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A STUDY ON INVESTOR TOWARDS INVESTMENT

IN PUNE

Projects Report

Submitted for partial fulfillment of requirementFor the award of

Post Graduate Diploma in Financial management

By

SANJAY KUMAR PATIDAR

PRN No. 1000002257

Under the Guidance of

Mr. N. Hariharan

Professor & Head

Department of Finance

AMPLIFYBVUPune411043

April2012


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ACKNOWLEDGEMENT

I am deeply thankful to all the persons who had given their helping hands to me in making this

project report successful. In the beginning I would like to give my hearty thanks to Mr.

N.Hariharan, Professor and Head Department of Finance,Amplify-BVU, Pune for giving me

the opportunity to study the course and go for this successful training.

Then I would like to express my sincere thanks to Mrs. Aruna Peshave (Coordinator) who Help

me to make Hypothesis and some other work. I am grateful to her for his enthusiasm and

willingness for the help after the course of this project. I was always intended for his guidance

and support.

I would also like to include my family who gave me support in many ways and boosted my

confidence. My friends were very co-operative and motivating to me. I am thankful to all the

people who have given their precious time and provided me with requisite data without which

this project would not have completed .I also thank them for giving their valuable suggestions

during the entire period of research.

SANJAY KUMAR PATIDAR


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N.HARIHARAN

Professor and Head

Department Of Finance

Amplify-BVU

Pune-411043

CERTIFICATE

This is to the certify that the Project Report Titled A STUDY ON INVESTOR TOWARDSINVESTMENT IN PUNE is an original work done by Mr. Sanjay Kumar Patidar PRN No.1000002257 of PGDFM 2010-2012 Batch as part of his study.

This report has not been submitted for award of any other Degree/Diploma.

Date: Supervisor and Guide

Place: Pune


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LIST OF CONTENTS

CHAPTER

NO.DESCRIPTIONS PAGE NO.

Preliminary Page i-ii

Acknowledgement

Certificate

i

ii

1. Introduction 1-3

1.1 Importance

1.2 Objectives

1.3 Scope

1.4 Data Collection

1.5 Hypothesis

1.6 Limitation

1.7 Chapter Scheme

1

2

2

2

2

2

3

2. Review Of Literature4-40

2.1 Stock market

2.2 BSE Online Trading

2.3 Debentures

2.4 Bonds

2.5 Preference shares

2.6 Equity shares

2.7 Government Securities

2.8 Process stage in Investment

4-5

5

5-6

6

7

7-8

8-11

11-12


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2.9 Success in Investment

2.10 Three approaches to succeed an Investor

2.11 Investment an speculation

2.12 Marketability risk

2.13 Factors favorable for Investment

2.14 Investors

2.15 Organization Structure

12-15

15

16-20

20-21

22-25

25-36

36-40

3. Analysis & Interpretations 41-69

4. Findings & Suggestions 70-71

4.1 Findings

4.2 Suggestion

70-71

71

Bibliography 72

A-1 Questionnaire, Interview Schedule

A-2 Frequency Table

A-3 Data Sheet


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LIST OF TABLES

Table No. DESCRIPTION Page No.

3.1 Preferred to invest your money 41

3.2 Preferred age group of investor 42

3.3. Preferred best investment option 43

3.4. Preferred to kind of investor 44

3.5. Preferred to investment pattern 45

3.6. Preferred to Investment time duration 46

3.7. Preferred to professional advice regarding

investment47

3.8. Preferred to take advice 48

3.9. Preferred to money in bank and type of bank 49

3.10. Preferred to Return on investment 50

3.11. Preferred to frequency of investment 51

3.12 Preferred to percentage of income of invest 52

3.13 Preferred to take investment decision 53

3.14 Preferred to next 3-5 years expect your annual

income to change54

3.15 Experience in the market 55

3.16 Trading preference 56


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3.17 Factor influencing the investment decision 57

3.18 Preferred to risk taking 58

3.19 Preferred to taking loss 59

3.20 Preferred to annual income 60

3.21 Type of investor 61

3.22 Funds opinion are performing well 62

3.23 Preferred to financial instrument in investment 63

3.24 Following planned insured 64

3.25 Preferred to purpose behind investment 65

3.26 Preferred to various investment avenues 66

3.27 Preferred to frequency trading 67

3.28 Thinks as the specialty of trading in

commodity market68

3.29 Investment Decision is depending 69


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LIST OF GRAPHS

Graph No. DESCRIPTIONS Page No.

3.1 Preferred to invest your money 41

3.2 Preferred age group of investor 42

3.3. Preferred best investment option 433.4. Preferred to kind of investor 44

3.5. Preferred to investment pattern 45

3.6. Preferred to Investment time duration 46

3.7. Preferred to professional advice regarding

investment47

3.8. Preferred to take advice 48

3.9. Preferred to money in bank and type of bank 49

3.10. Preferred to Return on investment 50

3.11. Preferred to frequency of investment 51

3.12 Preferred to percentage of income of invest 52

3.13 Preferred to take investment decision 53

3.14 Preferred to next 3-5 years expect your annual

income to change54

3.15 Experience in the market 55

3.16 Trading preference 56


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3.17 Factor influencing the investment decision 57

3.18 Preferred to risk taking 58

3.19 Preferred to taking loss 59

3.20 Preferred to annual income 60

3.21 Type of investor 61

3.22 Funds opinion are performing well 62

3.23 Preferred to financial instrument in investment 63

3.24 Following planned insured 64

3.25 Preferred to purpose behind investment 65

3.26 Preferred to various investment avenues 66

3.27 Preferred to frequency trading 67

3.28 Thinks as the specialty of trading in

commodity market68

3.29 Investment Decision is depending 69


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CHAPTER-1


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INTRODUCTION


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1.1 IMPORTANCE

An investment refers to the commitment of funds at present in anticipation of some positive rate

of return in future. Today, the spectrum of investment in indeed wide An investment in

confronted with array of investment avenues. Among all investment, investment in equity is in

best high proportion. This is because the history of stock market is booming and burses overnight

millionaires an instant paper.

Indian economy is doing indeed well in recent years. The study has been undertaken to analyze

the investment pattern of investment community. The main reason behind the study is the factory

like income economy condition and the risk covering nature of the Indian investors.

Investment is the sacrifice of certain present value for the uncertain future reward it entails

arriving at numerous decision such as type, mix, amount, timing, grade etc of investment and

disinvestment. Further such decision making has not to be continuous but rational too. Instead of

keeping the saving idles you may like to use saving in order to get return on it in the future, which

is known as investment. There are various investment avenues such as Equity, Bonds, Insurance,

Real estate, Precious objects and bank deposits etc .A portfolio is a combination of different

investment assets mixed and matched for the purpose of achieving an investors goals.

Days were gone when people only invest their money in Post offices or in Banks and another

safely fixed return investment. Today people have several choices for the investment alternatives.

Now a day, one of the most emerging choices is to invest in equities shares. To get good return on

investment, people are ready to take risks. Law always says that investors get higher return if they

take high risk. For high risk there is one avenue to invest and that is Equity Market. Equity share

holder is real owner of the company in spite of their priority in getting dividend is comes last.

Major Investors are investing in equity market only due to earn high return and hedge the risk by

investing their 5%-10% of income in Equity Market. 28% of investors invest in Equity market for

the period of 1 to 3 Months and the same proportion of investors are invest for long period more

than year. Most of investors have considered Market trend, Price Earnings Ratio, Dividend and

Profitability as a most important factor while selecting the Sector and company under the sector.


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1.2OBJECTIVES To study the small savings scheme are designed to provide safe & attractive investment

options to the public.

To study the Investment pattern of investment. To study the investor adoption. To study the financial instruments of investment. To study the product and services.

1.3SCOPE This study concentrates on Investor towards investment.

1.4DATA COLLECTION A total Sample of 75 is concentrated for the study. The sample has been collected for investor

towards investment.

Both primary and secondary data used for a study.

1.5Hypothesis Investor is the impact of investment opinion.

1.6LIMITATIONS OF THE STUDY Time is limiting factor. Opinion given by respondents (If biased) may reflect on the study. Respondents were reluctant to share information.


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1.7CHAPTER SCHEME1.7.1 Introduction1.7.2 Review of literature1.7.3 Analysis & Interpretation1.7.4 Findings & Suggestions


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CHAPTER-2


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REVIEW OF LITERATURE


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2.1 Stock Market

Stock markets refer to a market place where investors can buy and sell stocks. The price at whicheach buying and selling transaction takes is determined by the market forces (i.e. demand and

supply for a particular stock). A stock market is a public market for the trading of company stock

and derivatives at an agreed price; these are securities listed on a stock exchange as well as those

only traded privately. The size of the world stock market was estimated at about $36.6 trillion

USD at the beginning of October 2008. The stock market is one of the most important sources for

companies to raise money. This allows businesses to be publicly traded, or raise additional capital

for expansion by selling shares of ownership of the company in a public market. In fact, the stock

market is often considered the primary indicator of a country's economic strength and

development. Rising share prices, for instance, tend to be associated with increased business

investment and vice versa. In this way, investing in stock market, the stock exchanges also play

importance role. Exchanges also act as the clearinghouse for each transaction, meaning that they

collect and deliver the shares, and guarantee payment to the seller of a security. This eliminates

the risk to an individual buyer or seller that the counterparty could default on the transaction. So,

here we also understand about Stock Exchanges as follows.

2.1.1 Stock market:

A stock exchange is an entity which provides "trading" facilities for stock brokers and traders, to

trade stocks and other securities. Stock Exchanges are an organized marketplace, either

corporation or mutual organization, where members of the organization gather to trade company

stocks or other securities. Stock exchanges also provide facilities for the issue and redemption of

securities as well as other financial instruments and capital events including the payment of

income and dividends. The securities traded on a stock exchange include: shares issued by

companies, unit trusts, derivatives, pooled investment products and bonds. To be able to trade a

security on a certain stock exchange, it has to be listed there. Usually there is a central location at

least for recordkeeping, but trade is less and less linked to such a physical place, as modern

markets are electronic networks, which gives them advantages of speed and cost of transactions.

Trade on an exchange is by members only. The initial offering of stocks and bonds to investors is

by definition done in the primary market and subsequent trading is done in the secondary market.
http://en.wikipedia.org/wiki/Shareshttp://en.wikipedia.org/wiki/Unit_trusthttp://en.wikipedia.org/wiki/Derivative_%28finance%29http://en.wikipedia.org/wiki/Bond_%28finance%29http://en.wikipedia.org/wiki/Electronic_networkshttp://en.wikipedia.org/wiki/Investorhttp://en.wikipedia.org/wiki/Primary_markethttp://en.wikipedia.org/wiki/Secondary_markethttp://en.wikipedia.org/wiki/Secondary_markethttp://en.wikipedia.org/wiki/Primary_markethttp://en.wikipedia.org/wiki/Investorhttp://en.wikipedia.org/wiki/Electronic_networkshttp://en.wikipedia.org/wiki/Bond_%28finance%29http://en.wikipedia.org/wiki/Derivative_%28finance%29http://en.wikipedia.org/wiki/Unit_trusthttp://en.wikipedia.org/wiki/Shares


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A stock exchange is often the most important component of a stock market. Supply and demand

in stock markets is driven by various factors which, as in all free markets, affect the price of

stocks. There is usually no compulsion to issue stock via the stock exchange itself, nor must stock

be subsequently traded on the exchange. Such trading is said to be off exchange or over-the-

counter. This is the usual way that derivatives and bonds are traded. Increasingly, stock exchanges

are part of a global market for securities

List of Stock Exchanges in India -

1. Bombay Stock Exchange(BSE)2. National Stock Exchange(NSE)3. Regional Stock Exchanges (21)

There are 21 other regional stock exchanges, which are Ahmedabad,Bangalore, Bhubaneshwar,

Calcutta,Cochin,Coimbatore,Delhi,Guwahati,Hyderabad,Jaipur,Ludhiana,MadhyaPradesh,

Madras,Magadh,Mangalore,Meerut,OTC Exchange Of India,Pune,Saurashtra Kutch, Uttar

Pradesh,Vadodara etc.

2.2 The BSE On-line Trading (BOLT):

BSE On-line Trading (BOLT) facilitates on-line screen based trading in securities. BOLT iscurrently operating in 25,000 Trader Workstations located across over 359 cities in India.

VARIOUS INVESTMENT AVENUES:

2.3 DEBENTURES:

A type of fixed-interest security, issued by companies (as borrowers) in return for medium and

long-term investment offunds A debenture is evidence of the borrower's debt to the lender.

These are issued by companies and regulated under the SEBI guidelines of June 11, 1992.

The following are types of debentures:-

Convertible debentures Non-Convertible debentures
http://en.wikipedia.org/wiki/Stock_markethttp://en.wikipedia.org/wiki/Free_markethttp://en.wikipedia.org/wiki/Over-the-counter_%28finance%29http://en.wikipedia.org/wiki/Over-the-counter_%28finance%29http://en.wikipedia.org/wiki/Derivative_%28finance%29http://en.wikipedia.org/wiki/Bond_%28finance%29http://www.surfindia.com/finance/ahmedabad-stock-exchange.htmlhttp://www.surfindia.com/finance/bangalore-stock-exchange.htmlhttp://www.surfindia.com/finance/bhubaneshwar-stock-exchange.htmlhttp://www.surfindia.com/finance/calcutta-stock-exchange.htmlhttp://www.surfindia.com/finance/cochin-stock-exchange.htmlhttp://www.surfindia.com/finance/coimbatore-stock-exchange.htmlhttp://www.surfindia.com/finance/delhi-stock-exchange.htmlhttp://www.surfindia.com/finance/guwahati-stock-exchange.htmlhttp://www.surfindia.com/finance/hyderabad-stock-exchange.htmlhttp://www.surfindia.com/finance/jaipur-stock-exchange.htmlhttp://www.surfindia.com/finance/ludhiana-stock-exchange.htmlhttp://www.surfindia.com/finance/madhya-pradesh-stock-exchange.htmlhttp://www.surfindia.com/finance/madras-stock-exchange.htmlhttp://www.surfindia.com/finance/magadh-stock-exchange.htmlhttp://www.surfindia.com/finance/mangalore-stock-exchange.htmlhttp://www.surfindia.com/finance/meerut-stock-exchange.htmlhttp://www.surfindia.com/finance/otc-exchange-india.htmlhttp://www.surfindia.com/finance/pune-stock-exchange.htmlhttp://www.surfindia.com/finance/kutch-stock-exchange.htmlhttp://www.surfindia.com/finance/uttar-pradesh-stock-exchange.htmlhttp://www.surfindia.com/finance/uttar-pradesh-stock-exchange.htmlhttp://www.surfindia.com/finance/vadodara-stock-exchange.htmlhttp://www.anz.com/edna/dictionary.asp?action=content&content=securityhttp://www.anz.com/edna/dictionary.asp?action=content&content=returnhttp://www.anz.com/edna/dictionary.asp?action=content&content=fundshttp://www.anz.com/edna/dictionary.asp?action=content&content=debthttp://www.anz.com/edna/dictionary.asp?action=content&content=debthttp://www.anz.com/edna/dictionary.asp?action=content&content=fundshttp://www.anz.com/edna/dictionary.asp?action=content&content=returnhttp://www.anz.com/edna/dictionary.asp?action=content&content=securityhttp://www.surfindia.com/finance/vadodara-stock-exchange.htmlhttp://www.surfindia.com/finance/uttar-pradesh-stock-exchange.htmlhttp://www.surfindia.com/finance/uttar-pradesh-stock-exchange.htmlhttp://www.surfindia.com/finance/kutch-stock-exchange.htmlhttp://www.surfindia.com/finance/pune-stock-exchange.htmlhttp://www.surfindia.com/finance/otc-exchange-india.htmlhttp://www.surfindia.com/finance/meerut-stock-exchange.htmlhttp://www.surfindia.com/finance/mangalore-stock-exchange.htmlhttp://www.surfindia.com/finance/magadh-stock-exchange.htmlhttp://www.surfindia.com/finance/madras-stock-exchange.htmlhttp://www.surfindia.com/finance/madhya-pradesh-stock-exchange.htmlhttp://www.surfindia.com/finance/ludhiana-stock-exchange.htmlhttp://www.surfindia.com/finance/jaipur-stock-exchange.htmlhttp://www.surfindia.com/finance/hyderabad-stock-exchange.htmlhttp://www.surfindia.com/finance/guwahati-stock-exchange.htmlhttp://www.surfindia.com/finance/delhi-stock-exchange.htmlhttp://www.surfindia.com/finance/coimbatore-stock-exchange.htmlhttp://www.surfindia.com/finance/cochin-stock-exchange.htmlhttp://www.surfindia.com/finance/calcutta-stock-exchange.htmlhttp://www.surfindia.com/finance/bhubaneshwar-stock-exchange.htmlhttp://www.surfindia.com/finance/bangalore-stock-exchange.htmlhttp://www.surfindia.com/finance/ahmedabad-stock-exchange.htmlhttp://en.wikipedia.org/wiki/Bond_%28finance%29http://en.wikipedia.org/wiki/Derivative_%28finance%29http://en.wikipedia.org/wiki/Over-the-counter_%28finance%29http://en.wikipedia.org/wiki/Over-the-counter_%28finance%29http://en.wikipedia.org/wiki/Free_markethttp://en.wikipedia.org/wiki/Stock_market


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Zero coupon convertible notes Zero interest fully convertible debentures Fully convertible debentures with interest Partly convertible debentures.

2.4 BONDS:

A bond is a debt security, in which the authorized issuer owes the holders a debt and, depending

on the terms of the bond, is obliged to pay interest (the coupon) and/or to repay the principal at a

later date, termed maturity.

A bond is a formal contract to repay borrowed money with interest at fixed intervals.

International Bond Market is very big and has an estimated size of nearly $47 trillion. The size of

the US bond market is the largest in the world. The US bond market's outstanding debt is more

than $25 trillion. While the size of Indian dept market is 239.2 (US$ billion) which is 34.5% of

GDP as on 2004 -05.

Indian development financial institutions like IDBI, ICICI, and IFCI, have been raising capital for

their operations by issuing of bonds. These too are available in a large variety. These include:

Income bonds Tax-free bonds Capital gains bonds Deep discount bonds Infrastructure bonds Retirement bonds etc.
http://en.wikipedia.org/wiki/Security_%28finance%29http://en.wikipedia.org/wiki/Interesthttp://en.wikipedia.org/wiki/Coupon_%28bond%29http://en.wikipedia.org/wiki/Maturity_%28finance%29http://en.wikipedia.org/wiki/Maturity_%28finance%29http://en.wikipedia.org/wiki/Maturity_%28finance%29http://en.wikipedia.org/wiki/Coupon_%28bond%29http://en.wikipedia.org/wiki/Interesthttp://en.wikipedia.org/wiki/Security_%28finance%29


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2.5 PREFERENCESHARES:

Stock whose holders are guaranteed priority in the payment of dividends but whose holders have

no voting rights

Preference shareholders do not have voting rights. They generally bear a fixed dividend, payable

if the company declares dividends.

Preference shares have different features and are accordingly available as:

Cumulative and non-cumulative preference shares Redeemable and non-redeemable preference shares Convertible and non-convertible preference shares Preference shares with a combination of the above features.

2.6 EQUITY SHARES:

Equity shares represent proportionate ownership in the company. Investors who own equity

shares of a company are entitled to ownership rights, like voting for selection of directors on the

Board, share in profits of the company, etc.

Investors who own equity shares in a company are called shareholders. They are ordinary shares

with no guarantee of dividend. Equity shares gain maximum returns when there are high profits.

As a shareholder, the extent of your ownership (your stake) in a company depends on the number

of shares you own in relation to the total number of shares available

For example, if you buy 1000 shares of stock in a company that has issued a total of 100,000

shares, you own one per cent of the company.


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A shareholder or a beneficial owner can exit from the ownership by selling the shares. An

investor can become shareholder/beneficial owner of a company by purchasing shares of the

company.

Shareholders are entitled to share profit of the company in the form of "dividend" on "bonus

shares", if Board of Directors and majority of the shareholders agree. If a company is wound up

for any reason, equity shareholders may receive money from the residual funds after satisfying all

other liabilities.

2.7 GOVERNMENT SECURITIES:

Government securities (G-secs) are sovereign securities which are issued by the Reserve Bank of

India on behalf of Government of India.

The term Government Securities includes:

Central Government Securities State Government Securities Treasury bills

The Central Government or State Governments issue securities periodically for the purpose of

raising loans from the public.

There are two types of Government Securities

a. Dated Securitiesb. Treasury Bills

Dated Securities: Dated Securities have a maturity period of more than one year

Treasury Bills: Treasury Bills have a maturity period of less than or up to one year.

The Public Debt Office (PDO) of the Reserve Bank of India performs all functions with regard to

the issue management, settlement of trade, distribution of interest and redemption. Although only


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corporate and institutional investors subscribe to government securities, individual investors are

also permitted to subscribe to these securities.

An investor has to approach RBI to receive government securities in physical form. Investors can

invest in book entry form with Banks and other institutions like NSDL, SHCIL, and NSCCL etc.

NSDL facility to buy and hold government securities is convenient because of its reach and

depository account opened for other securities can be used for holding government securities.

The Public Debt Office (PDO) of the Reserve Bank of India performs all functions with regard to

the issue management, settlement of trade, distribution of interest and redemption. Although only

corporate and institutional investors subscribe to government securities, individual investors are

also permitted to subscribe to these securities.

An investor has to approach RBI to receive government securities in physical form. Investors can

invest in book entry form with Banks and other institutions like NSDL, SHCIL, and NSCCL etc.

NSDL facility to buy and hold government securities is convenient because of its reach and

depository account opened for other securities can be used for holding government securities.

Return opportunities come from two sources: an expanded universe of securities from which to

trade and a wider array of trading strategies implemented without the constraints of regulation

common to most traditional products.

Deciding risk profile is synonymous with drawing a risk picture and involves the following steps.

1. Identifying and prioritizing the inherent risks

2. Measuring and scoring inherent risks.

3. Establishing standards for each risk component

4. Evaluating and controlling the quality of managerial controls.

5. Developing risk tolerance levels.


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A good risk and return model should-

a. Come up with a measure for risk that is universal

b. Specify what types of risks are rewarded and what types are not.

c. Standardize risk measures, to enable analysis and comparison.

d. Translate the risk measure into an expected return.

He opined that a risk measure, to be useful, has to apply to all investments whether stocks or

bonds or real estate. He also stated that one of the objectives of measuring risk is to come

u p with a n estimate of a n expected return for a n investment. This expected return would

help to decide whether the investment is a 'good' or 'bad' one. The implications of risk

management in the changed environment a n d the factors constraining the speed of risk

management technology up-gradation. He opined that the perception and management of risk is

crucial for players a n d regulators in a market oriented economy. Investment managers have

started upgrading their risk management practices a n d systems. They have strengthened the

internal control systems including internal audit and they are increasingly using equity research of

better quality. He observed that risk measurement and estimation problems constrain the speed of

up-gradation. Also, inadequate availability of skills in using quantitative risk management

models and lack of risk hedging investments for the domestic investors are major constraints. He

concluded that with the beginning of a derivative market, new instruments of risk hedging would

become available. Reviewed the various factors influencing the equity price and price eamings

ratio He is of the opinion that equity prices are affected primarily by financial risk considerations

that, in turn, affect earnings and dividends. He also stated that market risk in equity is much

greater than in bonds, and it influences the price also. He disclosed that many analysts follow

price earnings (P/E) ratio to value equity, which is equal to market price divided by eamings per

share. He observed that inflationary expectations and higher interest rates tend to reduce P/E

ratios whereas growth companies tend to have higher P/E ratios. He suggested that an investor

should examine the trend of P/E ratios over time for each company.

The various types of risks in relation to the different institutions He opined that 'Managing risk'

has different meanings for banks, financial institutions, and non- banking financial


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companies and manufacturing companies. In the case of manufacturing companies, the risk is

traditionally classified as business risk and financial risk. Banks, financial institutions and non-

banking financial companies are prone to various types of risks important of which are

interest rate risk, market risk, foreign exchange risk, liquidity risk, country and sovereign risk and

insolvency risk. Suseela Subramanian (1998) commented on the risk management processes of

banks. She revealed that banks need to do proper risk identification, classify risks and

develop the necessary technical and managerial expertise to assume risks. Embracing scientific

risk management practices will not only improve the profits and credit management processes of

banks, but will also enable them to nurture and develop mutually beneficial relationships with

customers. She concluded that the better the risk information and control system the more risk a

bank can assume prudently and profitably.

2.8 THE INVESTMENT PROCESS-STAGES IN INVESTMENT:

The investment process is generally described in four stages. These stages are investment policy,

investment analysis, valuation of securities and portfolio construction.

A. Investment Policy: The first stage determines and involves personal financial affairs and

objectives before making investments. It may also be called preparation of the investment policy

stage. The investor has to see that he should be able to create an emergency fund, an element of

liquidity and quick convertibility of securities in to cash. This stage may, therefore, be considered

appropriate for identifying investment assets and considering the various features of investment.

B. Investment Analysis: When an individual has arranged a logical of the types of the

investments that he requires on his portfolio, the next step is to analyses the securities available

for investment. He must make a comparative analysis of the type of the industry, industry of

security and fixed vs. variable securities. The primary concern at this stage would be to formbeliefs regarding future behavior or prices and stocks, the expected returns and associated risk.

C.Valuation of investments: The third step is perhaps most important consideration of the

valuation of investments, investments value, in general, is taken to be the present worth to the


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owners of the futures benefits from investments. The investor has to bear in mind the value of

these investments. Investment pattern of investors on different products appropriate sets of

weights have to be applied with use of the forecasted benefits to estimate the value of the

investment assets. Comparison of the value with the current market price of the asset allows a

determination of the relative alternativeness of the asset. Each asset must be valued on its

individual merit. Finally the portfolio should be constructed.

d. Portfolio Construction: As discussed under features of investment programmed, portfolio

construction requires knowledge of the different aspects of securities. Consisting of safety and

growth of principal, liquidity of assets after taking into account the stage involving investment

timing, selection of investment, and allocation of savings to different investments The success of

every investment decision has become increasingly important in recent times. Making sound

investment decision requires both knowledge and skill. Skill is needed to evaluate risk and

returns associated with an investment decision. Knowledge is required regarding the complex

investment alternatives available in the economic environment.

2.9SUCCESS IN INVESTMENT:

Success in most things is relative, and not less so in the field of investment. Success in

investment means earning the highest possible return with the constraints imposed by the

investors personal circumstances-age, family needs liquidity requirements, tax position and

acceptability of risk. If possible, performance should be measured against alternative investment,

or combination of investment, available to the investor within those constraints. Genuine success

also means winning the battle against inflation, against the fall in the real value of savings and

capital. To be successful investor, one should strive to achieve no less than the rate of return

consistent with the risk assumed. But is this success? If markets are efficient, abnormal returns

were not likely to be achieved, and so the best one can hope for return consistent with the level

of risk assumed. The trick is to assess the level of risk we wish to assume and make certain that

the collection of assets we buy fulfills our risk expectations. As a reward for assuming this level

of risk, we will receive the returns that are consistent with it. If however, we believe that we do

better than the level of return warranted by the level of risk assumed, then success must be


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measured in these terms. But care must be exercised here. Investment pattern of investors on

different products not indicate success in this sense. We are really talking about outperforming

the average of the participant in the market for assets. And if we realize higher return we must be

certain that we are not assuming higher risks consistent with those returns in order to measure

our success. Thus we are left with two definitions of success.

(i) Success is achieving the rate of return warranted by the level of risk assumed. Investorsexpect returns proportional to the risk assumed.

(ii) Success is achieving a rate of return in excess or warranted by the level of risk assumed.Investors expect abnormal returns for the risk assumed.

To be successful under the first definition, an investor must have a rational approach to portfolio

construction and management. Reasonably efficient diversification is the key. To be successful

under the second definition, an investor must have at least one of the following: Superior

Analytical Skill, Superior Forecasting Ability, Inside Information, Dumb Luck Whether and to

what extent anyone is likely to possess these characteristics and consistently be able to

outperform the market by the level of risk assumed is critical issue. The investor should be

aware of, but not denoted by, the fact that professional investors in particular, largely dominate

investment markets, the stock market. As a consequence, grossly under-valued investments are

rarely easy to come by. Moreover, he should beware of books subtitled. Investments should be

looked at in terms of what they contribute to the overall portfolio, rather than their merits in

isolation. Institutional investment will probably play some part, and performance tables are

available to give some guidance. But personal direct investment should not be overlooked,

particularly in the obvious area of Turk ownership, and ones own knowledge, skills, hobbies

and acquaintances can also be put to advantage. More money has been lost in the stock market,

then one can imagine simply because of the failure of investors to clearly define their objectives

and assess their financial temperaments. In analyzing the portfolios of individual investors, the

most common errors observed are: Firstly, portfolio is over diversified, containing so many

issues that the investors cannot follow closely the development in those companies.

Investment pattern of investors on different products Secondly, many portfolios suffer from

overconcentration in one or two issues. Thirdly, all too often, the quality of these securities is not

consistent with the stated investment goal and usually a portfolio contains too many speculative

securities. Fourthly, many individual investors are afraid to take losses; they want to wait for


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their stock to come back to the price they paid. Fifthly, most investors, without realizing it, do

not have a plan. They are buying and selling and believe is going where the action is instead of

sticking to an investment goal. Finally, most serious of all some investors consider only profit

potential never the risk factor. They try to wait for the bottoms to buy and tops to sell, they dont

learn from their mistakes and sight of their financial goals for the timeframe of the investment

objectives under pressure of hope, fear, or greed. For those who determine to win the losers

game, it is required:

1. Play your own game. Know your policies very well and play according to them all thetime.

2. Do the things do best? Make fewer but better investment decisions.3. Concentrate on your defences. Most investors spend too little time on sell-decisions.

Sell decisions are as important as buy-decisions. Investors should spend at least equal time in

making sell-decision.

Physically Difficult Approach Many investors seem to follow this approach, wittingly or

unwittingly. They look at the newspapers and financial periodicals to learn about new issues,

they visit the offices of brokers to get advice and application forms, and they apply regularly in

the primary market. They follow the budget announcements intently, they read CMIE reports to

learn about the developments in economy and various industrial sectors, they read investment

columns written by the so called experts, they follow developments in the companies, they

solicit information from company executives, they read the columns in technical analysis, and

they attend seminars and conferences. In a nutshell, they apply themselves assiduously,

diligently, and even doggedly. They operate on the premise that if they can be a step ahead of

others, they will outperform the market. The physically difficult approach seems to have worked

reasonably well for most of the investors in India since the late 1970s to the early 1990s, forthree principal reasons:

1. Typically, issues in the primary market have been priced very attractively.

2. The secondary market, thanks to limited competition till almost 1991, was characterized by

numerous inefficiencies that provided rewarding opportunities to the diligent investor.


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3. An advancing price-earnings multiple, in general, bailed out even inept investors. Things,

however, have changed from mid-1995.

The opportunities for subscribing issues in the primary market have substantially dried up as

companies, quite understandably, are placing securities with institutional investors at prices that

are fairly close to the prevailing market prices. Likewise, the scope for earning superior returns

in the secondary market has diminished as the degree of competition and efficiency is increasing,

thanks to the emergence of hundreds of new.

2.10 THREE APPROACHES TO SUCCEED AS AN INVESTOR:

As Charles Ellis argued, it appears that there are three different ways of earning superior risk-

adjusted returns on stock market. The first one is physically difficult, the second one is

intellectually difficult, and the third one is psychologically difficult 13. Investment pattern of

investors on different products the crucial point of losers game is to put the ba lance sheet and

the income statement through a fine screen. This is the first step in making sure to avoid a

mistake and will help the investor to keep away from letting the excitement make him move too

quickly. Remember the old saying. A fool and his money are quickly parted.

Intellectually Difficult Approach the Intellectually Difficult Approach to successful investing

calls for developing profound understandings of the nature of investments and hammering out a

strategy based on superior insights. This approach has been followed mainly by the highly

talented investors who have an exceptional ability, a rare perceptiveness, an unusual skill, or a

touch of clairvoyance.

The psychologically difficult approach essentially calls for finding ways and means of

substantially overcoming fear and greed. Its operational guidelines are as follows:

1. Develop an investment policy and adhere to it consistently.2. Do not try to forecast stock prices.

3. Rely more on hard numbers and less on judgment

4. Maintain a certain distance from the market place


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5. Face uncertainty with equanimity these guidelines look simple, but they are psychologically

difficult to follow. The bulk of the investors this appears to be only sensible approach to

improve the odds of their investment performance.

2.11 INVESTMENT AND SPECULATION:

Traditionally, investment is distinguished from speculation in three ways, which are based on the

factors of:

1. Capital gains.

2. Time period.

3. Risk. Investment pattern of investors on different products wishes experts cannot only analyze

information incorrectly; they can also find relationships that arent there- a phenomenon called

illusory correlation.

Investment Speculation Time Horizon Long-term time Short-term planning framework beyond

12 holding assets even months. For one day with the objective. Risk it has limited risk. There are

high profits and gains. Return it is consistent and high returns, though moderate over a long risk

of loss is high. Period. Use of funds Own funds through Own and borrowed savings funds.

Decisions safely, liquidity, Market behavior profitability and information, stability, judgments on

considerations and movement in the performance of stock market.

1. Capital Gain The distinction between investment and speculation emphasizes that if the

motive is primarily to achieve profits through price changes, it is speculation. If purchase of

securities is preceded by proper investigation and analysis and review to receive a stable return

over a period of time, it is termed as investment. Thus, buying low and selling high, makinglarge capital gain is associated with speculation.

2. Investment pattern of investors on different products the second difference is the

consideration of the time period. A longer-term fund allocation is termed as investment. A short-

term holding is associated with trading for the quick turn and is called speculation. The


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distinction between investment and speculation is helped to identify the role of the investor and

speculator. The investor constantly evaluates the worth of a security through fundamental

analysis, whereas the speculator is interested in market action and price movement. These

distinctions also draw out the fact that there is a very fine line of division between investment

and speculation. There are no established rules and loss, which identify securities, which are

permanent for investment. There has to be a constant review of securities to find out whether it is

a suitable investment. To conclude, it will be appropriate to state that some financial experts

have called investment a well grounded and carefully planned speculation, or go od investment

is a successful speculation. Therefore, investment and speculation are a planning of existing

risks. If artificial and unnecessary risks are created for increased expected returns, it becomes

gambling.

3. Risk The word risk has a definite financial meaning. It refers to possibility of incurring a loss

in a financial transaction. In a broad sense, investment is considered to involve limited risk and is

confined to those avenues where the principal is safe. Speculation is considered as an

involvement of funds of high risk. An example may be cited of stock brokers lists of securities

which labels and recommends securities separately for investments and speculation purposes.

Risk, however, is a matter of degree and no clear-cut lines of demarcation can be drawn between

high risk and low risk and sometimes these distinctions are purely arbitrary. No investments are

completely risk-free. Even if it safety of principal and interest are considered, there are certain

non manageable risks which are beyond the scope of personal power. These are (a) the purchasing

power riskIn other words, it is the fall in real value of the interest and the principal and (b) the

money rate risk or the fall in market value when interest rate rises. These risks affect both the

speculator and the investor. High risk and low risk are, therefore, general indicators to help and

understanding between the terms investments and speculation.

Investment pattern of investors on different products the risks are caused by the following factors:

1) Wrong decision of what to invest in.

2) Wrong timing of investment.

3) Creditworthiness of the issuer: The securities of Government end semi-Government bodies are

more credit worthy than those issued by the corporate sector and much less secure are those in the


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unorganized sector like indigenous bankers, shroffs, chit funds etc. private limited companies

share and shares of unlisted companies are more risky.

4) Maturity period is length of investment: The longer the period, the more risky is the investment

normally.

5) Amount of investment: The higher the amount invested in any security the larger is the risk,

while a judicious mix of investments in small quantities may be less risky.

6) Method of investment, namely, secured by collateral or not.

7) Terms of lending such as periodicity of servicing, redemption periods etc.

8) Nature of the industry or business in which the company is operating.

9) National and international factors, acts of god etc.

Reference was made to two types of Risk of investor: -

Systematic Risks-

Unsystematic Risks-

1. Systematic Risks Purchasing Power Risk: 19

Interest Rate Risk: The return on an investmentdepends on the interest rate promised on it and changes in market rates of interest from time to

time. The costs of funds barrowed by companies or stockbrokers depend on interest rates. The

market activity and investor perceptions change with the changes in interest rates. These interest

rates depend on nature of instruments, stocks, bonds, loans etc maturity of the periods and the

creditworthiness of the issuer of securities. But basically the monetary and credit policy, which is

not controllable by the investor, affects the riskiness of investments due their effects on returns,

expectations, and the total principal due to be refunded Market Risk: This arises out of changes

in Demand and Supply pressures in the markets, following the changing flow of the information

or expectations. The totality of the investor perception and subjective factors influence the events

in the market which are unpredictable and give rise to risk, which is not controllable. 19.

Investment pattern of investors on different products Systematic Risks are out of external and

uncontrollable factors, arising out of the market, nature of the industry and state of the economy


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and a host of other factors. In other words systematic risk refers to that portion of the total

variability of the return caused by common factor affecting the prices of all securities alike

through economic, political and social factors.

2. Unsystematic Risks- Unsystematic Risks emerge out of the known and controllable factors,

internal to the issuer of the securities or companies. In other words unsystematic risk refers to that

portion of the total variability of the return caused due to unique factors, relating that firm or

industry, through such factors as management failure, labour strikes, raw material scarcity etc.

While the systematic risk is common to all companies and has to be borne by the investor and

compensated by the Risk Premium, The unsystematic risk can be reduced by the investor through

proper diversification and planning a proper investment strategy for the purpose. Examples of

Systematic Risks

Financial Risk: This relates to the method of financing, adopted by the company, high leverage

leading to larger debt servicing problems or short-term liquidity problems due to bad debts,

delayed receivables and falls in current assets or rise in current liabilities. These problems could

no doubt to be solved, but they may lead to fluctuate.

Business Risk: This relates to variability of business, sales income, profits etc., which in turn

depend on the market conditions for the product mix, input supplies, strength of competitors etc.

This business risk is sometimes external to the company due to changes in government policy or

strategy of competitors or unforeseen market conditions. They may be internal due to fall in

production, labour problem, raw materials problem or inadequate supply of electricity etc. The

internal business risk leads to fall in revenues and in profit of the company, but can be corrected

by certain changes in the companys policies. Investment pattern of investors on different

products Inflation or rise in prices lead to rise in costs of production, lower margins, wage rises

and profit squeezing etc. The return expected by the investors will change due to change in real

value of returns. Cost pushed inflation is caused by rise in the costs, due to wage rise or rise in

input prices. Demand-pull forces operate to increase prices due to inadequate supplies and rising

demand. The increase in demand may be caused by changing expectation of future interest rates

and inflation or due to increase in money supply or creation of currency to finance the deficits of

the government. This element of purchasing power risk is inherent in all investments and cannot

be controlled by him. Examples of Unsystematic Risks Default or Insolvency Risk: The barrower


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or issuer of securities may become insolvent or may default, or delay the payments due, such as

interest installments or principal repayments. The barrowers credit rating might have fallen

suddenly he became default prone and in its extreme form it may lead to in earnings, profits and

dividends to share holders. Sometimes, if the company runs in to losses or reduced profits, these

may lead to fall in returns to investors or negative returns. Proper financial planning and other

financial adjustments can be used to correct this risk and as such it is controllable.

2.12 Marketability Risks:

Marketability Risks, involving loss of liquidity or loss of value in conversions from one asset to

another say, from stocks to bonds, or vice versa Such risks may arise due to some features of

securities, such as capability; or lack of sinking fund or Debenture Redemption Reserve fund, for

repayment of principal or due to conversion terms, attached to the security, which may go

adverse to the investor. All the above types of risks are of varying degrees, resulting in

uncertainty or variability of return, loss of income and capital losses, or erosion of real value of

income and wealth of the investor. Normally the higher the risk taken, the higher is the return.

But sometimes the risk is caused by acts of God and there may be no return at all. 2.6 Investment

and Gambling The difference between investment and gambling is very clear. From the above

discussion, it is established that investment is an attempt to carefully plan, evaluate and allocate

Management Risks: Management Risks, due to errors or inefficiencies of management, causing

losses to the company. Political Risks: Political risks, fallowing the changes in the government,

or its policy shown in fiscal or budgetary aspects etc., through changes in tax rates, imposition of

controls or administrative regulations etc. Investment pattern of investors on different products

insolvency or bankruptcies In such cases the investor may get no return or negative returns. An

investment in a healthy companys share might turn out to be a waste paper, if wit hin a short

span, by the deliberate mistakes of management or acts of God, the company became sick and its

share price tumbled below its face value. Other Risks In addition to the above major risks both in

controllable and uncontrollable categories, there are many more risks, which can be listed, but in

actual practice, they may vary in form, size and effect. Some of such identifiable risks are:


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Financial Assets Real Assets Real assets refer to tangible assets, which are in the form of land

and buildings, furniture, gold, silver, diamonds, or artifacts. These assets have a physical

appearance. They may be marketable or non-marketable. They may also have the feature of being

movable or non- movable. These assets are used to produce goods or services. . Investment

pattern of investors on different products funds in various investment outlets which offers safety

of principal, moderate and continuous returns and long-term commitment. Gambling is quite the

opposite of investment. It connotes high risk and the expectation of high returns. It consists of

uncertainty and high stakes for thrill and excitement. Typical examples of gambling are horse

racing, game of cards, lottery etc. Gambling is based on tips, rumours and hunches, it is

unplanned, non-scientific and without knowledge of the exact nature of risk. These distinctions

between investment, speculation and gambling give us a basic idea of their nature, purpose and

role. Investment and Arbitrage Investment is usually a planned method of safely putting ones

savings into different outlets to get a good return. Arbitrage is the mechanism of keeping ones

risk to the minimum through hedging and taking advantage of price differences in different

markets. The simultaneous purchase of the same or similar security in two different markets

would be an arbitrage transaction. Short-term gains can be expected through such transactions. An

investor can also be an arbitrageur if he buys and sells securities in more than one stock exchange

to take advantage of the price differentials in such exchanges. Derivatives introduced in the Indian

market have a great potential for arbitrage transactions. Arbitrage transactions help in enhancing

efficiency and liquidity in the stock market and in increasing the volume of trade. Hedgers,

speculators and arbitrageurs can make riskless profits through the arbitrage process.

Commodity Assets Commodities are a new form of investment in India. Commodity assets

consist of wheat, sugar, potatoes, rubber, coffee and other grains. Commodities are also in the

form of metal like gold, silver, aluminum and copper. It also consists of items like cotton oil and

foreign currency. Importers and exporters invest in commodities to diversify their portfolios.

Traders hedge or transact in commodities to make gains.


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2.13 Factors Favourable For Investment:

The investment market should have a favourable environment to be able to function effectively.

Business activities are marked by social, economic and political considerations. It is important

that the economic and political factors are favourable. Generally, there are four basic

considerations, which foster growth and bring opportunities for investment. A Stable Currency A

well-organized monetary system with definite planning and proper policies is a necessary

prerequisite to an investment market. Most of the investments such as bank deposits, life

insurance and shares are payable in the currency of the country. A proper monetary policy will

give direction to the investment outlets. As far as possible, the monetary policy should neither

promote acute inflationary pressures nor prepare for a deflation model. Neither condition is

satisfactory. Price inflation destroys the purchasing power of investments. Thrift is also

penalized when the net interest after taxes received by the investor is less than the rise in the

price level, leaving the investor with less total purchasing power than he had at the time of

saving. Inflation occurs generally in unstable conditions like war or floods but in the last decade,

it also discernible in peace conditions especially in developing countries because of huge

government deficit in creating infrastructure. Deflation is equally disastrous because the nominal

values of inventories, plant and machinery and land and building tend to shrink. An example of

the evil effects of deflation can be cited for the period 1929-1933 in the United States when the

shrinkage in nominal values came to a point of producing wholesale bankruptcy. A reasonable

stable price level, which is produced by wise monetary and fiscal management, contributes

towards proper control, good government, economic well being and a well- disciplined growth

oriented investment market and protection to the investor. Legal Safeguards A stable

government, which frames adequate legal safeguards, encourages accumulation of savings and

investments. Investors will be willing to invest their funds if they have the assurance of

protection of their contractual and property rights. In India, the investors have the dual advantage

of free enterprise and control. Freedom, efficiency and growth are ensured from the competitive

forces of private enterprises. Statutory control exerts discipline and curtails some element of

freedom. In India, the political climate is conducive to investment since the new economic

reforms in 1991 leading to liberalization and globalization. Investment pattern of investors on

different products


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Existence of Financial Institutions and Services The presence of financial institutions and

financial services encourage savings, direct them to productive uses and helps the investment

market go grow. The financial institutions in existence in India are mutual funds, development

banks, commercial banks, life insurance companies, investment companies, investment bankers

and mortgage bankers. The financial services include venture capital, factoring and forfeiting,

leasing, hire purchase and consumer finance, housing finance, merchant bankers and portfolio

management. Investment bankers are merchants of securities. They buy bonds and stocks of

companies for re-sale to investors. The investment bankers are distinguished from security

brokers who act as agents in buying and selling already issued securities for commission.

Mortgage bankers sometimes act as merchants and sometimes as agents on mortgage loans

generally on residential properties. They serve as middlemen between investors and borrowers

and perform collateral service in connection with loans. Commercial banks and financial

institutions also act as mortgage bankers in giving mortgage loans and servicing the loans. In

India, there are a large number of financial institutions under Central Government and State

Governments and rural bodies that have encouraged the growth of savings and investment. The

Life Insurance Corporation and Unit Trust of India offer a wide variety of schemes for savings

and give tax benefits also. Apart from these, there is a well-organized network of development

banks such as the Industrial Development Bank of India (IDBI), Industrial Credit Investment

Corporation of India (ICICI) and Industrial Finance Corporation of India (IFCI). At the state

level, there are State Financial Corporation, for rural areas and agriculture, the National Bank of

Agriculture and Rural Development (NABARD). These financial institutions and development

banks offer a wide variety of policies for encouraging savings and investment. These institutions

lend an element of strength to the capital market and promote discipline while encouraging

growth. Since 1991, there has been a development of the private corporate sector. Many new

financial institutions have emerged in the private sector. Insurance companies, mutual funds and

venture capitalists leasing companies have been opened up to private financing agencies. Foreign

banks have been allowed to do business. Thus, there is the presence of a large number of

institutions and services, which channel the funds in productive directions. Investment pattern of

investors on different products

Choice of Investment The growth and development of the country leading to greater economic

activity has led to the introduction of a vast array of investment outlets. Apart from putting aside


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savings in savings banks where interest is low, investors have the choice of a variety of

instruments. The question to reason out is which is the most suitable channel? Which media will

give a balanced growth and stability of return? The investor in his choice of investment will have

to try and achieve a proper mix between high rate of return and stability of return to reap the

benefits of both. Some of the instruments available are equity shares and bonds, provident fund,

life insurance, fixed deposits and mutual funds schemes. The three golden rules for all investors

are: Invest early Invest regularly Invest for long term and not short term One needs to invest for

Earn return on your idle resources Generate a specified sum of money for a specific goal in life

Make a provision for an uncertain future To meet the cost of inflation.

Fundamental analysis of various investment alternatives: Before investing in various investment

alternatives fundamental analysis is very necessary. A fundamental analysis believes that

analyzing the economy, strength, management, production, financial status and other related

information will help to choose investment avenues that will outperform the market and provide

consistent gain to the investor. Fundamental analysis is the examination of the underlying forces

that affect the interests of the economy, industrial sectors, and companies. It tries to forecast the

future movement of capital market using signals. Investment pattern of investors on different

products rom the economy, industry, company Fundamental analysis requires an examination of

the market from broader prospective. It also examines the economic environment, industrial

performance, and company performance before taking an investment decision.

Types of investment:

1. Short term Investment- It is an investment made by the investor for very short period of time

i.e. for one to three years. Such as investment in bank, money market, liquid funds etc.

2. Long Term Investment When investor invests money for more than three to five yearsthen it is called long term investment. Such as investment in bonds, mutual funds, fixed bank

deposits, PPF, insurance etc Company Analysis: Company analysis involved choice of

investment opportunities within a specific industry that consists of several individual companies.

How has the company been faring over the past few years? Seek information on its current

operations, managerial capabilities, growth plans, its past performance vis--vis its competitors

etc. Investment pattern of investors on different products o Cross study of performance of the


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industry. Industry performance over times. Differences in industry risk. Prediction about

market behaviors, Competition over the industry life cycle

Moderate investors Moderate investors want to increase the value of their portfolios while

protecting their assets from the risk of major losses. For example, a moderate investor might usean allocation model that has 60% in stock, 30% in bonds, and 10% in cash equivalents. While

they will tend to favor blue chip and other large-cap stocks, they may be willing to invest a

modest portion of their principal in higher risk securities such as international stock, small-

caps, and volatile sector funds in order to increase their potential for higher returns.

Conservative investors generally, conservative investors feel that safeguarding what they have is

their top priority. These investors want to avoid risk particularly the risk of losing any

principal (their original investment) even if that means theyll have to settle for very modest

returns. Conservative investors allocate most of their portfolios to bonds, such as Treasury notes

or high- rated municipal bonds, and cash equivalents, such as CDs and money market accounts.

Theyre generally reluctant to invest in stocks, which may lose value, especially over the short

term. When conservative investors do venture into stocks theyre often inclined to choose blue

chips or other large-cap stocks with well-known brands because they tend to change value more

slowly than other types of stock and often pay dividend income.

2.14Investor:Investor is a person or an organization that invest money in various investment sources for

specific objective. Attitude of investment is different in each alternative. E.g. financial market

have different attitude towards risk and return. Some investors are risk averse, while some have

an affinity of risk. The risk bearing capacity of investor is a function of personal, economical,

environment, and situational factors such as income, family size, expenditure pattern, and age. A

person with higher income is assumed to have higher risk- bearing capacity. Thus investor can beclassified as risk skiers, risk avoiders, or risk bearers.

Categories of Investors While there are as many investing styles as there are investors, most

people fall more or less into one of three broad categories: conservative, moderate, aggressive.


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Aggressive investors Aggressive investors concentrate on investments that have the potential

for significant growth. They are willing to take the risk of losing some of their principal, with the

expectation that they will30. Investment pattern of investors on different products l realize

greater returns. Aggressive investors might allocate from 75 to 95% of their portfolios to

individual stocks and stock mutual funds. While large- and small-cap stocks and funds may

make up the core of their portfolios, many aggressive investors will have significant holdings in

more speculative stocks and funds, such as emerging market and sector mutual funds. Since

aggressive investors focus on growth, they are usually less inclined to hold income producing

securities, such as bonds. An aggressive investing style is definitely not for the faint of heart. Its

best suited for investors with a long-term investing horizon of 15 years or more, who are willing

to make a long-term commitment to the stocks they buy. But history has shown that an

aggressive investing approach, combined with a well diversified portfolio, and the patience to

stick to a long-term buy-and-hold investing strategy through inevitable market downturns, can be

the most profitable in the long run. Before making any investment, one must ensure to: o Obtain

written documents explaining the investment o Read and understand such documents o Verify

the legitimacy of the investment o Find out the costs and benefits associated with the investment

o Assess the risk-return profile of the investment o Know the liquidity and safety aspects of the

investment o Ascertain if it is appropriate for your specific goals o Compare these details with

other investment opportunities available o Examine if it fits in with other investments you areconsidering or you have already made o Deal only through an authorized intermediary o Seek all

clarifications about the intermediary and the investment o Explore the options available to you if

something were to go wrong, and then, if satisfied, make the investment.

Investment pattern of investors on different products Investment Avenues: In India, numbers of

investment avenues are available for the investors. Some of them are marketable and liquid while

others are non-marketable and some of them also highly risky while others are almost risk less.

The investor has to choose Proper Avenue among them, depending upon his specific need, risk

preference, and return expected Investment avenues can broadly be categorized under the

following heads Corporate securities Equity shares Preference shares Debenture/Bonds

GDRs/ADRs Deposit in bank and non banking companies Post office deposits and certificate o

Life insurance policies o Provident fund schemes Government and semi-government securities o

Mutual fund and schemes Real estate


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1. Corporate securities:

(a) Equity share Total equity capital of a company is divided into equal units of small

denominations, each called a share. The holders of such shares are members of the company and

have voting rights. When company makes profit shareholder receives their share of the profit in

form of dividends. In addition, when company performs well and the future expectation from the

company is very high, the price of the companies share goes up in the market. Investor can invest

in shares either primary market offerings or in the secondary market.

(b) Preference shares Preference share as that part of share capital of the Company which enjoys

preferential right as to:

(i) Payment of dividend at a fixed rate during the lifetime of the Company;

(ii) The return Investment pattern of investors on different products of capital on winding up of

the Company. It is lie in between pure equity and debt. But preference shares cannot be traded,

unlike equity shares, and are redeemed after a pre-decided period. Also, Preferential Shareholders

do not have voting rights. These are issued to the public only after a public issue of ordinary

shares. Preference shares also get traded in the market and give liquidity to investor. Investor can

opt for this type of investment when their risk performance is very low.

(c) Debentures and Bonds It is a fixed income (debt) instrument issued for a period of more than

one year with the purpose of raising capital. The central or state government corporations and

similar institutions sell bonds. A bond is generally a promise to repay the principal along with a

fixed rate of interest on a specified date, called the Maturity Date. Many types of debenture and

bonds have been structured to suit investors with different time needs. Though having higher risk

as compared to bank fixed deposits, bonds and debentures do offer higher returns. Debenture

instruments require scanning the market and choosing specific securities that will cater to

investment objectives of the investor.

(d) Depository Receipts (GDRs/ADRs) Global depository receipts are the instrument in the form

of a depository receipts or certificate created by the overseas depository bank outside India and

issued to non-resident investors against ordinary shares. A GDR issued in America, is an

American Depositary Receipts. As investors seek to diversify their equity holdings, the option of


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GDRs and ADRs is very lucrative, while investing in such securities, investors should identify

the capitalization and risk characterizes of the instrument and the companies performance in the

home country.

(e) Warrants a warrant is a certificate giving its holder rights to purchase securities at a stipulated

price within a specified time limit. The warrants act as a value addition because holder of the

warrant has the right but not the obligation to investing in equity at the indicated rate. An option

contract often sold with another security. For instance, corporate bonds may be sold with warrants

to buy common stock of that corporation. Warrants are generally detachable. Investment pattern

of investors on different products generally have lives of up to one year. The majority of options

traded on exchanges have maximum maturity of nine months. Longer dated options are called

Warrants and are generally traded over-the counter.

2.Savings bank account with commercial bank Broadly speaking, savings bank account, money

market/liquid funds and fixed deposits with banks may be considered as short-term financial

investment options: Savings Bank Account is often the first banking product investors use, which

offers low interest (3.5% ), making them only marginally better than fixed deposits.

3. Bank fixed deposits Fixed Deposits with Banks are also referred to as term deposits. Fixed

Deposits in banks are for those investors, who have low risk appetite. Bank FDs is likely to be

lower than money market fund returns. Fixed deposits may be recurring deposits where in savings

are deposited at regular intervals or fixed deposits of varying maturities or with the varying notice

periods such as 15 days, etc. The interest rates on these deposits vary depending on the maturity

period, from 4 to 9%. In general, it is lower for fixed deposits of shorter term and higher for fixed

deposits of longer term. If the deposit period is less than 90 days, the interest is paid on maturity;

otherwise it is paid quarterly.

4. Company fixed deposits for a manufacturing company the term of deposits can be one to three

years, whereas for non-banking finance company it can vary between 25 months to five years. A

manufacturing company can mobilize, by way of fixed deposits, an amount equal to 25 percent of

its net worth from the public and an additional amount equal to 10 percent of its net worth from

its share holders. A non banking finance company, however can mobilize a higher amount. The

interest rates on company deposits are higher than those on bank fixed deposits.


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5. Post Office Time Deposits (POTDs): Similar to fixed deposits of commercial banks, POTDs

can be made in multiples of Rs 50without any limit. The interest rates on POTDs are, in general,

slightly higher than those on bank deposits. The interest is calculated half-yearly and paid

annually.

Investment pattern of investors on different products permitted up to 6 months. After 6 months,

withdrawals are permitted. However, on withdrawals made between 6 months and 1 year, no

interest is payable. On withdrawals after 1 year, but before the term of deposit, interest is paid for

the period the deposit has been held, subject to a penal deduction of 2%. A POTD account can be

pledged. Deposits in 10 years to 15 years Post Office Cumulative Time Deposit Account can be

deducted before computing the taxable income under Section 80c.

6. Monthly Income Scheme of the Post Office: Post Office Monthly Income Scheme is a low risk

saving instrument, which can be availed through any Post Office. It provides an interest rate of

8% per annum, which is paid monthly. Minimum amount, which can be invested, is Rs. 1,000/-

and additional investment in multiples of Rs. 1,000/-. Maximum amount is Rs. 3, 00,000/- (if

Single) or Rs. 6, 00,000/-(if held jointly) during a year. It has a maturity period of 6 years. A

bonus of 5% is paid at the time of maturity. Premature withdrawal is permitted if deposit is more

than one year old. A deduction of 1% is levied from the principal amount if withdrawn

prematurely. The 5% bonus is also denied.

7. Life insurance policies Insurance companies offer many investment schemes to investors.

These schemes promote saving and additionally provide insurance cover. LIC is the largest life

insurance company in India. Some of its schemes include life policies, convertible whole life

assurance policy, endowment assurance policy, jeevan Saathi, money back policy etc. Insurance

policies, while catering to the risk compensation to be faced in the future by investor, also have

the advantage of earning a reasonable interest on their investment insurance premiums.

8. Public Provident Fund: A long-term savings instrument with a maturity of 15 years it can be

made in monthly installments with a minimum of Rs.100 and a maximum of Rs.60,000 per

annum and interest payable at 8% per annum compounded annually. It is not transferable, but has

nomination facility. One withdrawal per financial year can be made any time after 5 years from

the end of the year in which the subscription is made. Withdrawal is limited to 50% at the end of


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the 4th year. All subscription of PPF is completely free and balances in PPF are not taken into

account for wealth tax purpose.

9. Government and semi-government securities It is a fixed income (debt) instrument issued for a

period of more than one year with the purpose of raising capital. The central or state government,

corporations and similar institutions sell bonds. A bond is generally a promise to repay the

principal along with a fixed rate of interest on a specified date, called the Maturity Date. The

government issues securities in the money market and in the capital market. Money market

instruments are traded in Wholesale Debt Market (WDM) trades and retail segments. Instruments

traded in the money market are short term instruments such as treasury bills and convertible

bonds.

10. Mutual fund these are funds operated by an investment company, which raises money from

the public and invests in a group of assets (shares, debentures etc.), in accordance with a stated set

of objectives. It is a substitute for those who are unable to invest directly in equities or debt

because of resource, time or knowledge constraints. Benefits include professional money

management, buying in small amounts and diversification. Mutual fund units are issued and

redeemed by the Fund Management Company based on the fund's net asset value (NAV), which

is determined at the end of each trading session. NAV is calculated as the value of all the shares

held by the fund, minus expenses, divided by the number of units issued. Mutual Funds are

usually long term investment vehicle though there some categories of mutual funds, such as

money market mutual funds, which are short term instruments. On the basis of objective we can

categories mutual funds as equity funds/growth funds, diversified funds, sector funds, index

funds, tax saving funds, debt/income funds, liquid funds/money market funds, gift funds,

balanced funds. And on the basis of flexibility we can categories them as open-ended funds,

close-ended funds and interval funds.

11. Real Estate Investment in real estate also made when the expected returns are very attractive.

Buying property is an equally strenuous investment decisions. Real estate investment is often

linked with the future development plans of the location. At present investment in real assets is

booming. Investment pattern of investors on different products there are various investment

source are available for investment which are directly or indirectly investing real estate.


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12. Bullion investment the bullion offers investment opportunity in the form of gold, silver, and

other metals; specific categories of metals are traded in the metal exchange. The bullion market

presents an opportunity for an investor by offering returns and the end value of future. It has been

absurd that on several occasions, when stock market failed, the gold market provided a return on

investments.

Sources of study for investors: A look out for new investment opportunities helps investors to

beat the market. There are many sources from which investors can gather the required

information. Such as;

(i) Financial institutions corporate house, government bodies and mutual funds are the mainsource of investment information. Many of these enterprises have their own website and post

investment related information on their websites.

(ii) Financial market Stock exchange and regulated bodies also provide useful information toinvestor to make their investment decisions. With respect to secondary market, the Securities

and Exchange Board of India uses various modes to promote investors education and takes

great effort to achieve an investor friendly secondary market in India. The Reserve Bank of

India also provide useful information relating to the prevent interest rates and non-banking

financial intermediaries that mobiles money through deposit schemes.

(iii) Financial service intermediaries these are intermediaries who promote securities among the

public. Many of these intermediaries are the agencies of specific instruments especially tax

saving instruments. These intermediaries offer to share their commission from there

concerned organization with the individual investor thus investor get additional advantages

while investing through intermediaries. Investment pattern of investors on different products

(iv) Media Press sources such as financial newspapers, financial magazine, business news

channel, websites etc. provide information related to investment to the public. Besidesinformation on securities, these sources also provide analysis of information and in certain

instance suggest suitable investment decisions to be made by investor. The foregoing

discriminations about stock market and investment having under stood its important and its

unique optimization in the money market


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The group eventually moved to Dallas Street in 1874 and in 1875 became an official organization

known as 'The Native Share & Stock Brokers Association'. In 1956, the BSE became the first

stock exchange to be recognized by the Indian Government under the Securities Contracts

Regulation Act. The Bombay Stock Exchange developed the BSE Sensex in 1986, giving the

BSE a means to measure overall performance of the exchange. In 2000 the BSE used this index to

open its derivatives market, trading Sensex futures contracts. The development of Sensex options

along with equity derivatives followed in 2001 and 2002, expanding the BSE's trading platform.

Today, BSE is the world's number 1 exchange in terms of the number of listed companies and the

world's 5th in transaction numbers. The market capitalization as on December 31, 2007 stood at

USD 1.79 trillion. An investor can choose from more than 4,700 listed companies, which for easy

reference, are classified into A, B, S, T and Z groups. The BSE Index, SENSEX, is India's first

stock market index that enjoys an iconic stature, and is tracked worldwide. It is an index of 30

stocks representing 12 major sectors. The SENSEX is constructed on a 'free-float' methodology,

and is sensitive to market sentiments and market realities. Apart from the SENSEX, BSE offers

21 indices, including 12 sect oral indices.

Investment pattern of investors on different products three segments of the NSE trading platform

were established one after another. The Wholesale Debt Market (WDM) commenced operations

in June 1994 and the Capital Market (CM) segment was opened at the end of 1994. Finally, the

Futures and Options segment began operating in 2000. Today the NSE takes the 14th position in

the top 40 futures exchanges in the world. In 1996, the National Stock Exchange of India

launched S&P CNX Nifty and CNX Junior Indices that make up 100 most liquid stocks in India.

CNX Nifty is a diversified index of 50 stocks from 25 different economy sectors. The Indices are

owned and managed by India Index Services and Products Ltd (IISL) that has a consulting and

licensing agreement with Standard & Poor's. In 1998, the National Stock Exchange of India

launched its web-site and was the first exchange in India that started trading stock on the Internet

in 2000. The NSE has also proved its leadership in the Indian financial market by gaining many

awards such as 'Best IT Usage Award' by Computer Society in India (in 1996 and 1997) and

CHIP Web Award by CHIP magazine (1999). The past decade has been quite remarkable for the

Securities market in India with the boom in the economy fuelled by better banking system. It has

grown exponentially and the market has also witnessed fundamental institutional changes. There

have also been significant improvements in efficiency, transparency and safety. However global


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economic activity decelerated towards the end of the calendar year resulting in investment

concerns on account of the sub-prime crisis in the US and other developed nations. Naturally the

effects of this slowdown spilled over into developing economies also and we are looking ahead

with some degree of concern over the prospects in the near future. In recent days economic

collapsed in variation of the foreign investors fund main effect of the Indian economy in 2008-

2009 the Bombay Stock Exchange (BSE) the sensex was 13,400 in the month of 8th July 2009. In

other side Nat

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