IAMEE Investor Behavior Analysis

8/2/2019 IAMEE Investor Behavior Analysis

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Submitted to II International Conference on Management Practices for Sustainable Growth (ICMPSG

2010) during 28-30 July 2010, conducted by Annamalai University, Dept. of Business Management,

Annamalai Nagar, Tamilnadu

Investor Behavior Analysis

AuthoredBy:

Ch.Pavani

Student of PGDM I Year at IAMEE

Email:[email protected]

P.AnirudhStudent of PGDM I Year at IAMEE

Email:[email protected]
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


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INSTITUTE OF ADVANCED MANAGEMENT EDUCATION AND

ENTREPRENEURSHIP (IAMEE)

HYDERABAD

Investor Behavior Analysis

Abstract Investor behavior analysis is a study made on the demographics and

psychographics of the investor considering the parameters like age, gender and

income groups and also some psychological parameters that will attract the

investor towards that particular investment. This analysis describes why an

investor will opt a particular investment and the motive behind the investment and

other objectives of investment.

Demographic and psychographic factors

Demographic: Statistical socio-economic characteristics or variables of a

population, such as age, sex, education level, income level, marital status,

occupation, religion, birth rate, death rate, average size of a family, average age at

marriage. A census is a collection of the demographic factors associated with

every member of a population.

Psychographic: This includes Activity, Interest, Opinion (AIO) Attitudes Values

of an investor when he looks at a particular investing option.

Introduction

There are several parameters that an investor will think before investing like

return, flexibility and etc but the markets will face a question mark in knowing the

pulse of an investor. So a study must be made on the demographics and

psychographics of the investor such that the market can know the pulse of an

investor and can act upon it. These are the results of such a survey that was made

on the investor. Investor behavior analysis deals with analyzing the behavior of an

investor based on his demographic and psychographic factors like age, gender and

income groups. This states what would be a preferred portfolio of an investor at an
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age. This will be helpful to the stock brokers and portfolio managers so that they

can offer better portfolios to their investors. This analysis will show the mentality

of an investor and his preferences clearly and concisely.

Relevance of the studyThe investor behavior has changed tremendously after the recession effect.

Though India was not directly affected with the Sub-prime crisis effects. Fear has

struck the minds of the investor heavily and spending lavishly has lost its energy

as software people have started investing more than spending. They are now

looking for safety rather than a luxurious life. This was never guessed, the

business must always be proactive to match up the changes that are taking place in

the minds of the customer but at times it must also be reactive. So its the time to

study the behavior of an investor and to understand his feelings, his anticipations

and perceptions that are related to an investment that he is making. This can help

the financing firms in not just growing the business and also in developing the

customer value.

Empirical Study on Investor Behavior

If a financing firm understands the logic behind the survey on investor behavior it

can easily frame up its strategies for a nearby future and can even encourage the

investor to invest in such an investment which is close to his mindset and ideology

where it can cut the costs on promoting him to grab a product of the company

which is away from his view. This empirical study is much helpful to those

financing firms which are into the operations of portfolio management. If a

portfolio that is being offered by the firm matches with the ideology of a customer

then he easily agrees to invest in that portfolio without any hesitation. Any

operation that is done by the company looses its credibility if it is not customer

friendly or if it is rejected by the customer. So, this study helps the companies to


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build such products to its investors which are in reach of his/her mindset and

thinking.

The study was made by collecting data from the sample of 80 investors where, anaverage is made out of the results that are drawn out of the data. Here Im

disclosing the results and the interpretations that are made out of the study.

Major Findings of the Study

It is found that the men in all the age groups are not interested in investing when

their income was very less (Ranging between 10-15 thousands). Men are

interested in saving more and are not having faith in fewer investments and fewer

savings where they do not value a saving of 10 rupees for the future. It is observed

in the study that a man who is having an income ranging between 10-15 thousand

is much worried about the inflationary effects, price rises and several other

financial issues but he is not making any changes in the way he is living. He is

ready to get accustomed to the current scenario that is taking place. He is just

worried about the changes that are happening around him and he keeps thinking

about his pocket which is not going to permit him an extra pack of cigarette or a

glass of wine. He is just bothered about not effectively matching his regular

needs. He is not thinking about the other side of the coin that is cost cutting.

Where he can increase his savings by reducing smoking by an additional cigarette

and by decreasing his days of visit to a bar where he can spend a week off with his

children and family happily. If he thinks in this perspective he can reallyunderstand the value of small savings. He can really value a saving or investment

of one rupee if he changes his small attitude towards looking things. When we said

the same to a person he accepted the same. So a man generally thinks an

investment = Income - Expenses


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We all know that a coin always have two sides. One side of the coin was found to

be an interested human being who likes to invest when he has ample money to

spend and still some money is left in his pocket without any use. Here is the otherside of the coin that looks at an investment from another perspective who values

small investments also matters. Whos perspective of investment is Income-

investment = Expenses. It is none other than the effective personality, An

entrepreneur by birth. As said by Nobel Prize winner Dr.Mohammed Yunus -

Women. Women are found to be saving oriented by nature. They know the value

of the money as they look from the perspective of their family, children

economical necessity and thus they are able to save more when compared to the

men. They are found to have an investment or saving even if their income is less

than 15 thousand. Their principle of saving changes when compared to men. They

are also worried about the price rise of commodities rise in inflation and several

other economical problems but they remain unshackled with the situations because

they know the formula right from their younger days called cost cutting. So they

spend less and invest/save more where the future is stable for them and are not

worried much about their future. So women are found to have the knowledge on

savings and are having conservative mentality when compared to men and are

comparatively economical too. So they spend very limitedly and also in a better

way.

So a portfolio that is offered to a woman should also look at the perspective called

smaller investments or else many times they dont match with her ideology. If a

portfolio is prepared with this perspective undoubtedly itll be a success as

majority of the women force in India accepts it.


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(i)Motive Behind Investment

This table will tell about the motive behind an investor based on the gender

and age groups.

Motive

20-30 30-40 40-50 50 >

Male Female Male Female Male Female Male Female

High Yield

Returns 42.80% 25% 20% 12.50% 17% 50% 50%

To Secure Future 28.50% 75% 66.66% 62.50% 66.66% 100.00% 40% 25%

Tax Benefit 14.25% 6.66% 25% 16.66% 10% 25%

To Beat Inflation 14.25% 6.66%

Interpretations

42.8% of the men at 20-30 age are choosing high yield returns and it is their

motive because at this age his ideas will be running around luxurious life.

So he will be ready to take higher amount of risk to get good returns.

Where 66.66% of men in 30-50years of age are preferring security because

they will have a family at this age and their ideology will look at

safeguarding the future of their children and to make them look happy,

generally being a parent he will be planning for the education of his child

and in saving some amount for matching the needs of his children, so hewill step into the shoes of secured future and will put a comma to his

aggressive behavior and will become conservative and also starts investing

in those options which are much safer when compared to his previous

investments.


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Majority of the men who cross the age group of 50 prefer high yield return

(50%) and 40% of them prefer security.

Women are good at planning and are conservative in nature and they are

focusing for secured future. This can be seen in women of 20-50 agegroups. Because generally a woman gets married at the age of 23 so her

thinking will always be about her family and their future. Even if she is not

married she has a firm idea of securing her future because she being a good

planner always thinks about the future and will always prefer investing in

such options which are less risky.

Where as women who have crossed 50years of age are focusing at high

yield returns because they are not having any burdens on them and their

prime ideology is to give something to her next generation so she is now

ready to take risks for the sake of getting higher returns. Here we can see a

sea change in her mentality where she is becoming aggressive from a

conservative personality.

Majority of the women are found to be conservative where her prime

ideology is to have secured return and women are found to be aggressive

once they cross the age of 50 where they are free from several economical

burdens and family pressures as their children start working somewhere and

are done with their education and the family has good source of income, so

she is turning into an aggressive investor. Where the mindset of a man

keeps changing according to the situations that hell face and as per the

changes in his age. This is because of the changes in his marital status and

also because of several other reasons.


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Preferred Options

This table will guide you on the preferred options of the investor.

Preferred Options

20-30 30-40 40-50 50 >


Real Estate 28.5 13.33 16.66 16.66 43 50

Post Office

Schemes 6.66 16.66 33.33 29 25

Mutual Funds 14.25 50 6.66 16.66 28

Insurance(ULIPS) 14.25 25 33.33 25 16.66 33.33 12.5

Shares 28.5 12.5 16.66

Fixed Deposits 14.25 25 6.66 37.5 16.66 16.66 12.5

Gold 26.66 25 16.66

Male:

Majority of the men in 20-30 age group are giving preference to real estate

and shares as there motive is high yield returns. Generally there is much

risk involved in real estate as the prices of the land keeps fluctuating. Even

then men are interested in investing on real estate because of its return. It is

known that shares is a risky trade and is compared to gambling but it has its

taboo because of the returns. So men are ready to take the risk by investing

in real estate and shares only by looking at the returns that they get.

Men in 30-40 age groups prefer investing in insurance and gold. It is foundthat ULIPS is not a risky investment because it covers some part of

insurance and the other that are units which he can trade. This option will

generally preferred by this age group people to secure the future of their

children or because of some other ideology. The next option gold is having


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some safety where there is less risk and the prices of gold are always found

to be rising.

50 and above age groups are preferring real estate as we have seen that

they are interested in high yield returns. Generally people at this age groupare investing in real estate with an ideology of giving a home to their next

generations and also because of some ancestral beliefs in India which say

that investing in land is always safe. They are interested in real estate

because they can have a fixed asset in hand and can serve their next

generations to cash upon it which can match their unexpected needs.

Female:

Women at 20-30 age groups prefer mutual funds because compared to

shares there is lesser risk involved in mutual funds. Mutual funds offer a

return ranging between 10-20% per annum and are safe because they are

handled by good companies and are maintained by professionals. There is

less risk involved in this area of investment as it has some fixed

calculations and is handled properly by the mutual fund companies so as to

sustain in the market and to attract more number of investors. Companies

like UTI and others are found to be the masters in this area and are having

happy customers.

Where 30-40 age group women prefer fixed deposits, insurance and gold.

Though the return is less in Fixed deposits, ULIPs they are interested in

investing here because there is less risk involved in these areas. Gold also

has less risk when compared to other investing options as it is a one time

investment and majority of them feel it as a fixed asset.

Like 30-40 age group women 40-50 age group women also prefer post

office schemes and insurance (ULIPS) as they are secured.

Women above 50years age group are preferring real estate and mutual

funds as real estate fetches higher returns and mutual funds are safer.


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Equity Markets based on Industry

This table will speak on the most preferred equity markets.

Equity

Market

20-30 20-30 30-40 30-40 40-50 50 >


Power 28.5 6.66 16.66 43 12.5

IT 20 37.5 16.66 16.66

Banking 57.1 75 66.66 50 33.32 83.33 29 50

Automobile 14.25 6.66 12.5 16.66 12.5

FMCG 25 6.66 16.66 28 25

Others 16.66

MALE:

Men at 20-30 age groups prefer banking and power. It was observed that

these industries are performing well. Even new players are performing

better and because of this scenario there is much taboo for banking. There

are several reforms which are taking place in power sector and big players

have entered this sectored because of which people are planning to look at

these sectors aiming for higher returns.

30-40 age group people prefer banking and IT. Here we can understand a

fact that many of the people are having their relatives or friends working in

the IT sector because of which there is soft corner towards this sector. IT

has lost its taboo because of the recent financial crisis even then some

investors are interested in investing in this sector and it was found that

many of them are employees of IT industry and some are related to them.

Players like Infosys TCS are performing well and are always in news and

are having recognition across the globe. This is giving some hope to the

investors. Some instances like Satyam would have affected this situation

and also the recent financial crisis. But, because of government taking


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necessary actions people gained some confidence on this sector. Also there

is one more reason for peoples interest towards this sector i.e., the

workforce of the IT. So generally they try to safeguard their jobs by

contributing something to the industry back (If share value increases thecompany will get more market share and more agreements.)

Men at 40-50 age group are interested in investing in banking,

pharmaceutical, petrochemicals and infra. Here these people are interested

in these sectors because of the recent advancements in these sectors.

Pharma and petrochemicals are always found to be successful. There are

several new players entering into these markets (If population is increasing

that is directly related to the increase in the number of patients.)

Infrastructure is the other industry which is growing today. The recent steps

that are taken by the government of India in favor of private players in this

sectors is also contributing much to this.

50 and above men prefer banking and power.

FEMALE:

In addition to banking women at 20-40 age groups are preferring IT

Where 40-50 age groups are preferring banking

50 and above prefer same banking and power.

So it is found that banking sector is having charisma in the equity market at

present and is a growing industry. As our countrys employability is

increasing the savings are also increasing and at the same time several

people are taking loans from banks so the market of the banks is growing

and even the charisma of it


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Parameters considered by an investor

This table shows the parameters that an investor considers while investing

Parameters considered

by an investor

20-30 30-40 40-50 50 >


Flexibility 42.8 25 6.66 12.5 16.66 50 29 25

Return 42.8 50 13.33 37.5 50 71 50

Managed by Professional

People 20 25 16.66 16.66 25

Risk Diversion 28.5 25 26.66 12.5

Less Expenses 6.66 12.5 16.66 33.33

Male

20-30 age group people are preferring flexibility and returns. This is

because of the recent financial slump down where their money is locked in

some investments so they have changed their mindset towards flexibility

and prefers returns as they are aggressive in nature.

30-40 age group men prefer risk diversion as they are focused towardssecured future and maximum number of people of this age group has family

and are willing to save for their future needs.

40-50 age group men prefer return and flexibility as they are changing their

idea towards high yield returns and prefer flexibility to meet some

unexpected financial problems.

50 and above age groups are focused towards returns.

Female

Female in the age groups of 20-40 and 50 and above prefer return as they

are aggressive in nature. Where 40-50 age group women prefer less

expenses.


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Expected Returns

Expected Returns

Real Estate 5 8 9 14 16

Mutual Funds 9 23 13 3 4

Shares 10 7 22 13 1

Post Office Schemes 33 10 5 2 2

Insurance 22 8 15 7 0

Fixed Deposits 20 10 5 3 0

Gold 3 14 11 8 12

Majority of the investors prefer real estate because of its returns. They

believed that real estate give returns ranging 30 and above percent. They

also feel that it involves huge risk even then they are interested in investing

in real estate. Every individual dreams to have a home so this is the key for

the charisma of real estate.

Next to it they feel that shares give good returns. Around 20-30%. Both

these investments involve risk as they are directly related to the market

conditions.

Investor is ready to invest in gold and mutual funds and he feels that they

give good returns and they feel that the risk factor is comparatively less.

It is known that post office schemes, ULIPs and Fixed deposits give very

less return. Generally an investor who is not read to take risk will opt for

these investments.


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Recommendations and Suggestions

The portfolios that are offered to a 20-30 group customer should focus on those

areas which can give them high yield returns as the investor mindset at that age is

much aggressive.

If a portfolio has to be offered to women of the same age then it should target on

security as her thinking is conservative. Generally, women are not married or

newly married at these age groups so their thinking will be running around secured

future. So the portfolio must be of the same kind so it may include mutual funds,

and other secured investments.

Mindset of a man changes when he enters the age group of 30-40 where he will

have a family and he has to secure the future for him and also for his children so

he will change into a conservative personality. My study has proved the same. So

a portfolio that is being offered to a man in this age group must target secured

investments even if the rate of return is comparatively less. There is no change in

the mentality of men at 40-50 age group. So the portfolio will be a similar one.

The motive of women at this age is secured future and they are willing to invest in

fixed deposits and ULIPS so the portfolio that should be offered to women of this

age group must focus on secured returns. The same trend is seen in the 40-50 age

group women where they are interested in ULIPS and post office schemes.

Typically a portfolio that is being offered to this age group will be the same.

When an individual is crossing the age of 50 his mindset is changing. He is an

aggressive investor and is focusing much on high yield returns so as to meet some

unexpected situations and to have ransom amount in hand and is also to take

greater risk for getting higher returns. His preferred options are real estate mutual

funds and etc. That speaks that he is aggressive. Also there are some investors who


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are conservative in this age. So a portfolio that is being offered to this age group

must target on high yield returns and also secured future. So, two types of

portfolios must be prepared for this age group so as to benefit both the investors.

Women are also aggressive at this age and are willing to invest in real estate as it

gives higher returns(30 and above). So the investor in this age group is not worried

about the risk and is ready to take risk to get good returns. So a portfolio that is

being offered to these investors must concentrate on high yield returns.

A portfolio must also consider the smaller investment ideology because majority

of our population consists of the less income groups and lower middle class

groups who are not interested in investing much. Generally these people are

investing in the unauthorized chits which are running on the basis of belief and

nothing else. This is called the opportunity arena if a company focuses on these

groups and if it can turn them towards the investing options provided by them then

automatically the company can see a drastic change in its business arena. It can

fetch large scale of funds. So encouraging people to invest in less numbers may

look small from the point of one customer but is an opportunity to the company

from the perspective of many customers where it can have great amount in hand

and also it can grow rapidly.

Conclusion

So, a portfolio must consider the behavior of an investor while offering a portfolio

to him. Today there is good market for the portfolio managing companies as an

investor has become busy in his life and is ready to have assistance from a

professional so that he can carry out his activities happily. Hence, the portfolio

management companies should know the pulse of the investor and should guide

him accordingly.

Documents

IAMEE Investor Behavior Analysis