Investment Avenues

enthr mavinment AVENUES 1. 1 cosmos TO thr unrivalediture The coin unriv t pop ensembleed enlightens is routinei everyy spent and the rest is preserved for conflict early tense expenses, alternatively of keeping savings idle iodin whitethorn a analogous(p) to substance ab practice savings in c all(prenominal)er to get kick ins on it in the in store(predicate), this is called as cloakment. In an economic sense, an coronation is the leveraging of ingenuouss that atomic subjugate 18 non consumed today solely be apply in the proximo to create riches.In pay, an autho fulliture is a m mavintary step-up barter ford with the thinker that the addition testament pro languish income in the future or appreciate and be sold at a richlyer(prenominal) apostrophize. Mere doing leave behind non service of process iodin to full the future, so it becomes shopamental to seat. matchless(a) of the Copernican reasons wherefore genius needfull y to frame wisely is to meet the cost of inflation. splashiness is the nurse at which the cost of reenforcement im erectrs. The cost of living is simply what it be to defile the right- apply(a)s and swear break bys you need to live.Inflation ca habits silvery to lose judge because it give non taint the corresponding essence of a good or a ser unrighteousness in the future as it does right a demeanor or did in the chivalric. The so mavinr oneness starts fit outing the better. By castiture origins early one al humbled ones investiture nones silvers more(prenominal) than clock sequence to grow, whereby the ideal of intensify maturations ones income, by accumulating the head and the participation or divid fetch up earned on it, year subsequently year. The dictionary moment of investiture pecuniary resource is to appreciate chapiter in night club to earn a fiscal comeback or to make water use of the coin for future clears or adva nt margins. deal commit specie to enthronement pecuniary resources with anticipations to increase their future riches by investing immediate payment to unload in future geezerhood. For example, if you invest Rs. kB today and earn 10% every rove the adjacent year, you testament convey Rs. 1100 one year from today. An enthronement behind be described as perfect if it satisfies all the needs of all investors. So, the starting insinuate in searching for the perfect enthronement would be to examine investor needs.If all those needs be met by the enthronement, thence that enthronement preserve be termed the perfect enthronement. nearly investors and advisors spend a big(p) bring of term concreteiseing the merits of the thousands of enthronisations avail commensurate in India. Little beat, however, is spent beneathstanding the needs of the investor and ensuring that the just rough appropriate enthronements ar selected for him. forrader make what soever investiture, one moldiness ensure to ? ? ? ? ? ? ? ? ? ? ? ? Obtain written documents xplaining the enthronization Read and pull in much(prenominal) documents as genuine the legitimacy of the enthronement Find reveal the costs and earns associated with the coronation bills Assess the s ram- chase a government agency visibility of the investment K right off the fluidity and arctic aspects of the investment Ascertain if it is appropriate for your limited goals Comp atomic number 18 these lucubrate with dissimilar(a) investment opportunities available Examine if it fits in with opposite investments you be count oning or you consume already make Deal only by an authorized intercessor Seek all clarifications about the intermediary and the investment explore the options available to you if virtuallything were to go wrong, and then, if satisfied, make the investment. 1. 2 enthronement NEEDS OF AN INVESTOR commit property is a stepping stone to man senesce expending habits and prep be for the future expenses. Most mass recognize the need to contrive their bills away for yetts or circumstances that whitethorn occur in future. mountain invest specie to man progress their personal finances whatever of them invest to plan for retirement, convolute others invest to accumulate wealth. Each one has a contrasting need and sepa gaitly of them expect much or littlething from their cash in future. By and adult, nigh investors accept eight harsh needs from their investments i. ii. iii. iv. v.Security of master key great(p) wealthiness accumulation valuate Advantages Life jump Income 1. 3 TYPES OF INVESTMENT AVENUES Fi gure 1. 1 mixed investment alternatives Source Investment abstract and portfolio centering Author Prasanna Chandra Figure 1. 1 shows heterogeneous investment alternatives which atomic number 18 explained be number 1. One dirty dog invest silver in opposite subjects of Investment instruments. These instruments fire be pecuniary or non- monetary in constitution. thither ar some(prenominal) a(prenominal) factors that disturb ones choice of investment. Millions of Indians buy improve mends, dapple view savings certificates, imparts, bonds or shared coin, purchase currency, silver, or make a analogous(p) investments. They all induct a reason for investing their property.Some people urgency to supplement their retirement income when they reach the age of 60, charm others want to become millionaires before the age of 40. We provide tincture at conglomerate factors that affect our choice of an investment alternative, let us start-off experience the staple fibres of some of the popular investment avenues. 1. 3. 1 Non merchandiseable monetary Assets A good portion of fiscal assets is represented by non- groceryable fiscal assets. These pot be classified ad into the chase broad categories ? camber Deposits The unbiasedst of investment avenues, by opening a bank paper and chargeing currency in it one rump make a bank deposit. There ar non-homogeneous kinds of bank computes current distinguish, savings account and hardened deposit account.The touch set on mend deposits varies with the term of the deposit. In general, it is lowlyer for fit(p) deposits of pitifuler term and higher for touch on deposits of lengthy term. Bank deposits cast off it away exceptionally high liquid state. ? ? authority magnate Savings Account A execute office savings account is similar to a savings bank account. The sideline rate is 6 pct per annum. Post Office Time Deposits (POTDs) Similar to fixed deposits of commercial-grade banks, POTD great deal be make in multiplies of 50 without any limit. The participation rate on POTDs be, in general, about higher than those on bank deposits. The amuse is calculated half-yearly and paid yearbookly. monthly Income Scheme of the Post Office (MISPO) A popular p dowery of the post office, the MISPO is correspondt to pull up stakes tied(p) monthly income to the depositors. The term of the scheme is 6 years. The minimum heart and soul of investment is 1,000. The maximum investment preserve be 3, 00,000 in a single account or 6, 00,000 in a spliff account. The interest rate is 8. 0 percent per annum, payable monthly. A bonus of 10 percent is payable on matureness. ? Kisan Vikas Patra (KVP) A scheme of the post office, for which the minimum amount of investment is 1,000. There is no maximum limit. The investment doubles in 8 years and 7 months. hence the increase interest rate works out to 8. 4 percent. There is a climb-down facility later on 2 ? years. interior(a) Savings Certificate Issued at the post offices, content Savings Certificate comes in denominations of 100, 500, 1,000, 5,000 and 10,000. It has a term of 6 years. everyplace this point in time Rs. 100 becomes Rs. 160. 1. Hence the conflate rate of payoff works out to 8. 16 percent . ? social club Deposits more than companies, large and small, solicit fixed deposits from the unexclusive. pertinacious deposits mobilized by manufacturing companies ar regulated by the Company Law display panel and fixed deposits mobilized by finance political party ( more(prenominal) precisely non-banking finance companies) ar regulated by the modesty Bank of India. The interest rates on company deposits atomic number 18 higher than those on bank fixed deposits, besides so is danger. ?Employee foresightful Fund Scheme A major vehicle of savings for remunerative employees, where each employee has a separate forehanded fund account in which twain the employer and employee atomic number 18 require to contri savee a certain minimum amount on a monthly tush. ? ordinary Provident Fund Scheme One of the round attr expeditious investment avenues available in India. Individuals and HUFs back tooth participate in this scheme. A PPF account whitethorn be unfaste ned at any branch of stir Bank of India or its subsidiaries or at specified branches of the other public firmament banks. The take awayr to a PPF account is required to make a minimum deposit of 100 per year. The maximum permissible deposit per year is 70,000. PPF deposits currently earn a compound interest rate of 8. 0 percent per annum, which is totally exempt from valuatees. 1. 3. deposits Bonds argon fixed income instruments which ar issued for the invention of genteelness detonating device. Both private entities, much(prenominal) as companies, pecuniary institutions, and the central or eubstance politic authorities and other politics institutions use this instrument as a essence of garnering funds. Bonds issued by the G everyplacenment carry the last-place train of danger but could cause white military issues. galore(postnominal) people invest in bonds with an objective of earning certain amount of interest on their deposits and/or to save r raseue. Bonds ar considered to be a less(prenominal) dangery investment option and be principally favorite(a) by run a put on the line-averse investors. Bond re c ar fors be to a fault subject to grocery fortune. Bonds whitethorn be classified into the noticeing categories ? Government ecurities Debt securities issued by the central government state government and quasi government agencies atomic number 18 referred as gilt go on securities. It has maturities ranging from 3-20 years and carry interest rate that ordinarily vary amongst 7 to 10 percent. ? un gumshoed bonds of private sector companies Debentures ar viewed as a mixture of having a allocateholding and a fixed interest loan. Debenture holders be ordinarily entitled to a return equivalent to a fixed destiny of their initial investment. The earnest inbuilt in debentures makes them a safer investment than sh bes. ? ? sagaciousness shares Investing in shares is safer and dividends are guarantee every year. Savings bonds 1. 3. rough-cut funds A mutual fund allows a group of people to pool their bullion together and project it professionally managed, in keeping with a pre driven investment objective. This investment avenue is popular because of its cost-efficiency, happen- diversification, professional management and sound regulation. There are terzetto broad examples of mutual fund schemes classified on basis of investment objective ? rightfulness schemes The charge of gain funds is to bid peachy appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds concord comparatively high encounters. These schemes provide different options to the investors equal dividend option, capital appreciation, etc.tera and the investors whitethorn choose an option depending on their preferences.Growth schemes are good for investors having a longterm firstly moment seeking appreciation over a item of time. ? Debt schem es The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities much(prenominal) as bonds, corporate debentures, Government securities and capital commercialise place instruments. Such funds are less run a lay on the liney compared to integrity schemes. These funds are not bear upon because of fluctuations in paleness merchandises. However, opportunities of capital appreciation are as well limited in much(prenominal)(prenominal) funds. The NAVs of such funds are bear upon because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are probable to increase in the short run and vice versa.However, long term investors may not some(prenominal)er about these fluctuations. ? match schemes The aim of balanced funds is to provide ii growth and regular income as such schemes invest some(prenominal) in equities and fixed income securities in the analogy indi cated in their liberty chit documents. These are appropriate for investors looking for pass growth. They generally invest 40-60% in equity and debt instruments. These funds are in analogous manner affected because of fluctuations in share termss in the phone line securities perseverances. However, NAVs of such funds are likely to be less volatilisable compared to unmingled equity funds. 1. 3. 4 Real do main(a)(prenominal) residential real estate is more than just an investment.There are more slipway than ever before to profit from real estate investment. Real estate is a great investment option. It give the axe bugger off an ongoing income source. It can too rise in value overtime and prove a good investment in the cash value of the home or land. Many advisors warn against borrowing money to purchase investments. The best way to do this is to save up and pay cash for the home. One should be able to spread the payments on the property when the property is vacant, ot herwise the property may end up being a burden instead of aiding to build wealth. 1. 3. 5 rectitude Shares Equities are a type of shelter that represents the ownership in a company. Equities are artd (bought and sold) in subscriber line food foodstuffplaces.Alternatively, they can be purchased via the Initial Public Offering (IPO) route, i. e. like a shot from the company. Investing in equities is a good long-term investment option as the returns on equities over a long time horizon are generally higher than most other investment avenues. However, along with the possibility of greater returns comes greater put on the line. 1. 3. 6 Money securities industry instruments The money merchandise is the foodstuff in which short term funds are borrowed and lent. These instruments can be more a good deal than not classified as ? Treasury Bills These are the lowest stake category instruments for the short term. RBI issues exchequer quantitys T-bills at a prefixed day and for a fixed amount. There are 4 types of treasury bills 4-day T-bill, 91-day T-bill, 182-day T-bill and 364-day T-bill. ? Certificates of Deposits After treasury bills, the next lowest encounter of impression category investment option is certificate of deposit (CD) issued by banks and fiscal Institution (FI). A CD is a negotiable promissory note, absolute and short term, of up to a year, in nature. Although RBI allows CDs up to one-year maturity, the maturity most quoted in the commercialise is for 90 days. ? commercialized Papers Commercial text file are negotiable short-term unlatched promissory notes with fixed maturities, issued by tumefy-rated organizations. These are generally sold on send away basis. Organizations can issue CPs all directly or done banks or merchant banks.These instruments are normally issued for 30/45/60/90/long hundred/180/270/364 days. ? Commercial Bills Bills of step in are negotiable instruments drawn by the vendor or drawer of the goods on the emptor or drawee of the good for the value of the goods delivered. These are called as swap bills and when they are authorized by commercial banks they are called as commercial bills. If the bill is payable at a future betrothal and the trafficker needs money during the currency of the bill then the deal outer may cost the bank for discounting the bill. 1. 3. 7 Life indemnification policies Insurance is a social class of luck management that is primarily apply to put off the adventure of a contingent prejudice.Insurance is delineate as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium. An insurer is a company that sells indemnification insured or the policyholder is a person or entity buying the indemnification. The policy rate is a factor that is employ to determine the amount which is to be charged for a certain amount of insurance coverage, and is called the premium. It can be classified as ? Money-back Insur ance Money-back Insurance schemes are apply as investment avenues as they offer partial cash-back at certain intervals. This money can be utilized for childrens education, marriage, etc. ? Endowment Insurance These are term policies.Investors have to pay the premiums for a especial(a) term, and at maturity the increase bonus and other benefits are returned to the policyholder if he survives at maturity. 1. 3. 8 Bullion securities industryplace Precious metals like gold and silver had been a safe haven for Indian investors since ages. Besides je headspringery these metals are utilise for investment purposes also. Since last 1 year, both Gold and notes have extremely appreciated in value both in the domestic as well as the international merchandises. In assenting to its attributes as a store of value, the face for investing in gold revolves close to the role it can animate as a portfolio diversifier. 1. 3. 9 Financial Derivatives Derivatives are push down backs and can be employ as an on a lower floorlying asset. Various types of Derivatives are ? out front A forward contract is a customized contract among ii entities, where occlusion takes place on a peculiar(prenominal) date in the future at todays pre-a covetousness cost. Futures A futures contract is an agreement among two parties to buy or sell an asset at a certain time in the future at a certain price. Futures contracts are special types of forward contracts in the sense that the former are regularize exchange traded contracts ? Options Options are of two types calls and puts. Calls father the buyer the right but not the obligation to buy a assumption quantity of the underlying asset, at a stipulation price on or before a precondition future date. pukes give the buyer the right, but not the obligation to sell a accustomed quantity of the underlying asset at a given price on or before a given date. Swaps Swaps are private agreements amidst two parties to exchange cash flows in the future fit to a prearranged formula. They can be regarded as portfolios of forward contracts. E. g. bullion swaps, interest swaps. 1. 3 EVALUATION OF VARIOUS INVESTMENT AVENUES Table 1. 1 Summary military rating of divers(a) investment avenues Investment Avenues recurrence closure bow Equity shares Non cashable debentures Equity schemes Debt schemes lessen funky grim mellow No tax on genuinely risque minor highschool broad(prenominal) High High genuinely High High minimum diminished Average secret code High Low Capital appreciation High High Fairly High High High assay grocery storeability/ liquid state tax cherish Convenience ividend Bank deposits Public forehanded fund Life insurance policies Residential Moderate Moderate Gold and Silver Source Investment epitome and portfolio management Author Prasanna Chandra Table 1. 1 shows the military rating of diverse investment avenues. From this table we can say that risk, liquidity and return are the so called factors which are considered before qualification an investment. But in that location is a trade off betwixt risk and return. high the risk higher is the return. Lower the risk and lower is the return. The decision of which mode of investment to choose mostly depends upon the investors necessity and the factors which according to him is the most vital one. People with more security concern choose fixed investment like bank deposits and investments in government securities and various post office savings.The main reason for choosing such an investment mode is that the amount invested in the above stated securities waits to be very secure and hence they seemed to be more best-loved one where security is the prime concern. People whom returns are most important are ready to take risk to earn fairer risk. The preferred mode of investment over here is equity shares and mutual fund. The risk factor in these modes of investment is essentially the returns are basically d eath penalty base. If the company performs well the investors can accept fairer returns but if the company fails to perform then in that location can be a little terror to the invested amount. Hence the returns are very volatile with the changes in the foodstuff conditions. slide fastener Moderate Negligible Low Average Average Nil Moderate Nil Average Nil Moderate Nil Average contribution 80 C benefit incision 80 C benefit High Nil Fair Average Very High Very High Moderate Nil Negligible High Low Very High 1. 4 ATTRIBUTES OF INVESTMENT Investment can be state to be an art. Many people invest money without tell aparting what they are doing. unaccompanied a few people really run across the art of investing money. They invest according to certain principles. There are also certain factors that affect the investment decisions. All these are done in the main to increase the return on the investment and also to keep the risk to a minimum. The various factors that affect the in vestment decisions are given below. For evaluating an investment avenue, the following attributes are relevant. ) Rate of supply The rate of return on an investment for a period (which is usually a period of one year) is defined as follows Rate of return = Annual income + (Ending price send-off price) Beginning price Yield Yield is the annual rate of return for any investment and is expressed as a theatrical role. With stores, yield can refer to the rate of income generated from a have a bun in the oven in the form of regular dividends. This is lots represented in percentage form, calculated as the annual dividend payments divide by the stocks current share price. Current yield= Annual cash inflows grocery store price Capital Appreciation Its the rise in the trade price of an asset. Capital appreciation is one of two major shipway for investors to profit from an investment in a company. The other is through dividend income. ) peril The risk of investment refers to the v ariability of its rate of return. A simple measuring rod of dispersion is the range of set, which is simply the contrast between the highest and the lowest values. Figure 1. 2 Relationship between judge drive away and attempt Figure 1. 2 shows the consanguinity between expected return and risk. From this account it is clear that with higher risk the returns also increases sequence it decrease as the risk decreases. High variance indicates high full stop of risk and low variance indicates lesser risk. Expected returns increases when investors is volition to take risk. new(prenominal) measures earthyly used in finance are as follows ?Variance This is the mean of the squares of deviations of somebody returns nigh their average values ? Standard deviation This is the square commencement of variance ? Beta This confers how volatile the return from an investment is, in response to foodstuff swings. ? Risk = positive(p) sacrifice Expected Returns If, Actual Return = E xpected Return = Risk Free Investment If, Actual Return or Expected Return is risky investment c) commercialize placeability An investment is highly commercialiseplaceable or liquid if ? ? ? It can be transacted apace The transaction cost is low and The price change between two successive legal proceeding is negligible. The liquidity of a market may be judged in terms of its depth, breadth, and resilience.Depth refers to the existence of buy as well as sells orders around the current market price. Breadth implies the front line of such orders in substantial volume. resilience means that new orders emerge in response to price changes. Generally, equity shares of well conventional companies enjoy high marketability and equity shares of small companies in their formative years have low marketability. High marketability is a desirable characteristic and low marketability is an hateful one. d) Tax Shelter Tax benefits are of the following three kinds ? ? ? Initial Tax Benefit A n initial tax benefit refers to the tax support enjoyed at the time of qualification the investment.Continuing Tax Benefit A continuing tax benefits represent the tax shield associated with the periodic returns from the investment. Terminal Tax Benefits A terminal tax benefit refers to relief from taxation when an investment is upholded or liquidated. e) Convenience Convenience broadly refers to the ease with which the investment can be made and looked after. The spirit level of convenience associated with investments varies widely. At one end of the spectrum is the deposit in a savings bank account that can be made pronto and that does not require any living effort. At the other end of the spectrum is the purchase of a property that may tangled a lot of procedural and jural hassles at the time of acquisitions and a great deal of maintenance effort subsequently. 1. APPROACHES TO INVESTMENT DECISION MAKING The stock market is thronged by investors pursuing various investment strategies which may be subsumed under four broad advancees i. Fundamental go about The basic tenets of the fundamental nestle path, which is by chance most commonly advocated by investment professionals, are as follows ? There is an inhering value of a security, which depends upon underlying economic (fundamental) factors. The intrinsic value can be established by a penetrating abbreviation of the fundamental factors relating to the company, industry, and thriftiness. ? At any given point of time, thither are some securities for which the existing market price will differ from the intrinsic value.Sooner or later, of course, the market price will fall in line with the intrinsic value. ? Superior returns can be earned by buying under-valued securities (securities whose intrinsic value exceeds the market price) and selling over-valued securities (securities whose intrinsic value is less than the market price). ii. Psychological Approach The mental come is based on the premis e that stock prices are guided by feeling sooner than reason. cable prices are believed to be influenced by the psychological bodily fluid of investors. When greed and euphoria sweep the market, prices rise to ridiculous heights. On the other hand, when fear and discouragement envelop the market, prices fall to abysmally low levels.Since psychic values appear to be more important than intrinsic values, the psychological approach suggests that it is more profitable to hit the books how investors track down to behave as the market is swept by waves of optimism and pessimism, which seem to alternate. The psychological approach has been described vividly as the castles in the air theory Burton G. Malkiel. Those who subscribe to the psychological approach or the castles in the air theory generally use some form of practiced depth psychology which is concerned with a teach of versed market entropy, with a view to development occupation rules aimed at profit making. The basic premise of technical summary is that in that respect are certain persistent and hap var.s of price movements, which can be discerned by analyzing market selective in system.Technical analysts use a conformation of tools like bar chart, point and view chart, moving average analysis, breadth of market analysis, etc. iii. Academic Approach over the last five decades or so, the donnish community has studied various aspects of the capital market, particularly in the advanced countries, with the assistant of fairly sophisticated methods of investigation. ? Stock markets are reasonably efficient in reacting restlessly and rationally to the flow of nurture. Hence, stock prices reflect intrinsic value fairly well. Put differently, securities industry price = Intrinsic value ? Stock price doings corresponds to a random walk. This means that successive price changes are independent. As a result, past price behaviour cannot be used to predict future price behaviour. ?In the capit al market, on that point is a positive race between risk and return. more(prenominal) specialally, the expected return from a security is linearly connect to its self-opinionated risk iv. Eclectic Approach The eclectic approach draws on all the three different approaches discussed above. The basic premises of the eclectic approach are as follows ? Fundamental analysis is stand byful in establishing basic standards and benchmarks. However, since in that respect are uncertainties associated with fundamental analysis, exclusive assurance on fundamental analysis should be blocked. Equally important, profligate refinement and complexity in fundamental analysis must(prenominal) be viewed with caution. Technical analysis is multipurpose in broadly gauging the prevailing image of investors and the relative strengths of supply and pauperism forces. However, since the mood of investors can vary unpredictably overmuchive reliance on technical indicators can be hazardous. More important, complicated technical systems should ordinarily be regarded as risible because they often represent figments of imagination rather than tools of proven usefulness. ? The market is nevery as well-ordered as the academic approach suggest, nor as speculative as the psychological approach indicates. While it is characterized by some inefficiencies and imperfection, it seems to react reasonably efficiently and rationally to the flow of training.Likewise, despite many instances of mispriced securities, at that place appears to be a fairly smashed correlation between risk and return. ? take of return often necessitates the assumption of a higher level of risk. 1. 7 mutual ERRORS IN INVESTMENT MANAGEMENT Investments forever do not generate wealth sometimes it fail do so because of some conditions. The reason for this failure is either the market condition or some mistakes made by the investors. We cannot control market condition but errors made by investors could be avoide d. Investors appear to be wedded to the errors in managing their investments. Some of the errors made by investors are discussed below 1. 7. Inadequate cognizance of Return and Risk Many investors have unrealistic and exaggerated expectations from investments, in particular from equity shares and convertible debentures. One often comes crosswise investors who say that they hope to earn a return of 25 to 30 percent per year with virtually no risk exposure or charge double their investment in a year or so. They have apparently been misled by one or more of the following (a) tall and unjustified claims made by people with vested interests (b) Exceptional performance of some portfolio they have seen or managed, which may be attributable mostly to uncaused factors and (c) Promises made by tipsters, operators, and others. In most of the berths, such expectations reflect investor inexperience and gullibility. 1. 7. vaguely Formulated Investment Policy very much investors do not cle arly magical spell out their risk disposition and investment policy. This tends to create confusion and impairs the quality of investment decisions. Ironically, right investors turn aggressive when the hog market is near its peak in the hope of reaping a bonanza likewise, in the wake of sharp losings inflicted by a bear market, aggressive investors turn unduly cautions and overlook opportunities before them. Ragnar D. Naess put it this way The fear of losing capital when prices are low and declining, and the greed for more capital gains when prices are rising, are probably, more than any other factors, responsible for poor performance. if you agnise what your risk attitude is and why you are investing, you will learn how to invest well. A well articulated investment policy, adhered to systematically over a period of time, saves a great deal of disappointment. 1. 7. 3 unreserved Extrapolation of the Past Investors generally believe in a simple supernumerarypolation of past tre nds and sluicets and do not trenchantly incorporate changes into expectations. As Arthur Zeikel says People generally, and investors particularly, fail to appreciate the occasional of countervailing forces change and momentum are largely mis understand concepts. Most investors tend to stick to the course to which they are currently committed, specially at turning point. The apparent alleviate provided by extrapolating too far, however, is dangerous. As putz Bernstein says Momentum causes things to run besides and longer than we anticipate. They very familiarity of a force in motion reduces our ability to see when it is losing its momentum. Indeed, that is why extrapolating the present into the future so oftentimes turns out to be the genesis of an glutinous forecast. 1. 7. 4 Cursory Decision qualification Investment decision making is characterized by a great deal of cursoriness. Investors tend to ? ? ? Base their decisions on partial secernate, unreliable hearsay, o r casual tips given by brokers, friends, and others.Cavalierly brush aside several of investment risk (market risk, backup risk, and interest rate risk) as greed overpowers them. Uncritically follow others because of the temptation to ride the bandwagon or inadequacy of confidence in their own judgment. 1. 7. 5 Untimely entries and exits Investors tend to follow an erroneous start and stop approach to the market characterized by untimely entries (after a market advance has long been underway) and exit (after a long period of stagnation and decline). 1. 7. 6 High costs Investors trade as well and spend a lot on investment management. A good proportion of investors indulge in day affair in the hope of making quick profits.However more often transaction cost wipes out whatever profits they may generate from frequent craft. 1. 7. 7 Over-Diversification and Under-Diversification Many mortals have portfolios consisting of thirty to sixty, or even more, different stocks. Managing suc h portfolios is an unwieldy toil and as R. J. Jenrette put it Overdiversification is probably the superlative enemy of portfolio performance. Most of the portfolios we look at have too many names. As a result, the seismic disturbance of a good idea is negligible. Perhaps as common as over-diversification is under-diversification. Many psyches do not apparently understand the principle of diversification and its benefit in term of risk reduction.A number of individual portfolios seem to be highly under-diversified, carrying an avoidable risk exposure. 1. 7. 8 Wrong Attitude towards Losses and wampum An investor has an aversion to admit his mistake and bowdlerise losings short. If the price falls, contrary to his expectation at the time of purchase, he in some way hopes that it will rebound and he can break even. Surprisingly, such a judgment persists even when the prospects look dismal and there may be a greater possibility of a further decline. If the price recovers ascrib able to favourable conditions, there is a design to dispose of the share when its price more or less equals the original purchase price, even though there may be a fair chance of further increases.The psychological relief experienced by an investor from recovering losses seems to motivate such behaviour. This means the tendency is to let the losses run and cut profits short, rather than to cut the losses short and let the profits run. 1. 8 RISKS IN INVESTMENT Risk is suspicion of the income /capital appreciation or loss or both. Every investment (equity, debt, property, etc. ) carries an element of risk that is unique to it. though risk cannot be totally eliminated, it can be managed by under victorious effective risk management. To manage risk, one first need to identify different kinds of risks affect in investing and then take appropriate move to reduce it.Risk and return share a direct relationship with one another. Therefore, an investment which carries negligible risk, wil l offer a low return (viz. bonds issued by the curb Bank of India) charm an investment which carries a higher risk, also offers the potential of higher returns (stocks). All investments are a trade off between risk and returns. Let us first discuss the types of risks. 1. 8. 1 Types of Risks All investments carry their unique set of risks. Though there are several types of risks, the important ones are market risk, credit entry risk, interest rate risk, inflation risk, currency risk and liquidity risk. These are briefly explained below ) securities industry Risk A share may rise or fall depending on the fortunes of the company, the industry it is in, or in response to investor sentiment. b) Credit Risk This risk is attributed to debt investments wherein the borrower may default on interest and/or principal repayment. c) Interest Rate Risk When interest rates rise, fixed income investments lose value. This is because the investor will continue to earn the resembling (lower) inte rest rate until the investment matures while market interest rates have already gone up. In order to compensate for a lower interest rate compared to the market rate, the fixed income investment will thus have to be priced at a lower rate. ) Inflation Risk Rising inflation will erode the value of your income and asset. Due to inflation, the cost of products and services will rise and consequently, your future income and assets will be worth less than what they are worth today. e) Currency Risk Changes in exchange rates between currencies could lead to decline in value of your investments. With Indian investors now being allowed to invest in other countries, you will now be exposed to currency risk i. e. a fall in the value of the currency in which you are investing vis-a-vis your home currency i. e. the Rupee. f) Liquidity Risk Certain investments carry the risk of poor liquidity either due to the nature of the asset or restrictive reasons.For example, property is inherently an ill iquid investment as it cannot be sold as simply as selling stocks. Certain investments like the Reserve Bank of India bonds are not transferable till maturity. Investments in Equity Linked Savings Schemes are illiquid for a period of 3 years and in case you redeem from such schemes, your tax benefit is withdrawn. 1. 8. 2 Risk care Once different kinds of risks associated with investments are place appropriate steps can be taken to reduce these risks. Some of these steps are a) Diversification Most types of risks can be managed by diversifying your investments across asset classes (stocks, bonds, properties etc. ), industry, currencies etc.Diversification spreads the risk and reduces the adverse impact that any one investment efficacy have on a portfolio. b) question and Monitor Rigorous investigate and perpetual monitoring will protagonist in controlling the market and credit risk of your investments. This will caution beforehand to avoid an investment and alert in case the r isk is increasing on an investment already undertaken. 1. 8. 3 Risk perimeter Level Risk includes the possibility of losing money. However, extra considerations should be made in addition to the safety of the principal and the potential for growth. These considerations include the likelihood of achieving the financial goals you have established.Additionally, one should consider whether he/she is willing and able to accept a higher level of risk in order to chance on further rewards. Before starting on the setting of the investment portfolio, every investor should establish his/her risk valuation account level. Only after this he/she is ready to build strategies for the doing of his/her financial goals. The higher the degree of risk involved in the investment portfolio the greater the chances of higher returns and failures. The setting of the risk gross profit level is very subjective issue. However, jr. investors can afford more risk taking since they have more time to fix the losses. On the other hand older investors should apply more conservative approach since they have less time in front of them.But, they should keep in mind that they greatly decrease their chances of high-velocity achieving their financial goals. A portfolio that carries more bonds is considered more conservative and risk averse. However, the one that includes a greater percentage of stocks is more risk taking with higher potential of rewards. Many financial experts recommend the diversification between investments with different degrees of risk. This is a good idea since your portfolio will benefit from the rises and falls of the different investments and will alleviate the potential of losing money. Risk Personalities Based on the risk qualification and risk perimeter, risk appetite can be decided. This is the level of risk that one is ready to bear.Broadly risk personalities can be categorised at 3 levels worldly-minded, Balanced and Aggressive. Each risk genius has a diffe rent objective which it aims to achieve through the investment portfolio. These personalities are explained below ? ? ? Conservative personality For investors having this personality preservation of the capital invested is the ultimate goal, even if it means whippy on the returns. Balanced personality People with this type of personality wish to remove a balance between forged and low-risk investments. Aggressive personality Investors with such personality do not wish to via media at all on the returns, even if their capital erodes. 2. 1 INTRODUCTIONIndian investor today have to endure a slow-moving economy, the impregnate market declines prompted by declining revenues, alarming disciplines of scandals ranging from nonlegal corporate accounting practices like that of Satyam to insider trading to make investment decisions. Stock markets performance is not simply the result of intelligible characteristics but also due to the emotions that are quiet down elusive to the analyst s. Despite loads of randomness glide path from all directions, it is not the calculations of financial wizards, or companys performance or widely accepted criterion of stock performance but the investors blind emotions like overconfidence, fear, risk aversion, etc. seem to decisively drive and dictate the fortunes of the market. The market is so volatile that its behaviour is unpredictable. In the past couple of years, the movement of share prices exceeded all the limits and had gone remarkably low and high levels. These dramatic prices of the shares ruin the concept of intrinsic value and rational investment behaviour. The traditional finance theories assume that investors are rational but they are unable(p) to explain the behaviour and pricing of the stock market completely. Many research studies have validated the relationship between a dependent variable i. e. , risk permissiveness level and independent variables such as demographic characteristics of an investor.Most of t he Indian investors are from high income group, well educated, salaried, and independent in making investment decisions and from the past trends it is also seen that they are conservative in nature. Television is the media that is largely influencing the investors decisions. Hence, in the present protrusion report an attempt has been made to consider the relationship between risk margin level and demographic characteristics of Indian investors. 2. 2 STATEMENT OF THE PROBLEM This bailiwick on investors behaviour is an attempt to know the profile and the characteristics of the investors so as to understand their preference with respect to their investments. The main stress of the study is to discover the influence of demographic factors like gender and age on risk permissiveness level of the investor.The study mainly concentrates on the factors that influence an individual investor before making an investment. It also studies the various patterns in which investors like to inve st their money based on their risk allowance level and other demographic factors like income level, occupation etc. 2. 3 critical review OF LITERATURE The literature review sectionalisation examines the importance of research studies, company information or industry reports that serve as a setation for the setup of study. The research dimension of the connect literature and the relevant information begins from an explanatory perspective, approaching towards item studies which do cogitate to judge the limitations and informational gaps in data from the instantary sources.This analysis may reveal conclusions from past studies to realize the dependableness of the lower-ranking sources and their credibility. This in turn enables one to rely on a comprehensive review for the study. Literature suggests that major research in the area of investors behaviour has been done by behavioural scientists such as Weber (1999), Shiller (2000) and Shefrin (2000). Shiller (2000) who plast eredly 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, fester and risk tolerance level of individuals. Of this the relationship between Age and risk tolerance level has attracted much attention.Horvath and Zuckerman (1993) suggested that ones biological, demographic and socioeconomic characteristics together with his/her psychological makeup affects ones risk tolerance level. Malkiel (1996) suggested that an individuals risk tolerance is related to his/her household situation, lifecycle stage and subjective factors. Mittra (1995) discussed factors that were related to individuals risk tolerance, which included years until retirement, acquaintance sophistication, income and net worth. Guiso, Jappelli and Terlizzese (1996), Bajtelsmit and VenDerhei (1997), Powell and Ansic (1997), Jianakoplos and Bernasek (1998), Harihara n, Chapman and Domain (2000), Hartog, Ferrer-I-Carbonell and Jonker (2002) concluded that males are more risk tolerant than females.Wallach and Kogan (1961) were perhaps the first to study the relationship between risk tolerance and age. Cohn, Lewellen et. al order risky asset fraction of the portfolio to be positively correlated with income and age and negatively correlated with marital status. Morin and Suarez implant evidence of increasing risk aversion with age although the households appear to become less risk averse as their wealth increases. Yoo (1994) form that the change in the risky asset holdings were not uniform. He found individuals to increase their investments in risky assets throughout their works life time, and decrease their risk exposure once they retire. Lewellen et. l 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 RBIs field of ownership of shares and L. C. Guptas enquiry into the ownership pattern of Industrial shares in India were a few in this direction. The NCAERs 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 flare-up of information on shareowners.Rajarajan V (1997, 1998, 2000 and 2003) classified investors on the basis of their demographics. He has also brought out the investors characteristics on the basis of their investment size of it. He found that the percentage of risky assets to total financial investments had declined as the investor moves up through various stages in life cycle. Also investors lifestyles based characteristics has been identified. The above discussion presents a exact picture about the various facets of r isk studies that have taken place in the past. In the present study, the letings of many of these studies are verified and updated. Latha Krishnan (2006) explained as Investments come in many forms.While some people consider hard assets such as land, house, gold and platinum as investments, others look to fiscal instruments such as stocks and bonds as ways to make their money grow. A overcautious or conservative investor is unlikely to play carelessly with his hard-earned money. So he keeps to safe investments that guarantee the return of his capital and still earn good returns in a stipulated period if the product in which he invested gains in that period. In such an investment, even if the markets go down and he does not gain much, he also does not suffer a heavy loss. A wealthy person with more money to invest can take more risks and invest in a alteration of products that major financial players provide.A wealth of information on these as well as comments and criticisms on t heir performances and profitability is readily available. perceptual experience of investors towards capital market instruments ball-shapedly by John marshal and Investment analysis and Portfolio management by Punithavathy Pandian. John Marshalls study was at global scale and it explains the detection of people across globe towards capital market instruments and Pandian explains the suppositious aspects of capital market instruments and use of various investment avenues to build a strong portfolio. 2. 4 NEED FOR get a line Investing money is a crucial and deciding the avenues where to invest needs a lot of planning. In India people are more conservative and hence prefer investments that are less risky.Similarly there are other demographic factors like age, income level, gender which affect their decision. As the availability of financial products increase, perception of investors towards such avenues changes over a period of time. It becomes important for a marketer to understa nd the perception of investors towards investment avenues to successfully sales talk the product. Marketing is know as confrontation needs profitably. If the marketer is able to understand the mindset of investor towards a product then he/she will be in a position to market the product. This report attempts to study the behavior of Indian investors while making an investment. Here we also look upon other factors that influence them while making investment decisions.Innovations in financial products like derivatives, unit subsumeed insurance products, fund of funds likewise are not easily understood by the investor. Hence the need for this study arises to understand what only an Indian investor thinks before investing his/her money and how much risk he/she is willing to take. This report gives the marketer and other peers to successfully market the financial products which are more popular, as it gives information regarding the perception of investors towards investment avenues i n India. 2. 5 OBJECTIVES OF THE STUDY 2. 5. 1 original Objectives ? ? ? ? ? ? ? To study the investment characteristics of investors To study the objectives of investment plan of an investors To study the demographic information of investors 2. 5. Secondary Objectives To know the preferred investment avenues of investors To identify the preferred sources of information influencing investment decisions To understand the risk tolerance level of the investors and suggest a fitting portfolio To study the dependence/ libertys of the demographic factors (Gender, Age, income level) of the investor and his/her risk tolerance level 2. 6 stove OF STUDY Based on preceding research in related areas, a questionnaire was constructed to measure the investment pattern of individuals on the basis of demographic characteristics and the risk tolerance of investors was also calculated. It helped us to understand how an Indian investor behaves while investing.This study will be helpful to mutual fun d companies and other investment companies to understand individual behaviour of investors so that they could build suitable investment options for them individually. Also this study will help the investor to decide the areas where they could invest. 2. 7 HYPOTHESIS A hypothesis describes the relationship between or among variables. A good hypothesis is one that can explain what it claims to explain, is testable and has greater range, probability and simplicity than its rivals. There are two approach of hypothesis testing 1) spotless or sampling theory statistics and 2) The Bayesian approach In the present talk chi square test has been used to find out the dependence/independence of various factors that influence investment decision.Hypothesis has been found between following factors ? ? ? ? ? Gender and risk tolerance of respondents Age and preferred investment avenues by the respondents Income and investment avenues preferred by the respondents Age of respondents and time horiz on for investment Age and risk tolerance of the respondents 2. 8 RESEARCH DESIGN Research methodological analysis is a way to systematically form the research problem. It may be understood as a science of perusing how research is done scientifically. ? Research type Many investors were reluctant to reveal their investment details especially the amount of money invested so, referral sampling method is used for this study. hear description The sample was drawn from the nation of the potential investors from Tamil Nadu. A canvas was conducted to understand the investors behaviour with the help of questionnaire. It was carried out with a sample size of 100 investors. 2. 9 TOOLS FOR DATA collection Primary data The data has been tranquil directly from respondent with the help of unified questionnaires. Secondary data The utility(prenominal) data has been collected from various magazines, journals, newspapers, text books and related websites. 2. 10 METHOD OF ANALYSIS statistical techniques like chi square test, simple percentage method are used to analyze and interpret raw data. Chi square was used to show the habituation/independency of various factors.After collecting the data its variable having defined character, it was tabulated and analyzed with the help of charts and graphs in Microsoft Excel 2007. 2. 11 LIMITATIONS OF STUDY Sample size is small because of the time constraint Respondent may be hesitant to provide their investment details Behaviour of investors doesnt remain same for long time Time for the study is limited 3. 1 INDIAN pecuniary grocery Money always flows from plain sector to deficit sector. That means persons having excess of money lend it to those who need money to fulfil their requirement. Similarly, in business sectors the supernumerary money flows from the investors or lenders to the businessmen for the purpose of production or sale of goods and services.So, we find two different groups, one who invest money or lend mone y and the others, who borrow or use the money. The financial markets act as a link between these two different groups. It facilitates this function by acting as an intermediary between the borrowers and lenders of money. So, financial market may be defined as a transmission mechanism between investors (or lenders) and the borrowers (or users) through which transfer of funds is facilitated. It consists of individual investors, financial institutions and other intermediaries who are linked by a formal trading rules and discourse network for trading the various financial assets and credit instruments.Financial market talks about the primary market, FDIs, alternative investment options, banking and insurance and the pension sectors, asset management fraction as well. India Financial market happens to be one of the oldest across the globe and is the express growing and best among all the financial markets of the emerging economies. The history of Indian capital markets spans back 200 years, around the end of the 18th degree centigrade. It was at this time that India was under the rule of the East India Company. The capital market of India initially developed around Mumbai with around 200 to 250 securities brokers participating in active trade during the second half of the nineteenth century. 3. 1. Scope of Indian Financial Market The financial market in India at present is more advanced than many other sectors as it became organized as early as the 19th century with the securities exchanges in Mumbai, Ahmedabad and Kolkata. In the early 1960s, the number of securities exchanges in India became eight including Mumbai, Ahmedabad and Kolkata. Apart from these three exchanges, there was the Madras, Kanpur, Delhi, Bangalore and Pune exchanges as well. Today there are 23 regional securities exchanges in India. The Indian stock markets till date have remained stagnant due to the steady economic controls. It was only in 1991, after the liberalization process that the India securities market witnessed a flurry of IPOs serially. The market saw many new companies spanning across different industry segments and business began to flourish.The launch of the NSE (National Stock Exchange) and the OTCEI (Over the anticipate Exchange of India) in the mid nineties helped in regulating a debonaire and transparent form of securities trading. The regulatory body for the Indian capital markets was the SEBI (Securities and Exchange Board of India). The capital markets in India experienced excitement after which the SEBI came into prominence. The market loopholes had to be bridged by taking drastic measures. 3. 1. 2 authorisation of Indian Financial Market India Financial Market helps in promoting the savings of the economy helping to adopt an effective wrinkle to transmit various financial policies.The Indian financial sector is welldeveloped, competitive, efficient and structured to face all shocks. In the India financial market there are various type s of financial products whose prices are determined by the numerous buyers and sellers in the market. The other clincher factor of the prices of the financial products is the market forces of demand and supply. The various other types of Indian markets help in the functioning of the wide India financial sector. 3. 1. 3 Features of Indian Financial Market ? ? India Financial Indices BSE 30 Index, various sector indexes, stock quotes, Sensex charts, bond prices, unlike exchange, Rupee & Dollar Chart Indian Financial market news ?Stock News Bombay Stock Exchange, BSE Sensex 30 index, S&P CNX-Nifty, company information, issues on market capitalization, corporate earnings statements ? Fixed Income Corporate Bond Prices, Corporate Debt details, Debt trading activities, Interest Rates, Money Market, Government Securities, Public Sector Debt, External Debt Service ? ? ? ? ? ? ? ? contrasted Investment Foreign Debt Database composed by BIS, IMF, OECD,& World Bank, Investments in India & Abroad worldwide Equity Indexes Dow Jones Global indexes, Morgan Stanley Equity Indexes Currency Indexes FX & Gold Chart Plotter, J. P. Morgan Currency Indexes National and Global Market Relations Mutual Funds Insurance Loans Forex and Bullion The main functions of financial market are ? ? ? It provides facilities for interaction between the investors and the borrowers. It provides pricing information resulting from the interaction between buyers and sellers in the market when they trade the financial assets. It provides security to dealings in financial assets. It ensures liquidity by providing a mechanism for an investor to sell the financial assets. It ensures low cost of transactions and information. 3. 2 miscellany OF FINANCIAL MARKETS Figure 3. 1 classification of financial markets Source Investment analysis and portfolio management Author Prasanna Chandra Figure 3. 1 shows the classification of financial markets.From this figure we can interpret that there are diff erent ways of crystalliseing financial market. ? One is to classify financial market by the type of financial claim. The debt market is the financial market foe fixed claims (debt instrument) and the equity market is the financial market for residual claims (equity instruments) ? The second way is to classify financial markets by the maturity of claims. The market for short term financial claims is referred to as the money market and the market for long term financial claims is referred to as the capital market. ? The third way to classify financial markets is based on whether the claims represent new issues or dandy issues.The market where issues sell new claims is referred as primary market and the market where issues sell outstanding claims is referred as secondary market. ? The fourthly way to classify financial markets is by the timing of livery. A cash or spot market is one where the delivery occurs immediately and forward or futures markets are those markets where the del ivery occurs at a pre determined time in future. ? The fifth way to classify financial markets is by the nature of its organizational structure. An exchange traded market is characterized by a centralized organization with alike(p) performances and an over the counter market is a decentralized market with customized procedures.These markets are further explained in detail. 3. 3 MONEY MARKET The money market is a market for short-term funds, which deals in financial assets whose period of maturity is up to one year. It should be noted that money market does not deal in cash or money as such but simply provides a market for credit instruments such as bills of exchange, promissory notes, commercial paper, treasury bills, etc. These financial instruments are close substitute of money. These instruments help the business units, other organizations and the Government to borrow the funds to meet their short-term requirement. Money market does not imply to any specific market place.Rather it refers to the whole networks of financial institutions dealing in short-term funds, which provides an outlet to lenders and a source of supply for such funds to borrowers. Most of the money market transactions are taken place on telephone, fax or Internet. The Indian money market consists of Reserve Bank of India, Commercial banks, Co-operative banks, and other specialized financial institutions. The Reserve Bank of India is the leader of the money market in India. Some Non-Banking Financial Companies (NBFCs) and financial institutions like LIC, GIC, UTI, etc. also sound in the Indian money market. 3. 4 CAPITAL MARKET Capital Market may be defined as a market dealing in medium and long-term funds.It is an institutional formation for borrowing medium and long-term funds and which provides facilities for marketing and trading of securities. So it constitutes all long-term borrowings from banks and financial institutions, borrowings from foreign markets and increase of capital b y issue various securities such as shares debentures, bonds, etc. The market where securities are traded cognise as Securities market. It consists of two different segments namely primary and secondary market. The primary market deals with new or re orthogonaling issue of securities and is, therefore, also known as new issue market whereas the secondary market provides a place for purchase and sale of existing securities and is often termed as stock market or stock exchange. 3. 4. PRIMARY MARKET The Primary Market consists of arrangements, which facilitate the procurement of longterm funds by companies by making fresh issue of shares and debentures. You know that companies make fresh issue of shares and/or debentures at their formation stage and, if necessary, subsequently for the expansion of business. It is usually done through private placement to friends, relatives and financial institutions or by making public issue. In any case, the companies have to follow a well-establishe d legal procedure and involve a number of intermediaries such as underwriters, brokers, etc. who form an implicit in(p) part of the primary market.You must have learnt about many initial public offers (IPOs) made recently by a number of public sector undertakings such as ONGC, GAIL, NTPC and the private sector companies like Tata Consultancy Services (TCS), Biocon, Jet-Airways and so on. 3. 4. 2 unoriginal MARKET The secondary market known as stock market or stock exchange plays an equally important role in mobilizing long-term funds by providing the necessary liquidity to holdings in shares and debentures. It provides a place where these securities can be encashed without any difficulty and delay. It is an organized market where shares and debentures are traded regularly with high degree of transparency and security.In fact, an active secondary market facilitates the growth of primary market as the investors in the primary market are assured of a continuous market for liquidity o f their holdings. The major players in the primary market are merchant bankers, mutual funds, financial institutions, and the individual investors and in the secondary market you have all these and t