expenses
to be allocated during the course of the research. Various strategies can be used for
market research - past data may be projected forward; surveys may be made of
respondents attitudes and preferences; focus groups can be formed; indirect ways such as
thematic apperception tests and picture tests can be carried out and a conclusion can be
arrived at based on derived results.
In general terms, marketing research is either primary research or secondary research.
Primary research is either qualitative or quantitative. Qualitative research explores,
defines, and describes. It involves in-depth studies of limited samples of people. Use of
focus groups is a popular tool of qualitative research. In this format, participants are
prescreened to assure that they match the socio-demographic profile of the type of
respondents being studied. Once screened, groups of eight to twelve customers
participate in a group discussion, with a company-hired moderator, to discuss the topic at
hand: new products, reaction to advertising or packaging, or assessment of goods or
services. Use of one-on-one interviews is another popular tool of qualitative research.
Often these are conducted in shopping malls (mall intercepts), where shoppers are
approached, screened to match a predetermined socio-demographic profile, and escorted
to a facility for a thirty-minute to one-hour interview.

19
Quantitative research measures, estimates, and quantifies. It generally involves polling of
a broad sample of people. This choice is necessary when statistically significant results
are required.
The findings in this paper are largely based on primary data collected from a sample of
well-matched respondents to the defined research problem and two basic types of
research designs are used viz.
Exploratory Research
Descriptive Research
A brief explanation of these methods as used in this paper is given below.

3.1.1 Exploratory Research
Exploratory research is a type of research conducted because a problem has not been
clearly defined. Exploratory research helps determine the best research design, data
collection method and selection of subjects. The major emphasis is on the discovery of
insights and ideas. It is particularly helpful in breaking down broad and vague into
smaller, more precise sub-problem statements that can be studied in the form of specific
hypothesis.

3.1.2 Descriptive Research
Descriptive research describes data and characteristics about the population or
phenomenon being studied. Descriptive research answers the questions who, what, where,
when and how. Although the data description is factual, accurate and systematic, the
research cannot describe what caused a situation. Thus, descriptive research cannot be
used to create a causal relationship, where one variable affects another. Thus, it can be
said to have a low requirement for internal validity. The description is used for
frequencies, averages and other statistical calculations.

Descriptive studies are typically guided by an initial hypothesis. For instance, as in this
paper, descriptive research is used for an investigation of investment avenues made by

20
salaried class people with respect to socioeconomic characteristics such as age, gender,
ethnic group, affordability, education level, geographic location etc.

3.2 Data Collection
After identifying and defining the research problem, the next step is to determine specific
information required to solve the problem. It is necessary to find the type of sources of
data which may yield the requisite information. The analysis contained in this paper is
primarily based on primary data obtained through personal interviews and observation
with a number of respondents. The data has been collected keeping in mind various
factors and characteristics given below.

i.) Demographic Characteristics These characteristics include factors such as
age, gender, education, occupation, income etc. These variables are generally
used to cross-classify collected data. In this study, demographic variables have
been studied to determine whether or not they play a significant role in the
choice of investment avenues.

ii.) Attitude and Opinion Another important area of consideration in the
analysis done in this paper is if people possess certain predetermined
favourable or unfavourable attitudes towards certain investment options,
whether they look for any further factual information to reinstate their
opinions and what typically causes and what can change such attitudes to
widen investment options considered.

iii.) Knowledge and Awareness This part of the information looked for from
respondents is concerned with the level of awareness that people have and
care to obtain before making an investment decision.


21
3.3 Questionnaire Design
Although data was primarily collected through 10 to 12 minute interviews with various
respondents considering their unwillingness to fill up a questionnaire, a set of questions
typically asked during data collection process is attached at the end of the report as
Annexure 1.

The set of questions can be regarded as a structured-undisguised questionnaire
formulated to avoid information distortion and misstatement. The questionnaire clearly
states the purpose of the study and comprises of close-ended questions by-and-large
except the last one, thereby giving the respondent enough freedom to quote his exact
investment preferences.
3.3.1 Sample
To arrive at a more precise conclusion about investment preferences of people in Poona,
data was collected at various multiplexes on 1 weekday and 2 week-end days to ensure
various types of people residing in the city of Pune were covered. Thus, the various
research elements were
Sampling Element The sampling element comprises of people earning enough to visit
a multiplex for entertainment and educated sufficiently.

Population The population comprises of all educated and earning people who can be
met at a multiplex in the city of Pune.

Sampling Frame The sampling frame - a definition of elements or areas that can be
used for the sampling exercise - has been taken as the multiplexes in the city of Pune.
These multiplexes covered during the course of the project include E-Square, Inox and
Adlabs.

The methods of sampling used include both probability and non-probability based
sampling.

22
Probability Sampling A probability sample is chosen such that each member of the
universe has a known chance of being selected. The probability sampling techniques used
in this paper are given below.
Simple Random Sampling In simple random sampling, each member of the
population has a known and equal chance of being selected. A selection tool
frequently used with this type of sampling is a random number table.
Stratified Sampling

Non-Probability Sampling The non-probability sampling techniques used in this
paper are enlisted below.

Convenience Sampling In Convenience Sampling, the sample unit is chosen
primarily on the basis of the convenience to the investigator. Considering a mix of
people in various multiplexes in Pune like Inox, Adlabs and E-Square, data has
been collected form respondents in these areas so as to ensure coverage of a vast
population of respondents.

Sample Size Considering that all respondents met at the Sampling Frame may not
fit all the four demographic constraints employed, which include a certain level of
education to be able to classify under such category and employment, the following
formula is used to determine ideal sample size for the study.

n = p*q (Z / e)
2
Where,
n = Sample Size required to do the study
Z = Confidence Level desired for the research
p = Frequency of Occurrence of an event
q = (1 p) = Non-frequency of Occurrence
e = Tolerable Error


23
Thus, assuming that 1 out of every three people met at the Sampling Frame fits the
criteria of study; and confidence level desired is 90% (Z value equivalent of 1.64)
with 5% tolerable error,

p = 1/5; q = 1 1/5
= 4/5
Z = 1.96; e = 0.05
n = 174
Therefore, a sample size of 180 respondents has been taken into consideration to
conduct the study.
3.3.2 Hypothesis Test
The appropriate test for this research, considering the objective of determining
investment preferences relative to demographic variables appears to be Chi-Square
Test. It is a non-parametric test where the quantity,
2
is used to determine the
magnitude of discrepancy between theory and observation. It is defined as
2
= (O-E)
2

E
Where,
O = Observed Frequencies
E = Expected Frequencies

After cross-tabulating the data obtained, following steps are required to arrive at the
quantity of
2
.
i.) Calculation of Expected Frequencies using the equation
E = RT*CT
N
Where,
E = Expected Frequency
RT = Row Total of the row containing the cell
CT = Column Total of the column containing the cell

24
N = Total Number of observations
ii.) Calculation of difference in frequencies and obtaining the respective
values of (O-E)
2
.
iii.) Finally arriving at the value of
2
by dividing the differential values
obtained above with the respective expected frequencies. This value
ranges between zero and infinity. If
2
is zero, the observed and
expected frequencies completely coincide. The greater the discrepancy
between observed and expected frequencies, the greater is the value of
2
thus obtained.
iv.) The next step is to compare the value of
2
with the values given in the
2
tables for a given Degree of Freedom at a certain pre-determined
level of significance. If the given value of
2
is greater than the table
value of
2
, the discrepancy thus being measured is considered to be
significant and the null hypothesis is accepted. The computed value of
2
is a random variable which takes on different values from sample to
sample.
3.3.3 Degrees of Freedom
Degrees of Freedom refer to the number of classes to which values can be assigned
arbitrarily going by the various constraints set therein. Degrees of freedom can be arrived
at using the following equation
V = n k
Or, V = (r 1) (c 1)

Where,
V = Degrees of Freedom
n = Total Number of Observations
k = Number of Independent Constraints
r = Total number of Rows
c = Total number of Columns

Data Analysis and Interpretation

26
4. DATA ANALYSIS AND INTERPRETATION
This section deals with the analysis and interpretation of data collected for the purpose of
the study. The sample size for data collection has been around 180 based on the
appropriate formula for sampling to ensure a reasonably accurate and reliable analysis.
The break-up of sample based on income, spending pattern, investment preference etc is
given below.
4.1 Income Categorisation
The income categorisation of the sample studied has been done on annual basis on three
levels, less than Rs. 2 lakhs, between Rs. 2 lakhs and Rs. 5 lakhs and above Rs. 5 Lakhs.
The categorisation can be seen as follows
Income Group Number of People
<= Rs. 2 00 000 79
2 00 000 > x <= 5 00 000 60
> 5 00 000 41

4.2 Spending Pattern
The spending pattern of the population studied is tabulated below with maximum
expenditure on Savings and lowest on Entertainment.
Items %age
Food and Clothing 26%
Housing 5%
Saving 39%
Entertainment 3%
Education 8%
Miscellaneous 19%

Table 1
Table 2

27
4.3 Investment Preference
The investment preferences of the population studied and the number of people opting for
different investment vehicles therein can be seen as

Investment Avenues Preference
Bank Deposit 180
Shares 38
Mutual Funds 51
Insurance 180
PPF 180
Gold 56

4.4 Ranking of Investment Opportunities
Based on the above numbers of investors choosing different investment avenues,
following rankings can be arrived at
Investment Avenues Ranks
PPF 1
Bank Deposits 2
Insurance 3
Gold 4
Mutual Funds 5
Shares 6
Others 7

Table 3
Table 4

28
4.5 Relationship between Age and Securities Preference
Age Bank Deposit Shares Mutual Funds Insurance PPF Gold Total
< 35 101 (26.58%) 31 (8.15%) 30 (7.89%) 101 (26.58%) 101 (26.58%) 16 (4.21%) 380
> 35 79 (25.9%) 7 (2.29%) 21 (6.89%) 79 (25.9%) 79 (25.9%) 40(13.11%) 305

In both the age groups considered, the most opted for investment options are Bank
Deposits, Insurance and Public Provident Fund (PPF) largely because these are
considered to be relatively safer avenues. The Below 35 age group is seen to invest
more in Shares and Mutual Funds while the Above 35 age group is seen to invest
more in Gold and Jewellery.

4.5.1 Charts

Securities Preference by <= 35 Age Group
Bank Deposit
Shares
Mutual Funds
Insurance
PPF
Gold
Securities Preference by > 35 Age Group
Bank Deposit
Shares
Mutual Funds
Insurance
PPF
Gold
Table 5
Figure 1
Figure 2

29

4.5.2 Hypothesis Testing
Association between Age and Preference of Risky Securities
Let the Null Hypothesis (H
0
) be that there is no association between age and choice of
risky securities. Thus, the
2
value can be calculated and compared as follows.

Observed Values
Age Safe Securities Risky Securities Total
Below 35 303 77 380
Above 35 237 68 305
Total 540 145 685

Expected Values
Age Safe Securities Risky Securities
Below 35 540*380 / 685 = 298 145*380/685 = 81
Above 35 540*305/685 = 241 145*305/685 = 65

Thus,
2
value can be computed as
O E (O - E)
2
(O - E)
2
/ E
303 298 25 0.0839
77 81 16 0.1975
237 241 16 0.0664
68 65 9 0.1385
Total 0.4863

Degrees of Freedom can be arrived at using the following equation
V = (r 1) (c 1)
= 1 * 1 = 1
At 5% Confidence Level, that is, = 0.05, tabulated value of
2
is
2
= 0.4863

30

Since
2
Calculated
<
2
Tabulated
,
H
0
is accepted.

At 5% level of significance and Degrees of Freedom being equal to 1,
2
value is 3.84.
This value being clearly greater than the calculated value of 0.4863, it can be said that the
difference between theoretical values and observed values might have arisen due to
fluctuations of simple sampling and hence, is ignorable. Thus, the Null Hypothesis, H
0
, is
accepted and it can be said that there is no significant association between age and choice
of securities by an individual investor.

4.6 Relationship between Income and Securities Preference
Income Bank Deposit Shares Mutual Fund Insurance PPF Gold Total
< 2 Lakhs 79 (29%) 7 (2.56%) 15 (5.49%) 79 (29%) 79(28.94%) 14 (5.13%) 273
Between 2 & 5 Lakhs 60 (25.21%) 19(7.98%) 17 (7.14%) 60 (25.21%) 60 (25.21%) 22 (9.24%) 238
> 5 Lakhs 41 (23.56%) 12 (6.9%) 19 (10.91%) 41 (23.56%) 41 (23.56%) 20 (11.5%) 174

In all the three income groups considered, the most opted for investment options are
Bank Deposits, Insurance and Public Provident Fund (PPF) largely because these are
considered to be relatively safer avenues and do not require any continuous tracking and
movement of investments once made. The Below 2 Lakh income group is seen to limit
their investments to the three considerably safer avenues with minimal investments
elsewhere; the Between 2 and Lakh income group is seen to invest more in Gold after
the safer avenues; while the Above 5 Lakh income group is seen to be inclined
towards mutual funds and gold and Jewellery.

Table 6

31
4.6.1 Charts

Securities Preference by < 2 Lakhs Income Group
Bank Deposit
Shares
Mutual Fund
Insurance
PPF
Gold
Securities Preference by "Between 2 & 5
Lakh" Income Group
Bank Deposit
Shares
Mutual Fund
Insurance
PPF
Gold
Securites Preference by > 5 Lakh Income Group
Bank Deposit
Shares
Mutual Fund
Insurance
PPF
Gold
Figure 4
Figure 3
Figure 5

32
H0 = There is no association between income and choice of a risky investment

Observed Values
Income Safe Securities Risky Securities Total
< Rs. 2 Lakhs 237 36 273
Between 2 & 5 Lakhs 180 58 238
> Rs. 5 Lakhs 123 51 174
Total 540 145 685

Expected Values
Income Safe Securities Risky Securities
< Rs. 2 Lakhs 540*273/685 = 216 145*273/685 = 55
Between 2 & 5 Lakhs 540*238/685 = 185 145*238/685 = 51
> Rs. 5 Lakhs 540*174/685 = 136 145*174/685 = 36

Thus,
2
O E (O - E)
2
(O - E)
2
/ E
237 216 441 2.0417
36 55 361 6.5636
180 185 25 0.1351
58 51 49 0.9608
123 136 169 1.2426
51 36 225 6.25
Total 17.1938

V = (r 1) (c 1)
= 2*1 = 2


33
2
is
2
= 5.99

Since
2
Calculated
>
2
Tabulated
,
H
0
is rejected.

2
value is 5.99.
This value being clearly far less than the calculated value of 17.1938, it can be said that
the difference between theoretical values and observed values cannot have arisen due to
fluctuations of simple sampling and hence, there is significant association between the
variables considered viz. income level and choice of investment vehicle. Thus, the Null
Hypothesis, H
0
, is rejected.

4.7 Relationship between Gender and Securities preference
Gender Bank Deposit Shares Mutual Funds Insurance PPF Gold Total
Male 110 (27.5%) 29 (7.25%) 35 (8.75%) 110 (27.5%) 110 (27.5%) 6 (1.5%) 400
Female 70 (24.56%) 9 (3.16%) 16 (5.6%) 70 (24.56%) 70 (24.56%) 50 (17.54%) 285

The most opted for investment options among men and women are Bank Deposits,
Insurance and Public Provident Fund (PPF). After the safer avenues, men prefer to invest
in shares and mutual funds alike whereas the woman segment prefers to channelise their
investments towards gold and Jewellery among the risky securities.
4.7.1 Charts

Securities Preference by Males
Bank Deposit
Shares
Mut ual Funds
Insurance
PPF
Gold
Table 7
Figure 6

34

H0 = There is no association between Gender and choice of securities

Observed Values
Gender Safe Securities Risky Securities Total
Male 330 70 400
Female 210 75 285
Total 540 145 685

Expected Values
Gender Safe Securities Risky Securities
Male 540*400/685 = 316 145*400/685 = 85
Female 540*285/685 = 227 145*285/685 = 61

Thus,
2
O E (O - E)
2
(O - E)
2
/ E
330 316 196 0.6203
210 227 289 1.2731
70 85 225 2.6471
75 61 196 3.2131
Total 7.7536
Securities Preference by Females
Bank Deposit
Shares
Mutual Funds
Insurance
PPF
Gold
Figure 7

35
V = (r 1) (c 1)
= 1*1 = 1

2
is
2
Tabulated
= 3.84

Since
2
Calculated
>
2
Tabulated
,
H
0
is rejected.

2
value is 3.84.
This value being clearly less than the calculated value of 7.7536, it can be said that the
difference between theoretical values and observed values cannot have arisen due to
fluctuations of simple sampling and hence, there is a significant association between the
variables considered that is, Choice of investment vehicle by an investor and gender have
a high correlation. Thus, the Null Hypothesis, H
0
, is rejected.

4.8 Relationship between Education and Securities preference

Education Bank Deposit Shares Mutual Funds Insurance PPF Gold Total
Under Graduate 19 (25.33%) - 5 (6.67%) 19 (25.33%) 19 (25.33%) 13 (17.33%) 75
Graduate 67 (27.8%) 10 (41.49%) 16 (6.64%) 67 (27.8%) 67 (27.8%) 14 (5.81%) 241
Post Graduate 94 (25.47%) 28 (7.59%) 30 (8.13%) 94 (25.47%) 94 (25.47%) 29 (7.86%) 369

In all the three education groups considered, the most opted for investment options are
Bank Deposits, Insurance and Public Provident Fund (PPF) largely because these are
considered to be relatively safer avenues and do not require any additional effort and
movement of investments once made. The Under Graduate group is seen to invest
Table 9

36
substantially in Gold and not at all in shares which might be attributed to their lack of
understanding of the prices and movements therein; the Graduate group is seen to
invest more in Shares after the safer avenues; while the Post Graduate group is seen to
be inclined towards mutual funds, shares and gold and Jewellery alike.

4.8.1 Charts

Securities Preferene by Graduates
Bank Deposit
Shares
Mutual Funds
Insurance
PPF
Gold
Securities Preference by Post Graduates
Bank Deposit
Shares
Mutual Funds
Insurance
PPF
Gold
Securities Preference by Under Graduates
Bank Deposit
Mutual Funds
Insurance
PPF
Gold
Figure 8
Figure 9
Figure 10

37
H
0
= There is no association between Education and choice of securities

Observed Values
Education Safe Securities Risky Securities Total
Under Graduate 57 18 75
Graduate 201 40 241
Post Graduate 282 87 369
Total 540 145 685

Expected Values
Gender Safe Securities Risky Securities
Under Graduate 540*75/685 = 60 145*75/685 = 16
Graduate 540*241/685 = 190 145*241/685 = 52
Post Graduate 540*369/685 = 291 145*369/685 = 79

Thus,
2
O E (O - E)
2
(O - E)
2
/ E
57 60 9 0.15
201 190 121 0.6368
282 291 81 0.2784
18 16 4 0.25
40 52 144 2.7692
87 79 64 0.8101
Total 4.8945

V = (r 1) (c 1)
= 2*1 = 2


38
2
is
2
Tabulated
= 5.99

Since
2
Calculated
<
2
Tabulated
,
H
0
is accepted.

2
value is 3.84.
This value being clearly less than the calculated value of 7.7536, it can be said that the
difference between theoretical values and observed values might have arisen due to
fluctuations of simple sampling and hence, there is no significant association between the
variables considered that is, Choice of investment vehicle by an investor and gender have
a high correlation. Thus, the Null Hypothesis, H
0
, is accepted..

4.9 Reasons for Preferences
4.9.1 Bank Deposits
Reasons for preferring bank deposits by people were found to be the following
1. Safety of money
2. Bank Deposits cultivate the habit of saving among people
3. Overdraft facility
4. Banks collect cheques, drafts, bills of exchange etc on behalf of the customer
5. Convenience of making payment
6. Valuable articles can be deposited in bank custody

4.9.2 Shares
1. High rate of return
2. Jumping on the flourishing market band wagon
3. Shares have a nominal stated value or a par value. The par value of an equity
share indicates the amount of capital originally subscribed by the shareholders.
New shares cannot be sold for less than par value. If equity shares are sold for
more than par value, the excess is transferred to share premium account.

39

4.9.3 Mutual Funds
Investment in mutual funds is preferred due to the following main reasons.
1. Mutual Funds are expected to provide higher returns to the investors as compared
to direct investment because of professional management, economies of scale and
reduced risk.
2. Mutual Funds also provide certain tax benefits. Thus, tax liabilities of investors
are reduced considerably.
3. They also provide liquidity advantage, that is, investments made in Mutual Funds
can be converted back into cash easily.
4. Mutual Funds also provide flexible investment plans to its subscribers such as
regular investment plans and dividend reinvestment plans.

4.9.4 Insurance
Insurance is largely preferred for the following reasons:
1. Insurance provides a cover against various possible losses, thereby serving as a
means to secure future under any circumstances.
2. The amount paid as a premium on life insurance policy is allowed as a deduction
from income tax. Thus, it serves as a tax saving instrument.
3. It provides easy exit and can be surrendered any time.

4.9.5 Public Provident Fund
Public Provident Fund, popularly known as PPF, is a savings cum tax saving instrument.
It also serves as a retirement planning tool for many of those who do not have any
structured pension plan covering them. On 1st July, 1968, a new fund called Public
Provident Fund (PPF) was started so that salaried people could enjoy the benefits after
retirement and earn a rebate under income tax act. PPF account is opted by investors for
largely the following reasons
Retirement planning tool
Section 88 rebate under the Income Tax Act

40
No additional effort required in tracking the investments and their movement

4.9.6 Gold
Considering that most investors preferring to purchase gold and jewellery (not including
bullion trade) are from the woman segment, it can probably be concluded that these are
not really treated as investments but are of pure ornamental value. Although the study
conducted does not reveal any reasons on investment preference in gold.

Findings

40
5. FINDINGS
5.1 Salaried class people prefer to invest in safer securities for assured returns
A major reason seen towards this trend is that investing in the safer investment
avenues considered for this study does not require any additional time or effort in
keeping a track of investments therein. Also, apart from the ease in operating in
these investment vehicles, there is practically no fluctuation other than the
periodic interest payments. Thus, there is little likelihood of losing money
invested in these vehicles.

5.2 Preference in Safer securities is also due to lack of effort in tracking the
investments and moving them between different investment vehicles from time to
time.

5.3 People generally prefer securities which provide tax benefits to them.
A major reason for investments seen during the course of the study conducted is
also that people look for investment vehicles that provide them with long term
planning of funds and income tax rebates. Therefore, one of the most popular
investment vehicles is the Public Provident Fund or PPF.

5.4 There is no significant difference between education and securities preference
Although on the surface, it looks like people decide their investment vehicles
based on their understanding of the complexity of different vehicles therein, the
study revealed that there is little, if not none, association between investor
education and securities preference. For most investors, it is merely a decision of
how much effort it requires to have their investments bear fruit in the long run.

5.5 Gender affects the choice of investment avenues substantially with women
preferring more investment towards the safer securities.

Findings

41
5.6 Earning capacity is also directly proportional to risk associated with investment
options preferred. That is, higher earning people prefer to invest in more risky
securities.

5.7 Among the demographic variables studied viz., Age, Income, Education and
Gender, only Income and Gender impact the choice of investment vehicles while
Age and Education do not play a significant role therein.
Limitations

42
6. LIMITATIONS
The major limitations of the study can be cited as the following
6.1 The study carried out is based on a sample size of 180 respondents which include
a mix of different educational backgrounds, earning capacities and genders, thus
limiting the population studied. Although ideal sample size has been arrived at
with careful calculations, certain assumptions have been made which might have
slightly affected results.

6.2 A major limitation of the project is that it is very difficult to verify results.
Replication of same project on the same respondents may produce different
results.

6.3 Since the entire reliance of this study is on the data obtained by respondents, it is
largely molded to the information shared by these respondents, irrespective of the
truth element in it, which is not verifiable.

6.4 Considering the limited time frame available for completion of the study, a larger
sample size or frame could not be studied.

6.5 The project has been very time-consuming and expensive owing to the large
distances that had to be traveled.

Conclusion

43
7. CONCLUSION

This study was undertaken to know and examine the various investment opportunities
and the investment preference of salaried people. In the present scenario, saving has
become the buzzword with 39% of the total investments going in for saving. This might
be due to increased consumer desire for newer products, social status and acceptability
and increasing buying demand.

However, considering the high percentage of savings among middle class, salaried
people, a key objective of this study was to determine how are these savings channelised
towards various investment avenues and which are the various demographic variables
that impact this choice.

Amazingly, although it looks like education and awareness play a major role in the
choice of an investment vehicle, it turned out that out of the demographic variables
considered for the study, only income and gender impact the said choice. Education and
Age group does not have a significant impact on the choice of investment vehicle. It also
turned out that while women prefer the safer avenues to invest viz., Bank Deposits,
Insurance and Public Provident Fund, they do also invest substantially in Gold and
Jewellery and for not so much as bullion trade than for its ornamental value.

The investment trend in mutual funds higher up the income group was seen to be inclined
towards Mutual Funds and the highest investment in shares was seen at the income group
comprising of people earning between Rs. 2 to 5 Lakh per annum. This indicates that
investments in risky avenues depend on the level of income and higher up the income
ladder, the risk aversion increases.

Also, it was found that people are generally reluctant to put in additional efforts and time
in tracking their securities and moving them among different investment vehicles. Thus,
they prefer investing in avenues that provide them with long-term benefits and planning.
References

44
8. REFERENCES
8.1 Market Research Techniques and Ideas (www.maretresearchworld.net)
8.2 State Bank of Indias official website (www.statebank.com)
8.3Overview of various investment options and terminology
(www.investordictionary.com)
8.4 Class lectures and notes by Mr. S.K Vaze, Bank Management and Mr. Prantosh
Banerjee, Market Research
8.5 Marketing Research, An Applied Orientation Fourth Edition by Naresh K.
Malhotra
8.6 Marketing research, Text and Cases Second Edition by Rajendra Nargundkar
8.7 Primary Data collected through Extensive market research in the form of personal
interviews and questionnaires with various investors

Annexure

45
9. ANNEXURE
9.1 Questionnaire

I, Ridhi Dandona, am a student of MBA IV Semester at Symbiosis Institute of
Management Studies, Pune. I am undertaking a research study towards finding out
Investment Preference of Salaried People. The information provided by you in this
questionnaire shall be kept strictly confidential and shall not be used for any legal
purposes.

Name (Optional):

Age:

Gender: Male Female

Educational Qualification:
Under Graduate
Graduate
Post Graduate

Sector of Employment:
Public Sector Private Sector

Since when have you been employed?
0 to 5 years
5 to 10 years
10 to 15 years
Above 15 years

Annexure

46

Annual income:
Less than Rs. 2 Lakh
Between Rs 2 and 5 Lakh
Above Rs. 5 Lakh

How do you spend your salary?
(Kindly give an approximate percentage break-up)
Food and Clothing ______ Entertainment ______
Housing ______ Education ______
Saving ______ Miscellaneous ______

What is your estimated level of annual saving?
Less than Rs. 25 000
Rs. 25 000 to Rs. 50 000
Rs. 50 000 to Rs. 1 00 000
Above Rs. 1 00 000

Where do you prefer to invest?
Bank Deposits PPF/NSC
Shares Gold
Mutual Funds Insurance
Any Others, please Specify ________________

Rank the following investment opportunities as per your preference:
Bank Deposits _____ PPF/NSC_____
Shares _____ Gold _____
Mutual Funds _____ Insurance_____
Any Other _____
Annexure

47

What are the reasons for preferring the above choice(s) of investment?
Bank Deposits ____________________________________________
________________________________________________________
Shares___________________________________________________
________________________________________________________
Mutual Funds_____________________________________________
________________________________________________________

Insurance ________________________________________________
________________________________________________________

PPF/NSC________________________________________________
________________________________________________________

Gold____________________________________________________
________________________________________________________

Any Other_______________________________________________
________________________________________________________

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