CHAPTER -- II

REVIEW OF RELATED LITERATURE.

SAVINGS AND INVESTMENTS OF
INDIVIDUAL INVESTORS.
 CHAPTER II

REVIEW OF RELATED LITERATURE

SAVINGS AND INVESTMENTS OF INDIVIDUAL INVESTORS

2.1 INTRODUCTION

Excess revenue over current consumption becomes the savings. Thus

one should earn more than his consumption to save for future. Saving level of a
person shows his efficiency, frugality, and preservation of the present earning for
future1 There are triangular relationships between income, consumption
(expenditure) and savings. It is said and believed that through savings one’s
future is however assured to some extent.

Saving is the primary stage of securing life but subsequent steps are to be
resorted. For that savings should be converted into investments, whereby some
value is added to the savings. Income earner must plan for savings and its
investment in a mode best suited to him. This practice is described as
management of personal finance, which, as a discipline, gained prominence in
recent years.

A proper plan for savings and investment has necessarily become a part
of one’s life in the long run. Level of savings has become a powerful driving force
of the economy as well. In the present global scenario, many countries save
between 30 and 40 percent of GDP. These highest saving rates enabled these
countries to grow at a faster rate during the last several decades. At present

1
Selvam, M. op.cit. p.39
 23

these countries can prosper well even with low savings as the growth level has
come almost up to a saturation point.

Therefore, the United States with the lowest saving rate, has been
growing at an impressive rate. The underlying reason for the above situations is
that the productivity capital has been sufficiently ensured. But in India, proper
infrastructure is yet to be developed invariably in all sectors. Huge amount is
required for building infrastructure and other purposes. In the continued slow
down, many corporate houses use only a fraction of capacity and left with no
money for fresh investments. At the same time, the Government’s tax revenues
are also down and it has very little to spare anyway.2 At this juncture, individual
savings are the only source to finance for our country’s developmental activities.

When some countries save over one-third of GDP, India saves only a
quarter of GDP. Latest figures show that out of total saving (around 25 percent of
GDP) individuals alone save 19.5 percent of GDP. In other terms, personal
disposable income rose from Rs.2,33,308 crores in 1986-87 to Rs.8,87,820
crores in 1995-96 registering about 280 percent rise3 and hence this impressive
contribution. However, the rise in the income level does not result in savings.

In a country like ours, savings has no substitute and hence enormous

savings of the public leading to the best utilisation could be the smart way to
achieve prosperity. To achieve a higher saving and its investment in productive
assets, it is inevitable to create a healthy environment for saving. In fact, a
congenial atmosphere to the investing community can alone bring the confidence

2 Business India, December 28*1 - 10,h January 1999, Editorial.

3 National Accounts Aggregates, Economics and Political Weekly, August 16-23,1997.

 24

in the minds of the investors, who in turn develop an optimistic approach and
save more and more.

According to the World Development Report published by World Bank,

savings of individual play an important role in almost all countries including
India. To sustain the high growth, there must be significant increase in the
marginal saving of individual investors. In India, though savings are increasing, a
corresponding increase in growth rate is not witnessed.4

2.2 PERSONAL SAVINGS OR INDIVIDUALS SAVINGS - ITS IMPORTANCE:

Money is needed to fulfil our basic needs. Apart from the day to day
expenses, man has some exigencies such as marriage, higher education, setting
up a business, serious illness etc. To meet these expenses, savings are very
essential. It is generally advised that one should save atleast 10 percent of
income. Saving under lock and key is not a wise step and such well-guarded
savings help neither the nation nor the owner. Necessarily, the saver must invest
the savings to earn return on it. In simple terms, investment can be described as
‘deployment of money for reaping future benefits’. But in practice, it is as difficult
as earning money since it involves ‘commitment’ of fund and ‘waiting’ to avail the
return. Behind every investment, there is a strong reason, which makes the
investors to sacrifice current consumption and invest for future. Preeti Singh5 has
identified important reasons of personal investment. They are: longer life,
taxation, higher interest rate, inflation and larger income which compel the
investors to invest. Recent survey of United Nations6 also confirms that people

4 Jalan, Bimal., Savings: India’s Experience; Recent developments in Indian Economy

with Special reference to structural reforms. Edited by Kamila, Academic Foundation,
Delhi 1992. P.175-183,

5 Preeti Singh, Investment Management, Himalaya Publishing House, Bombay, 1991, p.3

6 The Economic Times, 1st November 1998,p.16.

 25

will live longer in the years to come. Similarly, due to abundant employment
opportunity, people have a general increase in income and possibility of higher
savings. Numerous vistas are thrown open and both men and women constitute
as a strong working force. As a result, on the one hand, people spend more and
the other, they also save more7. Surplus of income lead the earner to look for
better management of it and consequently investment is made in the avenue(s)
found to be most suitable.

2.3 DIFFERENCE BETWEEN THE SAVINGS AND INVESTMENTS

The remaining earnings after meeting basic requirements are called

savings. But the money deposited in profitable ways is investment. A difference is
worth noting : Savings normally does not require much skill. It is enough to be
economical. But investing envisages good skill and experience because the
money that has been saved is invested. If the investor does not properly
channalise his savings, he has to risk his savings. That is why all savers in a
country are not good investors. Similarly, a saver is different from an investor. A
saver saves part of his earnings. An investor, even if he fails to save, borrows
loans to invest in profitable ventures. Generally, the saving and investment
behavior differs from person to person.

The household sector’s savings are called personal savings or the

savings of individual. According to Prof. Irwin Fisher, individual's savings are the
difference between their current income and their current expenses, which
includes personal tax payment as well as consumption expenditures. He outlines
different forms of saving.

7
The Hindu, 19.1.1999.p.26
 26

(i) Contractual savings such as LIC, Provident Funds etc.

(ii) Holding of Liquid assets such as cash balances, bank balances,
shares, bonds and securities.
(iii) Liquidation of old debts: Cancellation of a debt.
(iv) Direct investment: Forming a business, purchasing a house,
improvement of building.8

Several of reasons induce the individuals to save for future and equally
other factors to reduce his savings. Usually, while choosing goods for use, people
prefer higher quality goods to lower quality goods with a view to improving their
standard of living. This social needs vary from one to another depending upon
his age, occupation, social, marital status etc. Likewise habit is a major
determinant of consumption pattern. Generally everyone will have a well-
established set of habits in purchasing goods or spending. Both social status and
habit of investors relatively influence them to improve the standard of living by
consuming high quality goods. A section of the public believes that high quality
goods can provide comfort, convenience and beauty. This tendency leads to
spending on expensive goods by weakening the level of savings.

While several reasons cause the reduction in saving, Mithani. D.M.9 points
out that the following may be motives for one’s saving instinct.
(i) Precaution :To build up a resource against unforeseen contingencies.
(ii) Foresight :To provide for future needs.
(iii) Improvement: To improve standard of living gradually.

(iv) Independence: To enjoy a sense of independence and the power to

do things with accumulated savings.

As quoted by Mithani D.M., in Money, Banking, International Trade and Public finance,
Himalaya Publishing house, Bombay, 1992, p.142
9
Idem.,
 27

Factors favouring higher saving will usually have much impact and the
investors prefer to save with a lot of difficulties. For an individual investor, two
main components - Financial and Physical (non-financial) are at his disposal.
Investments are resorted by the saver themselves or through others. The
institutions which mobilise savings through designed instruments are of two
types. One mobilises the savings for its own purposes and the other facilitates
others to use such resource.

In todays financial market, there are large number of finance companies

not able to meet their commitments and this has resulted in closure of these
firms. Particularly in stock markets, real estates and non-banking finance
companies sector, the intermediaries often indulge in unethical business
practices. The IGF has released the names of 83 ‘bogus’ and ‘vanishing’
companies. These companies have swindled over Rs. 10,000 crores of investors’
funds10

Now-a-days, investors are forced to operate in an environment of stress

and strain. They cannot act off handedly. The process of taking a right investment
decision has become a crucial point to almost all the investors. Since the external
environment is made more complex, investors find it difficult to match their
objectives with the instrument or institution with which they have to part with their
valuable savings. Equally, one’s own personal environment also makes the
investment decision making a complex phenomenon. In this regard, Prasanna
Chandra*11 described the following as common mistakes done by the investors

10 Student Company Secretary, The Institute of Company Secretaries of India, August

1999, p.8

11 Dr.Prasanna Chandra, Chartered Financial Analyst, September/October 1989,

Individual Portfolio Management: Mistakes and Remedies. P.3
 28

1. Failure to assess risk attitude and define investment stance.

2. Over diversification.
3. Cursory decision-making.
4. Wrong approach to timing.
5. Inadequate review and revision.

Owing to insufficient knowledge in various avenues of investment,

investors naturally tend to seek assistance from financial institutions, share
brokers, investment consultants etc. The intricacies attached to each investment
option make the advisers to take undue advantage against the investors.

Intermediaries like stock exchanges, merchant bankers, stock brokers,

credit rating institutions, financial consultants have a great role in giving valuable
advice to the savers. If regulatory organisations like the RBI, SEBI, CLB and
other hosts of institutions in maintaining business standard, perhaps our investors
will find a clean environment and boost the savings for the common cause. Major
investment avenues have been described in the following pages.

2.4 DIFFERENT INV TSTMENT AVENUES - RECENT TRENDS

Investment market consists of both financial and non-financial

instruments. They offer variety of benefits and returns. Recent trends in the
investment markets have been analysed and presented the in the subsequent
pages.

2,4.1 STOCK MARKET

During the past three decades, the Indian capital market witnessed
several booms and crashes. This situation reflected both in terms of capital raised
 29

and number of investors. In 1985-86, securities market found an alltime high

growth due to the deregulation of industries and liberalisation policy of
Government. The capital raised by private sector companies through new issues
of equity and debentures were about Rs.50 crores in a year in the seventies. But
it went upto Rs.400 crores in 1981 and Rs.2,000 crores in 1985. Due to the entry
of individual investors particularly salaried class during 1986, the shares of
unknown companies got oversubscribed many times.

Peaks have to be followed by troughs, as it happened in the Indian stock

market in October 1987.12 Due to the sudden fall in prices, the investing
community had suffered enormous loss of capital invested in companies
promoted by fly-by-night entrepreneurs. As a consequence, the new entrants in
the share market lost their confidence. Hence, Jackson Brown advised ‘never
invest more in the stock market than you can afford to lose13. If due care had
been taken by the Government and regulatory organisations in time, the
miserable situation which made large investors to leave the share markets might
not have happened.

Since independence, the working of finance ministry has received

considerable criticism on account of its inefficiency to control stock market.
Owing to the inability of the ministry, our financial system became handicapped.
This ultimately led to unhealthy practices in stock market. The stock market
scam exploded in 1992 and it was provisionally estimated that the quantum of
money involved in the scam from April 1991 to 1992 was 12,85,549 crores.14
Moreover, the inordinate delay in instituting the case in the court of law and lack

12 The Hindu Survey of Indian Industry, 1987, p. 15

13 Brown, Jackson.H. Life’s little instruction book, BPB Publications, New Delhi, 1993,
p.24.

14 Venkateswaran.R.J.,Finance Ministers of India - How they shaped fiscal policy, Vikas

Publishing House Pvt. Ltd., New Delhi, 1994.
 30

of effort in expediting the case in Harshad Mehta scam have also made the
corporate investors to feel unsecured in the corporate investment market. In
order to protect the investors from such drastic losses in the years to come, many
more attempts are to be made to evolve new systems or instruments.
Unfortunately over the last 150 years, nothing new has been developed in the
field of equity.15

2.4.2 NON-BANKING FINANCE COMPANIES - LESSONS IN THE BOOKS

Non-banking finance companies have their field very close to all segments
of investors. Erstwhile law was not stringent enough and, by their very nature,
non-banking finance companies spread their net over the whole country. Every
now and then companies with the ulterior aim of cheating the innocent investors
were started and closed after the purpose was achieved. Regulatory
organisations, supposed to be the watchdog of financial market, found
themselves helpless.

Exactly a decade ago, there were incidents about the non-banking finance
companies existing only in books. In a case initiated against Peerless General
Finance and Investment Co. Ltd., Calcutta, the Supreme Court of India observed
that “we would also like to query what action the Reserve Bank of India and the
Union of India are taking or proposing to take against the mushroom growth of
finance and investment companies offering staggeringly high rates of interest to
depositors leading us to suspect whether these companies are speculative
ventures floated to attract unwary and credulous investors and capture their
savings”16

15 Chartered Financial Analyst, October 1995, p.29

16 Investing with little risk, Delep Goswami, Financial Express, 20.06.1987, p.9.
 31

Starting up ot non-banking finance companies with an attractive exorbitant

rate of interest to lure investors is not of recent phenomenon. Closure of

numerous companies due to their inability to meet the repayment schedule has

created a strong opinion in investors’ mind not to invest in this sector. During

1980s, the office of the Director-General of Investigation and Registration in the

department of Company Affairs preferred complaints with MRTPC.

At that time, Oriental Finance and Exchange company of Madras gave

advertisements in leading newspapers claiming to be ‘India’s largest investment

company’ with ‘Branches all over India’. Further claimed to provide dedicated

service and complete security to investments made by the public. 20 percent

interest was offered on 30 days’ notice deposits, 30 percent on one years fixed

deposits, 32 percent on two year deposits and 34 percent on three year fixed

deposits. On complaint, investigations were initiated and proved that the firm did

not have necessary assets or means to pay such high rates of interest and the

principal amount. All schemes offered by the firm were aimed to lure innocent

investors.

In the case of Bharat Overseas Finance and Industrial Investment

Corporation, Madras which offered a high rate of return ranging between 28

percent and 36 percent and also developed slogans like “high interest,
promptness, liquidity, trust and security". Enquiries on functioning of these firm
revealed a great loss to the investors.,x
/
/

2.4.2.1 NON-BANKING FINANCE COMPANIES - THE RECENT CRISIS

The CR Bansali scam involving about Rs.1,200 crores discloses the

abrupt ineffectiveness of regulatory authorities and the great risk, faced by small
 32

investors. Slow moving investigations enormously posed a great threat to our

economic system and the wrong-footed investors had to blame themselves. In
the after math of continuous closure of several non-banking finance companies,
the investors started raising a serious question - what is wrong with India’s
financial regulatory system?

During 1981 there were about 7,000 Non-banking financing companies

and it rose to 40,000 within a decade (1990). At present, about 43,000
companies have their operation across the nation. Likewise, the deposits with
these companies were Rs.3,161 crores in 1984 went to the extent of Rs.83,703
crores constituting 21.6 percent of aggregate deposits of scheduled commercial
banks.17

Deposits of non-banking finance companies are meant to be deployed for

productive purposes like other financial institutions. Otherwise, the investors
cannot get back their deposit amounts. To attract the depositors, finance
companies sponsor the mega shows, music programmes by spending lavishly.
Usually expenses of the companies in the name of social cause are far beyond
their capacity. Very recently, the shake out of these companies gained
momentum and deposit-holders lost a considerable amount as these companies
defaulted on repayments. Many of these companies are established to cheat the
innocent investors. Cheating of investors is still taking place around the world. In
the highest saving country like China, recently investors passed within the yards
of Tiananmen Square protesting against the frequent collapse of financial
institutions. The Beijing based Xin Guo Da Futures Company Ltd. promised high
returns and lured millions of pounds of small investors and closed its business.18

17 Third Concept, September 1998, p.46.47

18 Cheated investors march through Beijing, The Hindu (Daily) 14.11.98 p.16
 33

In India also, following the announcement of strict guidelines errant companies

closed their business and disappeared. In Chennai, a women chit fund owner
absconded with Rs.3 crores of 600 depositors. She ran festival funds, journey
funds, pooja funds, silver article funds etc. and promised to double the money in
a year.19

2.4.3 MUTUAL FUNDS

There are at present about 30 mutual fund organisations in India with the
UTI being the dominant player. These organisations operate a variety of open-
ended and close-ended schemes providing income, growth and income-cum-
growth mainly for the benefit of small investors. Following the financial sector
reforms in India, the industry was thrown open to the private sector but the public
sector continues to command the lion’s share of the market.

The major responsibility entrusted with mutual funds is to employ funds in

the most efficient manner so as to provide regular income and /or capital gains
over a specified time. Till the middle of 1995, the mutual fund industry (public
and private) had mobilised funds amounting to Rs.74,700 crores.20

The management of this huge chunk of money calls for special skills,
training, maturity and experience on the part of fund managers of mutual funds,
fn addition, mutual funds have to operate within the framework of statutory
guidelines framed by regulatory organisations such as SEBI. Mutual Funds
interest in equity, debt instruments, Government Securities, call deposits
commercial papers etc. Mutual Funds were making investments on random

19 The Indian Express, 26.6.97 p.5.

20 The Hindu Survey of Indian Industry 1995, p.429

 34

basis and now they developed in-house research facility which enables
sophisticated technical analysis.

Mutual fund organisations introduced ELSS in 1992 to attract the small

investors. Till recently, investors showed interest in subscribing these schemes.
But due to the continuous downward trend of share prices, investors are trying to
come out of these ventures. As an alternative means to mutual funds, Unit Trust
of India and one private sector organisation introduced retirement benefit plans.
Five other private sector mutual funds are also considering the floating of such
schemes.

2.4.4 GOLD

From time immemorial, gold has become the most exciting instrument of
saving. Though it is unproductive, the gold as a form of saving offers many
advantages to the saver. To say a few, possibility of even minimum saving at one
time, attached capital appreciation, easy handling, serving as security at all
occasions. The consumption is increasing day by day. India occupies the top
position in the world's gold consumption. During 1996, India’s gold consumption
was 574 tonnes and it touched 737 tonnes in 1997 showing an increase of 33
percent21

This yellow metal is held by people for two main reasons, namely, for
adornment and as investment. According to Derek Machado, financial institutions
manager, World Gold Council, of the total gold consumption demand, 20 percent
for investment and the rest is for adornment.22

21 Vanigamani supplement to Dinamani (Tamil Daily), 19.10.98, p.7

22 Business India, December 28th-10th January, 1999, p.72

 35

An interesting observation is that the study area of Coimbatore district is

always known for its gold market as it stands next to Hydrabad in South India.
Realising the potential of gold market operations in Coimbatore, the World Gold
Council conducted a gold mela’ from September 20 to October 18, 1998 which
was first of its kind in India. From the above, it could be inferred that investors in
the study area give much importance to the gold as a saving and investment
vehicle.

2.4.5 PLANTATION AND ANIMAL BREEDING SCHEMES

Investment opportunities in plantation and animal breeding schemes are

of recent origin. The companies engaged in these businesses witnessed a
mushroom growth as they were projected like a strong alternative to the
traditional avenues of investment. The plantation schemes comprise teak wood
units, fruit orchards, rubber plantations and agro bonds and animal breeding
includes goat breeding and so on.

The success of these new schemes is always subject to flood, drought,

frost, and earthquake and mostly unrealistic because they are perishable, yields
are uncertain. Moreover, the schemes suffered from market risk, security risk and
risk due to natural calamities. All these issues make the plantation schemes
totally insecure. Recent experiences show that most of the companies engaged
in plantation schemes presented exaggerated picture about the viability of
schemes and ultimately landed the investors in trouble. The advertisement issued
by the institutions had some features such as ‘quick returns’, ‘maximum security'
and ‘money grows on trees’, which all attracted so many investors.

Plantation companies have caught hold of a sizable number of investors

as it is estimated recently that over 27 lakh investors and an amount of Rs. 10,000
 36

crores. These companies mobilised savings of investors through a net work of 3

lakh agents.23 These plantation companies found to be more active in Western
and South India. Until recently, there has been no regulation of such schemes of
plantation companies in India. But now the Government of India has realised and
decided to take appropriate regulatory measures to curb the unscrupulous
companies.

2.4.6 INVESTOR EDUCATION PROGRAMMES

Investors in metropolitan cities seem to possess high level awareness

when compared to their counterparts in other areas. In Mumbai, the investors
affected by CR Bansali scam had put up their own candidate in the Mumbai
North-East Lok shabha constituency for the general election in 1998. They had
devised this novel method to voice their grievances and also to recover dues from
defaulting companies. An estimated 11,300 small investors favoured Pradip
Bhavnani, President of the National Association of small investors on filing his
nomination24. But this type awareness is lacking in other areas particularly in
towns and villages. The above view is also supported by the fact that investors of
different investment options have a separate association mainly to protect their
interest. All-India Bank Depositors’ Association, Mumbai25 is an opt example of
high level or complete awareness in the major cities of India.

Hence investors in places other than this metropolitan cities need a high
dose of education. As rightly quoted by Desai,26 without proper education the

23 Sanjiv Agarwal, Curbs on plantation companies, Business line, 8.3.98. p,20

24 Small investors sponsor candidate in Mumbai, Financial Express, 6.2.1998, p.20

25 Economic Times, 19.1.1998 p.6

26 Desai VRM, Social aspects of savings, Popular Prakasan, Bombay, 1967, p.39.
 37

members of the family may not start well or may not understand the real value of
thrift, savings and accumulation, investor education assumes vital importance.
Financial intermediaries like banks, advertisement companies, Mutual fund
institutions and even the credit rating agencies accord a better status than before.
A welcome change taking place in the financial market is that both investors and
intermediaries started realising the importance of each other. As a result, the
intermediaries initiated the process of enlightening the investors with regard to
merits and demerits of each saving and investment vehicles.

In an attempt to educate the investors, the institutions bring out the

booklets, brochures, pamphlets, bit-notices etc to explain the investors as how to
find out the right from the wrong. Though publicity is the motive behind these
publications, they are really informative and guide the investors. Each published
work contributes to the common cause of healthy investment environment.

Association of mutual funds in India has issued a guide to investors, which

classifies different stages of investors and reveals the different investment
options suitable for each stage. For instance, if the investor is starting his career
or he is just married or he is a young parent-at all stages, he is provided with a
package of useful and common sense investment tips.

A private sector investment management company has come out with a

series of periodical advertisement in some financial dailies, insisting on the
importance of saving on different aspects. It enunciates about, when one should
start saving, how best one could achieve better future, what will be the worth of
today’s saving after a stipulated period etc.

Banks have also initiated the process of educating the investors. The SBI
and ICICI are already on line and other banks are on move. The IRA and RBI
 38

have also started educating the investors. RBI has issued a booklet on non­
banking finance companies guidelines and IRA has issued brochure on insurance
sector. A step further, Times Bank has started customer-oriented service in
banks, which offers tax saving advices to the investors. Recently, internet
facilities are also used to provide guidelines. ICICI has a web site and the other
banks are on the move in the same direction.

2.4.7 CREDIT RATING

Credit Rating is an attempt to measure the financial health of the

borrowing institution, not only in terms of what it is today but what it is likely to be
tomorrow. According to Information and Credit Rating Agency (ICRA), credit
rating is a simple and easy to understand symbolic indicator of the opinion of a
credit rating agency about the risk involved in a borrower programme. But it is
not, a recommendation to buy, hold or sell a debt instrument.

Presently, tb ;re are four credit rating agencies operating in India. They
are: Credit Rating Information Services of India Ltd. (CRISIL), Investment
Information and Credit Rating Agency (ICRA) Credit Analysis and Research
(CARE) Duff and Phelps Credit Rating (India) Ltd. (DCR). While all rating
agencies charge Rs.40,000 to 50,000 per rating, CRISIL alone charges
Rs. 1,00,000 per rating.27

Now-a-days, rating agencies are going beyond the information that is

banded over to them by borrowing institutions. Taking the given information as a
basis, rating agencies are using their independent verification and validation
techniques to arrive at a true picture. Rating methodology of these agencies

27 Below Investment Grade, The Economic Times, 21.1.98, p.7

 39

comprise a common tool based on CAMEL approach (Capital, Assets,

Management, Earnings and Liquidity). Even then all these methods have
loopholes and thereby a worst financial background of an institution goes
unchecked.

In many cases, credit rating agencies have come under severe attack for
not being able to predict the impending trouble. Mostly, rating agencies
responded after a serious damage was done. The failure on the part of agencies
is defended with the argument that they are just information providers and not a
regulator, protector or an advisor. The agencies claim that often investors have a
misconception about the role played by agencies.
 40

REVIEW OF LITERATURE

Narayana D.L28. in his major research work titled ‘Income, saving and
Investment of Household sector in Chittoor District has attempted to review the
economy of a select district. He examined the asset structure of households
classifying the entire range of assets in to physical assets and financial assets.
He found that the average investment in case of self-employed farmer
households was Rs.1387 as against Rs.473 for the self-employed group in
business. At the same time, the average investment of salaried persons was
Rs.261. He also noticed that average investment in farm assets decreases with
an increase in the level of education of the head of the family, where as
investment in consumer durables appeared to increase. The data showed that
the average investment of three or more earner households was Rs.533 as
against the investment of Rs.339 by two earner households and a negative
(disinvestment) investment of Rs.344 by single earner households. Average
investment in farm assets increased with the number of earners in the
households.

The net increase in financial assets of the rural households including

currency amounts was Rs.833.58 lakhs during the reference period. Of this
amount, rural households made a net investment of Rs.355.63 lakhs in gold and
silver. Hence, he found that rural households were still attaching primary
importance to the precious metals. They also had bank deposits, shares and
securities amounting to Rs.121.64 lakhs. Their Chit fund amounted to Rs.43.59
lakhs.
The survey further revealed that 'the most important forms of urban
financial investments were bank deposits, share and securities, which accounted

28
Narayana, D.L. op.cit.
 41

for about 28 percent and next in importance was currency which accounted for
about 22 percent. The average net financial investment of urban households was
Rs.712 lakhs as against Rs.402 lakhs in case of rural households.

According to his findings, the gross and net savings of rural households
amounted to Rs.2, 987.5 lakhs and Rs.1, 861.1 lakhs respectively. The average
net savings per rural household were Rs.898. He viewed that the savings of rural
households were not low, as they were generally believed to be. The gross and
net savings of urban households amounted to Rs.564.1 lakhs and Rs.332.8 lakhs
respectively. The average net saving per urban household was Rs.1,105. He
noticed that more than 35 percent of rural households were practising dissaving
and about 65 percent effected positive saving. In urban areas nearly 28 percent,
were dissaving and the rest 72 percent had positive savings. The average saving
income ratio of total rural household was 15 percent and in urban households it
was 16 percent.

Further, it was noticed that the average saving income ratio was 20
percent in Rs.6,501-7,500 income class and decreased to 13 percent Rs.7,501 -
10,000 income group simple linear least square regression indicated that the
marginal propensity to save for rural households was 41.8 percent and the same
was 33.1 percent in case of urban households. This implied that with an increase
in income the proportion of income saved by these households also increased.

Shantilal Sarupria29 in the study captioned ‘Individual Savings in an

Undeveloped Economy- India: A case study' had made an attempt to disprove
certain widely held views about the individual’s saving behaviour in an

29 Sarupria, Shanti ial. Individual Savings in an Under Developed Economy-lndia: A case

study The Economic Weekly, June 22, 1963 p. 995-1001.
 42

undeveloped economy like India and suggested the ways of potential savings
which could be mobilised for investment. It was regretably contended that a large
section of our population held its savings in the form of gold hoards landed
property and other unproductive assets. This view was supported by estimates of
National Council of Applied Economic Research and Reserve Bank of India
during the period between 1957-1959.
• Productive assets like shares and securities, insurance premium, bank
deposits and small savings were held by investor with around 25
percent of the total household savings.
• Unproductive assets like gold, currency and durables (including
housing) attracted the rest 75 percent of savings.

It was also found in the study that the act of saving in Indian families was
the duty of women, who are largely illiterate and more tradition bound than the
men. The prestige was the main reason for accumulation of wealth in Indian
society. The study gave an opposite view to Keynsian equation on saving and
investment which stood as savings = Investment (S=l).

The conclusion was that propensity to save in India was higher than in
some of the advanced countries in spite of the wide difference in per capita
income. In India, the very uncertain economic, political social conditions,
monsoon dominated agriculture provide a strong incentive for large mass of the
people to save. This study also confirmed the share of household sector in total
national savings.
David Bence, Kevin Hapeshi and Ropger Hussey30 in their study titled
‘Examining Investment Information Sources for Sophisticated investors Using

30 David Bence, Kevin Hapeshi, Roger Hussey, Examining Investment Information

Sources for Sophisticated Investors Using Cluster Analysis, Accounting and Business
research, winter 1995, p. 19-25.
 43

cluster Analysis’ (1994) focussed on investment information used by financially

sophisticated institutional investors and financial analysis. The main sources of
information were provided by annual report and accounts, personal interviews
with official Company literature, Trade journals and Government statistics.

Ganti Subramanyam, Swami S.B. and Chawks O.P.31 in their paper on

‘Disintermediation in India’s household sector financial portfolio’ (1994) based on

their research Project explored the fact that the flow of household savings into
bank deposits declined markedly as more and more market instruments attracted
savings. This decline posed a biggest threat to the business of banks. This
study also led to an econometric investigation of household preferences of
deposit form of saving vis-a-vis the forms of financial saving. They found the
household sector’s saving patterns during the last two decades encouraging.
Gross domestic saving ratio was reported to have increased from 10.1 percent in
1951-52 to 21.2 percent in 1980-81.

Chandrasekar.K and Geetha K.T32 in their paper entitled 'National

v Savings and Economic Growth’ (1996) confirmed that there was a strong
association between a nation’s saving rate and the rate of growth of per capita
income. It was found that the gross saving rate was just 18.7 percent in 1986-87,
but started increasing afterwards mainly because of household savings. In 1994-
95, the gross domestic saving touched an all-time-high level of 24.4 percent.

31 Ganti subramaniyam, Swami, S.B., Chawla O.P. 'Disintermediation in India’s

household sector Financial Portfolios', Savings and Development No: 3, 1994 XVIII p.
345-357.

K 32 Chandrasekar K. and Geetha K.T., National Savings and Economic growth, Southern
Economist, November 1996 p. 13.
 44

Pulapre Balakrishnan33 in his study ‘Savings Rate in Indian Economy

since 1991’ (1996) explained the latest trend in savings behaviour in India. At the
national level, three institutions publish the estimated figures of savings. In his
view, the CSO’s estimates were most detailed and comprehensive and followed
by the estimates of planning commission and RBI.

It was found that total savings during the study were around 22 percent
and household sector alone contributed 19 percent of the total savings, financial
asset accounted for 15 percent and the rest 7 percent were in physical asset.

Dash R.K and Panda J.34 in their paper titled ‘Investors’ Protection: An
analysis' had critically examined the need for investors’ protection. They found
that unincorporated bodies and Nidis (Mutual benefit funds) whose deposit
acceptance activities did not come under the guidelihes of the Reserve Bank of
India shook the investors confidence for the past several years. They stated that
the poor growth level, dearth of innovative schemes, poor marketing and
unsatisfactory investor servicing etc., were the reasons of the low level of
confidence. They strongly emphasised the importance of instilling the confidence
in the minds of the investors.

In a survey conducted by ORG-Marg,35 a research organisation, investors’

choices over the investment avenues had been elicited. The study revealed that
majority of investors favoured fixed deposits in banks. Post Office Savings
Schemes, Insurance Schemes, bonds issued by governmental organisations,

33 Pulapre Balakrishnan, ‘Savings Rate in Indian Economy since 1991, Economic and
Political Weekly, Special number September 1996 p. 2527-2529.

/ 34 Dash R.K. and Panda J. Investors’ Protection: An Analysis, Southern Economist -

v September 1, 1996.

35 Vanigamam - Supplement to Dinamani (Tamil Daily), 4.1.1999 p, 10.

 45

equity shares were preferred by investors in the order. Mutual fund schemes,
mainly meant for small investors were the least preferred.

The survey was corducted to know the important factor, which influences
one to prefer one investment avenue to another. Seven parameters namely
capital appreciation, safety, liquidity, rate of return, guaranteed return,
fnanageability and tax shelter were incorporated in the interview schedule to
identify the preferences of investors. Guaranteed return coupled with Capital
appreciation was expected by most of the investors.

Though the survey was mainly focused on mutual fund preferences, all
investment channels had been given a touch. Of the sample investors, only 67
percent stated that they knew about the mutual funds. Out of that, 11 percent
were of opinion to invest in it. A further analysis clarified that investors though
very less in number in mutual funds liked Government owned mutual funds than
private sector funds. The survey report concluded with a remark that awareness
was still lacking towards mutual funds and even those who knew mutual funds
had only wrong notion about it. The survey suggested to promote awareness in
this field.

A survey was conducted by Intelligent Investor36 (A fortnightly magazine)

about the home instincts of investors. The survey was intended to disclose the
average Indian’s attitude to housing, living space and real estate.

40 percent o' male category opted for 500-800 square feet spacious
house to a family of 4 members. Whereas 50 percent of female respondents
needed 801-1200 square feet house. 60 percent of Chennai based respondents
(being the maximum) preferred even small space (500-800 square feet) for a

Intelligent Investor - 7th October ’98, Fortnightly Magazine, Mumbai

 46

family of 4. 34 percent of male and 28 percent of female respondents expressed

their willingness to have a house of their own before marriage. But among the
total respondents, 34 percent wanted to own house after having children. 58
percent of Calcutta based respondents and 48 percent of Chennai-based
respondents were willing to own a house atleast before retirement.

More females aspired (42 percent) to own a second house than the males
(34 percent). But on an overall basis, 54 percent did not consider buying a
second house. A strong exception was found among Calcutta-based respondents
that 96 percent of them disliked the purchase of a second house. To a question
of 'would you invest in a house in today’s market’ 64 percent of the males and 65
percent of the females had responded positively. 76 percent of Chennai-based
respondents preferred to invest in house property today. 84 percent of Chennai
respondents had stated future gains’ as a reason for investing in a house
property.

A survey was conducted by the Ananda Vikatan37 (a Tamil weekly

magazine) during January 1999. Public were interviewed on the aspect of
savings and their saving habits. One salaried class investor told that he was in
the habit of allocating 20 percent of salary for savings every month in the form of
either a fixed deposit or a recurring deposit. In addition, he would earmark a
certain amount and deposit it in a bank or a non-banking finance company. In
the event of his getting substantial pay arrears, he would deposit the entire
amount in banks keeping in mind his children’s future. He admitted that he had
never fallen into deb* so far due to proper savings plan.

37
Ananda Vikatan, Tamil weekly, 7.2.99.
 47

An investor being a housewife said that she had invested in real estate
and gold and rarely she saved in non-banking finance companies. Another
interviewee admitted that hers was a large family comprising four daughters and
two sons and that she had to manage their education and family expenses
resulting in a lack of savings. Now that her children were well-settled in life and
so they could save a sizable amount.

Another investor had opined that it was easier to tame a bull in bull­
fighting than to manage expenses in a family. Immediately after the pay day, he
would settle the routine commitments like school fees, house rent, electricity
charges, telephone bill and keep the required amount for monthly provisions etc.,
Since he felt that it was not possible to resist the temptation of spending money,
when he had, he had made arrangements for the deduction of certain amount
from salary through the company welfare society. He felt it wise to save with a lot
of difficulty to add one by one of such assets like land .vehicles etc.,

Another investor felt that the habit of saving should start from one’s early
part of life. Later, she could not imagine to save much in view of children’s
education and marriages. She also held the view that one should be prepared to
sacrifice certain luxuries in life so that one could lead a happy and peaceful life in
later years.

Radha V.38 in her study titled ‘A Study of Investment behaviour of

Investors of Corporate Securities’ (1995) has examined the investment plan of
corporate security investors in Tamil Nadu. The analysis revealed that the largest
segment of the sample was constituted by young generation investors. They

38 Radha V. ‘A study c. investment bahaviour of investors of corporate securities, Doctoral

Dissertation, 1995, Alagappa University, Karaikudi, India.
 48

were generally better educated and male investors were reported to dominate the
investment scene. Salaried group investors were reported to dominate the share
ownership position. \lso, major part of the samples was found having saving but
their capacity of saving was very limited.

While probing the pre-investment behaviour and investment objectives, it

was found that investors formed certain primary objectives and gave importance
to them while making investment plans. Capital appreciation was considered as
the most important objective. It was seen that the investors depending upon their
occupation, income and type differed in respect of pre-investment objectives. The
success of the investment decision made by the investors entirely depended
upon the successful performance of industry. Hence, all the information relating
to industry was helpful for making investment decisions. However, employment
status of investors, type of the organisation in which they were employed also
provided them with some additional information.

Most of the investors intended to divert a part of the savings safely in fixed
income securities so that they could make use of the balance in speculative
activities. Of the various means of evaluation, the contribution of magazines and
journals were very important and helped the investors to grow.

An All-India Survey,39 titled ‘Household Investors’ Problems, Needs and

Attitudes’ conducted by Society for Capital Market Research and Development
revealed a fact that majority of the retail investors lost confidence in various
agencies like SEBI, credit rating agencies etc., A cross section analysis showed
that 79 percent of investors had low confidence or no confidence in company
management, 55 percent in SEBI, 64 percent in auditors and 78 percent in share
brokers.

39 Investors lose faith !n capital markets: study, Indian Express 22.10.1998, p. 15.
 49

The study noticed a significant shift of investors from equity shares

towards high quality of domestic financial institutions. However, bonds were still
far behind shares in terms of market penetration. An important note was that a
majority of retail investors were not influenced by credit ratings and also
expressed their ‘no confidence’ in these agencies.

On a question about future investment strategies, 57 percent investors

indicated their intention to invest in UTI units in the next 12 months. At the same
time, many of the retail investors intended to reduce their holdings in equity
investment. This study was the third in the series from the Society and earlier
surveys of such types were conducted in 1990 and 1992 respectively.

Srinivasan R.40 in his study titled ‘Investors’ Protection: A study on Legal

Aspects’ attempted to point out lapses in the various legal provisions which all
meant for safeguarding the interest of investors in Corporate Segment. He has
examined the present state of capital and stock operations. It had been observed
that the capital market has emerged as a major source of finance for Indian
corporate sector and also served as a gateway to the investors to employ their
savings.

He has indicated that despite the much expectations of investors and

even with the presence of regulatory organisations like SEBI and CLB the
investors’ grievances and complaints thereof have increased manifold. His study
was to identify the avenues available to the investing community and examine the
adequacy of various protective measures in the existing statutes and conducted
the survey to elicit investors’ opinion.

40 Srinivasan R. Investor’ Protection: A study on Legal Aspects, Published Doctoral

Dissertation, 1996, /Magappa University, Karaikudi, India.
 50

The study reveals the fact that investors were relatively scared of
investing in companies due to the impact of stock market scam in 1992.
Moreover, the problem? of investors, who were outside the controlling group,
were getting aggravated without any effective remedy. He has listed a range of
Acts and hundreds of sections meant for investors’ protection but they did not
serve the purpose. It was insisted that it was the need of the hour for the
promotion of investors’ confidence in their investment to create a sound
investment environment Review of abridged prospectus, implementation of
Sachar Committee’s recommendations, stringent conditions to new entrant
companies were a few suggestions made in the studyr/