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Abstract:
Every individual is different from others due to various factors which include
demographic factors, age, race and sex, education level, social and economic
background; same is the situation with the investors. The most critical challenge
faced by them is the investment decision; they act in a rational manner and usually
follow their instincts and emotional biases while making investment decisions. The
investigation of previous studies reveals the importance of various psychological
factors which affect their investment decision. Keeping this in view, a study model
has been developed to describe the impact of risk propensity, asymmetric information
and problem framing on investors behavior while making decisions through the
mediating role of risk perception; also it determines how much weight is attached to
each independent variable by the investors when they make their decisions. Overall
discussion concludes that the investors behavior depends on how the available
information is being presented to them and how much they are prone to taking risk
while making decisions; thus playing a significant role in determining the investment
style of an investor.
Key words: Risk
INTRODUCTION
In present day behavioral finance is becoming an integral part of decision making because it greatly
influences investors behavior regarding decision making process.
An investor is affected by various psychological and demographic factors while making investment
so a proper understanding of them and by what magnitude it effects is important. Better
understanding of behavioral finance will help the investors to select a better investment option.
The purpose of the analysis is to determine the investment behavior of investors and investment
preferences for the same. Investors perception will provide a way to accurately measure how the
investors think about the products and services provided by the company. Todays trying economic
conditions have forced difficult decisions for companies. Most are making conservative decisions
that reflect a survival mode in the business operations. During these difficult times, understanding
what investors on an ongoing basis is critical for survival. Executives need a third party
understanding on where investors loyalties stand. More than ever management needs ongoing
feedback from the investors, partners and employees in order to continue to innovate and grow.
The main objective of the project is to find out the needs of the current and future investors.
For this analysis, customer perception and awareness level will be measured in important areas such
as:
To find out how investors get information about the various financial instruments.
The duration for which they would prefer to keep their money invested.
To know the risk tolerance level of the individual investor and suggest a
suitable portfolio.
.Literature Review:
Literature suggests that major research in the area of investors behaviour has been done by
behavioural scientists such as Weber, Shiller and Shefrin. Shiller who strongly advocated that stock
market is governed by the market information which directly affects the behaviour of the investors.
Several studies have brought out the relationship between the demographics such as Gender, Age
and risk tolerance level of individuals. Of this the relationship between Age and risk tolerance level
has attracted much attention.
Horvath and Zuckerman suggested that ones biological, demographic and socioeconomic
characteristics; together with his/her psychological makeup affects ones risk tolerance level.
Malkiel suggested that an individuals risk tolerance is related to his/her household situation,
lifecycle stage and subjective factors. Mittra discussed factors that were related to individuals risk
tolerance, which included years until retirement, knowledge sophistication, income and net worth.
Guiso, Jappelli and Terlizzese, Bajtelsmit and VenDerhei, Powell and Ansic, Jianakoplos and
Bernasek, Hariharan, Chapman and Domain, Hartog, FerrerI Carbonell and Jonker concluded
that males are more risk tolerant than females.
Wallach and Kogan were perhaps the first to study the relationship between risk tolerance and age.
Cohn, Lewellen et.al found risky asset fraction of the portfolio to be positively correlated with
income and age and negatively correlated with marital status. Morin and Suarez found evidence of
increasing risk aversion with age although the households appear to become less risk averse as their
wealth increases. YOO found that the change in the risky asset holdings were not uniform. He
found individuals to increase their investments in risky assets throughout their working life time,
and decrease their risk exposure once they retire.
Lewellen et.al while identifying the systematic patterns of investment behaviour exhibited by
individuals found age and expressed risk taking propensities to be inversely related with major
shifts taking place at age 55 and beyond. Indian studies on individual investors' were mostly
confined to studies on share ownership, except a few. The RBI's survey of ownership of shares and
L.C. Gupta's enquiry into the ownership pattern of Industrial shares in India were a few in this
direction. The NCAER's studies brought out the frequent form of savings of individuals and the
components of financial investments of rural households. The Indian Shareowners Survey brought
out a volley of information on shareowners. Rajarajan V classified investors on the basis of their
demographics. He has also brought out the investors' characteristics on the basis of their investment
size. He found that the percentage of risky assets to total financial investments had declined as the
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investor moves up through various stages in life cycle. Also investors' lifestyles based
characteristics has been identified.
The above discussion presents a detailed picture about the various facets of risk studies that have
taken place in the past. In the present study, the findings of many of these studies are verified and
updated.
Research Methodology:
Sampling technique
Convenience sampling technique is used for collecting the data from different investors.
The investors are selected by the convenience sampling method. The selection of units from the
population based on their easy availability and accessibility to the researcher is known as
convenience sampling. Convenience sampling is at its best in surveys dealing with an
exploratory purpose for generating ideas and hypothesis.
Sampling unit:
The respondents are asked to fill out the questionnaires are the sampling units. These
comprise of employees of government employees, private employees, self employed,
professionals and other investors.
Sampling size:
The sample size is 60, which comprised of mainly people from different regions of Allahabad
and Lucknow due to time constraints.
Sampling area:
The area of the research is Allahabad and Lucknow.
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Primary Data:
Information is collected by conducting a survey by distributing a questionnaire to investors in
Lucknow and Allahabad. These 60 investors are of different age group, different occupation,
different income levels, and different qualifications. (A copy of the questionnaire is given in the last
as ANNEXURE 1).
Secondary data:
This is done through various research paper and journals.
Hypothesis:
Table 1:
PARAMETER
NO: OF
INVESTORS
PERCENTA
GE
GENDER
MALE
FEMALE
42
18
70%
30%
TOTAL
60
100%
AGE GROUP
BELOW 20
BETWEEN 20 30
BETWEEN 30 40
ABOVE 40
0
28
22
10
0%
46.67%
36.67%
16.66%
TOTAL
60
100%
QUALIFICATION
UNDER GRADUATES
GRADUATES
POST GRADUATES
OTHERS
0
31
20
9
0%
51.67%
33.33%
15%
TOTAL
60
100%
OCCUPATION
SALARIED
BUSINESS
PROFESSIONAL
HOUSE WIFE
RETIRED
40
10
10
0
0
66.67%
16.67%
16.66%
0%
0%
TOTAL
60
100%
ANNUAL INCOME
BELOW Rs. 2,00,000
Rs. 2,00,000
4,00,000
Rs. 4,00,000
6,00,000
ABOVE Rs, 6,00,000
0
21
30
9
0%
35%
50%
15%
TOTAL
60
100%
Table 1 shows that out of 60 respondents, 70 % are male because male are more dominant in
Indian family and take major investment decisions.
Major people whom I have surveyed are salaried class than business and lastly professionals.
When it comes to age major investors are of young age as compared to old. Major investors are
educated and thus more knowledgeable toward investment options.
Investors are of higher income group which give them the option of diversified investment and
thus analysis will be more wide and reliable.
3
57
5
95
TOTAL
60
100
Above table shows that 95% respondents are not willing to lose their principle amount thus
people are less prone to risk.
Table 2.2 TIME PERIOD PREFERED TO INVEST
PARAMET
ER
SHORT
TERM
MEDIM
LONG
TOTAL
NO OF INVESTORS PERCENTAGE
5
35
20
8.34
58.33
33.33
60
100
Major investors are mediocre investors and thus invest for a medium term investment to play
safe.
60
100
18
42
30
70
TOTAL
60
100
Generally people invest less in equity market as it requires more monitoring and its also volatile.
NO OF
INVESTORS
24
36
PERCENTAGE
40
60
TOTAL
60
100
As per above it can be interpreted generally people dont have a formal budget.
Table 2.6 INVESTMENT TARGET
PARAMETER NO OF INVESTORS PERCENTAGE
8
YES
NO
28
32
46.67
53.33
TOTAL
60
100
As per analysis generally people have less investment target as they dont have a formal budget.
Table 2.7 FINANCIAL ADVISOR
PARAMETER NO OF INVESTORS PERCENTAGE
YES
8
13.33
NO
52
86.67
TOTAL
60
100
People generally dont make investment using financial advisor as they do investment through
the advice of sociable factors.
RANKIN
G
1
EDUCATION
RETIREMENT
HOME PURCHASE
CHILDREN'S
MARRIAGE
14
10
8
2
3
4
OTHERS
TOTAL
60
It had been found major people do investment for the welfare of their family and than for
retirement benefits.
So it can be concluded that Indian mindsets is more prone to family welfare.
Table 3.2 PURPOSE BEHIND INVESTMENT
PARAMETER
WEALTH CREATION
TAX SAVING
EARN RETURNS
FUTURE
EXPENDITURE
TOTAL
9
WEIGHT
S
12
RAN
K
4
14
19
15
3
1
2
60
Above parameter show that major reason why people save is to get high return and also for tax
saving.
60
And when we talk about factor considering investment than the major important factor is safety
and risk as I have surveyed generally middle class population.
PARAMETER
NO: OF SALARIED
PERCENTA
GE
0
18
12
10
0%
45%
30%
25%
TOTAL
40
100%
QUALIFICATION
UNDER GRADUATES
GRADUATES
POST GRADUATES
OTHERS
0
19
15
6
0%
47.5%
37.5%
15%
AGE GROUP
BELOW 20
BETWEEN 20 30
BETWEEN 30 40
ABOVE 40
TOTAL
10
40
100%
ANNUAL INCOME
BELOW Rs. 2,00,000
Rs. 2,00,000
4,00,000
Rs.
4,00,000
6,00,000
ABOVE Rs, 6,00,000
0
16
20
4
0%
40%
50%
10%
TOTAL
40
100%
II.
Business:
PARAMETER
AGE GROUP
BELOW 20
BETWEEN 20 30
BETWEEN 30 40
ABOVE 40
TOTAL
QUALIFICATION
UNDER GRADUATES
GRADUATES
POST GRADUATES
OTHERS
TOTAL
ANNUAL INCOME
BELOW Rs. 2,00,000
Rs. 2,00,000
4,00,000
Rs. 4,00,000
6,00,000
ABOVE Rs, 6,00,000
TOTAL
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NO: OF BUSINESS
PERCENTA
GE
0
2
8
0
0%
20%
80%
0%
10
100%
0%
6
2
2
10
60%
20%
20%
100%
0
2
20%
4
4
10
40%
40%
100%
III.
PROFESSIONAL
PERCENTA
GE
BELOW 20
BETWEEN 20
30
BETWEEN
30
40
ABOVE
40
0
8
2
0
0%
80%
20%
0%
TOTAL
10
100%
QUALIFICATION
UNDER
GRADUATES
POST GRADUATES
OTHERS
0
6
3
1
0%
60%
30%
10%
TOTAL
10
100%
ANNUAL
INCOME
BELOW Rs.
2,00,000
Rs. 2,00,000
4,00,000
Rs. 4,00,000
6,00,000
ABOVE Rs,
6,00,000
TOTAL
0%
3
30%
6
1
60%
10%
10
100%
RANK
1
2
3
4
5
6
7
8
9
10
INVESTMENT
AVENUES
BANK FIXED
DEPOSITS
INSURANCE
13
REAL ESTATE
MUTUAL FUNDS
GOLD
EQUITY SHARES
CHIT FUNDS
POST OFFICE
SAVINGS
RANK
1
2
3
4
5
6
7
8
SAVINGS
ACCOUNT
NSC
9
10
TOTAL
INVESTMENT
AVENUES
BANK FIXED
DEPOSITS
INSURANCE
GOLD
REAL ESTATE
POST OFFICE
SAVINGS
SAVINGS
ACCOUNT
MUTUAL FUNDS
PPF
BONDS
GOVT SECURITIES
RANK
1
2
3
4
5
6
7
8
9
10
TOTAL
From the analysis it can be found that occupation derive your investment options and
ranking for we can clearly see that salaried business and professional have all together different
ranking for investments because they have different risk ranking and different income sources.
So here we can say that occupation and investment are positively related and they have a
profound effect on the investment pattern.
.
Table 6: Finding relationship between age group and level of risk tolerance
Table 6.1 risk tolerance of age group 20 30
PARAMETER
14
LEVEL OF
RISK
20 30 AGE GROUP
NO
OF
INVESTOR
PERCENTA
S
GE
LOW RISK
10
36%
MEDIUM RISK 12
HIGH RISK
6
TOTAL
28
43%
21%
100%
30 40 AGE GROUP
NO
OF
INVESTOR
PERCENTA
S
GE
LOW RISK
12
MEDIUM RISK 7
HIGH RISK
3
TOTAL
22
55%
32%
13%
100%
LEVEL OF
RISK
NO OF
INVESTORS
PERCENTAG
E
LOW RISK
70%
MEDIUM RISK 2
20%
HIGH RISK
10%
TOTAL
10
100%
From the analysis it can be seen that the age bracket 20-30 medium risk was high but as we see
when the age of respondent is increasing it is showing a fall in the medium risk in percentage term
but a high trend in the low risk category.
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And there is a high percentage in lower age group and vice versa. Like its 10 percent at the age
group above 60 and 21 percentage at the age group 20 to 30 age bracket.
From the above it can be concluded that age and risk have a negative relationship.
Karl Pearsons correlation coefficient is calculated, it is found to be 0.71 by which we can
conclude that there is a strong negative correlation between Age and Risk tolerance.
Benefit of study:
This study will be helpful in understanding investors behavior and will also help in devising
portfolio according to the need of investors keeping in mind the occupation and income factors into
consideration.
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Bibliography:
1. Chin, A.L.L., 2012. Psychological Biases and Investor Behavior: Survey Evidence from Malaysian Stock Market.
Book
1.
2.
3.
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