Study on Investment Behaviour of Business Class And Service Class of Society

School Of Economics DAVV Indore

Submitted To,

Submitted By, Radhika Naik MBA (Business Economics) 4th Semester

Table of Contents
INTRODUCTION..............................................................................................................3 INVESTMENT...................................................................................................................3 INVESTMENT TOOLS....................................................................................................6 Open-end fund...........................................................................................................10 Exchange-traded funds..............................................................................................10 Equity funds..............................................................................................................11 Bond funds................................................................................................................12 Money market funds.................................................................................................12 Funds of funds...........................................................................................................12 Hedge funds..............................................................................................................13 Review of Literature........................................................................................................14 Rationale of the Study.....................................................................................................16 Objective of the Study.....................................................................................................16 RESEARCH METHODOLOGY...................................................................................17 REFERENCES / BIBLIOGRAPHY..............................................................................18 QUESTIONNAIRE..........................................................................................................19

INTRODUCTION
Investment is a term with several closely-related meanings in business management, finance and economics, related to saving or deferring consumption. An asset is usually purchased, or equivalently a deposit is made in a bank, in hopes of getting a future return or interest from it. In this research we have tried to closely observe the investment behavior of following two classes.

INVESTMENT
Investment is a term with several closely-related meanings in business management, finance and economics, related to saving or deferring consumption. An asset is usually purchased, or equivalently a deposit is made in a bank, in hopes of getting a future return or interest from it. The word originates in the Latin "vestis", meaning garment, and refers to the act of putting things (money or other claims to resources) into others' pockets. The basic meaning of the term being an asset held to have some recurring or capital gains. It is a asset that is expected to give returns without any work on the asset parse. The various avenues available to individuals for investment are as follows:

1. Financial Markets
Financial market is a mechanism that allows people to easily buy and sell (trade) financial securities (such as stocks and bonds), commodities (such as precious metals or agricultural goods), and other fungible items of value at low transaction costs and at prices that reflect the efficient market hypothesis. Types of Financial Market 1.1. Money Market In finance, the money market is the global financial market for short-term borrowing and lending. It provides short-term liquid funding for the global financial system. The money market is where short-term obligations such as Treasury bills, commercial paper and bankers' acceptances are bought and sold. The money market consists of financial institutions and dealers in money or credit who wish to either borrow or lend. Participants borrow and lend for short periods of time, 3

typically up to thirteen months. Money market trades in short term financial instruments commonly called "paper". This contrasts with the capital market for longer-term funding, which is supplied by bonds and equity. The core of the money market consists of banks borrowing and lending to each other, using commercial paper, repurchase agreements and similar instruments. These instruments are often benchmarked to LIBOR. Finance companies such as GMAC typically fund themselves by issuing large amounts of asset-backed commercial paper (ABCP) which is secured by the pledge of eligible assets into an ABCP conduit. Examples of eligible assets include auto loans, credit card receivables, residential/commercial mortgage loans, mortgage backed securities and similar financial assets. Certain large corporations with strong credit ratings, such as General Electric, issue commercial paper on their own credit. Other large corporations arrange for banks to issue commercial paper on their behalf via commercial paper lines. In the United States, federal, state and local governments all issue paper to meet funding needs. States and local governments issue municipal paper, while the US Treasury issues Treasury bills to fund the US public debt.

Trading companies often purchase bankers' acceptances to be tendered for payment to overseas suppliers. Retail and Institutional Money Market Funds Banks Central Banks Cash management programs Arbitrage ABCP conduits, which seek to buy higher yielding paper, while themselves selling cheaper paper.

1.2.

Capital Market Capital Market is further sub divided into two types:1.2.1 Primary Market:-

The primary is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is an initial public offering (IPO). Dealers earn a

commission that is built into the price of the security offering, though it can be found in the prospectus. Features Of Primary Market are:1. This is the market for new long term capital. The primary market is the market where the securities are sold for the first time. Therefore it is also called New Issue Market (NIM). 2. In a primary issue, the securities are issued by the company directly to investors. 3. The company receives the money and issue new security certificates to the investors. 4. Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business 5. The primary market performs the crucial function of facilitating capital formation in the economy. 6. The new issue market does not include certain other sources of new long term external finance, such as loans from financial institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as going public.

Methods of issuing securities in the Primary Market are: 1. Initial Public Offer 2. Rights Issue (For existing Companies) 3. Preferential Issue 1.2.2 Secondary Market:The secondary market is the financial market for trading of securities that have already been issued in an initial private or public offering. Alternatively, secondary market can refer to the market for any kind of used goods. The market that exists in a new security just after the new issue, is often referred to as the aftermarket. Once a newly issued stock is listed on a stock exchange, investors and speculators can easily trade on the exchange, as market makers provide bids and offers in the new stock. In the secondary market, securities are sold by and transferred from one investor or speculator to another. It is therefore important that the secondary market be highly liquid (Originally, the only way to create this liquidity was for investors and speculators to meet at a fixed place regularly. This is how stock exchanges originated; see History of the Stock Exchange). Secondary marketing is vital to an efficient and modern capital market. Fundamentally, secondary markets mesh the investor's preference for liquidity (i.e., the investor's desire not to tie up his or her money for a long period of time, in case the investor needs it to deal with unforeseen circumstances) with the capital user's preference to be able to use

the capital for an extended period of time. For example, a traditional loan allows the borrower to pay back the loan, with interest, over a certain period. For the length of that period of time, the bulk of the lender's investment is inaccessible to the lender, even in cases of emergencies. Likewise, in an emergency, a partner in a traditional partnership is only able to access his or her original investment if he or she finds another investor willing to buy out his or her interest in the partnership. With a securitized loan or equity interest (such as bonds) or tradable stocks, the investor can sell, relatively easily, his or her interest in the investment, particularly if the loan or ownership equity has been broken into relatively small parts. This selling and buying of small parts of a larger loan or ownership interest in a venture is called secondary market trading. Under traditional lending and partnership arrangements, investors may be less likely to put their money into long-term investments, and more likely to charge a higher interest rate (or demand a greater share of the profits) if they do. With secondary markets, however, investors know that they can recoup some of their investment quickly, if their own circumstances change. The two major secondary markets in India are Bombay Stock Exchange (BSE) and National Stock Exchange (NSE)

The Bombay Stock Exchange Limited is the oldest stock exchange in Asia. The Bombay Stock Exchange was established in 1875. Around 4,800 Indian companies list on the stock exchange, and it has a significant trading volume. The BSE SENSEX (Sensitive index), also called the "BSE 30", is a widely used market index in India and Asia. Though many other exchanges exist, BSE and the National Stock Exchange of India account for most of the trading in shares in India. NSE The National Stock Exchange of India Limited (NSE), is a Mumbai-based stock exchange. It is the largest stock exchange in India in terms daily turnover and number of trades, for both equities and derivative trading. Though a number of other exchanges exist, NSE and the Bombay Stock Exchange are the two most significant stock exchanges in India and between them are responsible for the vast majority of share transactions.

INVESTMENT TOOLS
Investment tools are the pipelines through which the savings of people gets canalized to the assets that are expected to yield some returns over a period of time. Every investor has different level of risk appetite and according to there appetite for risk they choose different investment options. There are countless number of investment options available in the market for each type of investor.

Among the enormous number of investment options few are mentioned below: Bank fixed deposits Real Estate (property) Gold/Silver Insurance (ULIP) Bonds / Debentures Shares Mutual Funds

Bank Fix Deposits

Fixed deposits (FDs) are safe instrument to earn interest on cash you'll not need for awhile. You place with a specific sum of money for an agreed term and interest rate offered by the bank. Larger deposits or longer terms of duration are rewarded with higher interest rates. In general, the rates offered are higher than those of regular deposit accounts. At the end of the agreed term, you can take your deposit amount and earned interest or you can renew investment. Foreign currency FDs allow you to earn interest rates that are generally higher than those available in Singapore. Foreign currency FDs behave exactly as regular FDs with one exception: you need to convert your money into the target currency when you invest and back into any currency you want when you redeem. The fact that exchange rates move over time add an element of uncertainty to these investments. You can withdraw your funds upon maturity of your FD. You will be given your investment amount plus all accrued interest. Should you need to withdraw your funds prior to maturity, you are likely to incur a penalty. These usually imply the forfeiture of a portion of the interest you've earned. When you withdraw your funds from a foreign currency FD, you'll likely incur a fee for conversion back into Singapore dollars.

Real Estate (property)

Real estate is basically defined as immovable property such as land and everything permanently attached to it like buildings. Real property as opposed to personal or movable property is characterized by the right to transfer the title to the land whereas title to personal property can be retained. The investment in real estate essentially depends on the risks associated with it, that is to say, even if the venture succeeds when the future stream of income will accrue to the investor and the alternative investment opportunities. Real estate investment can be attractive if viewed as a business opportunity; it can generate rental income, using it as collateral to secure a loan for a business venture, to offset otherwise taxable income through cash savings on tax-deductible interest rate losses, or simply from the profits garnered from its resale.

Gold / Silver
Gold and silver bullion (physical to the hard money crowd) are truly an alternative investment. The other advantage of physical is its anonymity. Since they are not tied to a piece of paper or its electronic equivalent, bullion can be moved and stored with maximum privacy. The other advantage of physical is its anonymity. Since they are not tied to a piece of paper or its electronic equivalent, bullion can be moved and stored with maximum privacy. For this exact reason however, they are not a favorite of governments whose natural tendency is to expand its control. Although far from Ayn Rands romantic ideals, owning a little physical agrees with the libertarian in me. Besides, anyone who has seen a bullion coin would agree they are truly beauties to behold

Insurance (ULIP)
A Unit Link Insurance Policy (ULIP) is one in which the customer is provided with a life insurance cover and the premium paid is invested in either debt or equity products or a combination of the two. In other words, it enables the buyer to secure some protection for his family in the event of his untimely death and at the same time provides him an opportunity to earn a return on his premium paid. In the event of the insured person's untimely death, his nominees would normally receive an amount that is the higher of the sum assured or the value of the units (investments). To put it simply, ULIP attempts to fulfill investment needs of an investor with protection/insurance needs of an insurance seeker. It saves the investor/insurance-seeker the hassles of managing and tracking a portfolio or products. ULIP key features 1. Premiums paid can be single, regular or variable. The payment period too can be regular or variable. The risk cover can be increased or decreased. 2. As in all insurance policies, the risk charge (mortality rate) varies with age. 3. The maturity benefit is not typically a fixed amount and the maturity period can be advanced or extended. 4. Investments can be made in gilt funds, balanced funds, money market funds, growth funds or bonds. 5. The policyholder can switch between schemes, for instance, balanced to debt or gilt to equity, etc. 6. The maturity benefit is the net asset value of the units. 7. The costs in ULIP are higher because there is a life insurance component in it as well, in addition to the investment component. 8. Insurance companies have the discretion to decide on their investment portfolios. 9. They are simple, clear, and easy to understand. 10. Being transparent the policyholder gets the entire episode on the performance of his fund. 11. Leads to an efficient utilization of capital 12. ULIP products are exempted from tax and they provide life insurance. 13. Provides capital appreciation 8

Bonds / Debentures
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and is obliged to repay the principal and interest (the coupon) at a later date, termed maturity. A bond is simply a loan in the form of a security with different terminology: The issuer is equivalent to the borrower, the bond holder to the lender, and the coupon to the interest. Bonds enable the issuer to finance long-term investments with external funds. Note that certificates of deposit (CDs) or commercial paper are considered to be money market instruments and not bonds. Bonds and stocks are both securities, but the major difference between the two is that stock-holders are the owners of the company (i.e., they have an equity stake), whereas bond-holders are lenders to the issuing company. Another difference is that bonds usually have a defined term, or maturity, after which the bond is redeemed, whereas stocks may be outstanding indefinitely. An exception is a consol bond, which is perpetuity (i.e., bond with no maturity). Bonds are issued by public authorities, credit institutions, companies and supranational institutions in the primary markets. The most common process of issuing bonds is through underwriting. In underwriting, one or more securities firms or banks, forming a syndicate, buy an entire issue of bonds from an issuer and re-sell them to investors. Government bonds are typically auctioned. A Debenture is a long-term debt instrument used by governments and large companies to obtain funds. It is similar to a bond except the securitization conditions are different. A debenture is usually unsecured in the sense that there are no liens or pledges on specific assets. It is, however, secured by all properties not otherwise pledged. In the case of bankruptcy debenture holders are considered general creditors. The advantage of debentures to the issuer is they leave specific assets burden free, and thereby leave them open for subsequent financing. Debentures are generally freely transferrable by the debenture holder. Debenture Holders have no voting rights and the interest given to them is a charge against profit. In practice the distinction between bond and debenture is not always maintained. Bonds are sometimes called debentures and vice-versa

Shares
A share (also referred to as equity shares) of stock represents a share of ownership in a corporation. Stock typically takes the form of shares of common stock (or voting shares). As a unit of ownership, common stock typically carries voting rights that can be exercised in corporate decisions.

Mutual Funds
A mutual fund is a professionally-managed firm of collective investments that collects money from many investors and puts it in stocks, bonds, short-term money market instruments, and/or other securities. After realizing capital gains or losses, the investment proceeds are then passed along to the individual investors annually, through the fund manager, also known as the portfolio manager. The value of the mutual fund, known as the net asset value per share (NAV), is calculated daily based on the total value of the fund divided by the number of shares currently outstanding.

Types of Mutual Funds Open-end fund

The term mutual fund is the common name for an open-end investment company. Being open-ended means that, at the end of every day, the fund issues new shares to investors and buys back shares from investors wishing to leave the fund. Mutual funds may be legally structured as corporations or business trusts but in either instance are classed as open-end investment companies by the SEC. Other funds have a limited number of shares; these are either closed-end funds or unit investment trusts, neither of which is a mutual fund.

Exchange-traded funds
A relatively recent innovation, the exchange-traded fund or ETF, is often structured as an open-end investment company. ETFs combine characteristics of both mutual funds and closed-end funds. ETFs are traded throughout the day on a stock exchange, just like closed-end funds, but at prices generally approximating the ETF's net asset value. Most ETFs are index funds and track stock market indexes. Shares are issued or redeemed by institutional investors in large blocks (typically of 50,000). Most investors purchase and sell shares through brokers in market transactions. Because the institutional investors normally purchase and redeem in in kind transactions, ETFs are more efficient than traditional mutual funds (which are continuously issuing and redeeming securities and, to effect such transactions, continually buying and selling securities and maintaining liquidity positions) and therefore tend to have lower expenses.

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Exchange-traded funds are also valuable for foreign investors who are often able to buy and sell securities traded on a stock market, but who, for regulatory reasons, are limited in their ability to participate in traditional U.S. mutual funds.

Equity funds
Equity funds, which consist mainly of stock investments, are the most common type of mutual fund. Equity funds hold 50 percent of all amounts invested in mutual funds in the United States. Often equity funds focus investments on particular strategies and certain types of issuers.

Capitalization
Fund managers and other investment professionals have varying definitions of mid-cap, and large-cap ranges. The following ranges are used by Russell Indexes:

Russell Microcap Index - micro-cap ($54.8 - 539.5 million) Russell 2000 Index - small-cap ($182.6 million - 1.8 billion) Russell Midcap Index - mid-cap ($1.8 - 13.7 billion) Russell 1000 Index - large-cap ($1.8 - 386.9 billion)

Growth vs. value

Another distinction is made between growth funds, which invest in stocks of companies that have the potential for large capital gains, and value funds, which concentrate on stocks that are undervalued. Value stocks have historically produced higher returns; however, financial theory states this is compensation for their greater risk. Growth funds tend not to pay regular dividends. Income funds tend to be more conservative investments, with a focus on stocks that pay dividends. A balanced fund may use a combination of strategies, typically including some level of investment in bonds, to stay more conservative when it comes to risk, yet aim for some growth.

Index funds versus active management

An index fund maintains investments in companies that are part of major stock (or bond) indices, such as the S&P 500, while an actively managed fund attempts to outperform a relevant index through superior stock-picking techniques. The assets of an index fund are managed to closely approximate the performance of a particular published index. Since the composition of an index changes infrequently, an index fund manager makes fewer trades, on average, than does an active fund manager. For this reason, index funds generally have lower trading expenses than actively managed funds, and typically incur fewer short-term capital gains which must be passed on to shareholders. Additionally, index funds do not incur expenses to pay for selection of individual stocks (proprietary selection techniques, research, etc.) and deciding when to buy, hold or sell individual holdings. Instead, a fairly simple computer model can identify whatever changes are needed to bring the fund back into agreement with its target index. 11

Certain empirical evidence seems to illustrate that mutual funds do not beat the market and actively managed mutual funds under-perform other broad-based portfolios with similar characteristics. One study found that nearly 1,500 U.S. mutual funds underperformed the market in approximately half of the years between 1962 and 1992. Moreover, funds that performed well in the past are not able to beat the market again in the future (shown by Jensen, 1968; Grimblatt and Sheridan Titman, 1989.

Bond funds
Bond funds account for 18% of mutual fund assets. Types of bond funds include term funds, which have a fixed set of time (short-, medium-, or long-term) before they mature. Municipal bond funds generally have lower returns, but have tax advantages and lower risk. High-yield bond funds invest in corporate bonds, including high-yield or junk bonds. With the potential for high yield, these bonds also come with greater risk.

Money market funds

Money market funds hold 26% of mutual fund assets in the United States. Money market funds entail the least risk, as well as lower rates of return. Unlike certificates of deposit (CDs), money market shares are liquid and redeemable at any time. The interest rate quoted by money market funds is known as the 7 Day SEC Yield. Mutual Fund

Funds of funds
Funds of funds (FoF) are mutual funds which invest in other underlying mutual funds (i.e., they are funds comprised of other funds). The funds at the underlying level are typically funds which an investor can invest in individually. A fund of funds will typically charge a management fee which is smaller than that of a normal fund because it is considered a fee charged for asset allocation services. The fees charged at the underlying fund level do not pass through the statement of operations, but are usually disclosed in the fund's annual report, prospectus, or statement of additional information. The fund should be evaluated on the combination of the fund-level expenses and underlying fund expenses, as these both reduce the return to the investor. Most FoFs invest in affiliated funds (i.e., mutual funds managed by the same advisor), although some invest in funds managed by other (unaffiliated) advisors. The cost associated with investing in an unaffiliated underlying fund is most often higher than investing in an affiliated underlying because of the investment management research involved in investing in fund advised by a different advisor. Recently, FoFs have been classified into those that are actively managed (in which the investment advisor reallocates frequently among the underlying funds in order to adjust to changing market conditions) and those that are passively managed (the investment advisor allocates assets on the basis of on an allocation model which is rebalanced on a regular basis).

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The design of FoFs is structured in such a way as to provide a ready mix of mutual funds for investors who are unable to or unwilling to determine their own asset allocation model. Fund companies such as TIAA-CREF, Vanguard, and Fidelity have also entered this market to provide investors with these options and take the "guess work" out of selecting funds. The allocation mixes usually vary by the time the investor would like to retire: 2020, 2030, 2050, etc. The more distant the target retirement date, the more aggressive the asset mix.

Hedge funds
Hedge funds in the United States are pooled investment funds with loose SEC regulation and should not be confused with mutual funds. Some hedge fund managers are required to register with SEC as investment advisers under the Investment Advisers Act. The Act does not require an adviser to follow or avoid any particular investment strategies, nor does it require or prohibit specific investments. Hedge funds typically charge a management fee of 1% or more, plusperformance fee of 20% of the hedge funds profits. There may be a "lock-up" period, during which an investor cannot cash in shares. A variation of the hedge strategy is the 130-30 fund for individual investors.

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Review of Literature

1. "Factors Affecting Investors Preference for Mutual Funds In India", 2009, by Animesh Kumar Shukla, Sathishkumar.C A survey was conducted to gather primary data to judge the factors that influence investors before they invest in any of the investment tools and thus the first part of the paper scrutinizes the investors perception and analyzes the relation between the features of the products and the investors requirements. With this back ground an attempt has been made in this paper to categorize investors based on various demographic factors such as age, sex, income level and occupation. Objective: To categorize investors as being inclined towards investment products based on certain characteristic such as sex, age, academic qualifications, marital status, occupation, annual income etc. 2. "Factors Affecting preference for Mutual Funds in India and Performance Evaluation of Mutual Funds in India", 2009 by Ankit Singh, University of Hyderabad It contains the findings and analysis of the survey conducted to gather the primary data to judge the factors that influence the investors the most that influence before taking any decision to make investment in Mutual Funds. An attempt has been been made to know as to how important the various qualities of mutual fund schemes , various qualities of AMCs & the services offered are important to investors while making investment decision. Objective: To identify preferred avenue among investors & to identify investment pattern among investors & to categorize investors as being inclined towards investment products based on certain products based on certain parameters such as Sex , qualification, age occupation , annual income etc.

3. "A Study of Fund Selection Behaviour of Individual Investors Towards Mutual Funds - with Reference to Mumbai City" , 2006 by Kavitha Ranganathan, Madurai Kamaraj University This study has made an attempt to examine the related aspects of the fund selection behavior of individual investors towards Mutual funds, in the city of Mumbai. 14

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Rationale of the Study

The study aims at providing information regarding the investment behavior of the society. It also aims to get an idea about what are the preferred purposes that one seeks to fulfill out of the investment done by him. The study would help in revealing the factors that affects ones decision about the investment and to know the reason why an investor hesitates in investing in or is more attracted towards certain types of investment/tools. Thus the focus will be on to know the investment habits of the society.

Objective of the Study

The main objective of the research study is: To study the Investment Behavior of two major sectors of the society o The Business Class o The Service Class To study the main objective of an individual while investing To analyze the factors affecting the investment decision of the investor

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RESEARCH METHODOLOGY The Study: The study is explorative in nature & will be conducted to determine the investment behavior of the society. The study will also examine the purpose/thought process of the investor while investing their funds in the various investment options available to them.

The Study Area: The region chosen here for study is Indore city, keeping in mind the versatility of the various options available and opted by the people residing in the city. This city has a good combination of the Business class as well as service class people with a wide range of earnings and saving capacities. This combination is necessary for the study to be conducted, which therefore makes Indore a suitable area for city for study.

Sampling Plan:
The Sample size for the study is 200 Respondents from Indore City who are investing in various investment avenues. 100 respondents will be chosen from Business Class 100 respondents will be chosen from Service Class

The Tools:
Data Source:
This research involved primary data collection through personal interviewing of actual individual investors with the help of Questionnaire. It will also include some secondary data from sources like Internet & various other studies conducted

Data Analysis: Once collected the data, the raw sources were tabulated for statistical
analysis. Appropriate data analysis tools will be used to arrive at final results.

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REFERENCES / BIBLIOGRAPHY

Punithavathy Pandian, Security Analysis and Portfolio Management (2005), (Vikas Publications, 5th edition).

Internet sites: http://www.wikipedia.com http://www.investopedia.com http://www.nseindia.com http://www.scribd.com

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QUESTIONNAIRE
Personal Details:

Name : Address : Contact No. :. Que 1: To which class do you belong Youth Student Private Service Govt. service Designation: Business Others Middle age group Retired Private Service Govt. service Designation:Business Others

Que 2: Investment alternatives (Tick all the preferred alternatives) Bank fixed deposits Real Estate Bonds and Debentures Informal Loans Que 3: Purpose of Investment: Tax saving Risk Avoidance Higher Returns Que 4: Expected Return:1-5 % 5-8 % 8-12 % Que 5: Influencing Factors Knowledge Past Experience Media Advisor
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Equities Mutual Funds Plough back profits Others.

Future Safety Guaranteed Income Others.. 12-15 % 15 -20% 20 % and above

Market Condition Other

Internet

Que 6: Do you do not invest in Secondary Market, Y/N .. If No, what are the reasons? No Investment knowledge Market sentiments not good No interest No investment needs Lack of information Others No money for Investment Share market too complicated Too busy or no time Lack of confidence in market Loss experience

Que 7: What are the factors that drive you to make investment in secondary market Appropriate knowledge Higher returns Availability of time Fewer funds required Que 8: Term of investment Long term Investment (more than one year) Short term Investment (less than one year) Speculation (intraday trading) Que 9: Basis of selection of broker Brokerage Research and tips Online trading facility Service Other service charges Others. Better technology Flexible time period Liquidity Others.....

Thank you.

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