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Project on impact of reading in taking investment decisions

INTRODUCTION: The India is growing at a healthy rate and has been attracting a very good amount of foreign investments ever since economic reforms commenced in the early 1990s .the rapid changes taking place in the financial markets due to financial sector reform, the proliferation and complexity of investment products, and the number of financial scams reported during the last decade and half calls for more information on personal finance. Lack of financial knowledge may result in households saving too little and too late in life to reach their various life cycle goals in general and their retirement goals in particular. This will result in their inability to achieve the desired balance between consumption while working and consumption on retirement. Many financial assets are available in the form of bank deposits, government and corporate fixed income securities, mutual funds units, common stocks, provident and pension funds, insurance, home, real estate, gold; etc.each asset has a different rate of return, risk and liquidity. Many individuals find investments to be fascinating because they can participate in the decision making process and see the results of their choices. Not all investments will be profitable, as investor wills not always make the correct investment decisions over the period of years; however, you should earn a positive return on a diversified portfolio. Investing is not a game but a serious subject that can have a major impact on investor's future wellbeing. Virtually everyone makes investments. Even if the individual does not select specific assets such as stock, investments are still made through participation in pension plan, and employee Saving programme or through purchase of life insurance or a home or by some other mode of investment like investing in real estate (property) or in banks or in saving schemes of post offices. Each of this investment has common characteristics such as potential return and the risk you must bear. The future is uncertain, and you must determine how much risk you are willing to bear since higher return is associated with accepting more risk. (lopes, 1987)the individual should start by specifying investment goals. Once these goals are established, the individual should be aware of the mechanics of investing and the environment in which investment decisions are made. These include the process by which securities are issued and subsequently bought and sold, the regulations and tax laws that have been enacted by various levels of government, and the sources of information concerning investment that are available to the individual. Today the field of investment is even more dynamic than it was only a decade ago. World event rapidly events that alter the values of specific assets the individual has so many assets to choose from, and the amount of information available to the investors is staggering and continually growing. The key to a successful financial plan is to keep apart a larger amount of savings and invest it intelligently, by using a longer period of time. The turnover rate in investments should exceed the inflation rate and cover taxes as well as allow you to earn an amount that compensates the risks taken. Savings accounts, money at low interest rates and market accounts do not contribute significantly to future rate accumulation.

While the highest rate come from stocks, bonds and other types of investments in assets such as real estate. Nevertheless, these investments are not totally safe from risks, so one should try to understand what kind of risks are related to them before taking action. The lack of understanding as how stocks work makes the myopic point of view of investing in the stock market ( buying when the tendency to increase or selling when it tends to decrease) perpetuate. To understand the characteristics of each one of the different types of investment you must have enough financial knowledge. Furthermore, inflation has served to increased awareness of the importance of financial planning and wise investing. More inflation is a worry for each and every individual. Due to inflation value of your money in future will decrease. To cope up this, investors wants to invest their money and earn certain rate of return which is more then rate of inflation. Having clear reasons or purposes for investing is critical to investing successfully. Like training in a gym, investing can become difficult, tedious and even dangerous if you are not working toward a goal and monitoring your progress The classical theory of portfolio choice rests on strong assumptions: no transaction costs, investors awareness of the full menu of assets available and knowledge of their risk and return, no uninsurable risks, such as human capital. If all investors face the same distribution of returns and have the same information set, in equilibrium they select the same menu of risky assets. Differences in attitudes to risk affect the allocation of wealth between safe and risky assets, but not the particular asset selected. And if the utility function has constant relative risk aversion, asset shares are independent of wealth. Under these assumptions, the rich mans portfolio is simply a scaled-aup version of that of poor mans. However recent empirical studies have shown that household portfolios exhibit far too much heterogeneity to be consistent with this sort of uniformity. In particular, many individuals simply do not invest in stocks, a feature that has come to be known as the stockholding puzzle. Fixed entry costs have been the main thesis in the literature to resolve the puzzle. With entry costs, investors benefit from stock market participation only if the (certainty equivalent) expected excess return from participation exceeds the fixed cost. Since the gain increases with wealth, entry costs make strong predictions about the relation between wealth and the probability of investing in stocks. In particular, investors with wealth below a certain threshold do not enter the stock market, those above it do. Empirical evidence in guise, halass and jappelli (2003) documents a strong positive correlation between stock market participation and household financial wealth in many industrialized countries, supporting the entry costs thesis.1 but there is also the international evidence that many affluent households do not invest in stocks which suggests that other forces than entry costs alone may be at work. Furthermore, the entry cost literature does not explain the origin and nature of these costs. Yet understanding what inhibits stock market participation is crucial for policies aimed at encouraging portfolio diversification and spreading the equity culture. We argued in the introduction that awareness of the existence of stocks (or, for that matter, any financial asset) is exogenous to the investors choice set. But then, how is it that some investors are aware of a wide menu of financial assets, others only a small set of investment opportunities? And how do individuals come to know about financial assets? Here we address these questions, singling out some of the key determinants of awareness and obtaining predictions that can be tested empirically.

Before you make any decision, consider these areas of importance: 1. Evaluate your current financial roadmap.

Before you make any investing decision, sit down and take a fresh look at your entire financial situation. An important step to successful investing knows your current goals and risk tolerance. These factors may have changed with the current economy. 2. Evaluate your comfort zone in taking on risk.

Traditionally, if you have a financial goal with a long time horizon, you are likely to make more money by carefully investing in asset categories with greater risk, like stocks or bonds, rather than restricting your investments to assets with less risk, like cash equivalents. On the other hand, investing solely in cash investments may be appropriate for short-term financial goals. The principal concern for individuals investing in cash equivalents is inflation risk, which is the risk that inflation will outpace and erode returns over time. With todays market volatility, investors must evaluate their acceptance and comfort zone for risk. Can you stomach the current up-and-down market for longer term goals? 3. Consider an appropriate mix of investments.

Historically, the returns of the three major asset categories stocks, bonds, and cash have not moved up and down at the same time. Market conditions that cause one asset category to do well often cause another asset category to have average or poor returns. By investing in more than one asset category, you'll reduce the risk that you'll lose money and your portfolio's overall investment returns will have a smoother ride. If one asset category's investment return falls, you'll be in a position to counteract your losses in that asset category with better investment returns in another asset category. One of the most important ways to lessen the risks of investing is to diversify your investments both among asset categories and within asset categories. Its common sense: don't put all your eggs in one basket. By picking the right group of investments, you may be able to limit your losses and reduce the fluctuations of investment returns without sacrificing too much potential gain. Youll be exposed to significant investment risk if you invest heavily in shares of your employers stock. If that stock does poorly or the company goes bankrupt, youll probably lose a lot of money (and perhaps your job). 4. Create and maintain an emergency fund.

Most smart investors put enough money in a savings product to cover an emergency, like sudden unemployment. Some make sure they have up to six months of their income in savings so that they know it will absolutely be there for them when they need it. During a downturn of the economy, this is particularly important. 5. Consider dollar cost averaging.

Through the investment strategy known as dollar cost averaging, you can protect yourself from the risk of investing all of your money at the wrong time by following a consistent pattern of adding new money to your investment over a long period of time. By making regular investments with the same amount of money each time, you will buy more of an investment when its price is low and less of the investment when its price is high. Individuals that typically make a lump-sum contribution to an individual retirement account either at the end of the calendar year or in early April may want to consider dollar cost averaging as an investment strategy, especially in today's volatile market. 6. Consider rebalancing portfolio occasionally.

Rebalancing is bringing your portfolio back to your original asset allocation mix. By rebalancing, you'll ensure that your portfolio does not overemphasize one or more asset categories, and you'll return your portfolio to a comfortable level of risk. You can rebalance your portfolio based either on the calendar or on your investments. Many financial experts recommend that investors rebalance their portfolios on a regular time interval, such as every six or twelve months. The advantage of this method is that the calendar is a reminder of when you should consider rebalancing. Others recommend rebalancing only when the relative weight of an asset class increases or decreases more than a certain percentage that you've identified in advance. The advantage of this method is that your investments tell you when to rebalance. In either case, rebalancing tends to work best when done on a relatively infrequent basis. 7. Avoid circumstances that can lead to fraud.

Scam artists read the headlines, too. Often, theyll use a highly publicized news item to lure potential investors and make their opportunity sound more legitimate. This can be particularly true during troubled economic times when investors are frustrated. The sec recommends that you ask questions and check out the answers with an unbiased source before you invest. Always take your time and talk to trusted friends and family members before investing.

Example of WARREN BUFFETT On investing How warren spends his day: Wakes up at 6:45, reads paper at home, often doesnt make it into the office until after the market opens No set schedule, WB hates having a full calendar Always takes reading material home Spends 80% of the day reading, 20% talking on the phone (he then said it might be more like 90/10) Phone conversations are generally short

Investment process: In the past some things were cheap enough WB could decide in a day (this was somewhat a function of a time period where companies would sell at 2-3x earnings) Decisions should be obvious to onlookers. You should be able to explain why you bought something in a paragraph. I dont do dcf (WB says he does a rough approximation in his mind) Finding ideas is a function of cumulative knowledge over time. Something just comes along usually an event takes place, like a good management team screwing up that creates the opportunity (WB seems to imply here that his reading isnt specifically targeted at finding ideas, but rather that ideas jump out at him as a natural consequence of vociferous reading) You must be patientgood ideas tend to be clustered together, and may not come at even time intervalswhen you dont find anything for a while it can be irritating WB isnt bothered by missing something outside his circle of competence Missing things inside the circle is nerve rackingexamples include WMT, FNM

Review of literature:

Fodor (2008) lack of investor awareness campaigns lead to the financial crime in the capital market. Like the increase in security enforcement increases the number of arrests. Adversely, increases in investor awareness campaigns leads to decrease in financial crime. Al-Tammie and kali (2009) there is a significant relationship between literacy and investment decisions. Al-Tammie (2006) the most influencing factors for financial decisions are, in order of importance-corporate earnings, get rich quickly and stock marketability, past performance of firms stock, government holdings and creation of organized financial markets. In addition, religious reasons and family member opinions have least influence. Baidhya and parajuli (2004) awareness increase amongst the general public about the capital market, regarding nature of risk and return, through promotional campaigns, seminars, publications, and programs in fm/TV etc. Kafle(2007) the stock market is bullish and getting to new peaks, there are numbers of contributing factors out of them investors awareness on risk return and investment profile is the one. Paudyal (2010) Nepal particularly can learn from Indian market in the areas of the functioning of stock exchange, mutual funds, central depository system of securities, instruments diversification, investors education and awareness building, adoption of information technology and opening the secondary market for NRN and foreign Institutional investors (FIIS).regarding investors education and awareness, India has created national institute of securities market (NISM) with huge physical infrastructure with the collaboration of industrial houses and different universities. Policy research institute (2008) obviously, the financial crisis of 2008has heightened institutional as well as individual investors awareness of risks. Christelis et al (2007) policy intervention to improve the quality of financial information and investors awareness depend crucially on the extent to which cognitive abilities affect financial decisions. Ameriks and zeldes (2004) within and across countries there is wide heterogeneity in stockholding, in particular with respect to investors wealth, education and horizon. Bogan (2006) there is an association between stockholding and computer and internet use

Van rooij et al. (2007).there is an association between planning for retirement and financial education,

Objectives: To know the reading habits of the investor. To know the impact of reading in taking investment decisions. To know ancillaries which help along with reading in taking investment decision

Research as a care full investigation or enquiry especially through search for new facts in any branch of knowledge Research is an academic activity and such as the term should be used in technical sense. The manipulation of things , concepts or symbols for the purpose of generalizing to extend ,correct or verify knowledge ,whether that knowledge through objective.

Primary Data Collection: The primary data was collected by means of questionnaire and analysis was done on the basis of response received from the customers. Secondary Data Collection: The Secondary data refer to those data which are gathered for some other purpose and are already available in the internal records and commercial, trade, or government publications. In my project, going through various newspapers, E-magazines, Ejournals and web sites for collecting secondary data.

Research Design
A research design is a definite plan for obtaining a sample from a person who does investment through reading. The following sample design has been used in the research study.

Descriptive research does not fit neatly into the definition of either quantitative or qualitative research methodologies, but instead it can utilize elements of both, often within the same study. The term descriptive research refers to the type of research question, design, and data analysis that will be applied to a given topic. Descriptive statistics tell what is, while inferential statistics try to determine cause and effect.

Sample size: - The sample size was so selected that it could be adequate enough to
represent the whole Population. The sample was taken from the Punjab state Jalandhar city, from that person who does investment through reading. The size of the sample is 100 peoples.

Sampling technique Convenience Sampling

A convenience sample is a matter of taking what you can get. It is an accidental sample. Although selection may be unguided, it probably is not random, using the correct definition of everyone in the population having an equal chance of being selected. Volunteers would constitute a convenience sample. This sampling is also known as non-probability