Description
In economics, investment is the accumulation of newly produced physical entities, such as factories, machinery, houses, and goods inventories. In finance, investment is putting money into an asset with the expectation of capital appreciation, usually over the long-term future.
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Asia Pacific Journal of Marketing & Management Review Vol.1 No. 2, October 2012, ISSN 2319-2836
A STUDY OF INVESTMENT PERSPECTIVE OF SALARIED PEOPLE (PRIVATE SECTOR)
PROF. CA YOGESH P. PATEL*; PROF. CS CHARUL Y. PATEL** *Head of Department of Accountancy, S. K. Somaiya College of Arts, Science & Commerce, University of Mumbai, Maharashtra, India. **Assistant Professor, Department of Accountancy, SIES College of Commerce, and Economics, University of Mumbai, Maharashtra, India.
ABSTRACT The highest use of capital is not to make more money, but to make money do more for the betterment of life.? - Henry Ford Investment is the employment of funds with the aim of getting return on it. It is the commitment of funds which have been saved from current consumption with the hope that some benefits will accrue in future. Thus, it is a reward for waiting for money. So the first step to investment is savings. In common usage, saving generally means putting money aside, for example, by putting money in the bank or investing in a pension plan. In a broader sense, saving is typically used to refer to economizing, cutting costs, or to rescuing someone or something. In terms of personal finance, saving refers to preserving money for future use - typically by putting it on deposit - this is distinct from investment where there is an element of risk. The main elements of Investments are Return, Risk and Time. This research aims to study and understand the behavioral pattern of investment among the salaried people working in private sector and the difference in perception of an individual related to various investment alternatives. It also aims to provide an insight into factors considered for an appropriate investment. Gives a wider scope to understand various issues related to investment by salaried people. KEYWORDS: Investment, Private sector, Salaried and Saving. ____________________________________________________________________________
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Asia Pacific Journal of Marketing & Management Review Vol.1 No. 2, October 2012, ISSN 2319-2836
INTRODUCTION OBJECTIVES To study the behavioral pattern of investments among salaried people working in private sector. To study the difference in perception of an individual related to various investment alternatives. To provide an insight into factors considered for an appropriate investment. HYPOTHESIS There are no differences in the consumption and saving pattern of the sample test. LIMITATIONS The study shall be limited to salaried people who are employed in private sector. The study is limited to Mumbai city only. METHODOLOGY It is an exploratory research. Primary and secondary data will be collected. Purposive sampling will be used to collect primary data. Sample size shall be total 50 salaried employees. SAMPLE
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The study sample comprised of 50 salaried people in private sector. Using stratified random sampling method the salaried people were classified into two categories on the criterion of sex. 25 were male and 25 were female. Both the respondents male as well as female were salaried employees employed in various Companies in manufacturing, trading and service providing sectors. TOOLS A questionnaire was framed consisting of 20 closed end questions and open end questions covering the personal and demographic profile, the awareness related to methods, modes, reasons of saving and investment and other related data were collected.
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Asia Pacific Journal of Marketing & Management Review Vol.1 No. 2, October 2012, ISSN 2319-2836
DATA Using the survey method primary data was obtained from the respondents by administering the questionnaire and evaluating the feedback. Personal interviews was also conducted with few respondents who provided valuable information inputs Secondary data included information collected from various Internet download, Books, publications and various journals. SAVING Saving differs from savings in that the first refers to the act of putting aside money for future use, whereas the second refers to the money itself once saved. For example: you may decide to start saving 10% of your income; because you aim for your savings to grow into an amount sufficient to buy an automobile. In common usage, saving generally means putting money aside, for example, by putting money in the bank or investing in a pension plan. In a broader sense, saving is typically used to refer to economizing, cutting costs, or to rescuing someone or something. In terms of personal finance, saving refers to preserving money for future use - typically by putting it on deposit - this is distinct from investment where there is an element of risk. Saving is closely related to investment. By not using income to buy consumer goods and services, it is possible for resources to instead be invested by being used to produce fixed capital, such as factories and machinery. Saving can therefore be vital to increase the amount of fixed capital available, which contributes to economic growth. SAVING IN PERSONAL FINANCE Within personal finance, the act of saving corresponds to nominal preservation of money for future use. A deposit account paying interest is typically used to hold money for future needs, i.e. an emergency fund, to make a capital purchase (car, house, vacation, etc.) or to give to someone else (children, tax bill etc.). Within personal finance, money used to purchase shares, put in a collective investment scheme or used to buy any asset where there is an element of capital risk is deemed an investment. This distinction is important as the investment risk can cause a capital loss when an investment is realized, unlike cash saving(s). Cash savings accounts are considered to have minimal risk. In the United States, all banks are required to have deposit insurance, typically issued by the Federal Deposit Insurance Corporation or FDIC. In extreme cases, a bank failure can cause deposits to be lost as it happened at the start of the Great Depression. However, since the FDIC was created, no deposits in the United States have been lost due to a bank failure. In many instances the terms saving and investment are used interchangeably. For example many deposit accounts are labeled as investment accounts by banks for marketing purposes. To help establish whether an asset is saving(s) or an investment you should ask yourself, "Where is my money invested?" If the answer is cash then it is savings, if it is a type of asset which can fluctuate in nominal value then it is investment.
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Asia Pacific Journal of Marketing & Management Review Vol.1 No. 2, October 2012, ISSN 2319-2836
ELEMENTS OF INVESTMENTS A. RETURN: Investors buy or sell financial instruments in order to earn return on them. The return includes both current income (current yield) and capital gain (capital appreciation). B. RISK: Risk is the chance of loss due to variability of returns on an investment. In case of every investment, there is a chance of loss. It may be loss of investment; however risks and returns are inseparable. C. TIME: Time is an important factor in investment. Time period depends on the attitude of investors who follow a ?buy‘ & ?hold‘ policy. A serious minded investor will have to consider the following important categories of investment opportunities
rotective investments. Tax oriented investment. Fixed income investment. Speculative investment. Emotional investment. Growth investment. INVESTOR PROFILE An investor profile or style defines an individual's preferences in investment decisions, for example: Short term trading (active management) or long term holding (buy and hold) Risk averse or risk tolerant / seeker All classes of assets or just one (stocks for example) Value stock, growth stocks, quality stocks, defensive or cyclical stocks... Big cap or small cap stocks, Use or not of derivatives Home turf or international diversification Hands on, or via investment funds
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Asia Pacific Journal of Marketing & Management Review Vol.1 No. 2, October 2012, ISSN 2319-2836
and so on. WHAT DETERMINE AN INVESTOR PROFILE The style / profile is determined by Objective personal or social traits such as age, gender, income, wealth, family, tax situation... Subjective attitudes, linked to the temper (emotions) and the beliefs (cognition) of the investor. Generally, the investor's financial return / risk objectives, assuming they are precisely set and fully rational. SPECULATION In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum.[1] Speculation typically involves the lending of money or the purchase of assets, equity or debt but in a manner that has not been given thorough analysis or is deemed to have low margin of safety or a significant risk of the loss of the principal investment. The term, "speculation," which is formally defined as above in Graham and Dodd's 1934 text, Security Analysis, contrasts with the term "investment," which is a financial operation that, upon thorough analysis, promises safety of principal and a satisfactory return. In a financial context, the terms "speculation" and "investment" are actually quite specific. For instance, although the word "investment" is typically used, in a general sense, to mean any act of placing money in a financial vehicle with the intent of producing returns over a period of time, most ventured money—including funds placed in the world's stock markets—is actually not investment, but speculation. INVESTMENT VS. SPECULATION Identifying speculation can be best done by distinguishing it from investment. According to Ben Graham in Intelligent Investor, the prototypical defensive investor is "...one interested chiefly in safety plus freedom from bother." He admits, however, that "...some speculation is necessary and unavoidable, for in many common-stock situations, there are substantial possibilities of both profit and loss, and the risks therein must be assumed by someone." Many long-term investors, even those who buy and hold for decades may be classified as speculators, excepting only the rare few who are primarily motivated by income or safety of principal and not eventually selling at a profit. Speculators can be increasingly distinguishable by shorter holding times, the use of leverage, by being willing to take short positions as well as long positions. A degree of speculation exists in a wide range of financial decisions, from the purchase of a house to a bet on a horse; this is what modern market economists call "ubiquitous speculation?.
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Asia Pacific Journal of Marketing & Management Review Vol.1 No. 2, October 2012, ISSN 2319-2836
DATA ANALYSIS The survey conducted to investigate ?The Investment perspective of the salaried people in the Private Sector? which discloses the reasons, methods, types and modes of investment followed by these people. The sample size of 50 respondents was surveyed out of which 25 were male and 25 were female. The graph below depicts the same. I PERSONAL PROFILE 2) SAMPLE SIZE
Particulars Male Female Total
Number. 25 25 50
50 45 40 35 30 25 20 15 10 5 0 Number Male Female Total
It is evident from the chart that the number of male and female respondents were equal in number.
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Asia Pacific Journal of Marketing & Management Review Vol.1 No. 2, October 2012, ISSN 2319-2836
3) MARITAL STATUS Particulars Male Female Total Married 18 23 41 Unmarried
45
07 02 09
40 35 30 25 20 15 10 5 0 Married Unmarried Male Female Total
It is evident from the chart above that most of the respondents, male as well as female are all married. 4) AGE GROUP Particulars Below 30 3040 Male 05 08 4150 06 Above 51
16
06
14 12 10
Female
03
07
10
05
8 6
Female Total
Total
08
15
16
11
4 2 0 Below 30 30-40 41-50 Above 51
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Male
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Asia Pacific Journal of Marketing & Management Review Vol.1 No. 2, October 2012, ISSN 2319-2836
It is evident from the chart above that majority of the respondents fall in the age group of 41 to 50 years and minimum in below 30. 5) EDUCATION
Details
Under graduate
Graduate
Post graduate
Professional
Male Female Total
02 05 07
14 10 24
06 05 11
03 05 08
25 20 15 10 5 0 Undergraduates Male Female total
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Postgraduates
It is observed that maximum of the respondents are graduates, followed by post graduate and professionals whereas the minimum are undergraduates.
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6) DESIGNATION Details Male Female Total Officer 04 08 12 Executive 10 09 19 Manager 06 05 11 Director 05 03 08
20 15 10 5 0 Officer Executive Manager Director Male Female Total
It is observed that the majority of the respondents both male and female are employed as Executive whereas minimum are on the post of Director. 7) FILING OF INCOME TAX RETURN
20 15 10 5 0 Income Tax Return Filed Income Tax Return Not Filed Male Female Total
Male Female Total
19 08 27
06 17 23
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Particula Incom Income r e Tax Tax Return Return Filled Not Filled Tradin g
30 25
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Asia Pacific Journal of Marketing & Management Review Vol.1 No. 2, October 2012, ISSN 2319-2836
It is observed that the majority of the male respondents file their Income Tax Returns while majority of female respondents do not file their Income Tax Returns. 8) ANNUAL INCOME Particulars Male Female Total 1-2 Lac 03 11 14 2-5 Lac 09 06 15 5-10 Lac 07 05 12 Above 10 Lac 06 03 09
16 14 12 10 8 6 4 2 0 1-2 Lac 2-5 Lac 5-10 Lac Above 10 Lac Male Female Total
It is observed that majority of the Male respondents have annual Income in range of 2-5 Lac while majority of Female respondents have annual income in range of 1-2 Lac. 9) ANNUAL SAVINGS Particulars Male Female Total Below 1 Lac 04 12 16 1-2 Lac 11 06 17 2-4 Lac 06 05 11 Above 4 Lac 04 02 06
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18 16 14 12 10 8 6 4 2 0 Below 1 Lac 1-2 Lac 2-4 Lac Above 4 Lac
Male Female Total
It is observed that majority of the Male respondents have annual Savings in range of 1-2 Lac while majority of Female respondents have annual savings below 1 Lac. 10) ANNUAL INVESTMENT (CONSIDERING THE TOTAL OF ALL THE AVENUES) Particulars Male Female Total
20 15 10 5 0 Below 1 Lac 1-2 Lac 2-4 Lac Above 4 Lac Male Female Total
Below 1 Lac 03 15 18
1-2 Lac 13 05 18
2-4 Lac 07 04 11
Above 4 Lac 02 01 03
It is observed that majority of the Male respondents have annual Investment in range of 1-2 Lac while majority of Female respondents have annual Investment below 1 Lac.
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Asia Pacific Journal of Marketing & Management Review Vol.1 No. 2, October 2012, ISSN 2319-2836
11) AVENUES OF INVESTMENT Particulars Male Female Total Govt. 03 12 15 Stock Market 11 02 13 Mutual Funds 05 04 09 Gold 02 06 08 Real Estate 04 01 05
16 14 12 10 8 6 4 2 0 Govt. Stock Market Mutual Funds Gold Real Estate
Male Female Total
12) RETURN ON INVESTMENT Particulars Male Female Total Less than or equal to the prevailing Market Return 10 19 29 More than the prevailing Market Return 15 06 21
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It is observed that majority of Investment of Male respondents is in the Stock market followed by Mutual Fund , Real Estate and Govenrment Securities while the minimum is in Gold. Whereas the majority of Investment of Female respondents is in the Government Securities followed by Gold, Mutual Fund and Stock Market while the minimum is in Real Estate theas the first
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Asia Pacific Journal of Marketing & Management Review Vol.1 No. 2, October 2012, ISSN 2319-2836
30 25 20 15 10 5 0 Less than or equal to Prevailing More than Prevailing Market Market Return Return Male Female Total
It is observed that the majority of Male respondents invest in those Avenues of Investment where the Return on Investment is more than the Prevailing Market Return. Whereas the majority of Female respondents invest in those Avenues of Investment where the Return on Investment is Less than or Equal to the Prevailing Market Return 13) PROPORTION OF SAVINGS TO INCOME Particulars Male Female Total Below 10% 03 16 19 10-20 % 14 05 19 20-30% 07 03 10 Above 30 % 01 01 02
15 10 5 0 Below 10% 10-20 % 20-30% Above 30 % Male Female Total
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Asia Pacific Journal of Marketing & Management Review Vol.1 No. 2, October 2012, ISSN 2319-2836
It is observed that majority of the Male respondents have proportion of savings to income in range of 10-20% while majority of Female respondents have proportion of savings to income in range of Below 10%. 14) PROPORTION OF INVESTMENT TO INCOME Particulars Male Female Total Below 10% 04 17 21 10-20 % 14 04 18 20-30% 06 03 09 Above 30 % 01 01 02
25 20 15 10 5 0 Below 10% 10-20 % 20-30% Above 30 % Male Female Total
15) PROPORTION OF INVESTMENT TO SAVINGS Particulars Male Female Total Below 40% 03 08 11 40-50 % 05 10 15 50-60% 12 05 17 Above 60 % 05 02 07
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It is observed that majority of the Male respondents have proportion of investment to income in range of 10-20% while majority of Female respondents have proportion of investment to income in range of Below 10%.
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Asia Pacific Journal of Marketing & Management Review Vol.1 No. 2, October 2012, ISSN 2319-2836
18 16 14 12 10 8 6 4 2 0 Below 10% 10-20 % 20-30% Above 30 %
Male Female Total
It is observed that majority of the Male respondents have proportion of investment to savings in range of 50- 60 % while majority of Female respondents have proportion of investment to savings in the range of 40-50% . 16) REASON FOR INVESTMENT Particulars Male Female Total
25 20 15 10 5 0 Safety Higher Returns Any Other Male Female Total
Safety 06 16 22
Higher Returns 15 07 22
Any Other 04 02 06
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Asia Pacific Journal of Marketing & Management Review Vol.1 No. 2, October 2012, ISSN 2319-2836
It is observed that the majority of Male respondents invest for getting higher returns on their funds/savings where as majority of female respondents invest for safety of their funds/savings. 17) PREFERENCE OF INVESTMENT Particulars Male Female Total Higher Returns with High Risk 13 03 16 Lower Returns with Lower Risk 04 12 16 Medium Returns with Medium Risk 08 10 18
25 20 15 Male 10 5 0 Higher Returns with High Risk Lower Returns Medium Returns with Lower Risk with Medium Risk Female Total
18. SATISFACTION FROM INVESTMENT Particulars Male Female Total YES 12 06 16 NO 06 08 14 NOT CLEAR 07 11 20
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It is observed that the male respondents prefer Higher Returns with High Risk while the female respondents prefer Lower Returns with Lower Risk.
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Asia Pacific Journal of Marketing & Management Review Vol.1 No. 2, October 2012, ISSN 2319-2836
20 15 10 5 0 YES NO NOT CLEAR Male Female Total
It is observed that the Male respondents are satisfied with their savings and investments while the female respondents are not clear on the matter. CONCLUSIONS The economy is prospering, the job market is booming and salaries are touching a new high. The new breed of Indian youth has its pockets full and is intelligent enough not to let its money rust in bank accounts. Investment is on their mind and an option that has the potential to multiply their savings and provide maxi-mum tax rebate is the one they crave. Traditional saving options like post office schemes and fixed deposits are now passé. ?Options like post office schemes and fixed deposits are not very popular with the youth as the rate of interest on them is lower as compared to other in-vestment options available. Safety and security which were once upon a time the main reasons for investment are no longer the major criteria that determine the choice of investment. With money in hand and age on their side, the young investors are not hesitant in taking risk. ?Fixed deposits are not a very attractive investment option for youngsters these days. Most of the people who opt for fixed deposits are senior citizens is revealed in one of the surveys conducted in India. Saving tax is one of the major reasons behind investment by the youth. Traditional saving schemes do not provide any tax benefits and are, therefore, keeping the youngsters away from them. ?Why should I invest in fixed deposits and post office schemes when they provide no tax rebates and the rate of return on them is fixed and also lower than other investment options,? is what Young saver and investor has to say. Mutual fund is the most favored option of the youngsters today. ?The stock market is doing so well. I am a little apprehensive about investing directly in the stock market but at the same time I want to avail of the benefits of the rapidly rising stock market. So, mutual funds are the best option for me is what a 30 something Investor has to say. Investment in mutual funds through the Systematic Investment Plan (SIP) is a favoured investment option for the youngsters. This is especially true of the young salaried class which has just started earning and does not have a fat bank balance as yet. ?In case of Systematic Investment Plans, instead of bulk payment, a small amount is to be paid every month. This makes them very popular with the salaried class who find it difficult to shell out a large amount at one go. Real Estate market is also the one which youngsters prefer after all the above ones. Especially in a city like Mumbai where Real estate is
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Asia Pacific Journal of Marketing & Management Review Vol.1 No. 2, October 2012, ISSN 2319-2836
always on the high or up, this is not at all bad investment option. But there is no fixed return and the risk and amount of investment is high. Other Traditional Investment option like the Fixed Deposit or the Post Office schemes (PPF/ NSC / NSS/ KVP/IVP) are losing their way due to blocking of funds and lower returns. Gold is still preferred to some extent especially when it comes to females. Due to rise in price of gold from somewhere around 4,000-5,000 in 2003 to around 17,000 in 2010, gold is still shining as an investment option. Youngsters today are aware of what is happening around them and are intelligent enough to decide what is best for them. Every option is considered and the pros and cons of each weighed carefully before the decision to invest the hard-earned money is taken. RECOMMENDATIONS In investing money, the amount of interest you want should depend on whether you want to eat well or sleep well. - J. Kenfield Morley Are you on the road to a secure future? The following points should be kept in mind while taking the decisions related to savings and investment of the savings: SAFETY OF YOUR INVESTMENT What do you need to look for while investing to ensure that your investment is safe? The factors that you need to look for would vary with the type of investment. For example, in the case of shares, the safety may be partially gauged from quantitative data such as the past trend in the price of the stock, the financial performance of the company; it also may be supplemented with qualitative factors such as the reputation of the company. Analyzing balance sheets and project reports, however, require a great deal of expertise and time, which is usually beyond the scope of the retail investor. Therefore, the reputation of the issuer remains the only guide available.
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CREDIT RATING When it comes to deposits or bonds issued by public companies or financial institutions, an investor can rely on credit ratings. A Credit Rating is an evaluation of the safety of an instrument made by an agency. These agencies undertake a detailed analysis of the issuer's strengths and weaknesses. The rating is allotted based on a formula that also incorporates past performance and volatility. They have a large and expert infrastructure that allows them to make the kind of financial judgement, beyond the scope of an individual retail investor. TYPE OF RETURN The return on investment may consist of appreciation in the value of the investment or receipt of income or both. The first type of return is typical of real estate whereas the second type is
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obtained as interest on loans or fixed deposits, savings certificates, bonds or debentures. Both income as well as appreciation in value could be got from equity shares of good companies. RISK - RETURN LINKAGE One needs to be aware that there is a direct relationship between ' Return' on our investment and the 'Risk' of losing them. Higher the return, greater is the possibility of loss. The Savings Bank Account under the present rules laid down by the Reserve Bank of India, gives interest depending on the duration of the deposit. A long-term deposit gives a higher rate of interest. The possibility of losing our money in the saving bank account is almost negligible, except in remote cases of small-time co-operative banks. While the risk of losing money is almost absent. The Saving Bank Accounts and Bank Fixed Deposits offer interest of 4.5 and 9 per cent per annum respectively. The Company Fixed Deposits offer somewhat better rates of 12 to 15 per cent per annum. Building contractors and film producers offer very high returns such as 24 to 36 per cent per annum, but the probability of losing the entire principal amount in this case is very high. THE TAX FACTOR Return on investment in the form of income, attracts income tax under the Income Tax Act. Incidence of this tax depends on the type of the investment income and the quantum of out other income. The interest on Savings Bank Accounts and Bank Fixed Deposits is eligible for a tax concession up to Rs. 12,000 under Section 80L of the IT Act. Beyond that, it is taxable under the Income Tax Act as normal income. As seen earlier, company fixed deposits yield higher returns than bank deposits, but they offer no tax concession. Incomes from mutual funds, deposits with notified financial institutions, interest on certain Post Office Deposits, interest on certain on NSC, interest on notified bonds and debentures, are also eligible for a tax deduction under section 80L, all within an overall ceiling of Rs. 15,000. The interest from PF and PPF is fully exempt form tax. Contribution up to Rs. 60,000 per year enjoys a tax rebate equal to 20% with a ceiling of Rs. 12,000. In the PPF, whenever there is a contribution made to the minor children's account, not only is the interest tax free but also it is not clubbed with the parent's income. THE INFLATION FACTOR As mentioned in an earlier article, real return is return that is post tax and post inflation. The value of the investment depends on the amount that the money can buy, and this goes down as the inflation goes up. Therefore while evaluating the return from a scheme; you need to see whether it is giving you returns beyond the inflation rate. The greatest problems with the investment avenues such as gold, silver, diamond and Jewellery have been that they have not served as an effective hedge against inflation.
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Asia Pacific Journal of Marketing & Management Review Vol.1 No. 2, October 2012, ISSN 2319-2836
HIGH RISK BUT HIGH RETURNS And finally, equity shares of listed companies as an avenue of investment can be extremely rewarding. But they are also risky and call for a special mental makeup and unusually sharp skills on the part of the investor. As Peter Lynch, the acclaimed American fund manager said, "common stocks are not for everyone, nor for all times in the life of the same person". We examine each of these products later in a detailed manner BE CAUTIOUS It has been noticed world over that an investor's greatest and most portent enemy is GREED FOR HIGHER RETURNS. Many a times, rational thinking people tend to behave in the most irrational manner while investing their savings. A well known investment guru has analyzed this uncanny behavior in one sentence - "Investor, protect thyself from thyself". While analyzing, the popular savings options, one should consider two key factors: Taxation and Inflation along with risk and return. Thus, a sound investment is one which gives the investor reasonable return after deducting outgo of tax as well as the invisible tax of inflation. To conclude, here is a quote from a recent survey carried out in the US among finance professionals revealing some common characteristics of successful women investors: "Ask questions; Seek help; Do your homework; and Set goals". This holds true for all investors. ?No one saves us but ourselves. No one can and no one may. We ourselves must walk the path.? ~ Buddha BIBLIOGRAPHY
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REFERENCE BOOKS 1. Francis, J C; Taylor, R W (2004) – Schaum‘s Outline of Theory and Problems of Investments New Delhi : Tata McGraw Hill. 2. Alexander, G J (2002) – Fundamentals of Investments. New Delhi: Prentice – Hall of India. 3. Chandra, Prasanna (2004)– Managing Investments New Delhi: Tata McGraw Hill. 4. Avadhani, V A (1995)- Investment for Beginners Bombay : Himalaya Publishing House. 5. Avadhani, V A (1996)- Investment Management Bombay : Himalaya Publishing House.
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6. Chandra, Prasanna (1995)– The Investment Game : How to Win. New Delhi : Tata McGraw Hill. 7. Tier, Mark (2006)– The Winning Investment Habits of Warren Buffet and George Saros New Delhi : Kogan Page. WEBSITES 1. 2. 3. www.wikepedia.com www.icai.org www.thehindubusinessline
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doc_563254664.pdf
In economics, investment is the accumulation of newly produced physical entities, such as factories, machinery, houses, and goods inventories. In finance, investment is putting money into an asset with the expectation of capital appreciation, usually over the long-term future.
IRJC
Asia Pacific Journal of Marketing & Management Review Vol.1 No. 2, October 2012, ISSN 2319-2836
A STUDY OF INVESTMENT PERSPECTIVE OF SALARIED PEOPLE (PRIVATE SECTOR)
PROF. CA YOGESH P. PATEL*; PROF. CS CHARUL Y. PATEL** *Head of Department of Accountancy, S. K. Somaiya College of Arts, Science & Commerce, University of Mumbai, Maharashtra, India. **Assistant Professor, Department of Accountancy, SIES College of Commerce, and Economics, University of Mumbai, Maharashtra, India.
ABSTRACT The highest use of capital is not to make more money, but to make money do more for the betterment of life.? - Henry Ford Investment is the employment of funds with the aim of getting return on it. It is the commitment of funds which have been saved from current consumption with the hope that some benefits will accrue in future. Thus, it is a reward for waiting for money. So the first step to investment is savings. In common usage, saving generally means putting money aside, for example, by putting money in the bank or investing in a pension plan. In a broader sense, saving is typically used to refer to economizing, cutting costs, or to rescuing someone or something. In terms of personal finance, saving refers to preserving money for future use - typically by putting it on deposit - this is distinct from investment where there is an element of risk. The main elements of Investments are Return, Risk and Time. This research aims to study and understand the behavioral pattern of investment among the salaried people working in private sector and the difference in perception of an individual related to various investment alternatives. It also aims to provide an insight into factors considered for an appropriate investment. Gives a wider scope to understand various issues related to investment by salaried people. KEYWORDS: Investment, Private sector, Salaried and Saving. ____________________________________________________________________________
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Asia Pacific Journal of Marketing & Management Review Vol.1 No. 2, October 2012, ISSN 2319-2836
INTRODUCTION OBJECTIVES To study the behavioral pattern of investments among salaried people working in private sector. To study the difference in perception of an individual related to various investment alternatives. To provide an insight into factors considered for an appropriate investment. HYPOTHESIS There are no differences in the consumption and saving pattern of the sample test. LIMITATIONS The study shall be limited to salaried people who are employed in private sector. The study is limited to Mumbai city only. METHODOLOGY It is an exploratory research. Primary and secondary data will be collected. Purposive sampling will be used to collect primary data. Sample size shall be total 50 salaried employees. SAMPLE
www.indianresearchjournals.com
The study sample comprised of 50 salaried people in private sector. Using stratified random sampling method the salaried people were classified into two categories on the criterion of sex. 25 were male and 25 were female. Both the respondents male as well as female were salaried employees employed in various Companies in manufacturing, trading and service providing sectors. TOOLS A questionnaire was framed consisting of 20 closed end questions and open end questions covering the personal and demographic profile, the awareness related to methods, modes, reasons of saving and investment and other related data were collected.
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Asia Pacific Journal of Marketing & Management Review Vol.1 No. 2, October 2012, ISSN 2319-2836
DATA Using the survey method primary data was obtained from the respondents by administering the questionnaire and evaluating the feedback. Personal interviews was also conducted with few respondents who provided valuable information inputs Secondary data included information collected from various Internet download, Books, publications and various journals. SAVING Saving differs from savings in that the first refers to the act of putting aside money for future use, whereas the second refers to the money itself once saved. For example: you may decide to start saving 10% of your income; because you aim for your savings to grow into an amount sufficient to buy an automobile. In common usage, saving generally means putting money aside, for example, by putting money in the bank or investing in a pension plan. In a broader sense, saving is typically used to refer to economizing, cutting costs, or to rescuing someone or something. In terms of personal finance, saving refers to preserving money for future use - typically by putting it on deposit - this is distinct from investment where there is an element of risk. Saving is closely related to investment. By not using income to buy consumer goods and services, it is possible for resources to instead be invested by being used to produce fixed capital, such as factories and machinery. Saving can therefore be vital to increase the amount of fixed capital available, which contributes to economic growth. SAVING IN PERSONAL FINANCE Within personal finance, the act of saving corresponds to nominal preservation of money for future use. A deposit account paying interest is typically used to hold money for future needs, i.e. an emergency fund, to make a capital purchase (car, house, vacation, etc.) or to give to someone else (children, tax bill etc.). Within personal finance, money used to purchase shares, put in a collective investment scheme or used to buy any asset where there is an element of capital risk is deemed an investment. This distinction is important as the investment risk can cause a capital loss when an investment is realized, unlike cash saving(s). Cash savings accounts are considered to have minimal risk. In the United States, all banks are required to have deposit insurance, typically issued by the Federal Deposit Insurance Corporation or FDIC. In extreme cases, a bank failure can cause deposits to be lost as it happened at the start of the Great Depression. However, since the FDIC was created, no deposits in the United States have been lost due to a bank failure. In many instances the terms saving and investment are used interchangeably. For example many deposit accounts are labeled as investment accounts by banks for marketing purposes. To help establish whether an asset is saving(s) or an investment you should ask yourself, "Where is my money invested?" If the answer is cash then it is savings, if it is a type of asset which can fluctuate in nominal value then it is investment.
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Asia Pacific Journal of Marketing & Management Review Vol.1 No. 2, October 2012, ISSN 2319-2836
ELEMENTS OF INVESTMENTS A. RETURN: Investors buy or sell financial instruments in order to earn return on them. The return includes both current income (current yield) and capital gain (capital appreciation). B. RISK: Risk is the chance of loss due to variability of returns on an investment. In case of every investment, there is a chance of loss. It may be loss of investment; however risks and returns are inseparable. C. TIME: Time is an important factor in investment. Time period depends on the attitude of investors who follow a ?buy‘ & ?hold‘ policy. A serious minded investor will have to consider the following important categories of investment opportunities
rotective investments. Tax oriented investment. Fixed income investment. Speculative investment. Emotional investment. Growth investment. INVESTOR PROFILE An investor profile or style defines an individual's preferences in investment decisions, for example: Short term trading (active management) or long term holding (buy and hold) Risk averse or risk tolerant / seeker All classes of assets or just one (stocks for example) Value stock, growth stocks, quality stocks, defensive or cyclical stocks... Big cap or small cap stocks, Use or not of derivatives Home turf or international diversification Hands on, or via investment fundswww.indianresearchjournals.com
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and so on. WHAT DETERMINE AN INVESTOR PROFILE The style / profile is determined by Objective personal or social traits such as age, gender, income, wealth, family, tax situation... Subjective attitudes, linked to the temper (emotions) and the beliefs (cognition) of the investor. Generally, the investor's financial return / risk objectives, assuming they are precisely set and fully rational. SPECULATION In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum.[1] Speculation typically involves the lending of money or the purchase of assets, equity or debt but in a manner that has not been given thorough analysis or is deemed to have low margin of safety or a significant risk of the loss of the principal investment. The term, "speculation," which is formally defined as above in Graham and Dodd's 1934 text, Security Analysis, contrasts with the term "investment," which is a financial operation that, upon thorough analysis, promises safety of principal and a satisfactory return. In a financial context, the terms "speculation" and "investment" are actually quite specific. For instance, although the word "investment" is typically used, in a general sense, to mean any act of placing money in a financial vehicle with the intent of producing returns over a period of time, most ventured money—including funds placed in the world's stock markets—is actually not investment, but speculation. INVESTMENT VS. SPECULATION Identifying speculation can be best done by distinguishing it from investment. According to Ben Graham in Intelligent Investor, the prototypical defensive investor is "...one interested chiefly in safety plus freedom from bother." He admits, however, that "...some speculation is necessary and unavoidable, for in many common-stock situations, there are substantial possibilities of both profit and loss, and the risks therein must be assumed by someone." Many long-term investors, even those who buy and hold for decades may be classified as speculators, excepting only the rare few who are primarily motivated by income or safety of principal and not eventually selling at a profit. Speculators can be increasingly distinguishable by shorter holding times, the use of leverage, by being willing to take short positions as well as long positions. A degree of speculation exists in a wide range of financial decisions, from the purchase of a house to a bet on a horse; this is what modern market economists call "ubiquitous speculation?.
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Asia Pacific Journal of Marketing & Management Review Vol.1 No. 2, October 2012, ISSN 2319-2836
DATA ANALYSIS The survey conducted to investigate ?The Investment perspective of the salaried people in the Private Sector? which discloses the reasons, methods, types and modes of investment followed by these people. The sample size of 50 respondents was surveyed out of which 25 were male and 25 were female. The graph below depicts the same. I PERSONAL PROFILE 2) SAMPLE SIZE
Particulars Male Female Total
Number. 25 25 50
50 45 40 35 30 25 20 15 10 5 0 Number Male Female Total
It is evident from the chart that the number of male and female respondents were equal in number.
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Asia Pacific Journal of Marketing & Management Review Vol.1 No. 2, October 2012, ISSN 2319-2836
3) MARITAL STATUS Particulars Male Female Total Married 18 23 41 Unmarried
45
07 02 09
40 35 30 25 20 15 10 5 0 Married Unmarried Male Female Total
It is evident from the chart above that most of the respondents, male as well as female are all married. 4) AGE GROUP Particulars Below 30 3040 Male 05 08 4150 06 Above 51
16
06
14 12 10
Female
03
07
10
05
8 6
Female Total
Total
08
15
16
11
4 2 0 Below 30 30-40 41-50 Above 51
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Asia Pacific Journal of Marketing & Management Review Vol.1 No. 2, October 2012, ISSN 2319-2836
It is evident from the chart above that majority of the respondents fall in the age group of 41 to 50 years and minimum in below 30. 5) EDUCATION
Details
Under graduate
Graduate
Post graduate
Professional
Male Female Total
02 05 07
14 10 24
06 05 11
03 05 08
25 20 15 10 5 0 Undergraduates Male Female total
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Postgraduates
It is observed that maximum of the respondents are graduates, followed by post graduate and professionals whereas the minimum are undergraduates.
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6) DESIGNATION Details Male Female Total Officer 04 08 12 Executive 10 09 19 Manager 06 05 11 Director 05 03 08
20 15 10 5 0 Officer Executive Manager Director Male Female Total
It is observed that the majority of the respondents both male and female are employed as Executive whereas minimum are on the post of Director. 7) FILING OF INCOME TAX RETURN
20 15 10 5 0 Income Tax Return Filed Income Tax Return Not Filed Male Female Total
Male Female Total
19 08 27
06 17 23
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Particula Incom Income r e Tax Tax Return Return Filled Not Filled Tradin g
30 25
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Asia Pacific Journal of Marketing & Management Review Vol.1 No. 2, October 2012, ISSN 2319-2836
It is observed that the majority of the male respondents file their Income Tax Returns while majority of female respondents do not file their Income Tax Returns. 8) ANNUAL INCOME Particulars Male Female Total 1-2 Lac 03 11 14 2-5 Lac 09 06 15 5-10 Lac 07 05 12 Above 10 Lac 06 03 09
16 14 12 10 8 6 4 2 0 1-2 Lac 2-5 Lac 5-10 Lac Above 10 Lac Male Female Total
It is observed that majority of the Male respondents have annual Income in range of 2-5 Lac while majority of Female respondents have annual income in range of 1-2 Lac. 9) ANNUAL SAVINGS Particulars Male Female Total Below 1 Lac 04 12 16 1-2 Lac 11 06 17 2-4 Lac 06 05 11 Above 4 Lac 04 02 06
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18 16 14 12 10 8 6 4 2 0 Below 1 Lac 1-2 Lac 2-4 Lac Above 4 Lac
Male Female Total
It is observed that majority of the Male respondents have annual Savings in range of 1-2 Lac while majority of Female respondents have annual savings below 1 Lac. 10) ANNUAL INVESTMENT (CONSIDERING THE TOTAL OF ALL THE AVENUES) Particulars Male Female Total
20 15 10 5 0 Below 1 Lac 1-2 Lac 2-4 Lac Above 4 Lac Male Female Total
Below 1 Lac 03 15 18
1-2 Lac 13 05 18
2-4 Lac 07 04 11
Above 4 Lac 02 01 03
It is observed that majority of the Male respondents have annual Investment in range of 1-2 Lac while majority of Female respondents have annual Investment below 1 Lac.
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Asia Pacific Journal of Marketing & Management Review Vol.1 No. 2, October 2012, ISSN 2319-2836
11) AVENUES OF INVESTMENT Particulars Male Female Total Govt. 03 12 15 Stock Market 11 02 13 Mutual Funds 05 04 09 Gold 02 06 08 Real Estate 04 01 05
16 14 12 10 8 6 4 2 0 Govt. Stock Market Mutual Funds Gold Real Estate
Male Female Total
12) RETURN ON INVESTMENT Particulars Male Female Total Less than or equal to the prevailing Market Return 10 19 29 More than the prevailing Market Return 15 06 21
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It is observed that majority of Investment of Male respondents is in the Stock market followed by Mutual Fund , Real Estate and Govenrment Securities while the minimum is in Gold. Whereas the majority of Investment of Female respondents is in the Government Securities followed by Gold, Mutual Fund and Stock Market while the minimum is in Real Estate theas the first
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Asia Pacific Journal of Marketing & Management Review Vol.1 No. 2, October 2012, ISSN 2319-2836
30 25 20 15 10 5 0 Less than or equal to Prevailing More than Prevailing Market Market Return Return Male Female Total
It is observed that the majority of Male respondents invest in those Avenues of Investment where the Return on Investment is more than the Prevailing Market Return. Whereas the majority of Female respondents invest in those Avenues of Investment where the Return on Investment is Less than or Equal to the Prevailing Market Return 13) PROPORTION OF SAVINGS TO INCOME Particulars Male Female Total Below 10% 03 16 19 10-20 % 14 05 19 20-30% 07 03 10 Above 30 % 01 01 02
15 10 5 0 Below 10% 10-20 % 20-30% Above 30 % Male Female Total
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It is observed that majority of the Male respondents have proportion of savings to income in range of 10-20% while majority of Female respondents have proportion of savings to income in range of Below 10%. 14) PROPORTION OF INVESTMENT TO INCOME Particulars Male Female Total Below 10% 04 17 21 10-20 % 14 04 18 20-30% 06 03 09 Above 30 % 01 01 02
25 20 15 10 5 0 Below 10% 10-20 % 20-30% Above 30 % Male Female Total
15) PROPORTION OF INVESTMENT TO SAVINGS Particulars Male Female Total Below 40% 03 08 11 40-50 % 05 10 15 50-60% 12 05 17 Above 60 % 05 02 07
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It is observed that majority of the Male respondents have proportion of investment to income in range of 10-20% while majority of Female respondents have proportion of investment to income in range of Below 10%.
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Asia Pacific Journal of Marketing & Management Review Vol.1 No. 2, October 2012, ISSN 2319-2836
18 16 14 12 10 8 6 4 2 0 Below 10% 10-20 % 20-30% Above 30 %
Male Female Total
It is observed that majority of the Male respondents have proportion of investment to savings in range of 50- 60 % while majority of Female respondents have proportion of investment to savings in the range of 40-50% . 16) REASON FOR INVESTMENT Particulars Male Female Total
25 20 15 10 5 0 Safety Higher Returns Any Other Male Female Total
Safety 06 16 22
Higher Returns 15 07 22
Any Other 04 02 06
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It is observed that the majority of Male respondents invest for getting higher returns on their funds/savings where as majority of female respondents invest for safety of their funds/savings. 17) PREFERENCE OF INVESTMENT Particulars Male Female Total Higher Returns with High Risk 13 03 16 Lower Returns with Lower Risk 04 12 16 Medium Returns with Medium Risk 08 10 18
25 20 15 Male 10 5 0 Higher Returns with High Risk Lower Returns Medium Returns with Lower Risk with Medium Risk Female Total
18. SATISFACTION FROM INVESTMENT Particulars Male Female Total YES 12 06 16 NO 06 08 14 NOT CLEAR 07 11 20
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It is observed that the male respondents prefer Higher Returns with High Risk while the female respondents prefer Lower Returns with Lower Risk.
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Asia Pacific Journal of Marketing & Management Review Vol.1 No. 2, October 2012, ISSN 2319-2836
20 15 10 5 0 YES NO NOT CLEAR Male Female Total
It is observed that the Male respondents are satisfied with their savings and investments while the female respondents are not clear on the matter. CONCLUSIONS The economy is prospering, the job market is booming and salaries are touching a new high. The new breed of Indian youth has its pockets full and is intelligent enough not to let its money rust in bank accounts. Investment is on their mind and an option that has the potential to multiply their savings and provide maxi-mum tax rebate is the one they crave. Traditional saving options like post office schemes and fixed deposits are now passé. ?Options like post office schemes and fixed deposits are not very popular with the youth as the rate of interest on them is lower as compared to other in-vestment options available. Safety and security which were once upon a time the main reasons for investment are no longer the major criteria that determine the choice of investment. With money in hand and age on their side, the young investors are not hesitant in taking risk. ?Fixed deposits are not a very attractive investment option for youngsters these days. Most of the people who opt for fixed deposits are senior citizens is revealed in one of the surveys conducted in India. Saving tax is one of the major reasons behind investment by the youth. Traditional saving schemes do not provide any tax benefits and are, therefore, keeping the youngsters away from them. ?Why should I invest in fixed deposits and post office schemes when they provide no tax rebates and the rate of return on them is fixed and also lower than other investment options,? is what Young saver and investor has to say. Mutual fund is the most favored option of the youngsters today. ?The stock market is doing so well. I am a little apprehensive about investing directly in the stock market but at the same time I want to avail of the benefits of the rapidly rising stock market. So, mutual funds are the best option for me is what a 30 something Investor has to say. Investment in mutual funds through the Systematic Investment Plan (SIP) is a favoured investment option for the youngsters. This is especially true of the young salaried class which has just started earning and does not have a fat bank balance as yet. ?In case of Systematic Investment Plans, instead of bulk payment, a small amount is to be paid every month. This makes them very popular with the salaried class who find it difficult to shell out a large amount at one go. Real Estate market is also the one which youngsters prefer after all the above ones. Especially in a city like Mumbai where Real estate is
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always on the high or up, this is not at all bad investment option. But there is no fixed return and the risk and amount of investment is high. Other Traditional Investment option like the Fixed Deposit or the Post Office schemes (PPF/ NSC / NSS/ KVP/IVP) are losing their way due to blocking of funds and lower returns. Gold is still preferred to some extent especially when it comes to females. Due to rise in price of gold from somewhere around 4,000-5,000 in 2003 to around 17,000 in 2010, gold is still shining as an investment option. Youngsters today are aware of what is happening around them and are intelligent enough to decide what is best for them. Every option is considered and the pros and cons of each weighed carefully before the decision to invest the hard-earned money is taken. RECOMMENDATIONS In investing money, the amount of interest you want should depend on whether you want to eat well or sleep well. - J. Kenfield Morley Are you on the road to a secure future? The following points should be kept in mind while taking the decisions related to savings and investment of the savings: SAFETY OF YOUR INVESTMENT What do you need to look for while investing to ensure that your investment is safe? The factors that you need to look for would vary with the type of investment. For example, in the case of shares, the safety may be partially gauged from quantitative data such as the past trend in the price of the stock, the financial performance of the company; it also may be supplemented with qualitative factors such as the reputation of the company. Analyzing balance sheets and project reports, however, require a great deal of expertise and time, which is usually beyond the scope of the retail investor. Therefore, the reputation of the issuer remains the only guide available.
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CREDIT RATING When it comes to deposits or bonds issued by public companies or financial institutions, an investor can rely on credit ratings. A Credit Rating is an evaluation of the safety of an instrument made by an agency. These agencies undertake a detailed analysis of the issuer's strengths and weaknesses. The rating is allotted based on a formula that also incorporates past performance and volatility. They have a large and expert infrastructure that allows them to make the kind of financial judgement, beyond the scope of an individual retail investor. TYPE OF RETURN The return on investment may consist of appreciation in the value of the investment or receipt of income or both. The first type of return is typical of real estate whereas the second type is
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obtained as interest on loans or fixed deposits, savings certificates, bonds or debentures. Both income as well as appreciation in value could be got from equity shares of good companies. RISK - RETURN LINKAGE One needs to be aware that there is a direct relationship between ' Return' on our investment and the 'Risk' of losing them. Higher the return, greater is the possibility of loss. The Savings Bank Account under the present rules laid down by the Reserve Bank of India, gives interest depending on the duration of the deposit. A long-term deposit gives a higher rate of interest. The possibility of losing our money in the saving bank account is almost negligible, except in remote cases of small-time co-operative banks. While the risk of losing money is almost absent. The Saving Bank Accounts and Bank Fixed Deposits offer interest of 4.5 and 9 per cent per annum respectively. The Company Fixed Deposits offer somewhat better rates of 12 to 15 per cent per annum. Building contractors and film producers offer very high returns such as 24 to 36 per cent per annum, but the probability of losing the entire principal amount in this case is very high. THE TAX FACTOR Return on investment in the form of income, attracts income tax under the Income Tax Act. Incidence of this tax depends on the type of the investment income and the quantum of out other income. The interest on Savings Bank Accounts and Bank Fixed Deposits is eligible for a tax concession up to Rs. 12,000 under Section 80L of the IT Act. Beyond that, it is taxable under the Income Tax Act as normal income. As seen earlier, company fixed deposits yield higher returns than bank deposits, but they offer no tax concession. Incomes from mutual funds, deposits with notified financial institutions, interest on certain Post Office Deposits, interest on certain on NSC, interest on notified bonds and debentures, are also eligible for a tax deduction under section 80L, all within an overall ceiling of Rs. 15,000. The interest from PF and PPF is fully exempt form tax. Contribution up to Rs. 60,000 per year enjoys a tax rebate equal to 20% with a ceiling of Rs. 12,000. In the PPF, whenever there is a contribution made to the minor children's account, not only is the interest tax free but also it is not clubbed with the parent's income. THE INFLATION FACTOR As mentioned in an earlier article, real return is return that is post tax and post inflation. The value of the investment depends on the amount that the money can buy, and this goes down as the inflation goes up. Therefore while evaluating the return from a scheme; you need to see whether it is giving you returns beyond the inflation rate. The greatest problems with the investment avenues such as gold, silver, diamond and Jewellery have been that they have not served as an effective hedge against inflation.
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Asia Pacific Journal of Marketing & Management Review Vol.1 No. 2, October 2012, ISSN 2319-2836
HIGH RISK BUT HIGH RETURNS And finally, equity shares of listed companies as an avenue of investment can be extremely rewarding. But they are also risky and call for a special mental makeup and unusually sharp skills on the part of the investor. As Peter Lynch, the acclaimed American fund manager said, "common stocks are not for everyone, nor for all times in the life of the same person". We examine each of these products later in a detailed manner BE CAUTIOUS It has been noticed world over that an investor's greatest and most portent enemy is GREED FOR HIGHER RETURNS. Many a times, rational thinking people tend to behave in the most irrational manner while investing their savings. A well known investment guru has analyzed this uncanny behavior in one sentence - "Investor, protect thyself from thyself". While analyzing, the popular savings options, one should consider two key factors: Taxation and Inflation along with risk and return. Thus, a sound investment is one which gives the investor reasonable return after deducting outgo of tax as well as the invisible tax of inflation. To conclude, here is a quote from a recent survey carried out in the US among finance professionals revealing some common characteristics of successful women investors: "Ask questions; Seek help; Do your homework; and Set goals". This holds true for all investors. ?No one saves us but ourselves. No one can and no one may. We ourselves must walk the path.? ~ Buddha BIBLIOGRAPHY
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REFERENCE BOOKS 1. Francis, J C; Taylor, R W (2004) – Schaum‘s Outline of Theory and Problems of Investments New Delhi : Tata McGraw Hill. 2. Alexander, G J (2002) – Fundamentals of Investments. New Delhi: Prentice – Hall of India. 3. Chandra, Prasanna (2004)– Managing Investments New Delhi: Tata McGraw Hill. 4. Avadhani, V A (1995)- Investment for Beginners Bombay : Himalaya Publishing House. 5. Avadhani, V A (1996)- Investment Management Bombay : Himalaya Publishing House.
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6. Chandra, Prasanna (1995)– The Investment Game : How to Win. New Delhi : Tata McGraw Hill. 7. Tier, Mark (2006)– The Winning Investment Habits of Warren Buffet and George Saros New Delhi : Kogan Page. WEBSITES 1. 2. 3. www.wikepedia.com www.icai.org www.thehindubusinessline
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