Investment Behaviour of Individual Investors in Coimbatore City

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Investment Behaviour of Individual Investors in Coimbatore City

Prof. Sumandiran Prithiviraj

Assistant Professor and HOD Department of Commerce and Management Studies

Don Bosco Institute of Bio Sciences and Management Studies, Bengaluru

Prof. Gokul G

Assistant Professor

Department of Commerce and Management Studies

Don Bosco Institute of Bio Sciences and Management Studies, Bengaluru

Abstract:- This paper aims to find the behaviour of individual investors from Coimbatore city towards available investment avenues in Indian financial markets. This also analyze factors affecting the Investment decision and to find out the risk tolerance level of individual investors with respect to demographic variables.

Key Words: Investment Behaviour, Investor Information, Risk, Coimbatore.

  1. INTRODUCTION

    Savings and investments play a major role in economic development of any country and the primary objective of all governments policy has been to promote savings and capital formation in the economy which is a primary instrument of economic growth. Personal Savings in India is attributed to growth in income of individuals and the rising rate of inflation. Financial savings include investments in deposits with banks and non-banking finance companies, investment in stocks, mutual funds (retail investors are now steadily lining up to invest in equity-oriented schemes of mutual funds. THE HINDU, MARCH 8, 2015, Page 15), Debentures, Small Savings, Life Insurance, precious metals such as Gold, Silver, Bullions as well as provident and pension funds. The rise and decline in net financial savings persistently change on

    consumption. But individuals do not always prefer according to classical theory of economics. Recent studies on individual investor behaviour have shown that they do not act in a rational manner, rather than several factors influence their investment decision. The purpose of this study is to analyze the determinants of individual investors behaviour in Indian financial market.

  2. LITERATURE REVIEW

    Narayana (1976)1 found that the most important forms of urban financial investment were bank deposits, shares and securities. Gupta L.C (1987)2 Bombay in the countrys shareholding population was that they lack necessary infrastructure needed for facilitating share transactions.

    Mudra – SAMIRS (1992)3 brings out that working women in urban India put aside one-fifth of their earnings aside as savings. Jawahar Lal (1995)4 Investors should be provided adequate and reliable information so that they can make sound investment decisions. Bandgar P.K (1999)5 Most investors do not know about safety of new issues of company shares, debentures and share bought on stock exchanges. Abhijit Dutta(2000)6 observes that the individual investors have high confidence in themselves and are not guided by the market discounted asymmetric

    par with inflation, leading to a low real rates on bank deposits and small saving funds. As per the S&Ps upgrade

    information.

    Maruthupandian.P (2001)7

    the investors should

    all three major global credit agencies have placed Indias sovereign rating at the lowest BB + in April 2014. Risk appetite of investor coupled with an uncertain global environment which has been adversely affecting the returns from the stock market, slower job creation are prompting households to favor investment in gold, seen as a hedge against inflation, and also bad market returns. Indian financial market is considered to be highly impulsive, responsive and combative. The role and importance of individual investors and their trading behaviour in Indian financial market is also imperative. Expected utility theory views, individual investment decision as a trade-off between immediate consumption and deferred

    remember that their active participation in the activities of

    the forum is a must. Rajarajan.V (2003)8 investors lifestyles based characteristics has been identified. The Indian Household Investors Survey, (2004)9 A developing

    economy, like India, needs a growing amount of household savings to flow to corporate enterprises. Kirshnudu.Ch., B. Krishna Reddy and G. Rama Krishna Reddy (2005)10 Investors are mostly influenced by family members when taking decisions on investment. Sridhar.R (2008)11 majority of the respondents have invested less than one lakh. Sunatan Khurana (2008)12 Protection is the main purpose of an insurance policy. Darshana.P (2008)13 the visual and print media, and training programs to help

    investors make well-informed decisions. Vikram.S (2008)14 Major percentage of respondents have moderate

    knowledge and has less exposure towards the financial market. Kasilingam.R & Jayabal.G (2009)15

    The fund invested in small savings schemes will yield good results not only to individual investors but also to the nation. Selvatharangini P.S (2009)16 conclude that generally people differ in their taste and preference.Kaboor.A (2010)17 finds that financial literary is not uniform among different groups of investors. Mathivannan.S and Selvakumar.M (2011)18 the teachers are saving their money for the purpose of their childrens education, marriage and other welfare expenses. Manish Sitlani, Geeta Sharma & Bhoomi

    Sitlani (2011)19 observed that there is no association between demographic variables and investment choice of occupants of financial services industry. Suman and

    Warne.D.P. (2012)20 the market movements affect the

    investment pattern of investors in the stock market. Though various authors have made several attempts on the above areas considering some are all the observed parameters, still it needs to be frequently studied. This necessity various from time to time as well as the role of the money has also increased tremendously. At this background the researcher has coined the following objectives.

  3. OBJECTIVE OF THE STUDY

    The focus of the study is to determine the factors of individual investor behaviour in Indian financial market. To list the Investment avenues available. To find out the information seeking behaviour of Investors and their effectiveness. Access the risk exposure, factors affecting the Investment decision and to find out the risk tolerance level of individual investors with respect to demographic variables.

  4. METHODOLOGY OF THE STUDY

    The present research is an attempt to study the perception, knowledge and behaviour in respect of their investment in Coimbatore City in tune with the objectives framed. Data collected was through distributing questionnaire among the people of Coimbatore (Tamil Nadu). Confederation of Indian Industry (CII) has identified Coimbatore as one of the potential investment zone in Tamil Nadu. Since, the study is pertaining to financial investments the data revealed by the respondents has been considered for the study and hence random selection applied by administering 107 questionnaire. The following are the limitation of the study which the number of respondents limited to investors in Coimbatore city. Study is based on the outcome of reviews made and select factors to analyze the behaviour of individual investor only. Usual time, place and resources are the limiting factor. In some context the study may not be generalized to the whole population due to the reason that financial matters may not be revealed by the respondents.

    Table 1: Demographic Profile

    Variables

    Particulars

    Fre

    %

    Variables

    Particulars

    Fre

    Gender

    Male

    54

    50.5

    Below 25

    25

    23.4

    Female

    53

    49.5

    26-30

    33

    30.8

    Domicile

    Rural

    36

    33.6

    Age

    31-35

    29

    27.1

    Urban

    43

    40.2

    36-40

    8

    7.5

    Semi-Urban

    28

    26.2

    41 and above

    12

    11.2

    Type of Residence

    Own

    63

    58.9

    Marital Status

    Married

    50

    46.7

    Rented

    44

    41.1

    Unmarried

    57

    53.3

    Up to Schooling

    15

    14.0

    Two

    10

    9.3

    Education

    UG

    30

    28.0

    Family

    Three

    26

    24.3

    PG

    30

    28.0

    Size

    Four

    36

    33.6

    Earning members

    Professionals

    32

    29.9

    More than Four

    35

    32.7

    One

    19

    17.8

    Agriculture

    16

    15.0

    Two

    49

    45.8

    Business

    20

    18.7

    More than Two

    39

    36.4

    Occupation

    Professional

    39

    36.4

    Affluent

    6

    5.6

    Employment-Govt

    14

    13.1

    Upper Middle Class

    38

    35.5

    Employment-Pvt

    18

    16.8

    Wealth

    Middle Class

    61

    57.0

    Joint

    33

    30.8

    Family Type

    Poor

    2

    1.9

    Nuclear

    74

    69.2

    (Source: Data Collected through questionnaire)

    An overview of the demographic profile of the sample respondents considered for the study is presented in table one.

    Table 2: Investment Avenues Based on Respondents Preference (Friedmans Test – Mean Rank Score)

    Investment Avenues

    Safety

    Liquidity

    Additional Income

    Capital Appreciation

    Tax Benefits

    Savings a/c in banks

    3.65

    3.24

    2.58

    2.47

    2.61

    FD a/c in banks

    3.62

    2.85

    2.87

    2.78

    2.89

    Govt Securities

    3.40

    2.89

    2.89

    2.77

    3.05

    Corporate Bonds

    2.93

    3.00

    3.09

    2.98

    3.00

    Insurance Policy

    4.10

    2.77

    2.63

    2.53

    3.42

    Real Estate

    2.79

    2.72

    3.03

    3.71

    2.75

    Commodities

    2.78

    3.00

    3.37

    3.04

    2.81

    Shares & MFs

    2.85

    3.13

    3.13

    3.13

    2.78

    Chit Funds

    3.06

    3.01

    3.23

    2.94

    2.75

    Gold & Silver

    3.17

    3.10

    2.75

    3.43

    2.56

    (Source : Data Collected through questionnaire )

    Researcher has applied Friedmans Mean Rank Score in order to analyze various Investment avenues based on the given five parameters. The study reveals that yet in the modern computer era safety (4.1) on investments which is enjoyed on insurance policy. Liquidity occupies on highly liquid assets with 3.24. Additional Income (3.37) where on

    commodities which plays a major role. Capital appreciation on Gold and Silver ranked 3.43 and because of enjoying the tax benefits (3.05) the sample respondents are investing with government securities.

    Table 3: Investment Ratio Based On Risk

    Nature of Investment

    Invt. Avenues

    Investment Ratio (%)

    Rank

    FD a/c in banks

    13.38

    Fixed Income

    Govt Securities

    4.34

    3

    Corporate Bonds

    2.85

    Investment for safety

    Insurance policies

    14.87

    1

    Long term investment

    Real estates

    12.98

    4

    Commodities

    6.55

    Liquidity

    5

    Shares & MFs

    4.35

    Chit Funds

    7.82

    Pride & Contingency Savings

    2

    Gold & Silver

    14.76

    (Source: Data Collected through questionnaire)

    Table three explains various facts about the rational investor considered for the study. Though SEBI, MOF, GOI, RBI, Investors Associations, Financial Consultants have mooted plans yet the scope of invsting into shares and bonds are found to be poor, in spite of various

    initiatives taken by its respective agencies. On the other side of the coin the sample respondents have accepted that GOLD maintain its rank in Investment Avenue along with universally accepted factor SAFETY.(14.76%)

    Table 4: Source of Information Based On Reliability

    Source of

    Very High

    High

    Medium

    Low

    Very Low

    Information

    F

    %

    F

    %

    F

    %

    F

    %

    F

    %

    Print Media News paper

    25

    23.4

    39

    36.4

    32

    29.9

    8

    7.5

    3

    2.8

    Electronic Media TV

    22

    20.6

    33

    30.8

    40

    37.4

    8

    7.5

    4

    3.7

    Internet

    35

    32.7

    25

    23.4

    33

    30.8

    12

    11.2

    2

    1.9

    Financial Advisors

    17

    15.9

    23

    21.5

    35

    32.7

    23

    21.5

    9

    8.4

    Friends & Peer investors

    21

    19.6

    33

    30.8

    36

    33.6

    8

    7.5

    9

    8.4

    Own analysis

    27

    25.2

    33

    30.8

    28

    26.2

    12

    11.2

    7

    6.5

    (Source: Data Collected through questionnaire)

    Having objective framed by the researcher to find out the information seeking behaviour of Investors and their effectiveness, it is depicted in table four. The above were the identified major sources of information for any investor as relevant source of information towards making an investment. Through Internet (32.7%) the sample respondents are able to get necessary information in time to decide the investments. For an average Indian today newspaper (36.4%) makes alert on the investments which is because it is Hard Copy in nature i.e., Indians yet have the habit of Touch, Feel, Smell theory. Out of the sample

    respondents 37.4% are watching electronic media before deciding on their investments. Financial advisors, Friends and Peer investors were considered as the last resort for investments. Since, India is pioneering in electronics through Computers and Internet where anyone can share and learn the market scenario then and then, list extends. SEBI has made various MOUs with central board schools, colleges and Universities in order to inculcate financial education among youths. This is reflected in Own Analysis where the reliability is found to be less

    Table 5: Distribution of Investment Behaviour of the Respondents

    Good

    Average

    Poor

    Variables

    F

    %

    F

    %

    F

    %

    Before Investment

    19

    17.8

    74

    69.2

    14

    13.1

    At the Time of Investment

    23

    21.5

    71

    66.4

    13

    12.1

    Post Investment

    22

    20.6

    66

    61.7

    19

    17.8

    Overall Investment Behaviour

    19

    17.8

    75

    70.1

    13

    12.1

    (Source: Data Collected through questionnaire)

    Table five accepts the truth of table four that the Indian Investors need to be educated. When the sample population is tested during various stages on investments it shows that the respondents under study admits that the knowledge on investment are Average before, at the

    time of investment and during post investment period. Overall investment behaviour yet to be at its average of 70%. This is another evidence that investor at Coimbatore have to be educated on various Financial Investment Avenues.

    Table 6: Factor Analysis (Investment Behaviour)

    Scale

    Before

    At the Time of

    Post

    Investment

    Investment

    Investment

    I search for investment options

    0.855

    I rely on intermediaries for making investments

    0.851

    I prefer investment based on low transaction cost

    0.829

    I discuss with my friends, colleagues, family members before investment

    decisions were made

    0.746

    My investments are always tenure based

    0.588

    I watch the performance of investment

    0.783

    I take responsibility for the investments made

    0.689

    My choice of investments will be of various avenues

    0.688

    My investments are diversified

    0.671

    My investments will be in equal ratio for all avenues

    0.543

    My investments will be the last resort during contingency

    0.801

    I make more investments in the same avenue if my objectives are fulfilled

    0.799

    I analyse my investments and switch to other when I found appropriate

    0.735

    I consider using investments for social aspect needs/p>

    0.727

    I dont consider switching when my investment objectives were met

    0.668

    (Source: Data Collected through questionnaire)

    All factor loadings were 0.5 and above, showing good convergent validity (Chesney, 2006). The constructs are therefore uni-dimensional and factorials distinct, and all items used to operationalize a constructs load on to a single factor which has been grouped into three set of factors. The result of factor analysis disclose that investors before making investment search for various investment options followed by seeking intermediaries advice and prefer to invest based on transaction cost and the like. While at the

    time of investment the investor ascertains the performance of investment, undertakes the responsibility for their investment, prefers to diversify their investment etc., Similarly, during the post investment scenario investors are of opinion that they will retain their investments till an need arises, wish to make more investments in the same avenue, if they receive the expected return from their investments, investors also agree that they may switch to other investment sources, when a need arises.

    Table 7: Investment Behaviour at Various Stages of Investment (Friedmans Rank Test)

    Variable

    Stages

    Mean Rank

    Rank

    Investment Behaviour

    Before Investment

    2.03

    2

    At the time of Investment

    2.16

    3

    Post Investment

    1.81

    1

    Source: Data Collected through questionnaire)

    The Friedmans rank test shows that the investment behaviour was found to be better at the post investment period than before making the investment as well as at

    time of investment. The study justifies that experience makes a man perfect.

    Table 8: Influence of Demographic Profile on Investment Behaviour

    Variables

    Statistical Tool

    Value

    Result

    Interpretation

    Gender and Investment behavior

    Independent t test

    t = 2.749 P<0.05

    Significant

    Male had better investment behaviour

    Age and Investment

    behavior

    ANOVA

    F = 7.231

    P<0.05

    Significant

    31-35 years had better investment

    behaviour

    Domicile and Investment

    behavior

    ANOVA

    F = 45.242

    P<0.05

    Significant

    Urban residence had better

    investment behaviour

    Marital Status and

    Investment behavior

    Independent t test

    t = 9.485

    P<0.05

    Significant

    Married respondents had better

    investment behaviour

    Education and Investment

    behavior

    ANOVA

    F = 83.973

    P<0.05

    Significant

    Professional had better investment

    behaviour

    Occupation and Investment

    behavior

    ANOVA

    F = 27.222

    P<0.05

    Significant

    Professionals had better investment

    behaviour

    Nature of residence and

    Investment behaviour

    Independent t test

    t = 0.073

    P<0.05

    Not -Significant

    No Sig. difference

    Family type and Investment behavior

    Independent t test

    t = 4.216

    P<0.05

    Significant

    Nuclear family had better investment behaviour

    Family Size and

    Investment behavior

    ANOVA

    F = 29.149

    P<0.05

    Significant

    Family which had 4 members had

    better investment behaviour

    Earning members and Investment behaviour

    ANOVA

    F = 37.694

    P<0.05

    Significant

    Family which had 2 earning

    members had better investment behaviour

    Savings and Investment

    behavior

    ANOVA

    F = 0.291

    p>0.05

    Not-Significant

    No Sig. difference

    Wealth and Investment behavior

    ANOVA

    F = 18.811

    P<0.05

    Significant

    Higher middle income group had better investment behaviour

    (Source: Data Collected through questionnaire)

    The table 8 shows that there is significant difference in the investment behaviour of the investors based on their demographic characteristics. Investor's behaviour varies based on demographic factors like gender, age groups,

    domicile, marital status, educational level, occupational groups, family type, family size, number of earning members in the family, and income groups.

    Table 9: Source of Information and Investment Behaviour

    Variables

    Statistic

    Value

    Result

    Interpretation

    Source of Information and Investment behaviour

    ANOVA

    F = 11.919 p<0.05

    Significant

    The respondents who got advice from financial advisors had better investment behaviour

    (Source: Data Collected through questionnaire)

    Above result shows that there exists significant difference in investment behaviour depends on source of information gathered by the investors. Investor behaviour is found high among investors, who receive more information pertaining to investment.

  5. FINDINGS

    The study makes to understand that the average level of investment behaviour was found among the respondents and the investment behaviour was found to be better at the time of investment than before investment and post investment. The study also observed that the safety was the foremost preferred aspect among the fixed income segment and investment for safety. Capital appreciation was foremost preferred aspect in long term investment and pride and contingency savings. Additional income was the most preferred aspect in liquidity investments. The factors namely gender and investment ratio in real estate does influence the investment behaviour. The pre-investment behaviour found to be significantly influencing factor of overall investment behaviour of the investors considered for the study. The factor capital appreciation influences more on the long term and savings. Even though huge number of investments is available towards savings accounts, insurance policies, gold and silver are found to be the most preferred investments. In this electronic era no doubt that the electronic media and internet plays a key role in providing reliable information to the investors. The analysis also shows that education on investment is necessary to the investors in Coimbatore. The demographic profile like gender, age, domicile, marital status, education, occupation, family type and family size have significantly influence the investment behaviour.

  6. SUGGESTIONS

    As safety is observed to be the dominating factor of any investment, Government of India, Banks and other Financial Institutions should try to bring more financial products with maximum safety. To aoid taking decisions at the time of investment more awareness programme be conducted. Investors must be positively educated about the investments like shares, debentures, mutual funds and commodities. Internet facilities can be extended further to rural areas to enable the house hold investors to collect investment informations.

  7. CONCLUSION

This research paper depicts that investors education is immensely important for the present day investors in Coimbatore. The study concludes that average level of investment behaviour was found among the respondents of Coimbatore and the investment behaviour was found to be better at the time of investment than before investment and post investment. The study also concludes that safety was also a foremost preferred aspect in fixed income and investment for safety. Capital appreciation was the foremost preferred aspect in long term investment. Additional income was the most preferred aspect on

liquidity investments. The factors namely gender and investment ratio in real estate does influence the investment behaviour. The investment before was found to be significant influencing factor of overall investment behaviour of the investors. Based on table two whatever be the avenues still the present day investors think ONLY about safety as their priority hence, MOF,RBI,GOI, SEBI and policy makers should frame policies in such a way that safety is given the highest priority than other parameters considered for the study. Hence, the study concludes that saving habits to be developed with Individuals at all levels rural or urban, aged or young, male or female, married or spinster, low class or high class and so on. The mobilization of financial savings is possible by activating the Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts by progressive use of Direct Benefit Transfer (DBT), increasing financial literacy and creating universal social security cover for all citizens, especially the poor, Under- privileged and workers in the unorganised sector. Shri. Arun Jaitley, Honorable Finance Minister, Government of India.

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