A study on investment pattern of investors on different products conducted

at asit c. mehta investment intermediates ltd,

1. 1. Investment pattern of investors on different products INTRODUCTION EXECUTIVE
SUMMARY 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. 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. 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 study has been undertaken in Asit C. Mehta
Investment Interrmediates Ltd. (ACMIIL), which was incorporated in the year 1986. And
the company, which is, diversified into many fields like securities, insurance, distribution,
commodities and investment services. This project contains the investors’ preferences
and as well as the different factors that affect investors decision on the different
investment avenues most of them investors are the clients of Asit C. Mehta Investment
Interrmediates Ltd., which provides a complete bouquet of products in equity, debt,
commodities, forex, depository, derivatives and allied services in India . This study
includes response of investor in choosing securities in each classification and analysis
has been for the respective performance based on their returns. The findings relates to
the outperforming products and investors risk taking ability while investing in each
different products. H.R.I.H.E, Hassan Page 1
2. 2. Investment pattern of investors on different products 1.1 PROBLEM STATEMENT The
statement of the problem under study is to analyze the investment pattern of investors
and the popularity of different products/Services provided by Asit C. Mehta for
investment. This problem tries to identify the investors’ perception and their risk taking
ability while investing in different products of market. 1.2 OBJECTIVES: • To study the
investment pattern of investors. • To study the investment decisions of different social
class investors (in term of age group, education, income level etc.) • To analyze the
investment pattern of investors who reside in an economically developed area and
economically developing area. • To study the difference between various investment
options offered at Asit C. Mehta. • To study the role of Asit C. Mehta as a depository
participant. 1.3 SCOPE OF THE STUDY The primary market starts from broad
environmental factors to the industry, which influences the share price and finally
analyzing the companies’ potentiality by considering possible risk associated with
securities for investing public. Since share prices of the company is empirically found to
depend up to 50% on the performance of the industry and the economy, studying those
related field provide insights for selecting different products of Asit C. Mehta. Income and
risk factors play a significant role while selecting particular product of a Asit C Mehta, as
it can create an opportunity for one product and may not for the other, the analyzing
impact of income and risk on investment pattern of investors is important. As research
reports shows that frequency of investment pattern, factors, income level play more
significant role in deciding pattern of investment. So analyzing the factors that affect
investment pattern of investors and other investment criteria provide the valuable
insights. H.R.I.H.E, Hassan Page 2
3. 3. Investment pattern of investors on different products 1.4 RESEARCH
METHODOLOGY • Definitions of the population Since the study is mainly related to know
the investment patterns of the investors on different products of company. Their
potentiality of earning income and reducing risk of the investment community on the
products, where each security in the market has to be analyzed through their earnings
over the others. The population here was being Asit C. Mehta customers. • Type of
research: This is a descriptive research where survey method is adopted to collect
primary information from the investors using different scales as required and the required
secondary information for the analysis. • Primary Data A questionnaire schedule was
 prepared and the primary data was collected through survey method. • Secondary Data
Company website Books Related information from net Customer database • Sample Size
The population being large the survey was carried among 50 respondents, most of them
are the clients of Asit C. Mehta Investment Interrmediates Ltd, Hassan. They will be
considered adequate to represent the characteristics of the entire population. • Sampling
Procedure The sampling procedure followed in this study is non-probability convenient
sampling. Simple random procedures are used to select the respondent from the
available database. The H.R.I.H.E, Hassan Page 3
4. 4. Investment pattern of investors on different products research work will be carried on
the basis of structured questionnaire. The study is restricted to the investors of the
Hassan. • Techniques for data analysis The analysis of data collection is completed and
presented systematically with the use of Microsoft Excel and MS-Word. The various tools
which were used for presentation are: • Bar graphs. • Pie charts. • Column graphs. 1.5
LIMITATIONS: • The investment pattern analysis has been limited to only 50 investors. •
This study is conducted to analyze their pattern not all those factors that really matter
while investing. • It is conducted in Hassan city. • An interpretation of this study is based
on the assumption that the respondents have given correct information. • The economy
and industry are so wide and comprehensive that it is difficult to encompass all the likely
factors influencing the investors’ investment pattern in the given period of time. • As the
study has been limited to only 50 only out of them most are Asit C. Mehta clients and
potential customers. • Besides the study has the limitation of time, place and resources.
H.R.I.H.E, Hassan Page 4
5. 5. Investment pattern of investors on different products REVIEW OF LITERATURE
Investment is the sacrifice of certain present value for the uncertain future reward. It
entails arriving at numerous decisions such as type, mix, amount, timing, grade etc of
investment and disinvestments. Further such decisions making has not only to be
continuous but rational too. Instead of keeping the savings idle you may like to use
savings in order to get return on it in the future, which is known as ‘investment’. There are
various investment avenues such as Equity, Bonds, Insurance, and Bank Deposit etc. A
Portfolio is a combination of different investment assets mixed and matched for the
purpose of achieving an investor's goal. There are various factors which affects investors’
portfolio such as annual income, government policy, natural calamities, economical
changes etc. 2.1What is Investment? Investment is the employment of funds with the aim
of achieving additional income or growth in value. The essential quality of income is that,
it involves ‘waiting ‘for a reward. It involves the commitment of resources which have
been saved or put away from current consumption in the hope that some benefits will
occur in future. The term ‘investment’ does not appear to be a simple as it has been
defined. Investment has been categorized by financial experts and economists. It has
also often been confused with the term speculation.  Financial and Economic Meaning
of Investment Investment is the allocation of monetary resources to assets that expected
to yield some gain or positive return over a given period of time. These assets range from
safety investment to risky investments. Investments in this form are also called ‘Financial
Investments’. To the economists, ‘Investment’ means the net additions to the economy’s
capital stock which consists of goods and services that are used in the production of
other goods and services. In this context the term investment implies the information of
new and productive capital in the form of new construction, new producers’ durable
equipment such as plant and equipment. Inventories and human capital are included in
the economist’s definition of investment. H.R.I.H.E, Hassan Page 5
6. 6. Investment pattern of investors on different products In simple words investment
means buying securities or other monetary or paper (financial) assets in the money
markets or capital markets, or in fairly liquid real assets, such as gold as an investment,
real estate, or collectibles. Valuation is the method for assessing whether a potential
investment is worth its price. Types of financial investments include shares or other
equity investment, and bonds (including bonds denominated in foreign currencies).
These investments assets are then expected to provide income or positive future cash
flows, but may increase or decrease in value giving the investor capital gains or losses 
Features of an investment programme In choosing specific investments, investors will
 need definite ideas regarding features, which their investment avenue should possess.
These features should be consistent with the investors’ general objectives and in
addition, should afford them all the incidental conveniences and advantages, which are
possible under the circumstances. The following are the suggested features as the
ingredients from which many successful investors compound their selection policies. 
Safety of principal The investor, to be certain of the safety of principal, should carefully
review the economic and industry trends before choosing the types of investment. Errors
are avoidable and therefore, to ensure safety of principal, the investor should consider
diversification of assets. Adequate diversification involves mixing investment
commitments by industry, geographically, by management, by financial type and
maturities. A proper combination of these factors would reduce losses.  Liquidity Even
investor requires a minimum liquidity in his investment to meet emergencies. Liquidity will
be ensured if the investor buys a proportion of readily saleable securities out of his total
portfolio. He may therefore, keep a small proportion of cash, fixed deposits and units
which can be immediately made liquid investments like stocks and property or real estate
cannot ensure immediate liquidity. H.R.I.H.E, Hassan Page 6
7. 7. Investment pattern of investors on different products  Income stability Regularity of
income at a consistent rate is necessary in any investment pattern. Not only stability, it is
also important to see that income is adequate after taxes. It is possible to find out some
good securities, which pay particularly all their earnings in dividends.  Appreciation and
purchasing power stability Investors should balance their portfolios to fight against any
purchasing power stability. Investors should judge price level inflation, explore their
possibility of gain and loss in the investments available to them, limitations of personal
and family considerations. The investor should also try and forecast which securities will
possibly appreciate. A purchase of property at the right time will lead to appreciation in
time. Growth stock will also appreciate over time. These, however, should be done
thoughtfully and not in a manner of speculation.  Legality and freedom from care All
investments should be approved by law. Law relating to minors, estates, trusts, shares
and insurance be studied will bring out many problems for the investor. One way of being
free from care is to invest in securities like Unit Trust of India, Life Insurance Corporation
or Saving Certificates. The management of securities is then left to the care of the Trust
who diversifies the investments according to safety, stability and liquidity with the
consideration of their investment policy. The identity of legal securities and investments
in such securities also help the investor in avoiding many problems.  Tangibility
Intangible securities have many times lost their values due to price level inflation,
confiscatory laws or social collapse. Some investor prefers to keep a part of their wealth
invested in tangible properties like building, machinery and land. It may, however, be
considered that tangible property does not yield an income apart from direct satisfaction
of possession or property. H.R.I.H.E, Hassan Page 7
8. 8. Investment pattern of investors on different products TABLE: 2.1 FEATURE OF
INVESTMENT AVENUES Particulars Risk Return/ Capital Liquidity/ Tax Current
appreciation Marketability benefits yield Equity High Low High High High Shares
Debentures Low High Very low Very low Nil Bank Deposit Low Low Nil High Nil Life Nil
Nil Low Low Moderate Insurance Policies Real Estate Low Low High in Moderate
Changes Long-term according to rules Gold and Low Nil High in Moderate Nil Silver
Long-term H.R.I.H.E, Hassan Page 8
9. 9. Investment pattern of investors on different products 2.2 THE INVESTMENT
PROCESS-STAGES IN INVESTMENT The investment process is generally described in
four stages. These stages are investment policy, investment analysis, valuation of
securities and portfolio construction. a. Investment Policy The first stage determines and
involves personal financial affairs and objectives before making investments. It may also
be called preparation of the investment policy stage. The investor has to see that he
should be able to create an emergency fund, an element of liquidity and quick
convertibility of securities in to cash. This stage may, therefore, be considered
appropriate for identifying investment assets and considering the various features of
investment. b. Investment Analysis When an individual has arranged a logical of the
types of the investments that he requires on his portfolio, the next step is to analyse the
 securities available for investment. He must make a comparative analysis of the type of
the industry, industry of security and fixed vs. variable securities. The primary concern at
this stage would be to form beliefs regarding future behavior or prices and stocks, the
expected returns and associated risk. c. Valuation of investments The third step is
perhaps most important consideration of the valuation of investments, investments value,
in general, is taken to be the present worth to the owners of the futures benefits from
investments. The investor has to bear in mind the value of these investments. H.R.I.H.E,
Hassan Page 9
10. 10. Investment pattern of investors on different products Appropriate sets of weights have
to be applied with use of the forecasted benefits to estimate the value of the investment
assets. Comparison of the value with the current market price of the asset allows a
determination of the relative alternativeness of the asset. Each asset must be valued on
its individual merit. Finally the portfolio should be constructed. d. Portfolio Construction
As discussed under features of investment programme, portfolio construction requires
knowledge of the different aspects of securities. consisting of safety and growth of
principal, liquidity of assets after taking into account the stage involving investment
timing, selection of investment, allocation of savings to different investments. The
success of every investment decision has become increasingly important in recent times.
Making sound investment decision requires both knowledge and skill. Skill is needed to
evaluate risk and returns associated with an investment decision. Knowledge is required
regarding the complex investment alternatives available in the economic environment.
2.3 SUCCESS IN INVESTMENT Success in most things is relative, and not less so in the
field of investment. Success in investment means earning the highest possible return with
the constraints imposed by the investor’s personal circumstances-age, family needs,
liquidity requirements, tax position and acceptability of risk. If possible, performance
should be measured against alternative investment, or combination of investment,
available to the investor within those constraints. Genuine success also means winning
the battle against inflation, against the fall in the real value of savings and capital. To be
successful investor, one should strive to achieve no less than the rate of return consistent
with the risk assumed. But is this success? If markets are efficient, abnormal returns ere
not likely to be achieved, and so the best one can hope for return consistent with the
level of risk assumed. The trick is to assess the level of risk we wish to assume and
make certain that the collection of assets we buy fulfills our risk expectations. As a
reward for assuming this level of risk, we will receive the returns that are consistent with
it. If however, we believe that we do better than the level of return warranted by the level
of risk assumed, then success must be measured in these terms. But care must be
exercised here. Merely realizing higher returns does H.R.I.H.E, Hassan Page 10
11. 11. Investment pattern of investors on different products not indicate success in this
sense. We are really talking about outperforming the average of the participant in the
market for assets. And if we realize higher return we must be certain that we are not
assuming higher risks consistent with those returns in order to measure our success.
Thus we are left with two definitions of success. (i) Success is achieving the rate of return
warranted by the level of risk assumed. Investors expect returns proportional to the risk
assumed. (ii) Success is achieving a rate of return in excess or warranted by the level of
risk assumed. Investors expect abnormal returns for the risk assumed. To be successful
under the first definition, an investor must have a rational approach to portfolio
construction and management. Reasonably efficient diversification is the key. To be
successful under the second definition, an investor must have at least one of the
following: Superior Analytical Skill, Superior Forecasting Ability, Inside Information, Dumb
Luck Whether and to what extent anyone is likely to possess these characteristics and
consistently be able to outperform the market by the level of risk assumed is critical
issue. The investor should be aware of, but not denoted by, the fact that professional
investors in particular, largely dominate investment markets, the stock market. As a
consequence, grossly under-valued investments are rarely easy to come by. Moreover,
he should beware of books subtitled. How I made a Million in the Stock Market, Get Rich
Quick and statements such as ‘You can have a high return with no risk’. In reasonably
efficient markets risk and return go together like bread and butter; in the words of Milton
 Friedman, there is no such thing as a free lunch. Success involves planning—clearly
establishing one’s objectives and constraints. Investments should be looked at in terms
of what they contribute to the overall portfolio, rather than their merits in isolation.
Institutional investment will probably play some part, and performance tables are
available to give some guidance. But personal direct investment should not be
overlooked, particularly in the obvious area of Turk ownership, and one’s own
knowledge, skills, hobbies and acquaintances can also be put to advantage. Remember
Francis Bacon’s words: If a man look sharply and attentively, he shall see fortune; for
though she be blamed, yet she is not so invisible. More money has been lost in the stock
market, then one can imagine simply because of the failure of investors to clearly define
their objectives and assess their financial temperaments. In analyzing the portfolios of
individual investors, the most common errors observed are: Firstly, portfolio is over
diversified, containing so many issues that the investors cannot follow closely the
development in those companies. H.R.I.H.E, Hassan Page 11
12. 12. Investment pattern of investors on different products Secondly, many portfolios suffer
from overconcentration in one or two issues. Thirdly, all too often, the quality of these
securities is not consistent with the stated investment goal and usually a portfolio
contains too many speculative securities. Fourthly, many individual investors are afraid to
take losses; they want to wait for their stock to come back to the price they paid. Fifthly,
most investors, without realizing it, do not have a plan. They are buying and selling and
believe is going where the action is instead of sticking to an investment goal. Finally,
most serious of all some investors consider only profit potential never the risk factor.
They try to wait for the bottoms to buy and tops to sell, they don’t learn from their
mistakes and sight of their financial goals for the timeframe of the investment objectives
under pressure of hope, fear, or greed. Should investors play a winner’s game or a
loser’s game while buying securities? To answer this question, probably the best way to
explain it is to use a sport as an illustration. Let us take tennis. To professionals like
Williams sisters, tennis is a winner game. To win, they must deliver the ball to a place
where the opponent will find it difficult to return or play at a speed that the opponent
cannot keep up with. They win the game by delivering winning shots. According to sports
writers, on the one hand, tennis to amateurs is actually a loser’s game. They do not have
the strikes that in any way resemble those of Williams sisters and other professionals.
The best strategy to win a game, they, is to keep the ball in play and let the opponent
defeat himself by hitting the ball into the net or outside the court. They win game by
loosing less than their opponent. The above analogy clears the distinction between
winner and loser’s game. Probably now the investors can guess whether buying
securities is a winner’s game or a loser’s game. Recently, buying securities has become
a loser’s game even for professionals engaged in institutional investing. For those who
determine to win the loser’s game, it is required: 1) Play your own game. Know your
policies very well and play according to them all the time. 2) Do the things do best? Make
‘fewer’ but ‘better’ investment decisions. 3) Concentrate on your defences. Most investors
spend too little time on sell-decisions. Sell decisions are as important as buy-decisions.
Investors should spend at least equal time in making sell-decision. H.R.I.H.E, Hassan
Page 12
13. 13. Investment pattern of investors on different products The crucial point of loser’s game
is to put the balance sheet and the income statement through a fine screen. This is the
first step in making sure to avoid a mistake and will help the investor to keep away from
letting the excitement make him move too quickly. Remember the old saying. A fool and
his money are quickly parted.  THREE APPROACHES TO SUCCEED AS AN
INVESTOR As Charles Ellis argued, it appears that there are three different ways of
earning superior risk- adjusted returns on stock market. The first one is physically
difficult, the second one is intellectually difficult, and the third one is psychologically
difficult.  Physically Difficult Approach Many investors seem to follow this approach,
wittingly or unwittingly. They look at the newspapers and financial periodicals to learn
about new issues, they visit the offices of brokers to get advice and application forms,
and they apply regularly in the primary market. They follow the budget announcements
intently, they read CMIE reports to learn about the developments in economy and various
 industrial sectors, they read investment columns written by the so called ‘experts’, they
follow developments in the companies, they solicit information from company executives,
they read the columns in technical analysis, and they attend seminars and conferences.
In a nutshell, they apply themselves assiduously, diligently, and even doggedly. They
operate on the premise that if they can be a step ahead of others, they will outperform
the market. The physically difficult approach seems to have worked reasonably well for
most of the investors in India since the late 1970s to the early 1990s, for three principal
reasons: 1. Typically, issues in the primary market have been priced very attractively. 2.
The secondary market, thanks to limited competition till almost 1991, was characterized
by numerous inefficiencies that provided rewarding opportunities to the diligent investor.
3. An advancing price-earnings multiple, in general, bailed out even inept investors.
Things, however, have changed from mid-1995. The opportunities for subscribing issues
in the primary market have substantially dried up as companies, quite understandably,
are placing securities with institutional investors at prices that are fairly close to the
prevailing market prices. Likewise, the scope for earning superior returns in the
secondary market has diminished as the degree of competition and efficiency is
increasing, thanks to the emergence of hundreds of new H.R.I.H.E, Hassan Page 13
14. 14. Investment pattern of investors on different products institutional players (mutual
funds, foreign institutional investors, merchant banking organisations, corporate bodies)
and millions of new individual investors. Finally, the prospects of a fluctuating price-
earnings multiple seem to be a greater than the prospects of a rise in the price-earnings
multiple.  Intellectually Difficult Approach The Intellectually Difficult Approach to
successful investing calls for developing profound understandings of the nature of
investments and hammering out a strategy based on superior insights. This approach
has been followed mainly by the highly talented investors who have an exceptional
ability, a rare perceptiveness, an unusual skill, or a touch of clairvoyance. Such a gift has
been displayed by investors like Benjamin Graham, John Maynard Keynes, John
Templeton, George Soros, Warren Buffet, Phil Fisher, Peter Lynch, and others. Benjamin
Graham, widely acclaimed as the father of modern security analysis, was an
exceptionally gifted quantitative navigator who relied on hard financial facts and
religiously applied the ‘margin of safety’ principle. John Maynard Keynes, arguably the
most influential economist of the 20th Century, achieved considerable investment
success on the basis of his sharp insights into market psychology. John Templeton had
an unusual feel for bargain stocks and achieved remarkable success with the help of
bargain stock investing. Warren Buffett, the most successful stock market investor of our
times, is the quintessential long-term value investor. George Soros, a phenomenally
successful speculator, developed and applied a special insight which he labels as the
‘reflexivity’ principle. Growth Phil Fisher, a prominent growth stock advocate, displayed a
rare ability with regard to invest in growth stocks. Peter Lynch, perhaps the most widely
read investment guru in recent years, has performed exceptionally well, thanks to a rare
degree of openness and flexibility in his approach. The intellectually difficult approach
calls for a special talent that is diligently honed and nurtured over time. Obviously, it can
be practiced only by a select few and you should have the objectivity to discern whether
you can join this elite club. Remember that many investors unrealistically believe that
they have a rare gift because the stock market provides an exceptionally fertile
environment for self-deception. Participants in the stock market can easily live in a world
of make belief by accepting confirming evidence and rejecting contradictory evidence. As
David Dreman says: “Under conditions of anxiety and uncertainty, with vast interacting
information grid, the market can become a giant Rorschach test, allowing the investor to
see any pattern that he H.R.I.H.E, Hassan Page 14
15. 15. Investment pattern of investors on different products wishes....experts cannot only
analyse information incorrectly, they can also find relationships that aren’t there- a
phenomenon called illusory correlation.”  Psychologically Difficult Approach The stock
market is periodically swayed by two basic human emotions, viz. Greed and fear. When
greed and euphoria sweep the market prices rise to dizzy heights. On the other hand,
when fear and despair envelop the market, prices fall to abysmally low levels. If you can
surmount these emotions which can wrap your judgment, create distortions in your
 thinking, and induce you to commit follies, you are likely to achieve superior investment
results. The psychologically difficult approach essentially calls for finding ways and
means of substantially overcoming fear and greed. Its operational guidelines are as
follows: 1. Develop an investment policy and adhere to it consistently 2. Do not try to
forecast stock prices 3. Rely more on hard numbers and less on judgment 4. Maintain a
certain distance from the market place 5. Face uncertainty with equanimity These
guidelines look simple, but they are psychologically difficult to follow. Yet, for the bulk of
the investors this appears to be only sensible approach to improve the odds of their
investment performance. 2.4 INVESTMENT AND SPECULATION Traditionally,
investment is distinguished from speculation in three ways, which are based on the
factors of: 1. Capital gains. 2. Time period. 3. Risk H.R.I.H.E, Hassan Page 15
16. 16. Investment pattern of investors on different products The distinction between
investments and speculations is given in the table below: TABLE: 2.2 Investment
Speculation Time Horizon Long-term time Short-term planning framework beyond 12
holding assets even months. for one day with the objective. Risk It has limited risk. There
are high profits and gains. Return It is consistent and High returns, though moderate over
a long risk of loss is high. period. Use of funds Own funds through Own and borrowed
savings funds. Decisions Safely, liquidity, Market behaviour profitability and information,
stability, judgements on considerations and movement in the performance of stock
market. companies. Hunches and beliefs. 1. Capital Gain The distinction between
investment and speculation emphasizes that if the motive is primarily to achieve profits
through price changes, it is speculation. If purchase of securities is preceded by proper
investigation and analysis and review to receive a stable return over a period of time, it is
termed as investment. Thus, buying low and selling high, making large capital gain is
associated with speculation. 2. Time Period H.R.I.H.E, Hassan Page 16
17. 17. Investment pattern of investors on different products The second difference is the
consideration of the time period. A longer-term fund allocation is termed as investment. A
short-term holding is associated with trading for the ‘quick turn’ and is called speculation.
The distinction between investment and speculation is helped to identify the role of the
investor and speculator. The investor constantly evaluates the worth of a security through
fundamental analysis, whereas the speculator is interested in market action and price
movement. These distinctions also draw out the fact that there is a very fine line of
division between investment and speculation. There are no established rules and loss,
which identify securities, which are permanent for investment. There has to be a constant
review of securities to find out whether it is a suitable investment. To conclude, it will be
appropriate to state that some financial experts have called investment ‘a well grounded
and carefully planned speculation’, or good investment is a successful speculation.
Therefore, investment and speculation are a planning of existing risks. If artificial and
unnecessary risks are created for increased expected returns, it becomes gambling. 3.
Risk The word ‘risk’ has a definite financial meaning. It refers to possibility of incurring a
loss in a financial transaction. In a broad sense, investment is considered to involve
limited risk and is confined to those avenues where the principal is safe. ‘Speculation’ is
considered as an involvement of funds of high risk. An example may be cited of stock
brokers’ lists of securities which labels and recommends securities separately for
investments and speculation purposes. Risk, however, is a matter of degree and no
clear-cut lines of demarcation can be drawn between high risk and low risk and
sometimes these distinctions are purely arbitrary. No investments are completely risk-
free. Even if it safety of principal and interest are considered, there are certain non
manageable risks which are beyond the scope of personal power. These are (a) the
purchasing power risk – In other words, it is the fall in real value of the interest and the
principal and (b) the money rate risk or the fall in market value when interest rate rises.
These risks affect both the speculator and the investor. High risk and low risk are,
therefore, general indicators to help and understanding between the terms investments
and speculation. 2.5 What causes the risks? H.R.I.H.E, Hassan Page 17
18. 18. Investment pattern of investors on different products The risks are caused by the
following factors: 1) Wrong decision of what to invest in. 2) Wrong timing of investment.
3) Nature of the instrument invested say, the category of assets like corporate shares or
 bonds, Chit funds, Nidhis, Benefit funds etc. are highly risky, as they are in the
unorganized sector. Some instruments as bank deposits or P.O Certificates are less
risky, due to their certainty of payment of principal and interest. 4) Creditworthiness of the
issuer: The securities of Government end semi-Government bodies are more credit
worthy than those issued by the corporate sector and much less secure are those in the
unorganized sector like indigenous bankers, shroffs, chit funds etc. private limited
companies share and shares of unlisted companies are more risky. 5) Maturity period are
length of investment: The longer the period, the more risky is the investment normally. 6)
Amount of investment: The higher the amount invested in any security the larger is the
risk, while a judicious mix of investments in small quantities may be less risky. 7) Method
of investment, namely, secured by collateral or not. 8) Terms of lending such as
periodicity of servicing, redemption periods etc. 9) Nature of the industry or business in
which the company is operating. 10) National and international factors, acts of god etc.
Reference was made to two types of Risk of investor: • Systematic Risks- • Unsystematic
Risks- 1. Systematic Risks- H.R.I.H.E, Hassan Page 18
19. 19. Investment pattern of investors on different products Systematic Risks are out of
external and uncontrollable factors, arising out of the market, nature of the industry and
state of the economy and a host of other factors. In other words systematic risk refers to
that portion of the total variability of the return caused by common factor affecting the
prices of all securities alike through economic, political and social factors. 2.
Unsystematic Risks- Unsystematic Risks emerge out of the known and controllable
factors, internal to the issuer of the securities or companies. In other words unsystematic
risk refers to that portion of the total variability of the return caused due to unique factors,
relating that firm or industry, through such factors as management failure, labour strikes,
raw material scarcity etc. While the systematic risk is common to all companies and has
to be borne by the investor and compensated by the Risk Premium, The unsystematic
risk can be reduced by the investor through proper diversification and planning a proper
investment strategy for the purpose. Examples of Systematic Risks  Market Risk: This
arises out of changes in Demand and Supply pressures in the markets, following the
changing flow of the information or expectations. The totality of the investor perception
and subjective factors influence the events in the market which are unpredictable and
give rise to risk, which is not controllable.  Interest Rate Risk: The return on an
investment depends on the interest rate promised on it and changes in market rates of
interest from time to time. The costs of funds barrowed by companies or stockbrokers
depend on interest rates. The market activity and investor perceptions change with the
changes in interest rates. These interest rates depend on nature of instruments, stocks,
bonds, loans etc maturity of the periods and the creditworthiness of the issuer of
securities. But basically the monetary and credit policy, which is not controllable by the
investor, affects the riskiness of investments due their effects on returns, expectations,
and the total principal due to be refunded  Purchasing Power Risk: H.R.I.H.E, Hassan
Page 19
20. 20. Investment pattern of investors on different products Inflation or rise in prices lead to
rise in costs of production, lower margins, wage rises and profit sqeezing etc. The return
expected by the investors will change due to change in real value of returns. Cost pushed
inflation is caused by rise in the costs, due to wage rise or rise in input prices. Demand-
pull forces operate to increase prices due to inadequate supplies and rising demand. The
increase in demand may be caused by changing expectation of future interest rates and
inflation or due to increase in money supply or creation of currency to finance the deficits
of the government. This element of purchasing power risk is inherent in all investments
and cannot be controlled by him. Examples of Unsystematic Risks  Business Risk: This
relates to variability of business, sales income, profits etc., which in turn depend on the
market conditions for the product mix, input supplies, strength of competitors etc. This
business risk is sometimes external to the company due to changes in government policy
or strategy of competitors or unforeseen market conditions. They may be internal due to
fall in production, labour problem, raw materials problem or inadequate supply of
electricity etc. The internal business risk leads to fall in revenues and in profit of the
company, but can be corrected by certain changes in the company’s policies.  Financial
 Risk: This relates to the method of financing, adopted by the company, high leverage
leading to larger debt servicing problems or short-term liquidity problems due to bad
debts, delayed receivables and fall in current assets or rise in current liabilities. These
problems could no doubt to be solved, but they may lead to fluctuations in earnings,
profits and dividends to share holders. Sometimes, if the company runs in to losses or
reduced profits, these may lead to fall in returns to investors or negative returns. Proper
financial planning and other financial adjustments can be used to correct this risk and as
such it is controllable.  Default Or Insolvency Risk: The barrower or issuer of securities
may become insolvent or may default, or delay the payments due, such as interest
installments or principal repayments. The barrower’s credit rating might have fallen
suddenly he became default prone and in its extreme form it may lead to H.R.I.H.E,
Hassan Page 20
21. 21. Investment pattern of investors on different products insolvency or bankruptcies. In
such cases the investor may get no return or negative returns. An investment in a healthy
company’s share might turn out to be a waste paper, if within a short span, by the
deliberate mistakes of management or acts of God, the company became sick and its
share price tumbled below its face value. Other Risks In addition to the above major risks
both in controllable and uncontrollable categories, there are many more risks, which can
be listed, but in actual practice, they may vary in form, size and effect. Some of such
identifiable risks are:  Political Risks: Political risks, fallowing the changes in the
government, or its policy shown in fiscal or budgetary aspects etc., through changes in
tax rates, imposition of controls or administrative regulations etc.  Management Risks:
Management Risks, due to errors or inefficiencies of management, causing losses to the
company.  Marketability Risks: Marketability Risks, involving loss of liquidity or loss of
value in conversions from one asset to another say, from stocks to bonds, or vice versa.
Such risks may arise due to some features of securities, such as capability; or lack of
sinking fund or Debenture Redemption Reserve fund, for repayment of principal or due to
conversion terms, attached to the security, which may go adverse to the investor. All the
above types of risks are of varying degrees, resulting in uncertainty or variability of return,
loss of income and capital losses, or erosion of real value of income and wealth of the
investor. Normally the higher the risk taken, the higher is the return. But sometimes the
risk is caused by acts of God and there may be no return at all. 2.6 Investment and
Gambling The difference between investment and gambling is very clear. From the
above discussion, it is established that investment is an attempt to carefully plan,
evaluate and allocate H.R.I.H.E, Hassan Page 21
22. 22. Investment pattern of investors on different products funds in various investment
outlets which offers safety of principal, moderate and continuous returns and long-term
commitment. Gambling is quite the opposite of investment. It connotes high risk and the
expectation of high returns. It consists of uncertainty and high stakes for thrill and
excitement. Typical examples of gambling are horse racing, game of cards, lottery etc.
Gambling is based on tips, rumours and hunches, it is unplanned, non-scientific and
without knowledge of the exact nature of risk. These distinctions between investment,
speculation and gambling give us a basic idea of their nature, purpose and role. 2.7
Investment and Arbitrage Investment is usually a planned method of safely putting ones
savings into different outlets to get a good return. Arbitrage is the mechanism of keeping
one’s risk to the minimum through hedging and taking advantage of price differences in
different markets. The simultaneous purchase of the same or similar security in two
different markets would be an arbitrage transaction. Short-term gains can be expected
through such transactions. An investor can also be an arbitrageur if he buys and sells
securities in more than one stock exchange to take advantage of the price differentials in
such exchanges. Derivatives introduced in the Indian market have a great potential for
arbitrage transactions. Arbitrage transactions help in enhancing efficiency and liquidity in
the stock market and in increasing the volume of trade. Hedgers, speculators and
arbitrageurs can make riskless profits through the arbitrage process.  Real Assets Real
assets refer to tangible assets, which are in the form of land and buildings, furniture, gold,
silver, diamonds, or artifacts. These assets have a physical appearance. They may be
marketable or non-marketable. They may also have the feature of being movable or non-
 movable. These assets are used to produce goods or services.  Financial Assets
H.R.I.H.E, Hassan Page 22
23. 23. Investment pattern of investors on different products A financial asset is a claim
represented by securities. These assets are popularly called paper securities. Shares,
bonds, debenture, bills, loans, lease, derivatives and fixed deposits are some of the
financial assets. Therefore, financial assets represent a claim on the income generated
by real assets of some other parties. Financial assets can be easily traded, as they are
marketable and transferable. Financial assets are usually between two parties, for
example, if a person buys a bond of Rs. 10,000 of ICICI Bank. The bond is liabilities of
ICICI, but an asset of the person buying a bond because he has a claim over the bank to
receive the principal sum with interest.  Commodity Assets Commodities are a new
form of investment in India. Commodity assets consist of wheat, sugar, potatoes, rubber,
coffee and other grains. Commodities are also in the form of metal like gold, silver,
aluminium and copper. It also consists of items like cotton oil and foreign currency.
Importers and exporters invest in commodities to diversify their portfolios. Traders hedge
or transact in commodities to make gains. A National Commodity and Derivatives
Exchange Ltd. (NCDEX) have been set up in India in 2003 as a public limited company to
transact in commodities. The promoters of NCDEX were ICICI Bank Ltd., National Bank
for Agriculture and Rural Development (NABARD), Life Insurance Corporation of India,
(Punjab National Bank, Canara Bank, CRISIL Ltd., Indian Farmers Fertilizer, Co-
operative Ltd. (IFFCO) and National Stock Exchange of India Ltd., (NSE). All these
institutions subscribed to the equity shares of NCDEX. 2.8 Factors Favourable For
Investment The investment market should have a favourable environment to be able to
function effectively. Business activities are marked by social, economic and political
considerations. It is important that the economic and political factors are favourable.
Generally, there are four basic considerations, which foster growth and bring
opportunities for investment. These are legal safeguards, stable currency and existence
of financial institutions to aid savings and forms of business organization. H.R.I.H.E,
Hassan Page 23
24. 24. Investment pattern of investors on different products  Legal Safeguards A stable
government, which frames adequate legal safeguards, encourages accumulation of
savings and investments. Investors will be willing to invest their funds if they have the
assurance of protection of their contractual and property rights. In India, the investors
have the dual advantage of free enterprise and control. Freedom, efficiency and growth
are ensured from the competitive forces of private enterprises. Statutory control exerts
discipline and curtails some element of freedom. In India, the political climate is
conducive to investment since the new economic reforms in 1991 leading to liberalization
and globalization.  A Stable Currency A well-organized monetary system with definite
planning and proper policies is a necessary prerequisite to an investment market. Most of
the investments such as bank deposits, life insurance and shares are payable in the
currency of the country. A proper monetary policy will give direction to the investment
outlets. As far as possible, the monetary policy should neither promote acute inflationary
pressures nor prepare for a deflation model. Neither condition is satisfactory. Price
inflation destroys the purchasing power of investments. Thrift is also penalized when the
net interest after taxes received by the investor is less than the rise in the price level,
leaving the investor with less total purchasing power than he had at the time of saving.
Inflation occurs generally in unstable conditions like war or floods but in the last decade,
it also discernible in peace conditions especially in developing countries because of huge
government deficit in creating infrastructure. Deflation is equally disastrous because the
nominal values of inventories, plant and machinery and land and building tend to shrink.
An example of the evil effects of deflation can be cited for the period 1929-1933 in the
United States when the shrinkage in nominal values came to a point of producing
wholesale bankruptcy. A reasonable stable price level, which is produced by wise
monetary and fiscal management, contributes towards proper control, good government,
economic well being and a well- disciplined growth oriented investment market and
protection to the investor. H.R.I.H.E, Hassan Page 24
25. 25. Investment pattern of investors on different products  Existence of Financial
Institutions and Services The presence of financial institutions and financial services
encourage savings, direct them to productive uses and helps the investment market go
grow. The financial institutions in existence in India are mutual funds, development
banks, commercial banks, life insurance companies, investment companies, investment
bankers and mortgage bankers. The financial services include venture capital, factoring
and forfeiting, leasing, hire purchase and consumer finance, housing finance, merchant
bankers and portfolio management. Investment bankers are merchants of securities.
They buy bonds and stocks of companies for re-sale to investors. The investment
bankers are distinguished from security brokers who act as agents in buying and selling
already issued securities for commission. Mortgage bankers sometimes act as
merchants and sometimes as agents on mortgage loans generally on residential
properties. They serve as middlemen between investors and borrowers and perform
collateral service in connection with loans. Commercial banks and financial institutions
also act as mortgage bankers in giving mortgage loans and servicing the loans. In India,
there are a large number of financial institutions under Central Government and State
Governments and rural bodies that have encouraged the growth of savings and
investment. The Life Insurance Corporation and Unit Trust of India offer a wide variety of
schemes for savings and give tax benefits also. Apart from these, there is a well-
organized network of development banks such as the Industrial Development Bank of
India (IDBI), Industrial Credit Investment Corporation of India (ICICI) and Industrial
Finance Corporation of India (IFCI). At the state level, there are State Financial
Corporation, for rural areas and agriculture, the National Bank of Agriculture and Rural
Development (NABARD). These financial institutions and development banks offer a
wide variety of policies for encouraging savings and investment. These institutions lend
an element of strength to the capital market and promote discipline while encouraging
growth. Since 1991, there has been a development of the private corporate sector. Many
new financial institutions have emerged in the private sector. Insurance companies,
mutual funds and venture capitalists leasing companies have been opened up to private
financing agencies. Foreign banks have been allowed to do business. Thus, there is the
presence of a large number of institutions and services, which channel the funds in
productive directions. H.R.I.H.E, Hassan Page 25
26. 26. Investment pattern of investors on different products  Choice of Investment The
growth and development of the country leading to greater economic activity has led to the
introduction of a vast array of investment outlets. Apart from putting aside savings in
savings banks where interest is low, investors have the choice of a variety of instruments.
The question to reason out is which is the most suitable channel? Which media will give
a balanced growth and stability of return? The investor in his choice of investment will
have to try and achieve a proper mix between high rate of return and stability of return to
reap the benefits of both. Some of the instruments available are equity shares and
bonds, provident fund, life insurance, fixed deposits and mutual funds schemes. The
three golden rules for all investors are: Invest early Invest regularly Invest for long term
and not short term One needs to invest for Earn return on your idle resources Generate a
specified sum of money for a specific goal in life Make a provision for an uncertain future
To meet the cost of inflation 2.9 Fundamental analysis of various investment alternatives:
Before investing in various investment alternatives fundamental analysis is very
necessary. A fundamental analysis believes that analyzing the economy, strength,
management, production, financial status and other related information will help to
choose investment avenues that will outperform the market and provide consistent gain
to the investor. Fundamental analysis is the examination of the underlying forces that
affect the interests of the economy, industrial sectors, and companies. It tries to forecast
the future movement of capital market using signals from the economy, industry,
company. Fundamental analysis requires an examination of the market from broader
prospective. It also examines the economic environment, industrial performance, and
company performance before taking an investment decision. H.R.I.H.E, Hassan Page 26
27. 27. Investment pattern of investors on different products  Economic Analysis The
economic analysis aims at determining if the economic climate is conductive and is
 capable of encouraging the growth of business sector, especially the capital market.
When the economy expands, most industry groups and companies are expected to
benefit and grow and when the economy declines, most sectors and companies usually
face survival problems. Hence, to predict scrip prices, an investor has to spend time
exploring the forces operating in the overall economy. Economic analysis implies the
examination of GDP, government financing, government borrowings, consumer durable
goods market, non-durable goods and capital goods market, saving and investment
pattern, interest rates, inflation rates, tax structure, foreign direct investment, and money
supply. The most used tools for performing economic analysis are; o Gross Domestic
Product o Monetary policy and liquidity o Inflation o Interest rate o International
influences o Consumer behaviors o Fiscal policy etc  Industry Analysis: It is very
important to see how the industry to which the company belongs is faring. Specifics like
effect of Government policy, future demand of its products etc. need to be checked. At
times prospects of an industry may change drastically by any alterations in business
environment. For instance, devaluation of rupee may brighten prospects of all export-
oriented companies. Investment analysts call this as Industry Analysis. Companies
producing similar products are subset (form a part) of an Industry/Sector. For example,
National Hydroelectric Power Company (NHPC) Ltd., National Thermal Power Company
(NTPC) Ltd., Tata Power Company (TPC) Ltd. etc. belong to the Power Sector/Industry
of India. Tools for industry analysis H.R.I.H.E, Hassan Page 27
28. 28. Investment pattern of investors on different products o Cross study of performance of
the industry. o Industry performance over times. o Differences in industry risk. o
Prediction about market behaviors, o Competition over the industry life cycle  Company
Analysis: Company analysis involved choice of investment opportunities within a specific
industry that consists of several individual companies. How has the company been faring
over the past few years? Seek information on its current operations, managerial
capabilities, growth plans, its past performance vis-à-vis its competitors etc.  Financial
Analysis: If performance of an industry as well as of the company seems good, then
check, if at the current price, the share is a good to buy or not. For this, look at the
financial performance of the company and certain key financial parameters like Earnings
per Share (EPS), P/E ratio, current size of equity etc. for arriving at the estimated future
price. This is termed as Financial Analysis. For that you need to understand financial
statements of a company i.e. balance Sheet and Profit and Loss Account contained in
the Annual Report of a company. 2.10 Types of investment: (i) Short term Investment- It
is an investment made by the investor for very short period of time i.e. for one to three
years. Such as investment in bank, money market, liquid funds etc. (ii) Long Term
Investment – When investor invests money for more than three to five years then it is
called long term investment. Such as investment in bonds, mutual funds, fixed bank
deposits, PPF, insurance etc H.R.I.H.E, Hassan Page 28
29. 29. Investment pattern of investors on different products 2.11 Investor: Investor is a
person or an organization that invest money in various investment sources for specific
objective. Attitude of investment is different in each alternative. E.g. financial market have
different attitude towards risk and return. Some investors are risk averse, while some
have an affinity of risk. The risk bearing capacity of investor is a function of personal,
economical, environment, and situational factors such as income, family size,
expenditure pattern, and age. A person with higher income is assumed to have higher
risk- bearing capacity. Thus investor can be classified as risk skiers, risk avoiders, or risk
bearers. 2.12 Categories of Investors While there are as many investing styles as there
are investors, most people fall more or less into one of three broad categories:
conservative, moderate, aggressive.  Conservative investors Generally, conservative
investors feel that safeguarding what they have is their top priority. These investors want
to avoid risk — particularly the risk of losing any principal (their original investment) —
even if that means they’ll have to settle for very modest returns. Conservative investors
allocate most of their portfolios to bonds, such as Treasury notes or high- rated municipal
bonds, and cash equivalents, such as CDs and money market accounts. They’re
generally reluctant to invest in stocks, which may lose value, especially over the short
term. When conservative investors do venture into stocks they‘re often inclined to choose
 blue chips or other large-cap stocks with well-known brands because they tend to change
value more slowly than other types of stock and often pay dividend income.  Moderate
investors Moderate investors want to increase the value of their portfolios while
protecting their assets from the risk of major losses. For example, a moderate investor
might use an allocation model that has 60% in stock, 30% in bonds, and 10% in cash
equivalents. While they will tend to favor blue chip and other large-cap stocks, they may
be willing to invest a modest portion of their principal in higher risk securities — such as
international stock, small-caps, and volatile sector funds — in order to increase their
potential for higher returns. H.R.I.H.E, Hassan Page 29
30. 30. Investment pattern of investors on different products  Aggressive investors
Aggressive investors concentrate on investments that have the potential for significant
growth. They are willing to take the risk of losing some of their principal, with the
expectation that they will realize greater returns. Aggressive investors might allocate from
75 to 95% of their portfolios to individual stocks and stock mutual funds. While large- and
small-cap stocks and funds may make up the core of their portfolios, many aggressive
investors will have significant holdings in more speculative stocks and funds, such as
emerging market and sector mutual funds. Since aggressive investors focus on growth,
they are usually less inclined to hold income producing securities, such as bonds. An
aggressive investing style is definitely not for the faint of heart. It’s best suited for
investors with a long-term investing horizon of 15 years or more, who are willing to make
a long-term commitment to the stocks they buy. But history has shown that an aggressive
investing approach, combined with a well diversified portfolio, and the patience to stick to
a long-term buy-and-hold investing strategy through inevitable market downturns, can be
the most profitable in the long run. Before making any investment, one must ensure to: o
Obtain written documents explaining the investment o Read and understand such
documents o Verify the legitimacy of the investment o Find out the costs and benefits
associated with the investment o Assess the risk-return profile of the investment o Know
the liquidity and safety aspects of the investment o Ascertain if it is appropriate for your
specific goals o Compare these details with other investment opportunities available o
Examine if it fits in with other investments you are considering or you have already made
o Deal only through an authorized intermediary o Seek all clarifications about the
intermediary and the investment o Explore the options available to you if something were
to go wrong, and then, if satisfied, make the investment. H.R.I.H.E, Hassan Page 30
31. 31. Investment pattern of investors on different products 2.13 Investment Avenues: In
India, numbers of investment avenues are available for the investors. Some of them are
marketable and liquid while others are non-marketable and some of them also highly
risky while others are almost risk less. The investor has to choose Proper Avenue among
them, depending upon his specific need, risk preference, and return expected Investment
avenues can broadly be categorized under the following heads o Corporate securities
Equity shares Preference shares Debenture/Bonds GDR’s/ADR’s o Deposit in bank and
non banking companies o Post office deposits and certificate o Life insurance policies o
Provident fund schemes o Government and semi-government securities o Mutual fund
and schemes o Real estate (i) Corporate securities: (a) Equity share Total equity capital
of a company is divided into equal units of small denominations, each called a share. The
holders of such shares are members of the company and have voting rights. When
company makes profit shareholder receives their share of the profit in form of dividends.
In addition, when company performs well and the future expectation from the company is
very high, the price of the companies share goes up in the market. Investor can invest in
shares either primary market offerings or in the secondary market. (b) Preference shares
Preference share as that part of share capital of the Company which enjoys preferential
right as to: (a) payment of dividend at a fixed rate during the lifetime of the Company; and
(b) the return H.R.I.H.E, Hassan Page 31
32. 32. Investment pattern of investors on different products of capital on winding up of the
Company. It is lie in between pure equity and debt. But preference shares cannot be
traded, unlike equity shares, and are redeemed after a pre-decided period. Also,
Preferential Shareholders do not have voting rights. These are issued to the public only
after a public issue of ordinary shares. Preference shares also get traded in the market
 and give liquidity to investor. Investor can opt for this type of investment when their risk
performance is very low. (c) Debentures and Bonds It is a fixed income (debt) instrument
issued for a period of more than one year with the purpose of raising capital. The central
or state government corporations and similar institutions sell bonds. A bond is generally a
promise to repay the principal along with a fixed rate of interest on a specified date,
called the Maturity Date. Many types of debenture and bonds have been structured to
suit investors with different time needs. Though having higher risk as compared to bank
fixed deposits, bonds and debentures do offer higher returns. Debenture instruments
require scanning the market and choosing specific securities that will cater to investment
objectives of the investor. (d) Depository Receipts (GDRs/ADRs) Global depository
receipts are the instrument in the form of a depository receipts or certificate created by
the overseas depository bank outside India and issued to non-resident investors against
ordinary shares. A GDR issued in America, is an American Depositary Receipts. As
investors seek to diversify their equity holdings, the option of GDRs and ADR’s is very
lucrative, while investing in such securities, investors should identify the capitalization
and risk characterizes of the instrument and the companies’ performance in the home
country. (e) Warrants A warrant is a certificate giving its holder rights to purchase
securities at a stipulated price within a specified time limit. The warrants act as a value
addition because holder of the warrant has the right but not the obligation to investing in
equity at the indicated rate. An option contract often sold with another security. For
instance, corporate bonds may be sold with warrants to buy common stock of that
corporation. Warrants are generally detachable. Options H.R.I.H.E, Hassan Page 32
33. 33. Investment pattern of investors on different products generally have lives of up to one
year. The majority of options traded on exchanges have maximum maturity of nine
months. Longer dated options are called Warrants and are generally traded over-the
counter (ii) Savings bank account with commercial bank Broadly speaking, savings bank
account, money market/liquid funds and fixed deposits with banks may be considered as
short-term financial investment options: Savings Bank Account is often the first banking
product investors use, which offers low interest (3.5% ), making them only marginally
better than fixed deposits. (iii) Bank fixed deposits Fixed Deposits with Banks are also
referred to as term deposits. Fixed Deposits in banks are for those investors, who have
low risk appetite. Bank FDs is likely to be lower than money market fund returns. Fixed
deposits may be recurring deposits where in savings are deposited at regular intervals or
fixed deposits of varying maturities or with the varying notice periods such as 15 days,
etc. The interest rates on these deposits vary depending on the maturity period, from 4 to
9%. In general, it is lower for fixed deposits of shorter term and higher for fixed deposits
of longer term. If the deposit period is less than 90 days, the interest is paid on maturity;
otherwise it is paid quarterly. (iv) Company fixed deposits For a manufacturing company
the term of deposits can be one to three years, whereas for non-banking finance
company it can vary between 25 months to five years. A manufacturing company can
mobilize, by way of fixed deposits, an amount equal to 25 percent of its net worth from
the public and an additional amount equal to 10 percent of its net worth from its share
holders. A non banking finance company, however can mobilize a higher amount. The
interest rates on company deposits are higher than those on bank fixed deposits. (v) Post
Office Time Deposits (POTDs): Similar to fixed deposits of commercial banks, POTDs
can be made in multiples of Rs 50without any limit. The interest rates on POTDs are, in
general, slightly higher than those on bank deposits. The interest is calculated half-yearly
and paid annually. No withdrawal is H.R.I.H.E, Hassan Page 33
34. 34. Investment pattern of investors on different products permitted upto 6 months. After 6
months, withdrawals are permitted. However, on withdrawals made between 6 months
and 1 year, no interest is payable. On withdrawals after 1 year, but before the term of
deposit, interest is paid for the period the deposit has been held, subject to a penal
deduction of 2%. A POTD account can be pledged. Deposits in 10 years to 15 years Post
Office Cumulative Time Deposit Account can be deducted before computing the taxable
income under Section 80c. (vi) Monthly Income Scheme of the Post Office: Post Office
Monthly Income Scheme is a low risk saving instrument, which can be availed through
any Post Office. It provides an interest rate of 8% per annum, which is paid monthly.
 Minimum amount, which can be invested, is Rs. 1,000/- and additional investment in
multiples of Rs. 1,000/-. Maximum amount is Rs. 3, 00,000/- (if Single) or Rs. 6, 00,000/-
(if held jointly) during a year. It has a maturity period of 6 years. A bonus of 5% is paid at
the time of maturity. Premature withdrawal is permitted if deposit is more than one year
old. A deduction of 1% is levied from the principal amount if withdrawn prematurely. The
5% bonus is also denied. (vii) Life insurance policies Insurance companies offer many
investment schemes to investors. These schemes promote saving and additionally
provide insurance cover. LIC is the largest life insurance company in India. Some of its
schemes include life policies, convertible whole life assurance policy, endowment
assurance policy, jeevan Saathi, money back policy etc. Insurance policies, while
catering to the risk compensation to be faced in the future by investor, also have the
advantage of earning a reasonable interest on their investment insurance premiums. (viii)
Public Provident Fund: A long-term savings instrument with a maturity of 15 years it can
be made in monthly installments with a minimum of Rs.100 and a maximum of Rs.60,000
per annum and interest payable at 8% per annum compounded annually. It is not
transferable, but has nomination facility. One withdrawal per financial year can be made
any time after 5 years from the end of the year in which the subscription is made.
Withdrawal is limited to 50% at the end of the 4th year. All subscription of PPF are
completely free and balances in PPF are not taken into account for wealth tax purpose.
H.R.I.H.E, Hassan Page 34
35. 35. Investment pattern of investors on different products (ix) Government and semi-
government securities It is a fixed income (debt) instrument issued for a period of more
than one year with the purpose of raising capital. The central or state government,
corporations and similar institutions sell bonds. A bond is generally a promise to repay
the principal along with a fixed rate of interest on a specified date, called the Maturity
Date. The government issues securities in the money market and in the capital market.
Money market instruments are traded in Wholesale Debt Market (WDM) trades and retail
segments. Instruments traded in the money market are short term instruments such as
treasury bills and convertible bonds. (x) Mutual fund These are funds operated by an
investment company, which raises money from the public and invests in a group of
assets (shares, debentures etc.), in accordance with a stated set of objectives. It is a
substitute for those who are unable to invest directly in equities or debt because of
resource, time or knowledge constraints. Benefits include professional money
management, buying in small amounts and diversification. Mutual fund units are issued
and redeemed by the Fund Management Company based on the fund's net asset value
(NAV), which is determined at the end of each trading session. NAV is calculated as the
value of all the shares held by the fund, minus expenses, divided by the number of units
issued. Mutual Funds are usually long term investment vehicle though there some
categories of mutual funds, such as money market mutual funds, which are short term
instruments. On the basis of objective we can categories mutual funds as equity
funds/growth funds, diversified funds, sector funds, index funds, tax saving funds,
debt/income funds, liquid funds/money market funds, gift funds, balanced funds. And on
the basis of flexibility we can categories them as open-ended funds, close-ended funds
and interval funds. (xi) Real Estate Investment in real estate also made when the
expected returns are very attractive. Buying property is an equally strenuous investment
decisions. Real estate investment is often linked with the future development plans of the
location. At present investment in real assets is booming H.R.I.H.E, Hassan Page 35
36. 36. Investment pattern of investors on different products there are various investment
source are available for investment which are directly or indirectly investing real estate.
(xii) Bullion investment The bullion offers investment opportunity in the form of gold,
silver, and other metals; specific categories of metals are traded in the metal exchange.
The bullion market presents an opportunity for an investor by offering returns and the end
value of future. It has been absurd that on several occasions, when stock market failed,
the gold market provided a return on investments. 2.14 Sources of study for investors: A
look out for new investment opportunities helps investors to beat the market. There are
many sources from which investors can gather the required information. Such as; (i)
Financial institutions Corporate house, government bodies and mutual funds are the
 main source of investment information. Many of these enterprises have their own website
and post investment related information on their websites. (ii) Financial market Stock
exchange and regulated bodies also provide useful information to investor to make their
investment decisions. With respect to secondary market, the Securities and Exchange
Board of India uses various modes to promote investors education and takes great effort
to achieve an investor friendly secondary market in India. The Reserve Bank of India also
provide useful information relating to the prevent interest rates and non-banking financial
intermediaries that mobiles money through deposit schemes. (iii) Financial service
intermediaries These are intermediaries who promote securities among the public. Many
of these intermediaries are the agencies of specific instruments especially tax saving
instruments. These intermediaries offer to share their commission from there concerned
organization with the individual investor thus investor get additional advantages while
investing through intermediaries. H.R.I.H.E, Hassan Page 36
37. 37. Investment pattern of investors on different products (iv) Media Press sources such
as financial newspapers, financial magazine, business news channel, websites etc.
provide information related to investment to the public. Besides information on securities,
these sources also provide analysis of information and in certain instance suggest
suitable investment decisions to be made by investor. The foregoing discriminations
about stock market and investment having under stood its important and its unique
optimization in the money market. 3.1 INDUSTRY SCENARIO: A. Introduction: Basically,
Securities markets provide a channel for allocation of savings by an individual or an
organization to those who have a productive need for them. So, a security market can be
said a location where the savers meet the real investors who need the fund. The savers
and investors are constrained by the economy’s abilities to invest and save respectively
which thus helps market in enhancing savings and investment in the economy. The
dynamics of the economic, political, cultural and environmental activities within the
country and rest of the world therefore affect Stock Market. A stock market is a public
market for the trading of company stock and derivatives at an agreed price; these are
securities listed on a stock exchange as well as those only traded privately. The size of
the world stock market was estimated at about $36.6 trillion US at the [1] beginning of
October 2008. The total world derivatives market has been estimated at about [2] [3]
$791 trillion face or nominal value, 11 times the size of the entire world economy. The
value of the derivatives market, because it is stated in terms of notional values, cannot be
directly H.R.I.H.E, Hassan Page 37
38. 38. Investment pattern of investors on different products compared to a stock or a fixed
income security, which traditionally refers to an actual value. Moreover, the vast majority
of derivatives 'cancel' each other out (i.e., a derivative 'bet' on an event occurring is offset
by a comparable derivative 'bet' on the event not occurring.). Many such relatively illiquid
securities are valued as marked to model, rather than an actual market price. B. Brief
History: Indian Share Market is the oldest Asian stock market incorporated in 1875. The
name of the first share trading association in India was Native Share and Stock Broker’
Association which later came to be known as Bombay Stock Exchange. This association
started with 318 members. The Bombay Stock Exchange is known as the oldest
exchange in Asia. It traces its history to the 1850s, when stockbrokers would gather
under banyan trees in front of Mumbai's Town Hall. The location of these meetings
changed many times, as the number of brokers constantly increased. The group
eventually moved to Dallas Street in 1874 and in 1875 became an official organization
known as 'The Native Share & Stock Brokers Association'. In 1956, the BSE became the
first stock exchange to be recognized by the Indian Government under the Securities
Contracts Regulation Act. The Bombay Stock Exchange developed the BSE Sensex in
1986, giving the BSE a means to measure overall performance of the exchange. In 2000
the BSE used this index to open its derivatives market, trading Sensex futures contracts.
The development of Sensex options along with equity derivatives followed in 2001 and
2002, expanding the BSE's trading platform. Today, BSE is the world's number 1
exchange in terms of the number of listed companies and the world's 5th in transaction
numbers. The market capitalization as on December 31, 2007 stood at USD 1.79 trillion.
An investor can choose from more than 4,700 listed companies, which for easy
 reference, are classified into A, B, S, T and Z groups. The BSE Index, SENSEX, is India's
first stock market index that enjoys an iconic stature, and is tracked worldwide. It is an
index of 30 stocks representing 12 major sectors. The SENSEX is constructed on a 'free-
float' methodology, and is sensitive to market sentiments and market realities. Apart from
the SENSEX, BSE offers 21 indices, including 12 sect oral indices. H.R.I.H.E, Hassan
Page 38
39. 39. Investment pattern of investors on different products Three segments of the NSE
trading platform were established one after another. The Wholesale Debt Market (WDM)
commenced operations in June 1994 and the Capital Market (CM) segment was opened
at the end of 1994. Finally, the Futures and Options segment began operating in 2000.
Today the NSE takes the 14th position in the top 40 futures exchanges in the world. In
1996, the National Stock Exchange of India launched S&P CNX Nifty and CNX Junior
Indices that make up 100 most liquid stocks in India. CNX Nifty is a diversified index of
50 stocks from 25 different economy sectors. The Indices are owned and managed by
India Index Services and Products Ltd (IISL) that has a consulting and licensing
agreement with Standard & Poor's. In 1998, the National Stock Exchange of India
launched its web-site and was the first exchange in India that started trading stock on the
Internet in 2000. The NSE has also proved its leadership in the Indian financial market by
gaining many awards such as 'Best IT Usage Award' by Computer Society in India (in
1996 and 1997) and CHIP Web Award by CHIP magazine (1999). The past decade has
been quite remarkable for the Securities market in India with the boom in the economy
fuelled by better banking system. It has grown exponentially and the market has also
witnessed fundamental institutional changes. There have also been significant
improvements in efficiency, transparency and safety. However global economic activity
decelerated towards the end of the calendar year resulting in investment concerns on
account of the sub-prime crisis in the US and other developed nations. Naturally the
effects of this slowdown spilled over into developing economies also and we are looking
ahead with some degree of concern over the prospects in the near future. In recent days
economic collapsed in variation of the foreign investors fund main effect of the Indian
economy in 2008-2009 the Bombay Stock Exchange (BSE) the sensex was 13,400 in the
month of 8th July 2009. In other side National Stock Exchange (NSE) 3,974 is in the
same month of 2009. Since the markets has taken up word moment from 9th July 2009
from the low of 3,974 to 4,578 on 24th July 2009 due to the Sharpe recovery in global
economy as well as the 1 st quarter Results of all major company which has been
announced better than expectations, Hence Indian markets are one of the fastest
emerging markets in world and attracted by many Foreign intuitional investors. H.R.I.H.E,
Hassan Page 39
40. 40. Investment pattern of investors on different products C. The Regulatory Authority:
SEBI The rise in number of investors was also leading to an increase in malpractices on
part of the companies, brokers, merchant bankers, investment consultants and various
other agencies involved in new issues. This led to erosion of investor confidence. The
Government and the stock exchanges Realizing this, Securities Exchange Board of India
(SEBI) was constituted were helpless as the existing legal framework was just not
enough. By the Government of India in 1992  The Major Functions Of SEBI:  To
promote fair dealings by the issuers of securities and ensure a market place where funds
can be raised at relatively low costs.  To provide protection to the investors and
safeguard their rights and interests such that there is steady flow of savings into the
market.  Registration and regulation of stock brokers, sub-brokers, registrar to all issue,
merchant bankers, underwriters, portfolio managers and such other intermediaries who
are associated with securities market  Prohibit insider trading in securities.  To
regulate and develop a code of conduct and fair practices by the intermediaries involved
in the stock market etc.  Outlook 2009-10 The Indian markets traded in a very narrow
range during April amidst mixed cues coming from global and domestic markets. While
the markets were hurt by the sovereign debt default concerns of Greece and SECs
allegations against Goldman Sachs, it found some comfort from good set of FY 2009-
2010earnings numbers declared by India Inc... India’s industrial output, as measured by
the Index of Industrial Production (IIP), grew by 15.1% as against an annual gain of
 16.7% in January 2010, and17.6% in December 2009. Industrial production grew by a
mere 0.2% in the same month last year. Manufacturing output rose by 16% as against a
mere 0.2% in February 2009, while Mining production was at 12.2% H.R.I.H.E, Hassan
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41. 41. Investment pattern of investors on different products versus (-) 0.2% in the year-ago
period. Electricity sector output expanded by 6.7%compared to just 0.7% in the same
month a year Consumer Durables production expanded by 29.9%in February 2010 as
against 6% in the same period in 2009. Output in Capital Goods grew by 44.4% in
February 2010 as against 11.8% for the same month of 2009. The growth rate in Basic
Goods category stood at 8.4% versus a contraction of 0.1% in the year-ago period.
Interrmediates Goods' output rose by15.6% in the month under review versus (-) 3% in
the year- ago period. As many as 14 out of the 17 industry groups showed a positive
growth during February 2010 compared to the corresponding month of the previous year.
3.2 COMPANY PROFILE: Company History & Background Asit C. Mehta Investment
Interrmediates Ltd. (ACMIIL) was established in the year 1986 with a view to offer a one-
stop solution to Indian entities for their needs in financial services. Over the last two
decades it has achieved the distinction of being amongst the most trusted and reputed
brokerage houses in India. It provides a complete bouquet of products in equity, debt,
commodities, forex, depository, derivatives and allied services in India. Asit C. Mehta
Investment Interrmediates Ltd. (ACMIIL) is the most trusted and reputed brokerage
house for providing investment-related services in the capital market and money market
and depository services in India. The company is jointly promoted by noted stock market
professionals, Mr. Asit C. Mehta and Mrs. Deena A. Mehta, and is a part of the Mumbai-
based Nucleus Group of Companies. The other group companies are engaged in IT and
IT related services such as development of databases, back-office applications for banks,
corporate document management solutions and geographical information systems (GIS).
H.R.I.H.E, Hassan Page 41