PROJECT REPORT ON

“STUDY OF INVESTMENT PATTERNS AND FINANCIAL PLANNING

FOR RETAIL INVESTORS”

BACHELOR OF MANAGEMENT STUDY

(SEMESTER VI) ACADEMIC YEAR : 2023-24

SUBMITTED BY
ASHISH ASHOK
SINGH
ROLL NO : 62054

PROJECT GUIDE
PROF. NEHA
KHANDARE

TILAK COLLEGE OF SCIENCE AND COMMERCE

VASHI, NAVI
MUMBAI
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MARCH 2024

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 (STUDY OF INVESTMENT PATTERNS AND
FINANCIAL PLANNING FOR RETAIL INVESTORS)

SEMESTER VI

A PROJECT SUBMITTED TO
UNIVERSITY OF MUMBAI FOR THE PARTIAL COMPLETION OF THE
DEGREE OF

BACHELOR OF MANAGEMENT STUDIES

UNDER THE FACULTY OF COMMERCE

SUBMITTED BY
ASHISH ASHOK
SINGH (ROLL
NO- 62054)

UNDER THE GUIDANCE OF

PROF. NEHA KHANDARE

TILAK COLLEGE OF SCIENCE AND COMMERCE

VASHI, NAVI MUMBAI MARCH 2024

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 ACKNOWLEDGEMENT

To list who all have helped me is difficult because they are so numerous and the depth is so
enormous.

I would like to acknowledge the following as being idealistic channels and fresh dimensions in
the completion of this project.

I take this opportunity to thank the University of Mumbai for giving me chance to do this
project.

I would like to thank my principal Dr, ANITA JOSHI, for providing the necessary facilities
required for completion of this project.

I would also like to express my sincere my gratitude towards my project guide PROF. NEHA
KHANDARE
whose guidance and care made the project successful.

I would like to thank my College Library, for having provide various reference books and
magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly helped me in the
completion of the project especially my Parents and Peers who supported me throughout my
project.

ASHISH ASHOK SINGH.

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 DECLARATION

I The Undersigned Miss/Mr. ASHISH ASHOK SINGH Hereby Declare that the work
embodied in this project work titled ‘ STUDY OF INVESTMENT PATTERNS AND
FINANCIAL PLANNING FOR RETAIL INVESTOR ’ forms my own contribution to the
research work carried out under the guidance PROF. NEHA KHANDARE is a result of my
own research work and has not been previously submitted to any other university for any other
degree/diploma to this or any other university.

Wherever reference has been made to previous work of other it has been clearly indicated as such
and included in the bibliography.

I, here by further declare that all information of this document has been obtained and presented
in accordance with academic’s rules and ethical conduct.

Name and signature of the

learner

Certified by
Name and signature of guiding teacher

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 INDEX

APTERNO. PARTICULARS PAGENO.

1 INTRODUCTION 8-17

1.1 INTRODUCTION TO FINANCIAL PLANNING 8

AND INVESTMENTS
1.2 SELECTION OF PROBLEM 9
1.3 IMPORTANT TERMS USED IN INVESTING 11
1.4 BENEFITS OF FINANCIAL PLANNING 14
2 RESEARCH METHODOLOGY 18-27

2.1 OBJETIVES 18
2.2 SCOPE OF THE STUDY 20
2.3 PREFACE 21
2.4 STATEMENT OF THE PROJECT 22
2.5 METHODS & TOOLS 23
2.6 DATA COLLECTION METHODS 24
2.7 LIMITATIONS OF THE STUDY 25
2.8 HYPOTHESIS 26
3 LITERATURE REVIEW 28-38

4 DATA ANALYSIS 39-83

4.1 PRIMARY DATA ANALYSIS 39

4.2 SECONDARY DATA ANALYSIS 51
5 CONCLUSION 84-86

5.1 CONCLUSION 84
5.2 EXECUTIVE SUMMARY 85
6 APPENDIX 87-88

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 LIST OF CHARTS:

CHARTNO. NAME OF CHART PAGE

NO.
1 AGE OF INDIVIDUALS 39
2 GENDER OF INDIVIDUALS 40
3 OCCUPATION OF INDIVIDUALS 41
4 NUMBER OF INVESTORS 42
5 INVESTMENT PREFERENCES 43
6 INVESTMENT PREFERENCE 44
IN RELATION TO THE SECTOR
7 PREFERED SECTOR IN INVESTMENT 45
8 INVESTMENT OBJECTIVE 46
9 FACTORS OF CONSIDERATION BEFORE INVESTING 47
10 IDEAL TIME PERIOD FOR INVESTMENTS 48
11 PERCENTAGE OF INCOME INVESTED 49
12 SOURCE OF INVESTMENT ADVICE 50

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 CHAPTER 1 - INTRODUCTION

1.1 INTRODUCTION TO FINANCIAL PLANNING AND INVESTMENTS

Financial planning is not just investing. It is a process. It allows you to manage your finances
in such a way that you link it to your goals. Making a standalone investment in a life
insurance product means nothing if you do not know the amount of cover you need, or
whether the maturity proceeds are adequate, or whether you need a life cover.

In India everybody earns money with an objective to fulfill one or many of one’s life goals.
People use money for purposes as simple as funding their daily household expenses to buying
exotic luxuries for a better life. Money can be saved, accumulated and grown to fund various
financial goals of a person. Such as education, marriage, house purchase, retirement and even
passing on as legacy to the next generation. So money earned is either used to fund some of the
immediate expenses or some goal in distant future. When money earned in to fund one of the
future goals, it needs to be invested in an optimum way to give maximum returns taking into
consideration.

The individual’s risk profile and time horizon of the goal and the taxation Aspects related to
personal finance. Financial to investors by way of various products that they offer. Contrary to
popular belief, mutual funds are not an asset class. They are vehicles that allow you to execute
your financial plan. Since in 2012 the financial planning is increasing day by day.

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1.2 SELECTION OF PROBLEM

Today, financial literacy is a major challenge in India. Studies have shown that 76% of Indian
adults do not understand basic financial planning concepts and they are not even working
towards enhancement of their financial literacy.

Financial planning is the process of meeting your life goals through proper management of
your finances. The life goals can include buying a home, saving for your child’s education &
marriage or planning for your retirement or protecting your family. It is a process whereby a
qualified financial advisor will consider your entire financial situation and goals and provide
you with appropriate action steps to fulfill your goals and better manage your finances. It is not
a one-time process but is continuous in nature as your life situations and finances change over
time. You also need to regularly review your financial plans & your investments to ensure that
you are well on track to meeting your financial goals / objectives.

Given the nature of today’s life, with growing uncertainty, rising aspirations and increasing
costs of living, doing a thorough financial planning has become a must for each of us. It is also
better to plan and be ready for any situation rather than be passive and wait for things to
happen before doing anything about it. A special case to mention is of Retirement planning,
which has become very critical since the average life expectancy has increased and appropriate
planning is needed to ensure that your 20-30 years of your life after retirement is dignified,
peaceful and self-reliant.

Most of us do not have adequate information about financial planning and only in recent years
has there been some growing awareness about it. Most of us though still believe that they are
knowledgeable and smart enough to decide upon their finances on their own ignoring the fact

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that this is a very broad subject that requires professional expertise. We are ready to visit and
pay an accountant, doctor, lawyer or any other professional but are shy when it comes to
financial planners. A better, secured financial life is a dream for all of us which, with proper
financial planning, can become a reality. The need is to be understand this crucial part of our
life and give it the importance and priority it deserves.

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1.3 Important Terms Used In Investing

In investment it is very important to understand that money is put to use wisely. Customers
always want to invest money in a way that they earn more than the rate at which prices of
goods increase.
Some of the important terms to remember are:

1. Investing

In financial terms, Investing is:

 Commitment of money or capital in a business, project or enterprises to gain a

profit after thoroughly analyzing the past performance and future prospects of
business, project or enterprise.
 Stocks, bonds, cash equivalents and mutual funds are the most common form of
investment.
 Stocks, bonds, mutual funds and certificate of deposits are commonly termed as
securities.
 Investments in each of these securities is possible either through the primary or
the secondary market route through financial intermediaries and distributors such
as investment banks, brokerage house and now banks as well.

2. Speculation

 Speculation implies the act whereby people make an investment in a risky asset, hoping
to obtain profits from future changes in the prices of the asset. This hope could be

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 based on reports that people may have heard but they may not have checked the
credentials of the assts.
 Investors speculate every time they money to something they do not understand. We
have learnt that investment making involves understanding the financial strength,
future prospects, expected returns and the corresponding risk. The detailed analysis
helps in taking a considered view.
 Speculation involves taking a short term view based on the volatilities of the market in
order to benefit from the price movements. A speculator works on the assumption of
favorable price movements which may or may not be happen. A speculator may use
technical charts and analysis to predict price movement but the same will lack scientific
rigor.
3. Gambling

 It may mean taking a pot-shot that may or not yield result. There is no real basis
for taking such actions except for some sort of hunch or tip and without any kind of
in- depth analysis of the company or its shares. A dart board investment style will
fall under this category.
 This is an interesting story to share. A group of people tested this in 1967 through the
Forbes magazine in New York. They threw darts at the stock markets quotations page
and picked in all 28 shares. A notional equal amount was invested in each of the
selected shares. Fifteen years after the experiment, it was found that their notional
portfolio had outperformed the stock market average.

4. Shorting

 There is time lag between the deal for sale and the delivery (say of shares), this allows
a person to sell something that he or she does not possess. During the time lag, the
investor buys the requisite quantity and if able to do so at a cheaper price that that of
the sale price, he or she is able to book a profit. This transaction is called short selling
or shorting.

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5. Hedging

 Every investment has an inherent risk and an investor takes steps to reduce this risk.
This technique is called hedging which may involve cover operations such as buying a
call or selling a put or taking forward cover against foreign exchange exposure etc.
 Another variation could be immunization. Especially in case of debt securities
where the investment may be balanced against liability such as loans by holding
contra position. This ensures that any movement in interest rates is automatically
offset.

6. Diversification

 Diversified portfolio the return is the weighted average return but the risk of the
portfolio is lower as compared to the risk in the individual securities.
 Individual investment should be so chosen that there is not much correlation amongst
investment. It should be remembered that the diversification also reduces the
probability of making higher than expected returns.

7. Arbitrage

 Arbitrage involves taking advantage of price differential in different markets. An

arbitrageur continuously monitors different markets with the help of sophisticated tools
and seeing an opportunity buys and sells in different markets to make large profits.
 Such price differentials tend to exist for every short period due to inefficiencies but
equally correct fast. However, such techniques are not as risk free as they may appear
due to timing and settlement differences.

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1.4 Benefits of Financial Planning

Financial Planning helps you give direction and meaning to your financial decisions. It allows
him to understand how each financial decision affects other areas of finance. For example,
buying a particular investment product may help your client to pay off his mortgage faster or
may buying a particular investment product may help your client to pay off his mortgage faster
or may delay his retirement significantly. By viewing each financial decision as a part of a
whole, you may help your client consider the long term and the short term effects on his life
goals.

The formulation and implementation of financial planning will help in empowering the
individuals through proper management of one’s finance. Financial education can be attributed
to the following reasons:

I. Knowledge and Skill

Today, an increase in the range and complexity of financial products has made it difficult for
an individual to take an informed decision. Financial education is essential because it develops
knowledge, skills and confidence to utilize financial products and services. It helps you to plan
your present well and at the same time, it enables you to control your future circumstances
effectively.

II. Freedom from Exploitation

Financial literacy will make you aware of your rights, plans, and benefits associated with
financial management. It will provide you with the right knowledge, and at the same time
protect you from tempting but fraudulent get-rich-quick schemes and the exorbitant interest
rate charged by moneylenders.

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III. Avoidance of over-Indebtedness
Financial education will help you understand the consequences of over-indebtedness and the
strategies to avoid it. Financial literacy will also improve the quality of services and lead
you toward making a wise financial decision.

IV. Promoting Entrepreneurship

New techniques, policies, and planning in financial education empower small entrepreneurs.
Small entrepreneurs are educated, they are already in the business and are often looking for
opportunities to grow. Financial education benefits entrepreneurs by expanding awareness
about new financial products and at the same time, it also helps them to understand the
dynamics of market mechanism and improve their business dealings.

V. Positive Spillover effects

Financial education can lead to multiplier effects in the economy. A financially aware
household would resort to regular savings, which, in turn, would lead to investment in right
channels and income generation. The financial well-being of individuals will, in turn, increase
the welfare of the society.

VI. Shifting of Pension Responsibilities from State/ Corporations to Individuals

A financially educated person would be more aware of the benefits of financial management
and planning. Such persons would be in a better position to assess their requirements and make
savings in appropriate schemes for future goals. If every individual in India is financially
literate. It will reduce the strain on social programs and pension plans, also it will foster an
economy that is more resilient.

VII. Deeper Participation in Financial Markets in India

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It’s essential for us to convert savers into investors. Since the percentage of financial literacy
in India is very low, the number of individuals investing in financial markets is also low. We
need the participation of domestic retail investors in securities market to give dividends by
increasing the depth of the securities market, for reducing the dependence on foreign investors.
This will allow domestic savers to reap the benefits of corporate growth and will also reduce
the strain on Government Treasury for investment in National Infrastructure. All this can only
be achieved if our population is sound in principles of financial literacy.

 Tips to achieve the best results from your financial planning:-

Set measurable financial goals:-

Set specific targets of what you want to achieve and when you want to achieve results.
E.g. Instead of saying you want to be "comfortable" when you retire or that you want your
children to attend "good" schools, you need to quantify what "comfortable" and "good" mean
so that you'll know when you've reached your goals.

Understand the effect of each financial decision:-

Each financial decision you make can affect several other areas of your life. E.g. an
investment decision may have tax consequences that are harmful to your estate plans. Or a
decision about your child's education may affect when and how you meet your retirement
goals. Remember that all of your financial decisions are interrelated.

Re-evaluate your financial situation periodically:-

Financial planning is a dynamic process. Your financial goals may change over the years due
to things like an inheritance, marriage, birth, house purchase or change of job status. Revisit
and revise your financial plan to stay on track with your financial goals.

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Start planning as soon as you can:-

People who save or invest small amounts of money early and often tend to do better than those
who wait until later in life. By developing good financial planning habits such as saving,
budgeting, investing and regularly reviewing your finances early in life, you will be better
prepared to meet life changes and handle emergencies

Be realistic in your expectations:-

Financial planning won’t change your situation overnight; it is a lifelong process. Remember
that events beyond your control such as inflation or changes in the stock market or interest
rates will affect your financial planning results.

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 CHAPTER 2 – RESEARCH METHODOLOGY

2.1 OBJECTIVES

This project was undertaken to know what exactly one means by Financial Planning. How it is
carried out? Who carries it out? Why it is carried out? When it is carried out? And most
importantly what are the benefit of carrying it out? This project also helps us understand
different investment patterns among retailers, their goals and their preferences.

 To take an overview of the investor’s short and long term goals.

 To have the investor’s current financial strengths and weaknesses and implication of
financial plan.

 To study the investor’s financial objectives anchored to current resources.

 To give a detailed summation of all recommendations.

 To suggest appropriate financial plan for mutually selected recommendations.

 To also give comprehensive economic overview of the investor’s financial plan,

supported by financial statements.

 To follow step by step implementation and monitoring plan.

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 To study various investment options

 To understand investors preferences and goals

 To study occupation as a determinant of investor preferences

 To evaluate the effect of academic qualification on investments

 To analyze gender as a factor for investments

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2.2 SCOPE OF THE STUDY

Personal financial planners are not just for wealthy people. Every individual can benefit
from objective help to create, grow, accumulate and utilize wealth to fulfill one’s
personal goals, family goals and other lifestyle objective systematically without any
anxiety. Financial planners can guide individuals to achieve their ultimate aim of
spending retired life peacefully without compromising living standards. A qualified
financial planner will provide advice on

• Systematic saving
• Cash flow management
• Debt management
• Assets allocation of investment
• Managing risk through insurance planning
• Tax strategies to increase inventible surplus
• Distribute residual wealth through estate planning

Financial planning is a profession for people with good communication skills combined
with knowledge of how financial service industry works. As a financial planner one
could work for a bank, insurance company, a brokerage house or have own practice.
Most important is to understand that the suitability of products you are guiding people
to purchase is based on their risk appetite, age an time frame of goals and objectives.
Financial planners need to update themselves constantly on new products, services and
tax law that might be good for their clients. This is filed that requires a life time
continuing education. A trusted financial planner can play an important role in people’s
lives helping them to achieve dream such as owning a home, seeing their children’s

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 education-marriage and enjoy an active retirement.

2.3 PREFACE

The investment & financial planning is increasing in developing economies. While taking
up this project gradual changes found in investment is show how the strategic management
can be. It talks about the investment and financial planning and its overall impact on
market. The consumer also faces a wide array of complex choices a plane. These choices
are so complex that most people, including highly educated professionals in nonfinancial
areas, cannot make all the needed financial decisions correctly or even in a timely way in
many cases. One result of this burden is that many middle- and upper-income Americans
seek counsel to assist their decision making.
They may find this counsel at the nearest bank, it may come over the phone from a
securities dealer, it may be delivered in the home by a life insurance agent or, with
increasing frequency in recent times, and it may come on a home computer. it consider a
few of the decisions Indian face as they mature from being a young adult, to middle age,
and then on to old age. Of course, not every person must make each of these decisions, but
most Indians will make some or all of the following choices.
How much money should be saved and how should savings be held. How survivors should
be protected from the effects of a premature death. How a house should be financed the
most efficient way. How a child’s education should be financed. how should a family be
protected from loss of income caused by accident or illness all this are financial planning
are important .I always had curiosity to know how investment & financial planning creates
inorganic growth in financial market. Thus this research will determine the outcome of
success rate takeover on market.
A financial market is the vertebrae of an economic scheme. It helps the allotment of share
capital crosswise in the productive sectors of the economy. This allocation of capital helps
to keep up strong weather for savings and investment. The financial system has more
dynamic than the real system as it has always reacted to the needs of the economy to help
to complete its goals. In the present financial system, there are so many investment
avenues to choose, today in financial

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2.4 STATEMENT OF THE PROJECT

The statement of the problem under study is to analyze the investment pattern of investors and
the popularity of different products for investment. This project identifies the investors’
perception and their risk taking ability while investing in different products of market. It
highlights the different avenues for investing money. It draws attention to the investment
patterns prevalent in different economies and through a survey identifies how individuals
invest with respect to associated risk. This project also identifies different types of risks
involved and managed while investing.
In this project report there are many facts which say whether an investor should invest in
financial planning in India or not. For the conclusion on this part, we have analyzed economic,
industry as well as company
In the Economic Analysis we can see that economic is booming after 2009 and current position
shows that this is the good time to invest after the recession because GDP growth rate is
increasing. And overall economy is growing. In the market here we can see Growth in the
financial planning, demand & supply is rising fast.
Financial planning is having much profit and on the other side investment growth has
increased very much so investor should invest carefully. In the market but if investor want to
invest in the market for long term than he can have a good profit because financial market is
growing rapidly in terms of returns and this research will help me to know the outcome of
success rate takeover on market.

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2.5 METHODS & TOOLS

Research Methods are Primary as well as Secondary research was employed in this project.

Primary research is the first hand research that the researcher collects, by interacting with the
sample population and the conclusions and analysis he/she draws from the data that has been
obtained.

• Primary research in this project involved interacting with 80 consumers to know, understand
and comprehend their investment habits.

Secondary research is the background research done by the researcher on already existing
information regarding the topic.

• This helps the researcher in determining whether previous research papers have been written
on that particular topic and if and how new ground on that particular topic can be covered. It
also helps the researcher in building a base for the questions to be asked to the sample
population and to construct an informative questionnaire and ask all the right questions.

• Secondary research in this project involved reading and examining various research
papers, journals and books written on or related to ‘investment patterns and risks involved’.

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2.6 DATA COLLECTION METHODS

Quantitative Data: Surveys

• This method captures information through the input of responses to a research instrument
containing questions (such as a Questionnaire). Information can be input either by the
respondents themselves (E.g.: An Online Survey) or, the researcher can input the data (E.g.: a
phone survey, a one-on-one survey, a mall intercept, etc.)

• The main methods for allocating surveys are via a website, postal mail, phone, or in person.
However, newer technologies are creating additional delivery options including through
wireless devices, such as smart phones and expertise wherein the information gets recorded in
real time and can be viewed and captured very easily through pie charts and bar graphs.
• In this report, the research instrument used is a questionnaire and an online portal
called Google Forms has been used to make it available to the respondents.

• The sample size is 80 respondents. Most consumers were forthcoming with their
responses and displayed significant interest and involvement. The responses have been
recorded and conclusion has been drawn by analyzing the reactions.

Qualitative Data Collection

• Qualitative data collection requires researchers to interpret the information gathered, most
often without the benefit of statistical support. If the researcher is well trained in interpreting
respondents’ comments and activities, this form of research can offer very good information.
For example, a researcher may want to know more about how customers make purchase
decisions. One way to do this is to sit and talk with customers using one-on-one interviews.
However, if the interview process allows the researcher to vary what questions are asked (i.e.,
not all respondents are asked the same questions), then this type of research may lack
controls needed to follow a scientific approach.

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2.7 LIMITATIONS OF THE STUDY

1. Lack of resources was the major constraint. There is a constraint with regard to
restricted movement due to the current pandemic for the research study.

2. The sample size was limited hence a detailed study of the topic was not possible.

3. The data collected is basically confined to secondary sources, with very little amount of
primary data associated with the project.

4. The sample was taken from the population residing in Mumbai only. Thus the
results are not applicable to the whole of India.

5. Non co-operation of some respondents has also affected the research results. Being an
opinion survey, a lot of subjectivity is involved in the study with the possibility of
respondents being biased cannot be ruled out. Also the limited knowledge of the
respondents regarding the topic may hamper the rue conclusion of the study.

6. The availability of information in the form of annual reports & price fluctuations of the
companies is a big constraint to the study.

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2.8 HYPOTHESIS

A hypothesis is a specific, testable prediction about the relationship between two or more
variables. The hypothesis begins with a question, which is then explored through research. It
should always explain what one expects to happen during the course of the research. It can be
a true or false statement which is tested for authenticity. The statement of hypothesis should be
precise and clear and should have a limited scope. “H₀” is the null hypothesis, and “Hᴀ” is the
alternative hypothesis.

The hypothesis of this study is as follows:

1. H₀: Majority of the investors invest in Mutual

Funds. Hᴀ: Majority of the investors do not invest in Mutual
Funds.

2. H₀: Investors above the age of 60 prefer investing in mutual

funds. Hᴀ: Investors above the age of 60 do not prefer investing in mutual
funds.

3. H₀: Investors with a higher academic qualification prefer investing in other

investment avenues.
Hᴀ: Investors with a higher academic qualification prefer investing in mutual funds.

4. H₀: Investors having a lower annual income invest in mutual funds. Hᴀ:
Investors having a higher annual income invest in mutual funds.

5. H₀: Majority of the individuals who are students invest in mutual

funds. Hᴀ: Majority of the individuals who are students do not invest in mutual
funds.
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6. H₀: Female investors prefer investing in mutual funds. Hᴀ: Male investors
prefer investing in mutual funds.

7. H₀: Low awareness about mutual funds leads to higher investments in mutual
funds. Hᴀ: Full awareness about mutual funds leads to higher investments in mutual funds.

8. H₀: Investors with high risk appetite invest more in Debt Schemes of mutual
funds. Hᴀ: Investors with high risk appetite invest more in Equity Schemes of mutual
funds.

9. H₀: Majority of the investors invest in close ended schemes. Hᴀ: Majority of
the investors invest in open ended schemes.

10. H₀: The investment objective of majority of the investors is “wealth creation” Hᴀ:
The investment objective of majority of the investors is not “wealth creation”

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 CHAPTER 3 – LITERATURE REVIEW

STUDIES CONDUCTED ON INVESTMENT BEHAVIOUR AND

PATTERNS

 A study of investor behavior on investment avenues in Mumbai Fenil was undertaken

by Brahmabhatt, P.S Raghu Kumari, and Dr. Shamira Malekar. In this study they
analyzed the investor behavior and their preferences. The objectives for their study
were to understand about various investment avenues available in the market, to
understand the pattern of investors while making the investments, & to find out the
factors that investors consider before investing. Through their study it was revealed
that people like to invest in stock market. The percentage of income they make as
investment depend on their annual income.

 A study on people's preference in investment behavior was made by N.Geetha & Dr

M.Ramesh. The objectives were to analyze the factor that influence investment
behavior of the people & to study the attitude of the respondents towards different
investment choices. In this study they concluded that the respondents were medium
aware of the available investment choices, but they were not aware of the stock
market, equity & debentures. The study has been concluded that the income level of
the respondents affects the portfolio of the respondents.

 A study on Investment behavior of working women of Punjab was conducted by Dr.

Sarita bahl. The purpose of the analysis was to study the investor behavior & investor
preference. The objectives of the study were to study the investment behavior among
the working women in Punjab & to know the level of agreement of working women of
Punjab on various aspects of investment planning. The study reveals that 33 % of the

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 women have a well-developed plan for investment. It also infer that 48 % of the
working women think that one should start to invest whenever they find a new job or
occupation. 18 % of the working women have invested in shares & stocks.

 A study on saving pattern and investment preferences of individual household in India

was conducted by Meenakshi Chaturvedi and Shruti Khare. The objectives of the study
were to study the saving pattern of the individual household in India, to analyze the
Investment preferences of individual household in India, to study relation of saving
pattern and investment preferences to social, economic, educational and occupational
background of the individual household & to give suggestions for evolving better
investor awareness and educational programs. It is concluded from the study that
Majority of the respondent (79.6%) stated that they had a high degree of awareness
about bank deposits as investment avenues. It is found from the study that level and
extent of awareness varies with the level of income.

 Sharpe, William F (1966) developed a composite measure of return and risk. He

evaluated 34 open-end mutual funds for the period 1944-63. Reward to variability ratio
for each scheme was significantly less than DJIA (Dow Jones Industrial Average) and
ranged from 0.43 to 0.78.

 Expense ratio was inversely related with the fund performance, as correlation
coefficient was 0.0505. The results depicted that good performance was associated
with low expense ratio and not with the size.

 A Study of Investment Awareness and Patterns of Savings and Investments by

Investors Investor’s perceptions and attitudes towards savings and investment avenues
are deeply influenced by socio-economic environment. Education, income level,
values, customs and beliefs and accessibility to financial services determine the
investor’s behavior. Agrawal (2009) noted that there is no significant difference
between male and female investors in the expected rate of return. Selvakumar and
others (2012) explained that awareness about investment avenues is very low among

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rural people compared to urban people. The research scholars suggested that
educational status should be improved in the rural sector. Reddy S. G. (2005) observed
that the investors invest their funds on the basis of rate of return. Most of the investors
studied by him had preferred to invest in pension policies in hope of getting tax
benefits. Syed Tabssum Sultana and Pardhasaradhi S, (2011) concluded in their
empirical study that Indian individual investors are conservative investors. Marital
status, earnings, occupation and number of dependents are significant factors associated
with risk tolerance. Vyas Ravi and Moonar Surendra (2012) found that gold was the
first preference of the investors followed by bank deposits, life insurance and postal
deposits. Kumar Rajesh and Arora R. S. (2013) suggested that investors need
investment education and well informed about investment avenues through TV,
internet, Newspapers and professional journals in order to enhance the awareness level.
Priyalaxmi and Dhanlaxmi (2014) examined investors’ preferences towards various
forms of investment viz., shares, bank deposits, gold, real estate, life insurance, postal
savings and mutual funds and found that bank deposits were popular among the
investors. The researchers concluded that there was no significant association between
income level and investment awareness level. Kathuria and Singhania (2010) found
that print media and websites are two most important sources of information that
helped investors to make investment decisions. The investors had given preference to
postal deposits, insurance and public provident funds. Kasilingam and Jayapal (2010)
pointed out that the choice of individual investors is affected by family income, timing
of investment and savings motives. In contrast to this, Keshvan, Chidambaram and
Ramchandran (2012) noticed that age, gender, educational qualification, occupation
and annual income do not influence the type of investment avenues. It is to be noted
that not much research studies have been conducted on the awareness level of rural
investors and their pattern of investment in India. Finding the gap, the present study
was designed to understand the association between education and investment
awareness level and preferences of rural investors

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RESEARCH PAPER ON INVESTMENT PATTERNS BY RETAILERS

Abstract

The nature of financial markets has changed drastically. Investing money has become a very
complex task because of the huge number of savings and investment companies and products
offered by them, terms and conditions of investments, and prevalent complex rules and
regulations. Most of the investors, particularly rural investors, are found to be unaware about
investment avenues and rules and regulations. In spite of remarkable growth of our economy
and increasing income levels of people, the pace of savings mobilization is lower in India.
Rural savings are not mobilized and invested properly. Investment is an economic activity
which creates capital required for various sectors of the economy. So, every earning person
should be motivated to save and invest his/her money. The study attempted to find out the
awareness levels of rural investors about various investment avenues, their preferences, and
considerations for investing money.
A sample of 300 respondents was selected from four villages from Sillod block of Aurangabad
district, Maharashtra. The major focus of the study was on investigating whether there was a
difference between investment awareness levels and educational qualifications of male and
female rural investors. The study disclosed that there was no significant difference in
awareness levels of rural male and female investors and their educational qualifications. The
investment preference order of the respondents indicated that they wished to park their
investments in 'safe' options only. Bank deposits, gold and jewelry, real estate were popular
investment avenues for a majority of the investors.

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ARTICLE 1:

“SEBI to Hire Agencies” (2020) SEBI to Hire Agencies to Conduct Studies to Gauge
Millennials' Savings, Investment Behaviour,
https://economictimes.indiatimes.com/markets/stocks/news/sebi-to-hire-agencies- to-conduct-
studies-to-gauge-millennials-savings-investment- behaviour/articleshow/74117771.cms
SEBI is looking to appoint an agency to conduct a digital survey of investors which will help
the markets regulator in gauging financial savings and investment behaviour of millennials. In
addition, the regulator plans to conduct a study on household investors to determine their risk
profile and relate it to their investment behaviour as well as to find out mutual fund investors'
behaviour and investment patterns.
In separate notices, SEBI has invited Expression of Interest (EOI) from agencies to conduct a
pan-India digital survey of investors and a survey of household investors. The regulator is
seeking to appoint agencies having extensive experience in conducting online survey,
preparing questionnaires, data collection, computing, analysis and report writing, among
others. Further, the tabulation of information and studies is to be done at state level as well as
national level.
The Securities and Exchange Board of India (SEBI) said that final analysed reports should be
submitted within 6 months and 12 months from the date of signing the contract for digital and
household surveys, respectively.

The digital survey of investors, conducted among the investing as well as the non- investing
individuals, will assess the financial savings and investment behaviour of millennials. The
proposed survey will be conducted online and will have pan India coverage. Through this, the
regulator plans to find out awareness among them about financial planning, financial markets,
financial products and risk-returns profile of the different investment products.
Also, SEBI will study the perception of this new generations about market integrity and
transparency. It will also help the regulator in finding out issues and challenges faced by
millennials in making right investment and their demands and ways to improve their
participation in the securities market.

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Among others, it also help the regulator to determine investors' participation in different
segments of securities markets -- equity cash, debt, equity derivatives, currency derivatives,
interest rate derivatives and commodity derivatives and to find out the reasons for non-
investment in securities market and also response to public and private issues of the equity and
debt securities.

ANALYSIS:

• In order to improve the mutual fund industry, the regulatory body of mutual
funds, Securities and Exchange Board of India, plans on taking more initiatives in order
to understand the investor preferences and choices.

• Pan-India digital surveys are going to be conducted by various agencies to

understand the retail investor behaviour, and to assess the behaviour of financial and non-
financial investors.

• This process is necessary to provide insights on the areas of mutual funds that
require improvements, which, once rectified, will attract more investors, both retail and
institutional.

• The challenges faced by investors will be taken into consideration and initiatives
to ensure transparency will be implemented by the SEBI.

• After the assessment of investor participation in various segments of the market,

it will become possible to promote the various mutual funds based on the preferences of
investors.

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ARTICLE 2:

Larissa Fernand (2018) Investor Behaviour and Impact on Performance,

https://www.morningstar.in/posts/56037/investor-behaviour-impact- performance.aspx
Timing is the bane of investors everywhere. We fear buying or selling at the wrong time.
Given the volatility in markets, bad timing can cost you dearly. Those are the words of
Russel Kinnel, director of manager research for Morningstar.
He wrote about the Mind the Gap 2019 study where we calculate Morningstar Investor Returns
to understand how investors actually fared in a fund when you take cash flows into account.
Axis Mutual Fund did a similar study for Indian investors. As investor returns tend to be lower
than fund returns as a result of the frequent churn, they conducted a study to measure the
effect of buy-sell decisions on long-term performance. They looked at performance across
different category of funds and concluded that investor flows are not stable but tend to follow
market performance.
Consequently, their realized returns are much worse than what they would have achieved by
using either simple buy-and-hold or systematic investment strategies. This effect is persistent
across different time periods and shows that there has been little change in investor behaviour
over the last 15 years.
Here's some advice from Russ Kinnel. To make the most of your mutual funds, you need a
good plan and the willingness to stick with it amid all the drama in the markets. In addition, it
helps to know if volatility in individual funds is the sort of thing that will cause you to sell to
just stop the pain. If so, seek out less risky funds.
Your plan should include shifts to less-risky assets over time so that you don’t wake up to a
bear market and realize you are at 85% equities when you should be at 60% equities. An
automatic investing plan, like a SIP, works well as a saving discipline and as a way to keep
emotions out of the process.
A second piece of investor success is knowing your investments. The more you know about
your funds, the less likely you are to be disappointed. Remember that no active manager will
sail through every storm with flying colours.

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Even reviewing calendar-year returns as far back as you can will help you have a tangible idea
of the risks. Virtually every index lost more than 30% in 2008 and more than 50% from peak
to trough. Those who held their ground were richly rewarded, but it’s not easy to do that.
A good plan and patience will serve you well.

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ANALYSIS:

 Investor returns tend to be lower than mutual funds, which shows that mutual funds
are more beneficial to investors and can provide better returns to investors than direct
investments.

 The study shows that there has been little change in investor behaviour for the past
15 years.

 Investor decisions regarding mutual funds affect their returns, as a wrong choice
may lead to low or no returns for the investor.

 In order to earn high returns, it is important that investors choose a plan after careful
consideration and stick with the plan for a long term in order to gain high returns
and capital appreciation.

 According to the chart, an advantage of systematic plans in mutual funds is that they
are well suited for those investors that have regular cash flows and they take away the
operational challenges of investing every month/quarter.

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INDIAN JOURNAL OF FINANCE

ISSN 0973-8711
NAAS Rating = 3.76
Volume 9, Issue 7, July, 2015.
Key words: Socio-economic factors, Savings and Investment, Investment decisions,

Capital formation process involves earning, saving and investment. During 2005-11 the
percentage of total household savings in India was 33.7% of GDP (RBI, Working Group
Report- Trends in Gross Domestic Savings, 2011). Bank deposits continued to account a
dominant share (49.9%) followed by Life Insurance Policies (19.9%), Provident and Pension
funds (10.3%) and share and debentures just 3.5%. This indicates the trend of individual
savings in India. Investments generate income and assets. People invest their money in hope
of getting good returns, enough liquidity and safety. Indians have habits of savings but
majority of them are averse to invest their funds and hold hard cash with them. In view of
some earners, holding cash is a status symbol. Consumer behavior is a dynamic process which
includes acquiring products and services as per requirements with proper selection and their
consumption in hope of getting maximum satisfaction and value for money. It involves
decision making by a consumer or a group of consumers regarding purchasing, using and
disposing off the products and spending money for getting maximum value for it.

It is to be noticed that consumer’s buying behaviour is influenced by socio-economical,

cultural and psychological factors. The same factors influence the behaviour of rural
investors. Socio-economic status of rural investor is one of the significant factors in selecting
and investing in particular financial product. Besides spread of education and increased
literacy level, the speed of financial literacy is much slower in villages.

Financial exclusion is widespread. However, the efforts by the government with banks and
NGOs through Financial Inclusion Programme and Prime Minister’s Jan Dhan Yojana are

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certainly going to enhance the financial literacy and investment awareness level of rural
people. Rural economy is growing impressively and it has led to the introduction of a various
investment opportunities. Besides savings in banks and post offices, investors have the choice
of a variety of instruments. The rural investor needs to be acquainted with investment
principles, risks involved and the instruments yielding high returns. The present research paper
is an attempt to highlight on savings and investment pattern of investors, their perceptions
regarding various investment avenues.

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 CHAPTER 4 – DATA ANALYSIS

4.1 PRIMARY DATA ANALYSIS

To get the information about the study, a survey has been conducted considering number of
respondents. Respondents were selected by using systematic sampling technique.

Samples would be chosen as various possible investments patterns. Data has been collected
through questionnaire mainly considering various age groups, their risk perception, risk
appetite, safety of principal, liquidity etc. The respondents were selected randomly. Due to the
want of time and resources only 80 respondents were selected for the study.

Question 1

From the above pie chart we see that:

 62.5% of the respondents were between the age 18 and 25 years old
 20% were below 18 years
 10% were above 40 years
 The remaining 8.5% investors were between 25 to 40 years of age

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Question 2

From the above pie chart we see that:

 52.5% of the respondents were males

 46.3% of the respondents were females
 The remaining 2.2% were non binary

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Question 3

From the above pie chart we see that:

 56.3% of the respondents investing are mainly students

 22.5% comprises of Business professional
 10% are salaried employees
 The remaining 11.2% consist of housewives and retired persons.

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Question 4

From the above pie chart we see that:

 70% respondents invest

 30% do not invest

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Question 5

From the above chart we see that:

 The most popular investment avenue to invest in is Equity shares, comprising of

41 respondents out of 73, that is around 56.2% investing in equity
 The next favorable investment avenue is Mutual Funds, with 35.6% of the respondents.
 We also conclude that the least favorable investment avenue is crypto.

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Question 6

From the above pie chart we see that:

 57.5% respondents prefer sectoral investing

 The remaining 42.5% do not prefer sectoral investing

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Question 7

From the above pie chart we see that:

• 46.9% respondents prefer investing in the private sector

• 42.2% prefer investing in the public sector
• The remaining 10.9% invest in the foreign markets

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Question 8

From the above chart we see that:

 70 % respondent’s investment objective is mainly long term growth of

income over a period of time
 32.5% invest due to capital preservation
 30% of the respondents also invest for short term growth

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Question 9

From the above chart we see that:

• 61.3% respondents take into account the level of higher return on their
investment before investing
• 48.8% look for safety of principal before investing
• 43.8% invest with respect to the level of low risk in their investment avenue
• 27.5% invest with regards to the maturity period of the investment
• 18.8% take into account the inflationary risk on their investments

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Question 10

From the above pie chart we see that:

 50% respondents prefer medium term investments, i.e 1 to 5 yrs

 26.3% respondents prefer short term investments, i.e less than 1 yr
 23.8% respondents prefer long term investments, i.e more than 5 yrs

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Question 11

From the above pie chart we see that:

 26.3% respondents invest 15-30% of their income

 26.2% respondents invest 30-50% of their income
 23.8% respondents invest upto 15% of their income
 21.3% respondents do not invest their income at all
 The remaining invest 90%-100% of their income

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Question 12

From the above pie chart we see that:

 45% respondents get their investment advice from family members.

 36.3% of the respondents get their investment advice from friends
 32.5% respondents get their investment advice from professionals like
wealth advisors as well as newspaper and other channels.
 The remaining respondents get their investment advice from other sources
like books and online platforms

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4.2 SECONDARY ANALYSIS

The Process of Financial Planning

The Planning Process

Introducing Financial Planning Process

Most of us would like to look at life as a continuum from the cradle to the grave where all
phase of life are joyful and well taken care of financially. While most people spend to satisfy
their immediate needs, they would also like to save and invest so as to take care of their future
needs and emergencies. People also desire to have a reasonable return and create a corpus.
However, different people have different perceptions of risk in investing. Some people are
aggressive investors, whereas, other people may be moderate or conservative investors. As the
needs evolve or undergo a change through various phases of life, the financial behavior of
people too undergoes corresponding changes.

 Some of the needs of people at different phase of life are:

 Protection against premature Death.
 Retirement planning.
 Protection form disability and is health.
 Education and marriage of children.
 Wealth creation.
 Wealth Preservation.

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Steps involved in Planning Process:-

The various stages in the process of planning are as follows:

1. Goal setting:

 Plans are the means to achieve certain ends or objectives. Therefore, establishment of
organizational or overall objectives is the first step in planning. Setting objectives is the
most crucial part of planning. The organizational objectives should be set in key areas
of operations.

 They should be verifiable i.e., they should as far as possible be specified in clear and
measurable terms. The objectives are set in the light of the opportunities perceived by
managers. Establishment of goals is influenced by the values and beliefs of executives,
mission of the organization, organizational resources, etc.

 The objectives must be clear, specific and informative. Major objectives should be
broken into departmental, sectional and individual objectives. In order to set
realistic objectives, planners must be fully aware of the opportunities and problems
that the enterprise is likely to face.

2. Developing the planning premises:

 Before plans are prepared, the assumptions and conditions underlying them must be
clearly defined these assumptions are called planning premises and they can be
identified through accurate forecasting of likely future events.

 They are forecast data of a factual nature. Assessment of environment helps to

reveal opportunities and constraints. Analysis of internal (controllable and external
uncontrollable) forces is essential for sound planning premises are the critical factors
which lay down the bounder for planning.

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  They are vital to the success of planning as they supply per tenant facts about future.
They need revision with changes in the situation. Contingent plans may be prepared for
alternate situations

3. Reviewing Limitations:
 In practice, several constraints or limitations affect the ability of an organization to
achieve its objectives. These limitations restrict the smooth operation of plans and they
must be anticipated and provided for.

 The key areas of Imitations are finance," human resources, materials, power and
machinery. The strong and weak points of the enterprise should be correctly assessed.

4. Deciding the planning period:

 Once the broad goals, planning premises and limitations are laid down, the next step is
to decide the period of planning. The planning period should be long enough to permit
the fulfillment of the commitments involved in a decision.

 This is known as the principle of commitment. The planning period depends on several
factors e.g., future that can be reasonably anticipated, time required to receive capital
investments, expected future availability of raw materials, lead time in development
and commercialization of a new product etc.

5. Formulation of policies and strategies:

 After the goals are defined and planning premises are identified, management can
formulate policies and strategies for the accomplishment of desired results. The
responsibility for laying down policies and strategies lies usually with management.
But, the subordinates should be consulted as they are to implement the policies and
strategies
 Alternative plans of action should be developed and evaluated carefully so as to select
the most appropriate policy for the organization. Imagination, foresight, experience
and
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59 | P a g e
 quantitative techniques are very useful in the development and evaluation of
alternatives.
 Available alternatives should be evaluated in the light of objectives and planning
premises. If the evaluation shows that more than one alternative is equally good,
the various alternatives may be combined in action.

6. Preparing operating plans:

 After the formulation of overall operating plans, the derivative or supporting plans
are prepared. Several medium range and short-range plans are required to implement
policies and strategies.
 These plans consist of procedures, programmers, schedules, budgets and rules. Such
plans are required for the implementation of basic plans. Along with the supporting,
plans, the timing and sequence of activities is determined to ensure continuity in
operations.

7. Integration of plans:

 Different plans must be properly balanced so that they support one another. Review
and revision may be necessary before the plan is put into operation. Moreover, the
various plans must be communicated and explained to those responsible for putting
them into practice.
 The participation and cooperation of subordinates is necessary for successful
implementation of plans. Established plans should be reviewed periodically so as to
modify and change them whenever necessary.
 A system of continuous evaluation and appraisal of plans should be devised to identify
any shortcomings or pitfalls of the plans under changing situations.

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Formulation of Goals and Need of Assessment

Financial goals are the milestones that the client hopes to reach with the help of his financial
resources.

1. These milestones could be concerning different aspects of life like

• Saving for marriage / childbirth
• Buying a new car / house / electronic equipment
• Creating a corpus for retirement
• Creating a corpus for children's education
• Adequately insuring self and family
• Creating cash reserves for emergency usage etc.
• The financial planner should ensure that the goals are:
A. Specific.
B. Realistic.
• Measurable / Quantifiable in money terms.
• To be achieved within a specific time period.

Once the client has stated clear, quantifiable goals for financial planning, the next step is to
rank those goals in order of importance. This is necessary because most clients do not have the
resources to fulfill all their goals. The financial planner must make it clear to the client that less
important goals must be sacrificed or postponed to achieve the more important ones. This
done, the financial planner needs to work out the amount of money available for achieving
these goals. To achieve most financial goals, the client would need to start saving and
investing appropriately. Therefore it is important for the financial planner to know where the
money to invest will be coming from.

2. Analyze investor objectives, needs and current financial situation Preparation of the
investor's Personal
Financial Statements Preparation of the Cash flow Statement and the Budget Prioritizing
Goals, The next step is to prioritize the financial goals of the client and work out the amounts

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that are required to be invested towards achieving these goals Evaluate Qualitative Factors.
Qualitative factors have a significant bearing on the financial plan for a client. The client's
Tolerance towards risk, investment preferences, current health status etc. need to be kept in
mind while evaluating alternative Strategies.

3. Developed appropriate strategies and present the financial plan

A financial planner needs to develop appropriate strategies for the client in the following
areas:-
• Cash flow management
• Insurance planning
• Investment planning
• Retirement planning
• Income tax planning
• Estate planning
• Need Analysis

Identifying needs of protection, retirement, health, wealth creation, and preservation. In this
step, growth of the economy and the progress of the society are essential for all round
development of an individual. Individuals invest in various financial instruments, which in turn
reap returns not only from the individual investments but also from the overall economic
growth.
Inflation is one of the major concerns of a central bank while formulating monetary policies of
the country. Among its many adverse influences, inflation can take away gains from any
investment. An investor would like to gain more than the inflation rate to have a real return
from the investment.
Another concern is longevity and after retirement life spans, coupled with small nucleus family
norms. Therefore, any financial plan has to take care of this concern, which is a crucial need.
Of course, a wise financial planner would always first take care of the general and life
insurance needs of an individual before commencing financial planning for other needs and
investment.

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 4. Planning the investment involves lot of Preparation before investors invest their
money, they need to answer the following questions-

• What are their investment goals? Do they expect short term benefits or long term benefits?
• For how long they want to invest or what is the time horizon of investment? Is it 3 years,
5 years or 10 years?
• How much money do they have to invest? Can they realistically achieve their
investment goals without any strain?
• Do they have any short term financial needs, for example a housing loan, whereby they
may not be able to invest as much as they would like?
• Do they need to live off the return on their investments, in later years? If yes, will
the investments provide enough profits for them to live comfortably?
• Should they invest in stocks, bonds, mutual funds or pension funds?

Saving too little money or investing erratically is a drain on the investor’s financial resources.
A wise investor would introspect before saving or investing. When investors have completed
the initial plan, they should decide on specific goals. For this they should consider if their
investment would pay for their goals.
Some of the common goals of investor are:

• Children’s education

• A down payment for a house

• Retirement

The answer to the preceding goals would lead to information related to:

• How much money they require?

• How much time do they have to get there?

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• What are the investment vehicles that they may be appropriate for them?

• What are the kinds of returns they can expect?

The more specific are the investors, the more likely they can plan and achieve reasonable
goals.
Investor Profile and Behavior

Motive of investor both rational and irrational are considered under the behavioral fiancé as
defining the long run price formation in the financial markets. The traditional finance on the
other hand seeks to understand the financial markets by using models based on rational
behavior of the investors.
It is expected from rational investor that they update their beliefs correctly on receiving new
information and make choices in tune with expected utility. A crucial component of any model
of financial markets is a specification of how investors form expectations. Some of these are:
• Optimism and wishful thinking

• Most people display unrealistically rosy views of their abilities and prospects.

• Representativeness

• People try to determine the probability if an item belongs to a set or a model

generates a data set.
• Conservatism

• People may be reluctant to search for evidence that contradicts their beliefs, they
tend to treat such evidence with excessive skepticism, and they may misinterpret evidence that
goes against their hypothesis.
• Belief perseverance

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• People often cling to their beliefs tightly and for too long.

• Anchoring

• People often start with an initial, possibly some arbitrary value or belief and then
adjust away from it.

• Availability bias

• When judging the probability of an event, people often search their

own memories for relevant information.

Conducting Risk Management

• Assessment of risk is conducted by:-

• Risk profile

• Recommending appropriate asset allocation

The planner needs to understand the risk appetite of the investor. Generally, investors are
asked to fill in a form to ascertain their risk appetite. This helps to categories the investor into
aggressive, moderate and conservative investors based on their risk profile.

There is always a correlation between the risk appetites of the investors and the returns they
expect. Higher the risk, higher is the return expected. This is known as risk return trade off.
Concepts such as portfolio, diversification, risk and return and techniques for reducing and
hedging risk are some of the tools for financial planning.

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For example: - equity shares by their nature are riskier as compared to a fixed deposit or
government securities. Higher returns are expected from the equity shares.

Therefore, keeping a portion of the surplus in the form of fixed deposits or government
securities reduces the risk of the portfolio comprising equity share (though it may also lower
returns).

• Types of Investors

As the investment option for each of the investor types is different, it becomes essential to
determine the style of investor before they invest.
The various investor types are:

• Aggressive investor: is an investor who likes to take risks to earn an extra but of return.

• Moderate investor: is an investor who is content and believes in earning slow and steady
gains and is not interested in making quick money. A long term investor is one who does not
mind taking some occasional risk so as to optimize returns and achieve continuous growth

• Conservative investor: is risk adverse investor whose primary objective is capital

preservation. Such investors want a steady growth in income and are not capable of taking
shocks, in terms of losses in investment. In other words, they are passive investors.

Some of the high net worth individuals can be segmented as follows:-

• Wealth builders: are individuals, who are actively adding to their asset base, are fairly risk
seeking and expect the best possible returns for every unit invested, they have a high current
income and financial equipment. Typically, they would be owners of business or top level
employees in corporate. They invest actively and are competitive, demanding and fickle-

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minded. On the other hand, they also tend to be receptive to new ideas and schemes.

• Wealth preserves: are individual, whose main focus is to protect whatever wealth they already
have. They do not tend to try out new products until they have enough data on its
performance. Typically, they are at retirement stage or already retired with low current
income, they tend to be risk averse and relatively passive investors. They could also be
inheritors of wealth whose main objective is wealth conservation.

Types of Variables for determining an investor style:

There are two major variables, which help the investors in determining their investment style:

• Risk tolerance
• Time
• Risk tolerance

Investors with distinct investment styles invest in different types of products having varying
risk return relationships. There are various degrees of risk across the investment spectrum,
from government savings bonds, which are the least risky to equities, commodities and options
which are the risk.

The former, carrying only sovereign risk are considered risk free because of the government
guarantees. Although the government of India saving bonds and bank fixed deposits (FDs) are
the safest, the returns offered are not very attractive.
Although stocks have historically increased in the price over the long term investment in
equities however could be volatile and very risky over a shorter-term period.

Investor should remember that they do not lose until they sell what they have invested in. for
example, if an investor in united states did not panic and sell his stocks in October 1987, he
would have done quite well because the market rebounded in the subsequent years.

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The same was true in the Indian market. If investors had not have panicked and sold post the
800 points fall in a single day on May 17, 2004 at the Bombay stock exchange (BSE) Sensex
level of 4227.5, they would have done quite well because the market rebounded sharply
from its bottom to trade at 6000 level by mid November 2004.

Therefore, when investors invest in the stock market, they should think long-term. Investors
should not invest in stocks any money that they would need in the short term.

• Time

The time the investors want to spend on investing determines how active they can be as
investors for managing their money. If they want to spend 15 minutes a month on investing,
then they should consider using passive strategies.

However, if they plan to set out eight hours a week to devote to investing, then they
can consider researching companies and pouring over financial statements to pick
lucrative individual stocks.

Need For Financial Planner

 Professional Financial Advisory

 Due to higher wealth creation, there is a big demand and growing appetite for offering
professional financial planning service in India expert advice is required because of the
shift in the investor attitude towards alternative investment options and the desire for
sophisticated and focused products.
 As investors have become well informed about financial markets financial planner have
to be knowledge and skillful, regulatory changes have also lead to higher competition
and service standards. Competition in the financial planning and wealth management is
expected to become more intense in future.
 Need for Professional financial advisory

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 In today’s scenario where there is a huge expansion of middle class with lot of
disposable income, there are financial institutions that are aggressively looking to
enhance the share of the wallet.
 The opening up of Indian market and the entry of the private players the product
range has widened and a lot of choice is available with the Indian consumer. For
example organizations such as insurance companies offer a wider choice of products
today unlike in past where only
 LIC was opening.
 For a consumer it is a difficult task to take an informed decision as he has neither
required knowledge not the time to continuously track the market. Thus there is a need
for professional financial advice to enable the consumer to choose the investment
product that suits his requirement and will enable him to need his goal in creation of
wealth.
 Emergence of the new age financial planner
 The financial planning process for individuals gets redefined in the emerging scenario.
The financial planner of today needs to possess knowledge of the basic foundations
blocks of financial services sector. This should be backed by an in-depth understanding
of the various products and services, financial planning and wealth management
process.
 Use of technology for this would enable the financial planner to be more productive on
the job. Most importantly the modern day financial planner needs to understand his/her
customer with respect to their financial position, their risk appetite and their future
financial needs to be able to recommend suitable investments.

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FINANCIAL PLAN

 Cash Flow Management

Cash flow management is the process of monitoring, analyzing, and adjusting your business'
cash flows for small businesses. The most important aspect of cash flow management is
avoiding extended cash shortages, caused by having too great a gap between cash inflows and
outflows. You won't be able to stay in business if you can't pay your bills for any extended
length of time.

 Insurance Planning
Insurance is essentially the means to financially compensate for losses that life throws at
people, corporate, and otherwise. Insurance can be used as a tool to shield an individual
against potential risks like travel accidents, death, unemployment, theft, property destruction
by natural calamities, fire mishaps, etc.
The functions of insurance can be categorized as:

A. Primary Function:
The following are the primary functions of insurance:
• Provide Protection: The primary function of insurance is to provide protection
against future risk, accidents, and uncertainty. Insurance is actually a protection against
economic loss by sharing the risk with others.
• Collective bearing of risk: Insurance is a means by which few losses are shared
among larger number of people. Insurance is a device to share the financial loss of few among
many others.
• Assessment of risk: Insurance determines the probable volume of risk by
evaluating various factors that give rise to risk.
• Provide certainty: Insurance is a device, which helps to change from uncertainty
to certainty. In the sense that the insured can make provisions against the happening of an
uncertain event and protect against the same.

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B. Secondary Function
The following are the secondary functions of insurance:
• Prevention of losses: Prevention of loss causes lesser payment to the assured by
the insurer by the insurer and this will encourage for more savings by way of premium.
Reduced rate of premiums stimulate for more business and better protection to the insured.
• Small capital to cover larger risk: Insurance relieves the businessmen from
security investments by paying small amount of premium against larger risk and
uncertainty.
• Contributes towards the development of larger industries: Insurance provides
development opportunity to those larger industries having more risks in their setting up.

C. Other Function
The following are the other functions of insurance:
• Means of savings and investment: Savings and investment through insurance is
a disciplined way of savings and it restricts the necessary expenses by the insured.
• Source of earning foreign exchange: The country can earn foreign exchange by
way of issue of marine insurance policies and various other ways.
• Risk free trade: Insurance promotes exports insurance, which makes the
foreign trade risk free with help of different types of policies under marine insurance cover.

• Characteristics of Insurance
The basic characteristics of insurance are:

• Pooling of losses: Spreading of losses incurred by a few over the entire group, so
that in the process, average loss is substituted for actual loss.
• Payment of fortuitous losses: A fortuitous loss is unforeseen, unexpected, and
occurs as a result of chance. This could be accidental and random.
• Risk transfer: Pure risk is transferred from insured to insurer, who typically is in
a stronger financial position to pay the loss than the insured.
• Indemnification: Insured is restored to his or her approximate financial position
prior to the occurrence of the loss.

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  Investment Planning

Definition
The placing of funds into the proper investment vehicles based on the investor's future goals,
time horizon, and priorities. This also takes into account the safety of the investments as well
as liquidity and level of return. Ideally, proper investment planning will allow the investor's
funds to produce financial rewards over time.

• Investment Plans: - Investment plans help beat inflation and build a large corpus.
We at Policybazaar.com help you compare investment plans offered by all life insurance
companies in India and select the best suited investment plan for you. An investment plan
should be selected keeping in mind 3 main goals:

• Risk Profile:-if you are a young customer and are willing to take financial risks,
a ULIP is better suited for you while if you’re a conservative investor, then a traditional
endowment or money-back plan will suite your needs.

• Investment Tenure:-Insurance plans offer a mid-to-long term investment horizon.

Unit Linked Insurance Plans or ULIPs are very good long term instruments.

• Final Goal:-you want to build the corpus for retirement or child’s education.

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❖ Top Investment Product Categories in Insurance
• Unit Linked Insurance Plans:-the easiest way for a consumer to enter the stock
market with an added advantage of life cover. As these products provide tax benefits and
market linked returns, they are very good for long-term investment. ULIPs offer many
investment funds to choose from which allow you flexibility to shift between equity and
debt, based on the market conditions and risk profile.
• Traditional Endowment plans:-regular saving plans which help build a corpus
and give guaranteed maturity benefits along with bonuses. These products give you returns
equivalent to a fixed yield/deposit but also combine insurance risk cover and add-on riders to
primarily build the safety cushion in case something goes wrong.
• Money back Plans:-type of endowment plans which give periodic cash payouts
to investors. As they help build regular large capsules of fund; they are very useful for
salaried class who wish to save for buying large assets every 3-5years
Child Plans are saving instruments which help parents build a protected asset for their child’s
future. They also provide many insurance features which protect the intent or reason for corpus
building; primarily for child’s future education and expenses.

Key things to remember while investing

• Set financial goals - both short term and long term.

• Maintain balance between risk and returns- allocate amount accordingly.
• Investments should be both liquid and fixed-This enables you to use them in
emergencies as well as avoiding overspending.
• Start small and gradually increase invested amount- Choose premium payment
options ranging from monthly to annual to single premium.
• Research a lot before investing- use help of financial planner if need be.
• Review portfolio each year and make changes accordingly.
• Ask questions - Resolve all your doubts before investing. Use investment
calculator to calculate exact premium before buying.
• Other Investment Options to choose from
• Mutual Funds:- This is a professionally managed trust in which investment is

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pooled from retail investors. The accumulated amount is invested in different financial
instruments like shares, securities etc. As the income is earned on these instruments, it is
shared proportionally among investors. Mutual Fund is considered a very good investment
option due to its very low charge structure.
• Investments in Gold:- The value of gold has been appreciating steadily.
Looking at the last few years, there has been more than 22% annualized returns; this makes
gold a very good investment option. For people interested in investing in gold, there are
various methods which include physical gold, e-gold and gold ETF.
• Bank Fixed Deposits and Postal Schemes:- These 3 options are most suitable for
making safe investments. The interest rate on PPF account is presently at 8.8% per annum and
keeps changing every year; different banks offer different interest rates. There are also many
postal investment schemes which can be bought

 Retirement Planning

The main goal of a successful retirement planning is ensuring that one will have sufficient
financial resources to maintain or improve one’s lifestyle during his/her retirement years.
According to some financial experts, to do so, one will need to save enough.
• Ascertain requirements Post Retirements
• One popular approach to retirement planning starts by determining how
much finance one will need for their retirement.
• This is usually based on projected increase in cost of living, the no. of years one
is likely to spend in retirement.
• The years one spends in retirement may be more or less than one projected. The
same may go for the increase in cost of living.
• However a comprehensive outlook and some thought will help to provide
realistic projections.
• Steps to Retirement Planning
• The longest of journeys start with single step. We are not sure who said that, but
being in the financial planning space, we think it most aptly describes what retirement
planning is all about.

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• Planning for retirement is one long journey but a resolute and systematic step by
step approach makes it a lot less laborious.
• Start early
• A well prepared approach towards any goal is usually the result of an early start.
Retirement planning is no different. We hear financial planners say that it’s never too early to
start saving for retirement and they are right.
• Make no mistake that an early start helps and one will surprised at just how
much it helps. A friend or colleagues, who started saving for retirement even five year earlier
than another with the same quantum of investment
• Even if one doesn’t have the requisite amount of money required to start, the key
lies in starting with whatever is available and making up for the deficit at a later stage.
• Implementing the plant
• Having an investment plan in place sets the ball rolling for an investor and the
investment advisor who will implement the plan by making investment in stock, mutual funds,
bonds, small saving schemes.
• The most important reference point for the investment plan is the objective to
invest in avenues that lower risk and maximize returns and do so in line with one’s risk
profile.
• This is where the investment advisor’s expert advice will play a crucial role.
Typically a retirement portfolio should be well diversified across pension plans, mutual funds,
equities, EPF/PPF and fixed deposit.

 Income Tax Planning

One of the important considerations in making any investment choice across asset classes is
tax implication of investment decision. Tax planning plays an important role in portfolio
management especially in the current scenario of complex tax structure.
• Tax Planning has been described as a form of arrangement of a taxpayer’s
financial affairs in such a way that the tax liability is reduced. This is achieved by taking
full advantage of all the tax exemptions, deductions, concessions, rebates, relief, allowances
and any other benefits granted by the tax laws.
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• Every person, whose total income of the previous year exceeds the maximum
amount that is not chargeable to income tax, is an assessed.
• An income can be taxed under the head “Salaries” where there exists an
Employers- Employee relationship between the payer and the payee.

• The annual value of property consisting of any buildings or lands appurtenant

thereto of which the assessed is the owner shall be chargeable to income-tax under the head
“Income from house property”.
• The gain on sale of a capital asset is called capital gain. The following are
various types of capital gains:
-
Capital gains arising on the transfer of short-term capital asset
-
Capital gains arising on the transfer of long-term capital asset

 Estate planning

Estate planning refers to the process by which an individual or his/her family arranges the
transfer of assets to the legal heirs in the event of death or disability of the individual.
It includes the distribution of the real and personal property of an individual to his/her heirs.
An estate plan aims to preserve the maximum amount of wealth possible for beneficiaries and
flexibility for the individual prior to his death.

The objectives of estate planning are:-

• Asset Transfer to beneficiaries: Every individual wishes that his/her accumulated
wealth should reach the hands of the beneficiary of his/her choice. A beneficiary can be
his/her children, parents, friends, or any other person.
• Tax-effective transfer: To ensure least tax deduction on such transfer of wealth.
• Planning in case of disabilities: It ensures smooth functioning of asset
management within the family in case an individual gets disabled.
• Time of distribution can be pre-decided: Individuals having minor children may
wish to transfer the assets only after the children attain a certain age, to avoid misuse that may

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happen due to lack of maturity and discretion.
• Business succession: organized succession or winding up can be defined in case
of an individual handling a business.
• Selection of the Trustee/Guardian or the executor: An individual needs to be
appointed to carry out the functions such as:
-
Distribution of assets to the beneficiaries as per the individual’s wish.
-
To pay testamentary and funeral expenses.
-
Applying for a probate.
-
Paying all the expenses and outstanding debts.
-
Ensuring all the benefits due to the deceased, such as life insurance, pension, and other
benefits are received.
-
Arranging for filing of tax returns.

Tools of Estate Planning:

During the lifetime

Power of Attorney
Trust Gift Partition

 Trust: A trust is an entity created to hold assets for the benefits of certain person or
entities.

 Power of Attorney: It is a formal arrangement by which one person gives another

person authority to act on his/her behalf and in his/her name.

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  Gift: It is a relinquishment without consideration of one’s own right in property and
the creation of the right of another.
 Partition: It is the process by which the property held in undivided shares by joint
tenants or coparceners is divided among them. A partition does not involve transfer
in law; hence partition does not attract liability to tax on capital gains.
 Will: it is a legal document through which, one can allocate one’s assets and property
to the loved ones after death.
 Intestate Succession: The Indian Succession Act states that any attempt to set out
the exact share of each such person and its fluctuation depends on various factors.
The share taken by each sharer will fluctuate in different circumstances.
 Life Insurance: It is a good estate planning tool. The main reason for a life insurance
is that when the insured name his beneficiaries, the money passes to them directly,
without probate.

Post Death

Will Succession Life Insurance

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FINANCIAL AND INVESTMENT PLANNING

 Life Insurance Product

Life insurance is essentially the means of financially compensate for losses that life throws at
people, corporate, otherwise. Insurance can be used as a tool to shield an individual against
potential risks travel accidents, death, unemployment, theft, property destruction by natural
calamities, fire mishaps etc.
The common products which are offered by life insurance companies can be categorized as:

1. Term Insurance: It is provides for life insurance coverage for a specified term of
years for a specified premium. The sum assured is payable only if the death of the life
assured occurs within a specified period of time. There is normally no cash value or
surrender value at any time.
Some of the term insurance products available in India are given below:
-
HDFC Term Assurance
-
Reliance Simple Term Plan
-
LIC Jeevan Suresh

2. Permanent Life Insurance: Permanent Life Insurance is life insurance that remains in
force until the policy matures, unless of course the owner fails to pay the premium
when due and the policy expires. It is permanent in the sense that the policy cannot
be cancelled by the insurer for any reason except fraud in the applications. Also the
cancellation must occur within a period of time defined by law which is usually two
years. It builds a cash value that reduces the amount at risk to the insurance company
and thus the insurance expenses over time.

3. Whole Life Insurance: It is designed to cover the life assured for his whole lifetime the
individual generally pay the same premium amount throughout the lifetime.

4. Universal Life Insurance: It is a relatively new insurance product offering low

cost protection of term insurance and a savings element like whole life insurance.

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It is

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 intended to provide permanent insurance coverage with greater flexibility in premium
payment, altering savings element, and even death benefits.

 Endowment Assurance: It is a life insurance policy that provides a sum of money either
at the end of the term of the plan or on the earlier death of the life assured. It can be
seen that an endowment combines protection with savings. It is paid out whether the
insured lives or dies, after a specific period or a specific age. The whole life policy also
guarantees payment of the sum assured but only at the time of insured’s death as and
when it occurs.

 Money Back Insurance: It is also known as Anticipated Endowment, is a variation

of endowment insurance which assures the return of a certain proportions of the sum
assured as cash payment at regular intervals.
The various money back plans available in India are:
-
HDFC Money Back plan
-
LIC Money Back plan
-
Kotak Money Back plan
-
Money Saver Plan (Tata AIG)

 Unit Linked Products: This policy represents a revolutionary change in the way in
which life insurance policies were designed. Various facilities available under a
ULIP plan are premium holiday, Top-up Premiums and withdrawals.
Some of the ULIP products available in the market today are given below:
-
HDFC Young Star plan (Unit linked children’s plan)
-
LIC Future Plus (Unit Linked Endowment Plan)
-
ICICI Prudential Lifetime Pension (Unit linked Pension plan)

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 Riders: Riders are additional add-on benefits that an individual can include in his
policy over and above what the policy may provide.
Some riders available in the market are:
-
Accident Death Benefit Rider (ADBR): ADBR provides an additional amount in case
death occurs as a result of an accident.
-
Term Rider: It provides an additional amount should death of the insured happens.

 Waiver of Premium (WOP): Waiver is designed to ensure that policy payments are
maintained and the benefits are preserved if the insured is unable to work due to total
and permanent disability due to accident, illness, or any other means.

 Critical Illness Cover (CIC): It provides lump sum payment on the diagnosis of one of
the specified range of illnesses or medical conditions.

 Pensions and Annuities: These are investment products that help to build a nest age for
retirement. Under annuities you pay premium for a given number of years till your
vesting age.
The various products available in India are:
-
Aviva Life – Pension Plus
-
Bajaj Allianz Swarna Vishranti
-
HDFC Personal Pension Plan
-
ICICI Prudential Forever Life
-
ICICI prudential Life Link Pension

Pensions are a form of life assurance. However, whilst basic life assurance business
includes an amount of mortality risk for the insurer, for pensions there is a longevity risk.
An annuity is a contract with an insurance company whereby the purchase pays an initial
premium or premiums into a tax-deferred account, which pays out a sum at pre-determined
intervals.

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 
Mutual Funds

 A mutual fund is a type of professionally managed collective investment vehicle that

pools money from many investors to purchase securities while there is no legal
definition of the term "mutual fund" it is most commonly applied only to those
collective investment vehicles that are regulated and sold to the general public.
 They are sometimes referred to as "investment companies" or registered investment
companies. Most mutual funds are "open-ended," meaning investors can buy or sell
shares of the fund at any time. Hedge funds are not considered a type of mutual fund.
The term mutual fund is less widely used outside of the United States and Canada. For
collective investment vehicles outside of the United States, see articles on specific
types of funds including open-ended investment companies, SICAVs, unitized
insurance funds, unit trusts and Undertakings for Collective Investment in Transferable
Securities which are usually referred to by their acronym UCITS.
 Mutual funds have both advantages and disadvantages compared to direct investing in
individual securities. They have a long history in the United States. Today they play
an important role in household finances, most notably in retirement planning.
 There are 2 types of U.S. mutual funds: open-end and closed-end. The most common
type, the open-end fund, must be willing to buy back shares from investors every
business day. Open-end funds or unit investment trusts that trade on an exchange.
Open-end funds are most common.

 Investment in Equity

A Company or a person can plan their investment in terms of Equity:

Equity is nothing but the stock of company, which represents ownership in the company to the
extent of the amount of stock that you own. Investors typically tend to invest into equity to
gain from the potential upside it has to offer. The returns can be earned in two ways:
-
By way of dividend income: Dividend is a portion of a company’s earning
that it pays out to its shareholders.

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 -
By way of capital appreciation: it is an increase in the value of a
company’s share price.

Identify winning stocks:

Although there is no formula to identity winning stocks, there are certain parameters that
define the health of any company and therefore its ability to perform better than its peers.
Look for consistency in a company’s earnings. This gets reflected in the stock price of a
company. A stock with extreme volatility in its earnings will have huge variations in its share
price. There are certain basic ratios that can help you identify winning stocks.

Price to Earnings Ratio: Popularly known as the P/E ratio of a company, it is a measure of
the price paid for a share relative to the annual net income earned by the firm per share.
The ratio is primarily used for the purpose of share price valuation a higher P/E ratio means
that investors are paying more for each unit of net earnings. Similarly, a stock with a lower
P/E ratio means it is probably undervalued. This ratio should ideally be used to compare
companies within the same industry.

Price/Earnings to Growth (PEG) Ratio: The PEG is calculated by dividing the P/E by the
forecasted growth rate in the EPS (earning per share) of the company. A lower PEG means
that the stock is undervalued relative to the growth it offers and may be an attractive buy.
Dividend Yield: Dividend yield is calculated by dividing the annual dividend paid on each
share by the current price of a share. This tells you what percentage of earnings a company
pays out to shareholders in the form of dividends. Older, well-established companies tend
to pay a higher percentage than the newer companies.
Return on Equity: Return on Equity (ROE) is one of the important indicators used to
ascertain whether a company has been able to generate worth for its shareholders. It
measures net profit as a percentage of the total equity capital of a company. A higher Roe
reflects the company’s efficiency in utilizing investor money.

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  Fixed Income Securities

Fixed income securities are essentially of two types. These are:

1. Tradable securities: It means they have a secondary market where they can be sold or
tradable securities. An example of tradable securities is debentures. The various types
of tradable securities are: Government securities, corporate bonds, RBI relief bonds
2. Non-tradable securities: The securities cannot be traded and have to be held by the
investor until the maturity. An example of non-tradable securities is bank deposits.
Non-tradable securities are of the following types: Post Office / Monthly Income
Schemes, N.S.C, P.P.F, Company deposits

Features of Fixed Income Securities:

 Safety: Fixed income investments generally have two features associated with them.
Return of capital at the end of a specified period and/or a specified rate of return for
a specified period.
 Income Expectation: With the exception of Floating Rate Securities, the coupon is set
at issuance and remains the same until maturity.
 Choice: The different fixed-income instruments in the market allow you to choose
from a range of credit ratings and maturity periods.
 Accessibility: Fixed-income securities provide the flexibility and liquidity needed to
structure a portfolio tailored to specific investment objectives.
 Risk Profile: The prices of debt securities display a lower average volatility as
compared to the prices of other financial securities. This does give fixed income
securities a low risk profile

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Influence of Behavioural Finance in Decision-Making for Investors:

Behavioural finance, a sub-field of behavioural economics, proposes that psychological

influences and biases affect the financial behaviours of investors and financial practitioners.
Moreover, influences and biases can be the source for explanation of all types of market
anomalies and specifically market anomalies in the stock market, such as severe rises or falls
in stock price.

The three main cornerstones of research in behavioural finance are sociology, psychology, and
finance. These fields as explained below:
• Sociology: It is the systematic study of human social behaviour and groups,
and the influence of social relationship on attitude and behaviour.

• Psychology: It is the scientific study of behaviour and mental processes, which is

affected by human’s physical, mental, and external environments.

• Finance: It is the discipline concerned with determining the value and making
decisions. The finance function allocates capital, including the acquisition and allocation.
There are certain behavioural theories that help us in analysing the investor behaviour
while making investment decisions. The theories are as follows:
• Prospects Theory: This theory shows how investors manage risk and uncertainty
while making investments.

• Heuristics Theory: Heuristics are the thumb rules used by investors in order to
make investment decisions, solve problems and come to judgements. Heuristics (shortcuts) are
used by investors to reduce complex problem solving to simple judgemental operations. The
trial and error process is used by investors while making decisions.
Research in psychology has documented a range of decision-making behaviours called biases.
These biases can affect all types of decision-making, but have particular implications in
relation to money and investing. The biases relate to how investors process information to
reach decisions and the preferences investors have.

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The biases that affect investment decisions are as follows:

• Overconfidence Bias - Overconfident investors overestimate the probability that

their personal assessments of a security’s value are more accurate than the assessments
offered by others. Psychologists have determined that overconfidence causes people to
overestimate their knowledge, underestimate risks, and exaggerate their ability to control
events.

• Cognitive Dissonance Bias - Cognitions, in psychology, represent attitudes,

emotions, beliefs, or values; and cognitive dissonance is a state of imbalance that occurs when
contradictory cognitions intersect. The term cognitive dissonance encompasses the response
that arises as people struggle to harmonize cognitions and thereby relieve their mental
discomfort.

• Hindsight Bias - This behaviour is precipitated by the fact that actual outcomes
are more readily grasped by people’s minds than the infinite array of outcomes that could
have but didn’t materialize. Therefore, people tend to overestimate the accuracy of their own
predictions.

• Experiential Bias - An experiential bias occurs when investors' memory of

recent events makes them biased or leads them to believe that the event is far more likely to
occur again.

• Confirmation Bias – Confirmation Bias is when investors have a bias toward

accepting information that confirms their already-held belief in an investment. If information
surfaces, investors accept it readily to confirm that they're correct about their investment
decision, even if the information is flawed.

Investors are a heterogonous group of individuals whose investment decisions vary widely.
Individual investors make investments with many objectives, such as repayment of debt, fund
accumulation, retirement planning, emergency health needs, entertainment, appreciation in
value, inflation protection, house construction, kids’ future, and tax planning. The objective of
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mutual fund investors differs among investors, as a rule; most investors have certain regular
needs from their investments. It is very important for the mutual funds to take into
consideration all the investor needs and desires, while creating new schemes or mutual fund
products. Therefore, having a sound understanding of investor behaviour and investor
perception is very important for the fund manager, who manages the scheme of the mutual
fund.

Factors affecting Investor Behaviour and Preferences while making Investment Decisions
regarding Mutual Funds:

1. Age: Age is an important demographic factor affecting investment decisions of

investors, while deciding whether to invest in mutual funds or not. An investor’s risk-taking
ability changes as and when his/her age increases. At a lower age, the investor is willing to
take more risk, and therefore his risk appetite is significantly larger. As the age of the
investor increases, the risk-taking ability of the investor decreases simultaneously.

2. Gender: Gender is a demographic factor that has an impact on investments in

mutual funds. Most of the individuals who invest in mutual funds are males. This may be due
to various reasons, such as higher income earned as compared to females, which leads to
higher savings, or due to higher risk appetite as compared to females. There is a need to
increase awareness about mutual funds to the female population, in order to increase the
retail investor penetration of mutual funds.

3. Marital Status: Marital Status of investors is a demographic factor affecting their

investments in mutual funds. As the marital status of individual’s changes, the number of
dependents also increases, this has an impact on the risk-capacity of individuals. This has an
influence on the investment preferences of investors.

4. Academic Qualification: Academic qualifications of individuals have an impact

on their investment choices. If an individual is educated about the various investment avenues,

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and has sufficient knowledge about the various attractive features of mutual funds, then they
are more likely to invest in mutual funds. If one does not have any knowledge about mutual
funds, then the individual deems mutual funds as a risky avenue and does not invest in them.

5. Occupation: The occupation of various individuals affects their investment

choices and risk appetite, which in turn affects their investments in mutual funds. A
businessman or a salaried individual is more likely to invest in mutual funds. A student does
not have an earning capacity and therefore may not invest in mutual funds. Housewives do
not have a source of income that can be invested in mutual funds, and retired individuals may
prefer to invest in less risky investment avenues that give a regular flow of income.

6. Annual Income: Annual Income of individuals affects their investment decisions.

Individuals having an income of less than one lakh may not have enough savings to invest in
mutual funds, but higher the income status of the individual, the higher is the percentage of
individuals investing in mutual funds.

7. Risk appetite: Risk appetite is an important factor that affects the investment
preferences and behaviour of investors while investing in mutual funds. Investors having a
high risk appetite will prefer to invest in growth schemes of mutual funds, because they
prefer high returns. At the same time, individuals with a moderate risk appetite prefer to
invest in balanced schemes that invest in equity and debt securities. Investors with a low risk
appetite invest in debt schemes in order to protect their capital and to get a regular flow of
income.

8. Awareness about mutual funds: The higher the awareness about mutual funds,
and their features, their schemes, and their advantages, the more is the investment in mutual
funds. This happens because the lower the awareness about a particular product, the riskier the
product seems to an individual.

9. Fund preferences: There are three types of funds, based on their structure, which
are Open-ended funds, Close-ended funds, and Interval funds. Open- ended funds are those
funds that allow investors to buy and sell units on any business day at the prevailing NAV.
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They provide higher liquidity to investors. Close-ended funds, on the other hand, do not allow
investors to purchase units after the subscription date, but can be traded in the secondary
market. They provide less liquidity as compared to open-ended funds. Due to these reasons,
most of the investors prefer investing in Open-ended mutual funds.

10. Investment objectives: Investors have varying investment objectives, , which is

why there is a need for varying mutual fund schemes for the various short term or long-term
objectives of investors. Investment objectives are very important factors taken into
consideration while making mutual fund investments, which is why, AMCs should consider a
study of investor objectives while creating new mutual fund schemes for investors.

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 CHAPTER 5 – CONCLUSION

5.1 CONCLUSION

The overall study about each and every aspect of this topic shows that Financial Planning is a
dynamic and flexible concept which involves regular and systematic analysis, proper
management, judgment, and actions.
It can also be concluded that client or Investors should start planning soon, set measurable
goals, Look at the bigger picture and should not expect unrealistic returns on the investments
and value of the plan lies in its implementation and it accurately reflects what you are
personally trying to accomplish.
It can also be concluded that with the combination of different stocks we can reduce the risk
and increase the returns of a portfolio. By constructing portfolio we can only minimize the un-
systematic risk we cannot reduce systematic risk.
A proper Fundamental & Technical Analysis should be done before selecting any particular
stock for the portfolio. It minimizes the risk involved.
Financial Planning Service which was not so popular earlier as other services has gained lot of
importance and popularity & will gain more importance in future as people are now
understanding the importance of it.
Financial planning service is very important and effective investment tool for meeting your life
goals through the proper management of your finances.
Everyone should start financial planning at early stage.

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5.2 EXECUTIVE SUMMARY

o An investment is a sacrifice of current money or other resources for

future benefits. Numerous avenues of investment are available today.

o 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 is
indeed wide. An investment is confronted with array of investment avenues.

o Among all investment, investment in equity is in best high proportion. This is

because the history of stock market is booming and bursts overnight
millionaires, an instant pauper. Indian economy is doing indeed well in
recent years. The study has been undertaken to analyze the investment
pattern of investment community.

o The main reasons behind the study are the factors like income, economy
condition, and the risk covering nature of the Indian investors. The percentage
of Indian investors investing in the Indian equity market is very less as
compared to foreign investors. This project contains the investors’ preferences
and as well as the different factors that affect investors decision on the different
investment avenues along with risks involved. This study includes response of
investor in choosing securities in each classification and analysis has been for
the respective performance based on their returns.

o Very broadly, the investment process consists of two tasks. The first task is
portfolio analysis which focuses on assessing the risk and return of the available
investment alternatives. Also how portfolio hedges the risk in investment and
giving optimum return to a given amount of risk. The second task is portfolio
selection which involves choosing the best possible portfolio from the set of

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 feasible portfolios. It also gives an in depth analysis of portfolio creation,
selection, revision and evaluation.

o When you invest, you make choices about what to do with your financial assets.

o Risk is any uncertainty with respect to your investments that has the potential
to negatively affect your financial welfare.

o The level of risk associated with a particular investment or asset class typically
correlates with the level of return the investment might achieve. The rationale
behind this relationship is that investors willing to take on risky investments
and potentially lose money should be rewarded for their risk.

o This project is mainly going to focus on the investment patterns of individuals

in the country and the risks associated with them.

o The type of sampling technique used is wherein a questionnaire was prepared

and distributed to the high net worth individuals. The investor’s profile is
based on the results of a questionnaire that the Investors completed. The
Sample consists of 50 investors. The target customers were only the HNI’s
who invest in various avenues so as to know about their knowledge and
concern regarding the economy, principal invested, investment options, market
conditions etc.

o According to the opinion of these investors interpretation has been done and
there has been findings and conclusion along with some recommendations.
The project also shows the factors that one considers for making an investment
decision and briefs about the information related to asset allocation.

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• CHAPTER 6 – APPENDIX

1. WHAT AGE GROUP DO YOU BELONG TO?

 Below 18 •18-25 • 25-40 • Above 40

2. WHAT GENDER DO YOU IDENTIFY WITH?

 Male • Female • Non binary

3. WHAT IS YOUR OCCUPATION?

 Student • Business Professional • Salaried • Retired • Housewife

4. ARE YOU AN INVESTOR?

 Yes • No

5. IF YES, THEN WHAT KIND OF INVESTMENT DO YOU PREFER?

• Equity • Bonds • Forex • Real Estate

• Commodities • Savings • Mutual Funds • Crypto

6. DO YOU PREFER SECTORAL INVESTING?

 Yes • No

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7. IF YES, WHICH SECTOR DO YOU PREFER INVESTING IN?

 Private • Public • Foreign

8. WHAT IS YOUR INVESTMENT OBJECTIVE?

 Long term growth • Short term growth • Capital preservation

 Reduce tax liability •Battle inflation

9. WHICH FACTORS DO YOU CONSIDER BEFORE INVESTING?

 Safety of principal • Low risk • Higher return

 Maturity period • Inflationary risk


10. WHAT IS YOUR IDEAL TIME PERIOD FOR INVESTING?

 Short term (0-1 year) • Midterm (1-5 years) • Long term (>5 years)

11. WHAT PERCENT OF YOUR INCOME DO YOU INVEST?

 Upto 15% • 15% - 30% • 30% - 50%

 90% • All • Not applicable

12. SOURCE OF INVESTMENT ADVICE?

 Newspapers and other channels • Friends • Family • Books

 Professionals (Wealth Advisors) • Online Platforms

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