Investment Preferences of Salaried in Pune

SYMBIOSIS INSTITUTE OF MANAGEMENT STUDIES, PUNE

Investment Preferences and

Demographics of Salaried people in Pune

Date: 1st. Feb. 07

A Dissertation submitted towards partial fulfillment of Post Graduate Diploma in Management by

Ridhi Dandona (57) PGDM (Marketing & Finance)

SIMS, Pune

PRN 5711117 Email [email protected]

Investment Preferences and Demographics of Salaried People in Pune

Objective 2

OBJECTIVE To find the investment avenues preferred by salaried people and the reasons

behind their preferences. To determine and evaluate the relationship between various demographic

variables such as age, income, gender, education etc and the choice of investments preferred by people in the city of Pune.

To determine various reasons that people have to opt for different kinds of investment opportunities.

To find out the level of expenditure and savings made by an average consumer in the city of Pune.


Acknowledgement 3

ACKNOWLEDGEMENT

This report bears impressions, guidance, contributions and co-operation of a slew of people whom I am indebted to.

I will begin by thanking The Almighty for all the blessings that He has showered upon me, not only for coming well through this dissertation but also for taking care of me at every big or small step of my life.

My institute, Symbiosis Institute of Management Studies and its faculty deserve my gratitude for ingraining in me various concepts, theories and dimensions of marketing which I was able to apply during my study towards understanding various research problems and analyses required therein. I would particularly like to thank Mr. S.K Vaze, our Banking faculty, without whose guidance and course material, I would not have had half as much of understanding as required for the successful completion of this study. Next, I owe a word of gratitude to Mr. Prantosh Banerjee, our Market Research faculty, who taught us various concepts in Market Research and their application.

I also gratefully acknowledge the co-operation extended by the management and administration of Inox and Adlabs where a major part of the primary data was collected through ticket counters and personal interviews.

Finally Im appreciative and really thankful to the students of Sadhna Institute of Management who helped me formulate the research problem and questionnaire required for collecting the requisite information.


Executive Summary 4

EXECUTIVE SUMMARY The present report is prepared as a pre-requisite towards completion of our post-graduate diploma in business management. The study involved finding out various factors that determine choice of an investment vehicle for an investor. This was done through questionnaires and personal interviews to determine the demographic factors associated with various kinds of investors, the level of investments made in six different investment vehicles considered viz., Bank Deposits, Insurance, Public Provident Fund, which are considered to be relatively safer investment avenues and Mutual Funds, Shares and Gold and Jewellery, which are considerably more risky investments with continuous price fluctuations.

The study required structured, undisguised questionnaire and interview and the questions were segregated under three broad pointers that is, Demographic Data, Investment Data and Reasons therein.

To start off with, the study involved finding the right set of people that could be taken as a representative of the entire population being studied that is, the population fitting into the demographic set considered. An appropriate sample size was arrived at through various calculations and primary data was collected largely by surveying people in different multiplexes in the city of Pune. Multiplexes were chosen as the right sample frame because they have an assortment of different kinds of people with different age groups, income levels and education at any given point of time.

The final phase of the study involved compilation of data and application of various tests on the data to determine the association between demographic variables and preference of investment vehicles.

Regarding the organization of the report, it consists of Introduction to the Company, followed by Approach and Introduction to the Project, Research Methodology used, Interpretation and Analysis of Data and finally, the Findings and Limitations therein.

The report is primarily intended to serve as a guide with all its contents trying to present an impartial and transparent picture of investment avenues in the market. It is hoped that this report shall provide guidelines and prove to be fruitful to all those concerned.


Contents 5

CONTENTS Sr. No. Title of chapter Page

1. Introduction 08 1.1 Investment Objectives 1.2 Features of Investment

1.3 Investment Opportunities

2. Approach to the Project 17

3. Research Methodology 18 3.1 Research Design 3.2 Data Collection

3.3 Questionnaire Design 3.4 Sampling

3.5 Hypothesis Test

4. Data Analysis and Interpretation 25 4.1 Income Categorisation 4.2 Spending Pattern 4.3 Investment Preference 4.4 Ranking of Investment Opportunities

5. Findings 40 6. Limitations 42 7. Conclusion 43 8. References 44 9. Annexure 45


Index of Tables and Figures 6

INDEX OF TABLES & FIGURES

Tables Name Pg.No.

1 Income Categorisation 27

2 Spending Pattern 27 3 Investment Preference 28

4 Ranking of Investment Opportunities 28 5 Relationship Between Age and Securities Preference 29 6 Relationship Between Income & Securities Preference 31 7 Relationship Between Gender & Securities Preference 34 8 Relationship Between Education and Preference 36

Figures Name Pg. No.

1 & 2 Securities Preference by Age Group 28 3, 4, 5 Securities Preference by Income Group 31 6 & 7 Securities Preference by Gender 32 8, 9, 10 Securities Preference by Education 35


Introduction

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1. INTRODUCTION Investment can be defined as an outlay of a sum of money to be used in such a way that a profit or increase in capital may be expected. It is a sacrifice between present value of money-in-hand for an uncertain future reward. It entails arriving at various decisions such as type, mix, amount, timing, grade etc of investment and disinvestment. For best results, this decision making has to be continuous and rational.

An investment decision is essentially a trade-off between risk and return. All investment choices are made at a point of time in accordance with the personal investment needs, capability and in contemplation of an uncertain future. Since investment in securities are revocable, investment ends are transient and investment environment is fluid, the reliable bases for reasoned expectations become more and more vague as one conceives of the distant future. Investors in securities therefore revaluate and reappraise their investment commitments from time to time in the light of new information, changed expectations and ends.

Investment choices or decisions are found to be the outcome of three different but related classes of factors. The first may be taken as Factual or Informational premises. The factual premises of investment decision are provided by many streams of data which, taken together, represent to an investor the observable environment and general as well as particular features of the securities and forms in which investments may be made.

The second class of factors may be taken as Expectational Premises. Expectations relative to the outcomes of alternative investments are subjective and hypothetical in any case, but their foundations are necessarily provided by the environmental and financial facts available to investors. These limit not only the range of investments which may be undertaken, but also the expectations of outcomes which may legitimately be entertained.


Introduction

8

The final class of factors may be defined as Value Premises. For investors, these comprise the structure of subjective preferences for the size and regularity of the income to be received from and for the safety and negotiability of specific investments or combination of investment, as appraised from time to time.

1.1 Four Investment Objectives Define Strategy

In broad terms, there are four main investment objectives for investors to accomplish most financial goals. These investment objectives are important because certain products and strategies work for one objective, but may produce poor results for another objective. It is quite likely that an investor may use several of these investment objectives simultaneously to accomplish different objectives without any conflict. These four objectives are elaborated below.

1.1.1 Capital Appreciation

Capital appreciation is concerned with long-term growth. This strategy is most familiar in retirement plans where investments work for many years inside a qualified plan. However, investing for capital appreciation is not limited to qualified retirement accounts. For a long-term objective of an investor, a typical strategy employs making regular purchases.

1.1.2 Current Income

If an individual investor has the objective of increased current income, they will most likely be interested in stocks that pay a consistent and high dividend. They may also include some top-quality real estate investment trusts (REITs) and highly-rated bonds. All of these products produce current income on a regular basis.

Many people who pursue a strategy of current income are retired and use the income for living expenses. Other people take advantage of a lump sum of capital to create an income stream that never touches the principal, yet provides cash for certain current needs (college, for example).


Introduction

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1.1.3 Capital Preservation

Capital preservation is a strategy often associated with elderly people who want to make sure they dont outlive their money. Retired on nearly retired people often use this strategy to hold on the detention has. For this investor, safety is extremely important even to the extent of giving up return for security.

The logic for this safety is clear. If they lose their money through foolish investment and are retired, it is unlike they will get a chance to replace it. Investors who use capital preservation tend to invest in bank CDs, U.S. Treasury issues, savings accounts.

1.1.4 Speculation

The speculator is not a true investor, but a trader who enjoys jumping into and out of stocks as if they were bad shoes. Speculators or traders are interested in quick profits and used advanced trading techniques like shorting stocks, trading on the margin, options and other special equipment.

They have no attachment to the companies they trade and, in fact may not know much about them at all other than the stock is volatile and ripe for a quick profit. Speculators keep their eyes open for a quick profit situation and hope to trade in and out without much thought about the underlying companies. Many people try speculating in the stock market with the misguided goal of getting rich. It doesnt work that way.

1.1.5 Increasing popularity of investments can be attributed to the following factors

Increase in working population, larger family incomes, concepts of yuppies and DINKs and consequently, higher savings and expendable income.

Provision of tax incentives in respect of investment in specified channels. Hedging against inflation Availability of large and attractive investment alternatives


Introduction

10

Increase in investment related publicity leading to greater awareness Ability of investment to provide income and capita gains

1.2 Features of an Investment Programme

In choosing specific investments, investors need definite ideas regarding features which their portfolios should possess. These features should be consistent with the investors general objectives and I addition to that, should be affordable for the investor in terms of incidental charges and conveniences. The following are the features of most opted for investment avenues.

1.2.1 Safety of Principal The safety sought by an investor while making an investment implies protection against losses under reasonably likely conditions or variations. It calls for a careful review of economic and industry trends before deciding types and timing of investment. Ideally, a portfolio with various diversified investments is preferred to avoid errors resulting from misinterpretation of such trends.

Adequate diversification of a portfolio refers to an assortment of investment commitments in different ways. Diversification may be based on various factors such as income, willingness to take risk, geography with certain areas being more prone to natural calamities etc. Another approach to safeguard principal is the theory of Hedging against inflation or deflation. However, extreme caution needs to be exercised towards preventing over-diversification which would stand to compromise on better returns.

Adequate Liquidity and Collateral Value An investment is a liquid asset if it can be converted into cash without delay at a reasonably good value. For an investment to be liquid, it must satisfy the following two criteria viz.

i.) Reversibility ii.) Marketability


Introduction

11

To meet emergencies, every investor prefers to have a sound portfolio to be sure of additional funds that can be arranged through liquid investments.

1.2.2 Stability of Income While making an investment, an investor considers his ability to invest depending on his income as well as stability of income. However, emphasis on stability of income is not always consistent with other investment principles such as safety and liquidity. Moreover, monetary income constraint works in inverse proportionality with the capital

growth and diversification factors. Thus, stability of income is an important factor for an investor while making an investment, but not always to the same constraining level.

Tax Benefits

An investors investment decision also works parallel to his tax planning. The two major factors considered here are largely concerned with

i.) the amount of income generated by the investment ii.) the burden of income taxes upon the investment

When an investors income is small, he is anxious to have maximum cash returns on his

investment and thus, is also prone to take excessive risks. On the other hand, investors who are not pressed for cash income often find that income taxes deplete certain types of investment incomes less than the other, thus affecting their choices.

1.2.3 Capital Growth Capital appreciation has also become an important principle. Recognising the relationship between company and industry growth to large capital appreciation, investors and advisors constantly seek growth stocks.

1.2.4 Purchasing Power Stability Since an investment almost always involves the commitment of current funds with the objective of receiving greater amounts of future funds, the investor also considers the


Introduction

12

purchasing power of the future fund. For maintaining purchasing power stability, investors take the following into consideration

i.) the degree of price level inflation expected in the market ii.) the possibility of gain or loss in the investment available to them iii.) the limitations imposed by personal considerations

Depending on the above factors and affordability therein, is the final selection of investment vehicle made.

1.3 Various Investment Opportunities

1.3.1 Bank Deposit

The different types of bank deposits depending upon their withdrawal restrictions can be seen as

Savings Deposit o Money Market Deposit Account

Time Deposit

o Certificates of Deposit o Fixed Deposit o Small-Denomination Time Deposit o Large Denomination Time Deposit

Transaction Deposit

o Demand Deposit (Checking Deposit) o Automatic Transfer Service (ATS) Deposit o Negotiable Order of Withdrawal (NOW) Deposit

1.3.1.1 Savings Deposit

Savings deposits are accounts maintained by the banks, savings and loan associations, credit unions and mutual savings banks that pay interest but cannot be used directly as


Introduction

13

money. These accounts let customers set aside a portion of their liquid assets that can be used to make purchases. However, to make those purchases, savings accounts transactions must be transferred to Transaction Deposits (or Checkable Deposits) or currency. This transference is easy enough for savings accounts to be often termed as near money. Savings accounts constitute a sizeable portion of M2 monetary aggregate.

1.3.1.1.1 Money Market Deposit Account This is an interest bearing statement account from which withdrawals can be made in accordance with certain prescribed restrictions. While there is no minimum deposit required for opening Money Market Accounts, minimum balances are required to be maintained to avoid monthly service charges. Interest will be paid on this account on a variable rate which can change on a weekly basis depending upon market conditions. The Bank reserves the right to change the rate at any time. There is no limitation as to the

percentage amount the interest rate may vary. The number of transfers permitted from Money Market Deposit Accounts per period is six.

1.3.1.2 Time Deposit

A time deposit, also known as a term deposit, is a money deposit at a banking institution that cannot be withdrawn for a certain "term" or period of time. When the term is over it can be withdrawn or it can be held for another term. Generally speaking, the longer the term the better the yield on the money.

1.3.1.2.1 Certificates of Deposit

A Certificate of Deposit (CD) is a promissory note issued by a bank. It is a time deposit that restricts holders from withdrawing funds on demand. Although it is still possible to withdraw the money, this action will often incur a penalty. A CD bears a maturity date, a specified fixed interest rate and can be issued in any denomination. CDs are generally issued by commercial banks and are insured by the FDIC. The term of a CD generally ranges from one month to five years.


Introduction

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1.3.1.2.2 Fixed Deposit In a fixed deposit account, money is deposited for a fixed period and cannot be withdrawn before the expiry of the said period. This period usually varies from three months to five years. The rate of interest on these accounts increases with the period of deposit. These deposits are also known as term deposits.

1.3.1.3 Transaction Deposit

Transactions deposit is a term used by the Federal Reserve for checkable deposits and other accounts that can be used directly as cash without withdrawal limits or restrictions. They are the only bank deposits that require the bank to keep reserves at the central bank. "Time deposits" can also be called "transaction deposits".

1.3.1.3.1 Demand Account

A demand account, also called checking account or chequing account in North America and Current account in UK and Commonwealth nations, is a deposit account held at a bank or other financial institution, for the purpose of securely and quickly providing frequent access to funds on demand, through a variety of different channels. A demand account allows the account holder to make or receive payments by:

Cash Money (Bank Notes) Cheque and money order (paper promise to pay) Giro (funds transfer, direct deposit) Direct debit (pre-authorized debit) Standing order (automatic funds transfer) Debit card or ATM card EFTPOS (cashless direct payment at a store or merchant


Introduction

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1.3.1.3.2 Automatic Transfer Service Account

An automatic transfer service account is a deposit account that allows the transfer of funds from a savings account to a checking account in order to cover a check written or to maintain a minimum balance.

1.3.1.3.3 Negotiable Order of Withdrawal Account

Negotiable Order of Withdrawal account (NOW account) is a deposit account that pays interest, on which checks may be written. It is an interest-earning account. Withdrawals from NOW accounts may be offered by commercial banks, mutual savings banks, and savings and loan associations and may be owned only by individuals and certain nonprofit organizations and governmental units.

1.3.2 Shares

Shares of stock represent units of ownership in a corporation or entity.

1.3.3 Mutual Fund

An investment company that acquires funds by selling shares of investors and then invests the money in a diversified portfolio of investment securities. A major advantage of investing in a mutual fund is that investors are able to diversify their holdings and investment decisions are made by professional money managers.

1.3.4 Insurance

A form of contract whereby periodic payments (that is, insurance premiums) are made to an insurance company in order to provide compensation to an individual or business in the event of a loss or damage.

1.3.5 Pension Fund

A fund set up to collect regular premiums from employees and their employers, invest these funds safely and profitably, and pay out a monthly income to employees who reach a specified age and retire.


Introduction

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1.3.6 Public Provident Fund

Public Provident Fund was started on 1st of July, 1968 so that people could enjoy the benefit of rebate under income tax act. To avail this facility, an individual needs to open his account in State Bank of India or one of its subsidiaries. Full withdrawal is possible after 15 years, but in case of death of the subscriber, full repayment is made to the legal heir of the nominee. Partial withdrawals and loans are also possible.


Approach to the Project

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2. APPROACH TO THE PROJECT Determining investment preferences of people in the city of Pune.

To ascertain the most prominent investment avenues sought after by people in Pune and their reasons for opting for particular investment vehicles.

Formulating a Research Design for the problem at hand. To formulate a research design to study the investment preferences of people in Pune and the specific reasons therein. For this purpose, a questionnaire has been designed covering various aspects of investment preferences of people required for this study.

The questionnaire designed has been attached as an Annexure at the end of the report.

Carrying out extensive surveys and Personal Interviews. To determine the investment preferences and demographics of people in Pune and considering their reluctance in filling up questionnaires, primary data was largely connected through persona interviews of people at various multiplexes in Pune.

Studying the demographic factors about people in the city of Pune. To study the demographic characteristics of people in Poona to determine the different demographic set of factors that result n the choice of any particular investment vehicle.

Determining the relationship, if any, between demographic variables and investment preference of people in and around Pune through non-parametric tests. After collecting the requisite data, the final step has been to determine the relationship existent, if any, between the various investment vehicles opted for by people and draw inferences therein through various applicable tests on the specific data.


Research Methodology

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3. RESEARCH METHODOLOGY 3.1 Research Design

Research is the search for and retrieval of existing information and discovery or creation of new information or knowledge for a specific purpose. Marketing research consists of gaining consumer input and data. It is the lifeline between companies and customers, and it allows the application of scientific methods to gain knowledge about consumers, buyers, competitors, markets and marketing.

A research design is a framework or a plan of study that guides the collection and analysis of data. A good research design starts with a comprehensive problem definition, followed by an estimate of time required for the research project together with expenses to be allocated during the course of the research. Various strategies can be used for market research - past data may be projected forward; surveys may be made of respondents attitudes and preferences; focus groups can be formed; indirect ways such as thematic apperception tests and picture tests can be carried out and a conclusion can be arrived at based on derived results.

In general terms, marketing research is either primary research or secondary research. Primary research is either qualitative or quantitative. Qualitative research explores, defines, and describes. It involves in-depth studies of limited samples of people. Use of focus groups is a popular tool of qualitative research. In this format, participants are

prescreened to assure that they match the socio-demographic profile of the type of respondents being studied. Once screened, groups of eight to twelve customers participate in a group discussion, with a company-hired moderator, to discuss the topic at hand: new products, reaction to advertising or packaging, or assessment of goods or services. Use of one-on-one interviews is another popular tool of qualitative research.

Often these are conducted in shopping malls (mall intercepts), where shoppers are approached, screened to match a predetermined socio-demographic profile, and escorted to a facility for a thirty-minute to one-hour interview.



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Quantitative research measures, estimates, and quantifies. It generally involves polling of a broad sample of people. This choice is necessary when statistically significant results are required.

The findings in this paper are largely based on primary data collected from a sample of well-matched respondents to the defined research problem and two basic types of research designs are used viz.

Exploratory Research

Descriptive Research

A brief explanation of these methods as used in this paper is given below.

3.1.1 Exploratory Research Exploratory research is a type of research conducted because a problem has not been clearly defined. Exploratory research helps determine the best research design, data collection method and selection of subjects. The major emphasis is on the discovery of insights and ideas. It is particularly helpful in breaking down broad and vague into smaller, more precise sub-problem statements that can be studied in the form of specific hypothesis.

3.1.2 Descriptive Research Descriptive research describes data and characteristics about the population or phenomenon being studied. Descriptive research answers the questions who, what, where, when and how. Although the data description is factual, accurate and systematic, the research cannot describe what caused a situation. Thus, descriptive research cannot be used to create a causal relationship, where one variable affects another. Thus, it can be said to have a low requirement for internal validity. The description is used for frequencies, averages and other statistical calculations.

Descriptive studies are typically guided by an initial hypothesis. For instance, as in this paper, descriptive research is used for an investigation of investment avenues made by



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salaried class people with respect to socioeconomic characteristics such as age, gender, ethnic group, affordability, education level, geographic location etc.

3.2 Data Collection

After identifying and defining the research problem, the next step is to determine specific information required to solve the problem. It is necessary to find the type of sources of data which may yield the requisite information. The analysis contained in this paper is primarily based on primary data obtained through personal interviews and observation with a number of respondents. The data has been collected keeping in mind various factors and characteristics given below.

i.) Demographic Characteristics These characteristics include factors such as age, gender, education, occupation, income etc. These variables are generally used to cross-classify collected data. In this study, demographic variables have been studied to determine whether or not they play a significant role in the choice of investment avenues.

ii.) Attitude and Opinion Another important area of consideration in the analysis done in this paper is if people possess certain predetermined favourable or unfavourable attitudes towards certain investment options, whether they look for any further factual information to reinstate their

opinions and what typically causes and what can change such attitudes to widen investment options considered.

iii.) Knowledge and Awareness This part of the information looked for from respondents is concerned with the level of awareness that people have and care to obtain before making an investment decision.



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3.3 Questionnaire Design

Although data was primarily collected through 10 to 12 minute interviews with various respondents considering their unwillingness to fill up a questionnaire, a set of questions typically asked during data collection process is attached at the end of the report as Annexure 1.

The set of questions can be regarded as a structured-undisguised questionnaire formulated to avoid information distortion and misstatement. The questionnaire clearly states the purpose of the study and comprises of close-ended questions by-and-large except the last one, thereby giving the respondent enough freedom to quote his exact investment preferences.

3.3.1 Sample

To arrive at a more precise conclusion about investment preferences of people in Poona, data was collected at various multiplexes on 1 weekday and 2 week-end days to ensure various types of people residing in the city of Pune were covered. Thus, the various research elements were

Sampling Element The sampling element comprises of people earning enough to visit a multiplex for entertainment and educated sufficiently.

Population The population comprises of all educated and earning people who can be met at a multiplex in the city of Pune.

Sampling Frame The sampling frame - a definition of elements or areas that can be used for the sampling exercise - has been taken as the multiplexes in the city of Pune. These multiplexes covered during the course of the project include E-Square, Inox and Adlabs.

The methods of sampling used include both probability and non-probability based sampling.



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Probability Sampling A probability sample is chosen such that each member of the universe has a known chance of being selected. The probability sampling techniques used in this paper are given below.

Simple Random Sampling In simple random sampling, each member of the population has a known and equal chance of being selected. A selection tool frequently used with this type of sampling is a random number table.

Stratified Sampling

Non-Probability Sampling The non-probability sampling techniques used in this paper are enlisted below.

Convenience Sampling In Convenience Sampling, the sample unit is chosen

primarily on the basis of the convenience to the investigator. Considering a mix of people in various multiplexes in Pune like Inox, Adlabs and E-Square, data has been collected form respondents in these areas so as to ensure coverage of a vast population of respondents.

Sample Size Considering that all respondents met at the Sampling Frame may not fit all the four demographic constraints employed, which include a certain level of education to be able to classify under such category and employment, the following formula is used to determine ideal sample size for the study.

n = p*q (Z / e) 2

Where,

n = Sample Size required to do the study Z = Confidence Level desired for the research p = Frequency of Occurrence of an event q = (1 p) = Non-frequency of Occurrence e = Tolerable Error



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Thus, assuming that 1 out of every three people met at the Sampling Frame fits the criteria of study; and confidence level desired is 90% (Z value equivalent of 1.64) with 5% tolerable error,

p = 1/5; q = 1 1/5 = 4/5

Z = 1.96; e = 0.05

n = 174

Therefore, a sample size of 180 respondents has been taken into consideration to conduct the study.

3.3.2 Hypothesis Test

The appropriate test for this research, considering the objective of determining investment preferences relative to demographic variables appears to be Chi-Square

Test. It is a non-parametric test where the quantity, 2 is used to determine the magnitude of discrepancy between theory and observation. It is defined as

2 = (O-E) 2 E

Where,

O = Observed Frequencies E = Expected Frequencies

After cross-tabulating the data obtained, following steps are required to arrive at the

quantity of 2. i.) Calculation of Expected Frequencies using the equation

E = RT*CT

N

Where,

E = Expected Frequency RT = Row Total of the row containing the cell

CT = Column Total of the column containing the cell



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N = Total Number of observations ii.) Calculation of difference in frequencies and obtaining the respective

values of (O-E) 2. iii.) Finally arriving at the value of 2 by dividing the differential values

obtained above with the respective expected frequencies. This value

ranges between zero and infinity. If 2 is zero, the observed and expected frequencies completely coincide. The greater the discrepancy between observed and expected frequencies, the greater is the value of

2 thus obtained.

iv.) The next step is to compare the value of 2 with the values given in the 2 tables for a given Degree of Freedom at a certain pre-determined level of significance. If the given value of 2 is greater than the table

value of 2, the discrepancy thus being measured is considered to be significant and the null hypothesis is accepted. The computed value of

2 is a random variable which takes on different values from sample to sample.

3.3.3 Degrees of Freedom

Degrees of Freedom refer to the number of classes to which values can be assigned arbitrarily going by the various constraints set therein. Degrees of freedom can be arrived at using the following equation

V = n k

Or, V = (r 1) (c 1)

Where,

V = Degrees of Freedom n = Total Number of Observations k = Number of Independent Constraints r = Total number of Rows c = Total number of Columns


Data Analysis and Interpretation

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4. DATA ANALYSIS AND INTERPRETATION This section deals with the analysis and interpretation of data collected for the purpose of the study. The sample size for data collection has been around 180 based on the appropriate formula for sampling to ensure a reasonably accurate and reliable analysis. The break-up of sample based on income, spending pattern, investment preference etc is given below.

4.1 Income Categorisation

The income categorisation of the sample studied has been done on annual basis on three levels, less than Rs. 2 lakhs, between Rs. 2 lakhs and Rs. 5 lakhs and above Rs. 5 Lakhs. The categorisation can be seen as follows

Income Group Number of People x 5 00 000 41

4.2 Spending Pattern

The spending pattern of the population studied is tabulated below with maximum expenditure on Savings and lowest on Entertainment.

Items %age Food and Clothing 26%

Housing 5%

Saving 39%

Entertainment 3%

Education 8%

Miscellaneous 19%

Table 1

Table 2



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4.3 Investment Preference

The investment preferences of the population studied and the number of people opting for different investment vehicles therein can be seen as

Investment Avenues Preference

Bank Deposit 180

Shares 38

Mutual Funds 51

Insurance 180

PPF 180

Gold 56

4.4 Ranking of Investment Opportunities

Based on the above numbers of investors choosing different investment avenues, following rankings can be arrived at

Investment Avenues Ranks

PPF 1

Bank Deposits 2

Insurance 3

Gold 4

Mutual Funds 5

Shares 6

Others 7

Table 3

Table 4



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4.5 Relationship between Age and Securities Preference

Age Bank Deposit Shares Mutual Funds Insurance PPF Gold Total < 35 101 (26.58%) 31 (8.15%) 30 (7.89%) 101 (26.58%) 101 (26.58%) 16 (4.21%) 380 > 35 79 (25.9%) 7 (2.29%) 21 (6.89%) 79 (25.9%) 79 (25.9%) 40(13.11%) 305

In both the age groups considered, the most opted for investment options are Bank Deposits, Insurance and Public Provident Fund (PPF) largely because these are considered to be relatively safer avenues. The Below 35 age group is seen to invest more in Shares and Mutual Funds while the Above 35 age group is seen to invest more in Gold and Jewellery.

4.5.1 Charts

Securities Preference by 35 Age Group

Bank DepositSharesMutual FundsInsurancePPFGold

Table 5

Figure 1

Figure 2



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4.5.2 Hypothesis Testing

Association between Age and Preference of Risky Securities Let the Null Hypothesis (H0) be that there is no association between age and choice of risky securities. Thus, the 2 value can be calculated and compared as follows.

Observed Values Age Safe Securities Risky Securities Total

Below 35 303 77 380

Above 35 237 68 305

Total 540 145 685

Expected Values

Age Safe Securities Risky Securities Below 35 540*380 / 685 = 298 145*380/685 = 81

Above 35 540*305/685 = 241 145*305/685 = 65

Thus, 2 value can be computed as

O E (O - E) 2 (O - E) 2 / E 303 298 25 0.0839

77 81 16 0.1975

237 241 16 0.0664

68 65 9 0.1385

Total 0.4863

Degrees of Freedom can be arrived at using the following equation V = (r 1) (c 1) = 1 * 1 = 1

At 5% Confidence Level, that is, = 0.05, tabulated value of 2 is

2 = 0.4863



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Since 2Calculated < 2Tabulated, H0 is accepted.

At 5% level of significance and Degrees of Freedom being equal to 1, 2 value is 3.84. This value being clearly greater than the calculated value of 0.4863, it can be said that the difference between theoretical values and observed values might have arisen due to fluctuations of simple sampling and hence, is ignorable. Thus, the Null Hypothesis, H0, is accepted and it can be said that there is no significant association between age and choice of securities by an individual investor.

4.6 Relationship between Income and Securities Preference

Income Bank Deposit Shares Mutual Fund Insurance PPF Gold Total

< 2 Lakhs 79 (29%) 7 (2.56%) 15 (5.49%) 79 (29%) 79(28.94%) 14 (5.13%) 273 Between 2 & 5 Lakhs 60 (25.21%) 19(7.98%) 17 (7.14%) 60 (25.21%) 60 (25.21%) 22 (9.24%) 238 > 5 Lakhs 41 (23.56%) 12 (6.9%) 19 (10.91%) 41 (23.56%) 41 (23.56%) 20 (11.5%) 174

In all the three income groups considered, the most opted for investment options are Bank Deposits, Insurance and Public Provident Fund (PPF) largely because these are considered to be relatively safer avenues and do not require any continuous tracking and movement of investments once made. The Below 2 Lakh income group is seen to limit their investments to the three considerably safer avenues with minimal investments elsewhere; the Between 2 and Lakh income group is seen to invest more in Gold after the safer avenues; while the Above 5 Lakh income group is seen to be inclined towards mutual funds and gold and Jewellery.

Table 6



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4.6.1 Charts

Securities Preference by < 2 Lakhs Income Group

Bank DepositSharesMutual FundInsurance

PPF

Gold

Securities Preference by "Between 2 & 5

Lakh" Income Group

Bank DepositSharesMutual FundInsurancePPFGold

Securites Preference by > 5 Lakh Income Group

Bank DepositSharesMutual FundInsurancePPFGold

Figure 4

Figure 3

Figure 5



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H0 = There is no association between income and choice of a risky investment

Observed Values Income Safe Securities Risky Securities Total

< Rs. 2 Lakhs 237 36 273

Between 2 & 5 Lakhs 180 58 238

> Rs. 5 Lakhs 123 51 174

Total 540 145 685

Expected Values

Income Safe Securities Risky Securities < Rs. 2 Lakhs 540*273/685 = 216 145*273/685 = 55

Between 2 & 5 Lakhs 540*238/685 = 185 145*238/685 = 51

> Rs. 5 Lakhs 540*174/685 = 136 145*174/685 = 36


O E (O - E) 2 (O - E) 2 / E 237 216 441 2.0417

36 55 361 6.5636

180 185 25 0.1351

58 51 49 0.9608

123 136 169 1.2426

51 36 225 6.25

Total 17.1938


V = (r 1) (c 1) = 2*1 = 2



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2 = 5.99

Since 2Calculated > 2Tabulated, H0 is rejected.

At 5% level of significance and Degrees of Freedom being equal to 2, 2 value is 5.99. This value being clearly far less than the calculated value of 17.1938, it can be said that the difference between theoretical values and observed values cannot have arisen due to fluctuations of simple sampling and hence, there is significant association between the variables considered viz. income level and choice of investment vehicle. Thus, the Null Hypothesis, H0, is rejected.

4.7 Relationship between Gender and Securities preference

Gender Bank Deposit Shares Mutual Funds Insurance PPF Gold Total Male 110 (27.5%) 29 (7.25%) 35 (8.75%) 110 (27.5%) 110 (27.5%) 6 (1.5%) 400 Female 70 (24.56%) 9 (3.16%) 16 (5.6%) 70 (24.56%) 70 (24.56%) 50 (17.54%) 285

The most opted for investment options among men and women are Bank Deposits, Insurance and Public Provident Fund (PPF). After the safer avenues, men prefer to invest in shares and mutual funds alike whereas the woman segment prefers to channelise their investments towards gold and Jewellery among the risky securities.

4.7.1 Charts

Securities Preference by Males

Bank Deposit

Shares

Mutual FundsInsurance

PPF

Gold

Table 7

Figure 6



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H0 = There is no association between Gender and choice of securities

Observed Values Gender Safe Securities Risky Securities Total

Male 330 70 400

Female 210 75 285

Total 540 145 685

Expected Values

Gender Safe Securities Risky Securities Male 540*400/685 = 316 145*400/685 = 85

Female 540*285/685 = 227 145*285/685 = 61


O E (O - E) 2 (O - E) 2 / E 330 316 196 0.6203

210 227 289 1.2731

70 85 225 2.6471

75 61 196 3.2131

Total 7.7536

Securities Preference by Females

Bank DepositSharesMutual FundsInsurancePPFGold

Figure 7



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V = (r 1) (c 1) = 1*1 = 1


2 Tabulated = 3.84

Since 2Calculated > 2Tabulated, H0 is rejected.

At 5% level of significance and Degrees of Freedom being equal to 1, 2 value is 3.84. This value being clearly less than the calculated value of 7.7536, it can be said that the difference between theoretical values and observed values cannot have arisen due to fluctuations of simple sampling and hence, there is a significant association between the variables considered that is, Choice of investment vehicle by an investor and gender have a high correlation. Thus, the Null Hypothesis, H0, is rejected.

4.8 Relationship between Education and Securities preference

Education Bank Deposit Shares Mutual Funds Insurance PPF Gold Total

Under Graduate 19 (25.33%) - 5 (6.67%) 19 (25.33%) 19 (25.33%) 13 (17.33%) 75 Graduate 67 (27.8%) 10 (41.49%) 16 (6.64%) 67 (27.8%) 67 (27.8%) 14 (5.81%) 241

Post Graduate 94 (25.47%) 28 (7.59%) 30 (8.13%) 94 (25.47%) 94 (25.47%) 29 (7.86%) 369

In all the three education groups considered, the most opted for investment options are Bank Deposits, Insurance and Public Provident Fund (PPF) largely because these are considered to be relatively safer avenues and do not require any additional effort and movement of investments once made. The Under Graduate group is seen to invest

Table 9



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substantially in Gold and not at all in shares which might be attributed to their lack of understanding of the prices and movements therein; the Graduate group is seen to invest more in Shares after the safer avenues; while the Post Graduate group is seen to be inclined towards mutual funds, shares and gold and Jewellery alike.

4.8.1 Charts

Securities Preferene by Graduates

Bank DepositSharesMutual FundsInsurance

PPFGold

Securities Preference by Post Graduates

Bank DepositSharesMutual FundsInsurance

PPFGold

Securities Preference by Under Graduates

Bank DepositMutual FundsInsurance

PPF

Gold

Figure 8

Figure 9

Figure 10



37


H0 = There is no association between Education and choice of securities

Observed Values Education Safe Securities Risky Securities Total

Under Graduate 57 18 75

Graduate 201 40 241

Post Graduate 282 87 369

Total 540 145 685

Expected Values

Gender Safe Securities Risky Securities Under Graduate 540*75/685 = 60 145*75/685 = 16

Graduate 540*241/685 = 190 145*241/685 = 52

Post Graduate 540*369/685 = 291 145*369/685 = 79


O E (O - E) 2 (O - E) 2 / E 57 60 9 0.15

201 190 121 0.6368

282 291 81 0.2784

18 16 4 0.25

40 52 144 2.7692

87 79 64 0.8101

Total 4.8945


V = (r 1) (c 1) = 2*1 = 2



38


2 Tabulated = 5.99

Since 2Calculated < 2Tabulated, H0 is accepted.

At 5% level of significance and Degrees of Freedom being equal to 1, 2 value is 3.84. This value being clearly less than the calculated value of 7.7536, it can be said that the difference between theoretical values and observed values might have arisen due to fluctuations of simple sampling and hence, there is no significant association between the variables considered that is, Choice of investment vehicle by an investor and gender have a high correlation. Thus, the Null Hypothesis, H0, is accepted..

4.9 Reasons for Preferences

4.9.1 Bank Deposits

Reasons for preferring bank deposits by people were found to be the following 1. Safety of money 2. Bank Deposits cultivate the habit of saving among people 3. Overdraft facility 4. Banks collect cheques, drafts, bills of exchange etc on behalf of the customer 5. Convenience of making payment 6. Valuable articles can be deposited in bank custody

4.9.2 Shares

1. High rate of return

2. Jumping on the flourishing market band wagon 3. Shares have a nominal stated value or a par value. The par value of an equity

share indicates the amount of capital originally subscribed by the shareholders. New shares cannot be sold for less than par value. If equity shares are sold for more than par value, the excess is transferred to share premium account.



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4.9.3 Mutual Funds

Investment in mutual funds is preferred due to the following main reasons. 1. Mutual Funds are expected to provide higher returns to the investors as compared

to direct investment because of professional management, economies of scale and reduced risk.

2. Mutual Funds also provide certain tax benefits. Thus, tax liabilities of investors are reduced considerably.

3. They also provide liquidity advantage, that is, investments made in Mutual Funds can be converted back into cash easily.

4. Mutual Funds also provide flexible investment plans to its subscribers such as regular investment plans and dividend reinvestment plans.

4.9.4 Insurance

Insurance is largely preferred for the following reasons: 1. Insurance provides a cover against various possible losses, thereby serving as a

means to secure future under any circumstances. 2. The amount paid as a premium on life insurance policy is allowed as a deduction

from income tax. Thus, it serves as a tax saving instrument.

3. It provides easy exit and can be surrendered any time.

4.9.5 Public Provident Fund

Public Provident Fund, popularly known as PPF, is a savings cum tax saving instrument. It also serves as a retirement planning tool for many of those who do not have any structured pension plan covering them. On 1st July, 1968, a new fund called Public Provident Fund (PPF) was started so that salaried people could enjoy the benefits after retirement and earn a rebate under income tax act. PPF account is opted by investors for largely the following reasons

Retirement planning tool

Section 88 rebate under the Income Tax Act



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No additional effort required in tracking the investments and their movement

4.9.6 Gold

Considering that most investors preferring to purchase gold and jewellery (not including bullion trade) are from the woman segment, it can probably be concluded that these are not really treated as investments but are of pure ornamental value. Although the study conducted does not reveal any reasons on investment preference in gold.


Findings

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5. FINDINGS 5.1 Salaried class people prefer to invest in safer securities for assured returns

A major reason seen towards this trend is that investing in the safer investment avenues considered for this study does not require any additional time or effort in keeping a track of investments therein. Also, apart from the ease in operating in

these investment vehicles, there is practically no fluctuation other than the

periodic interest payments. Thus, there is little likelihood of losing money invested in these vehicles.

5.2 Preference in Safer securities is also due to lack of effort in tracking the investments and moving them between different investment vehicles from time to time.

5.3 People generally prefer securities which provide tax benefits to them. A major reason for investments seen during the course of the study conducted is also that people look for investment vehicles that provide them with long term planning of funds and income tax rebates. Therefore, one of the most popular investment vehicles is the Public Provident Fund or PPF.

5.4 There is no significant difference between education and securities preference Although on the surface, it looks like people decide their investment vehicles based on their understanding of the complexity of different vehicles therein, the study revealed that there is little, if not none, association between investor education and securities preference. For most investors, it is merely a decision of how much effort it requires to have their investments bear fruit in the long run.

5.5 Gender affects the choice of investment avenues substantially with women preferring more investment towards the safer securities.


Findings

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5.6 Earning capacity is also directly proportional to risk associated with investment options preferred. That is, higher earning people prefer to invest in more risky securities.

5.7 Among the demographic variables studied viz., Age, Income, Education and Gender, only Income and Gender impact the choice of investment vehicles while Age and Education do not play a significant role therein.


Limitations

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6. LIMITATIONS The major limitations of the study can be cited as the following

6.1 The study carried out is based on a sample size of 180 respondents which include a mix of different educational backgrounds, earning capacities and genders, thus limiting the population studied. Although ideal sample size has been arrived at with careful calculations, certain assumptions have been made which might have slightly affected results.

6.2 A major limitation of the project is that it is very difficult to verify results. Replication of same project on the same respondents may produce different results.

6.3 Since the entire reliance of this study is on the data obtained by respondents, it is largely molded to the information shared by these respondents, irrespective of the truth element in it, which is not verifiable.

6.4 Considering the limited time frame available for completion of the study, a larger sample size or frame could not be studied.

6.5 The project has been very time-consuming and expensive owing to the large distances that had to be traveled.


Conclusion

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7. CONCLUSION

This study was undertaken to know and examine the various investment opportunities and the investment preference of salaried people. In the present scenario, saving has become the buzzword with 39% of the total investments going in for saving. This might be due to increased consumer desire for newer products, social status and acceptability and increasing buying demand.

However, considering the high percentage of savings among middle class, salaried people, a key objective of this study was to determine how are these savings channelised towards various investment avenues and which are the various demographic variables that impact this choice.

Amazingly, although it looks like education and awareness play a major role in the choice of an investment vehicle, it turned out that out of the demographic variables considered for the study, only income and gender impact the said choice. Education and Age group does not have a significant impact on the choice of investment vehicle. It also turned out that while women prefer the safer avenues to invest viz., Bank Deposits, Insurance and Public Provident Fund, they do also invest substantially in Gold and Jewellery and for not so much as bullion trade than for its ornamental value.

The investment trend in mutual funds higher up the income group was seen to be inclined towards Mutual Funds and the highest investment in shares was seen at the income group comprising of people earning between Rs. 2 to 5 Lakh per annum. This indicates that investments in risky avenues depend on the level of income and higher up the income ladder, the risk aversion increases.

Also, it was found that people are generally reluctant to put in additional efforts and time in tracking their securities and moving them among different investment vehicles. Thus, they prefer investing in avenues that provide them with long-term benefits and planning.


References

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8. REFERENCES

8.1 Market Research Techniques and Ideas (www.maretresearchworld.net)

8.2 State Bank of Indias official website (www.statebank.com)

8.3Overview of various investment options and terminology (www.investordictionary.com)

8.4 Class lectures and notes by Mr. S.K Vaze, Bank Management and Mr. Prantosh Banerjee, Market Research

8.5 Marketing Research, An Applied Orientation Fourth Edition by Naresh K. Malhotra

8.6 Marketing research, Text and Cases Second Edition by Rajendra Nargundkar

8.7 Primary Data collected through Extensive market research in the form of personal interviews and questionnaires with various investors


Annexure

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9. ANNEXURE 9.1 Questionnaire

I, Ridhi Dandona, am a student of MBA IV Semester at Symbiosis Institute of Management Studies, Pune. I am undertaking a research study towards finding out Investment Preference of Salaried People. The information provided by you in this questionnaire shall be kept strictly confidential and shall not be used for any legal purposes.

Name (Optional):

Age:

Gender: Male Female

Educational Qualification: Under Graduate

Graduate

Post Graduate

Sector of Employment:

Public Sector Private Sector

Since when have you been employed?

0 to 5 years

5 to 10 years

10 to 15 years

Above 15 years


Annexure

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Annual income:

Less than Rs. 2 Lakh

Between Rs 2 and 5 Lakh

Above Rs. 5 Lakh

How do you spend your salary? (Kindly give an approximate percentage break-up) Food and Clothing ______ Entertainment ______ Housing ______ Education ______

Saving ______ Miscellaneous ______

What is your estimated level of annual saving?

Less than Rs. 25 000

Rs. 25 000 to Rs. 50 000

Rs. 50 000 to Rs. 1 00 000

Above Rs. 1 00 000

Where do you prefer to invest?

Bank Deposits PPF/NSC

Shares Gold

Mutual Funds Insurance

Any Others, please Specify ________________

Rank the following investment opportunities as per your preference: Bank Deposits _____ PPF/NSC_____

Shares _____ Gold _____ Mutual Funds _____ Insurance_____ Any Other _____


Annexure

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What are the reasons for preferring the above choice(s) of investment? Bank Deposits ____________________________________________

________________________________________________________

Shares___________________________________________________ ________________________________________________________

Mutual Funds_____________________________________________ ________________________________________________________

Insurance ________________________________________________

________________________________________________________

PPF/NSC________________________________________________ ________________________________________________________

Gold____________________________________________________ ________________________________________________________

Any Other_______________________________________________ ________________________________________________________

Investment Preferences of Salaried in Pune

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