individual investors’ behavior: a review of indian ... · massive shift towards mutual fund...

International Journal Of Advancement In Engineering Technology, Management and Applied Science (IJAETMAS)

ISSN: 2349-3224 || www.ijaetmas.com || Volume 05 - Issue 01 || May-2017 || PP. 213-223

www.ijaetmas.com Page 213

Individual Investors’ Behavior: A Review of Indian Empirical

Evidences

Rakesh H M, Dr. Nalina K B

Research Scholar, Assistant Professor,

Dept. of MBA,JSS CMS, Mysuru

Abstract

The financial service sector has given the individual investor wide range of products to invest.

The investment decisions of the individuals are greatly influenced by the benefits each individual

owning on a particular investment. In order to understand the individual investors’ behavior

there are many factors to consider viz. investors’ portfolio construction, stock preferences, risk

perceptions, investments pattern, awareness level of investors’, investment behavior and

problems encountered by them to analyze the investments. Demographic profile, investor

attitude, investors risk profile, expectations about the returns also plays a vital role in the

financial markets. The present study has tried to collect the literature from worldwide relating to

individual investors behavior. The study has been mainly made to know and understand the

individual investor behavior. The relevant research papers have been collected from various

refereed journals relating to the investors behavior. The objectives, methodology, sample, data

and results of the study have been considered for the further studies. The study has tried to build

a strong conceptual framework on investors’ behavior in different countries of the world. The

paper shows the different variables that result in the behavior of investors.

Keywords: Financial Sector, Investors, Investors Behavior, Literature, Conceptual Framework



www.ijaetmas.com 14

Introduction

Individual investor and Financial Assets

Individual investors are those investors who purchase small amount of securities and they are

also called as retail investors and mainly include household investors. The household investor’s

purchases very small quantity of stocks to form their portfolio. In our country, for most of the

citizen investment is a tool for saving for their retirement, education etc. These types of investors

are ready to take high risk for the high returns and the investment by this sector of people results

in the growth of the economy.

Table 1: Financial Saving of Household Sector (in percent of GNDI)

Item 2011-12 2012-13 2013-14 2014-15 2015-16

Currency 1.2 1.1 0.9 1.1 1.4

Deposits 6 6 5.8 4.9 4.7

Shares and Debentures 0.2 0.2 0.4 0.4 0.7

Claims on Government -0.2 -0.1 0.1 0 0.4

Insurance Funds 2.2 1.8 1.6 1.9 2

Provident and Pension

Funds 1.1 1.5 1.6 1.6 1.5

Source: RBI Annual Report 2015-16

Objectives

1. To study the various factors affecting individual investors behavior as identified by

various Indian researchers

2. To make a comprehensive review on studies on individual investors behavior in financial

markets




Research methodology

The present study has been conducted by considering the research work made by the researchers

in the field of investor behavior. The research papers published has been considered for the study

to review. The research papers have been collected from database and search engines such as

SSRN and Google Scholar.

The study tries to gather the information about the attitude and behavior of investors in relation

to stock markets. The study on literature was undertaken in order to bring out the factors that

influence an investor to invest in the stock market and suggest policy makers and investment

agencies to respond to the needs of the different types of investors.

The studies have been reviewed by considering objectives, methodology, respondents and factors

influencing investors’ decisions.

Review of literature

Table 2: Factors Influencing Individual Investor Behavior

Demographic factors: Investors’ gender, age, marital status, education, income, occupation etc

Stock fundamentals: Beta, returns and risk, EPS, firm size, share price, share turnover, market

equity ratio

Lifestyle characteristics: Personal ability, confidence level, dependency level of investors

Psychological influences: Desires, goals, prejudices, biases and emotions

Risk bearing capacity: Safety, liquidity, capital appreciation, return and risk coverage

Other factors

a. Neutral information: information from government holders, information from internet,

changes in stock market and price movements

b. Accounting information: information about stock merchantability, expected corporate

earnings, financial position, expected dividend and paid

c. Self image: Information regarding product and service, reputation of the firm, expectation

of getting rich and firm status

d. Advocate recommendation: Advice from broker, family members, friends and stock

holder

e. Personal financial needs: diversification needs, easy availability of funds, need for

minimizing risk and maximizing gains

Source: Research work of Dr. Mandeep Kaur and Tina Vohra




Table 3: Empirical Literature Reviews on Individual investor Behavior in India

Author Research Objectives Sample and

Respondents Methodology Result

Lal (1992) To know the profile of

Indian Investors

1200 individual investors

from different regions of

India

Descriptive

Analysis

Indian investors preferred to

invest in the larger portfolios

with five or more companies

Gupta (1993)

To analyze the changing

pattern of ownership of

Indian households

40998 unit holders and

165819 shareholder from

19 states and 76 cities in

India

Descriptive

Analysis

The study revealed that a

massive shift towards mutual

fund products, moderate

continuing shift towards

shares and debentures and a

shift away from traditional

financial assets

Gupta et. Al.

(1994)

To examine the

distribution of share

owning population and

to analyze the changing

pattern of distribution

over different regions

165819 shareholders and

63157 debenture holders

from 1060 cities in India

Descriptive

Analysis

Shareholding in India was

largely an urban phenomenon

and followed an uneven

pattern. Inadequate share

market infrastructure was the

cause of concentration of

share ownership in few

regions

Gupta et. Al

(2001)

To examine and compare

the pattern of investors

preference among

mutual fund schemes and

other financial products

312 household investors Descriptive

Analysis

The study revealed that

among mutual fund schemes

UTI was the most popular and

its position in equity schemes

was weaker than others

NCAER

(2000)

To study the primary

considerations of the

investors while choosing

financial instruments

288081 Indian investors Descriptive

Analysis

Safety and liquidity were the

primary considerations of the

investors while choosing an

asset

Rajarajan

(2002)

To identify the

association between

demographic profile and

the risk bearing capacity

of individual investors in

Chennai

405 individual from

Chennai

Chi Square test

and

Correspondenc

e analysis

There was a strong

association between

demographic profile of

individuals and risk bearing

capacity

Rajarajan

(2003)

To study the

determinants of portfolio

choice of individual

investors

405 individual from

Chennai

Multiple

regression

analysis

The expected rate of return on

investments, risk bearing

capacity of investors, locus of

control and investors loss

avoidance behavior had a

positive relationship with the




locus of control had an

inverse relationship with the

portfolio choice

Kiran and Rao

(2004)

To identify the investor

group segments on the

basis of demographic

and psychographic

characteristics of

investors

96 respondents

Multinomial

logistic

regression and

factor analysis

Four major investor segments

were identified based on their

demographic and

psychographic characteristics.

The risk bearing capacity of

an individual was strongly

dependent on the

demographic and

psychographic variables of

the investor

SCMRD

(2005)

To understand the

problems and needs of

the investors

5908 household investors

from over 90 cities in

India

Descriptive

Analysis

Too much volatility and price

manipulation were found to

be the major cause of worries

of the retail investors

Ranganathan

(2006)

To evaluate the financial

behavior and to assess

the conceptual awareness

of individual investors

towards mutual funds

100 respondents from

Mumbai from September

2004 to October 2004

Factor analysis

and

multinomial

logistic

regression

Fund related qualities, fund

sponsor qualities and investor

related services were found to

effect the investor fund

selection decision but these

factors varied on investor type

Gupta and Jain

(2008)

To bring out the

investors preferences

among the various types

of financial assets and

also their problems

concerning the stock

market

1463 household investors Descriptive

Analysis

The household investors

preferred investing in shares

as compared to mutual funds

due to relatively lower returns

because of entry loads and

management fees charged by

the funds

Kumar et. Al

(2008)

To study the financial

product preference of the

respondents

120 respondents

Analytical

hierarchy

process and

multi criteria

decision

making

techniques

The investors needed to

choose the financial products

from among the alternatives

available according to his own

priority rating of an attribute

in the product




NCAER

(2008)

To gain insight into the

motives of financial

savings, the degree of

financial security and

sophistication of the

saving and investment

decisions made by

households

60000 urban and rural

households

Descriptive

Analysis

People in India saved for the

long term goals such as

emergencies, education and

old age. The respondents

preferred keeping their

savings in bank and post

office deposits and other

liquid assets as compared to

investing them in the stock

market

Walia and

Ravikiran

(2009)

To analyze the investors’

expectations towards

mutual funds

100 individual investors

were selected from

different regions of

Punjab

Ranking and

rating

methodology,

Chi-square

test, ANOVA

and average

preference

scores

The preferences of investors

vary and so innovations and

added quality dimensions in

existing services was required

in order to continue investing

in them

Kabra et.al.

(2010)

To study the factors that

influenced the

investment risk tolerance

and decision making

process on the basis of

gender and age

196 investors working in

government and private

sector in India

Regression and

factor analysis

The investors age and gender

affected their risk taking

ability

Parashar

(2010)

To find out the effect of

personality traits of

investment choice made

by individual investors

100 respondents

Cluster

analysis,

correspondenc

e analysis,

kruskal wallis

test and factor

analysis

The demographic variables

such as gender, age,

education, income, occupation

as well as the various

personality types affect the

investment choice made by

individual investors

NCAER

(2011)

To understand the

behavior of household

investors in dealing with

various financial

instruments which were

traded in markets

regulated by SEBI

38000 households across

44 cities and 40 villages

Descriptive

Analysis

The survey revealed relatively

low rates of participation by

the households in the

securities market. The degree

of risk aversion was found

extremely high in Indian

households and so

commercial banks and

insurance schemes were their

primary choice for saving and

investment




Dawar and

Washwa

(2011)

To identify factors

influencing investors

behavior in Punjab

275 investors living in

Jalandhar

Correlation

analysis and

independent

sample T-test

Neutral information,

accounting information, self

image, classical wealth

maximization criteria, social

relevance, advocate

recommendation and personal

financial needs were found to

influence individual investor

behavior in Punjab

N Geetha and

Dr. M Ramesh

(2011)

To study the factor that

influence investment

behavior of people and

the attitude of

respondents towards

different investment

choices

210 investors of

Kurumbalur town

Percentage

analysis

All the age groups have given

importance to invest in

insurance, PPF, bank deposits

etc.

Dr. Aparna

Samudra and

Dr. M A

Burghate

(2012)

To know the preference

of middle class

households on

investment instruments

and objectives of

investment

100 investors of Nagpur

city

Percentage

analysis

The largest share of

households have savings bank

deposit and insurance is the

most preferred investment

alternative

Dhiraj Jain

and Nakul

Dashora

(2012)

To study the influence of

age on investment

pattern, income level on

investment decisions,

investment pattern on

capital market

information, impact of

annual result of company

on investors and

declaration of dividend

and bonus on investment

pattern

110 investors of Udaipur

city

ANOVA and

Chi-Square test

The investors prefer to invest

both in primary and secondary

market. The decision of

investors are rational and

based on various market

information

K Jothilingam

and Dr. K V

Kannan (2013)

To find main objective

of investors and assess

investors attitude

towards investment

avenues

300 investors of

Namakkal district

Percentage

analysis,

ANOVA and

Garrett

Ranking

technique

Investors prefer less risky

investment avenues like gold,

mutual funds and bank

deposits. This could probably

because of their tendency to

avoid high risks.




Harsh Purohit,

Vibha Dua

Satija and

Sakshi Saxena

(2014)

To identify various

factors that affect the

decision making of

individual investors,

investigate the

relationship between

respondents and their

behavior and to find the

source of information for

their decision making

228 investors of Delhi and

NCR

Descriptive

Analysis and

Chi-Square test

The result has shown that

retail investors decision

making differs with their

demographics and they are

rational enough while making

decisions

Priya

Vasagadekar

(2014)

To find out the

investment habits of

Indian working women,

role of investment

women in investment

decisions and risk

bearing capacity while

making investment

decisions

100 investors Descriptive

analysis

Most of the women are low in

financial literacy, becomes

hardly possible for them to

manage their own portfolios

R Jayaraman,

Dr. G

Vasanthi and

M S

Ramaratnam

(2014)

Influence of

psychological factors on

investor behavior in

equity participation and

to understand the

analytical aspects of

investor in equity

investment

80 investors of Chennai

city

Factor analysis

and regression

The study has revealed that

image factor has emerged as

the most influencing factor in

determining investor decision

making. Individual optimism

has become the key factor in

influencing the sentiment of

investors

Kavitha C

(2015)

To find out various

attitudes and perceptions

towards stock market

investments and to

analyze how investors

level of awareness

influence their attention

to invest in stock market

125 respondents

Descriptive

Analysis and

Correlation

It was found that there is a

significant relationship

between investors attitudes

and atock market investors

N Panjali and

Dr. R

Kasilingam

(2015)

To study the common

life style characteristics

of investors in Chennai

and their influence on

investment pattern

200 investors of Chennai

Factor

analysis,

cluster

analysis, Chi-

Square

analysis and

ANOVA

It is said that investors of 25-

35 age group are achievers

and understand their inner

self. Investors from service

sectors and business groups

are risk takers and believe

good value for their purchase




T Mahadeva

Reddy and K

V Ramana

Reddy (2015)

To study the attitude of

respondents towards

different financial

instruments and evaluate

awareness about

investment opportunities

and to find the factors

influencing investors

225 investors from

Ananthpur and Guntur

districts

Descriptive

analysis and

Factor analysis

The study revealed that

investors invest in different

avenues for fulfilling

financial, social and

psychological need. There

was a relationship between

income and occupation on

investments in order to satisfy

safety, return and liquidity

K

Parimalakanthi

and Dr. M

Ashok Kumar

(2015)

To study the investment

preference and behavior

of individual investors in

Coimbatore city

107 investors from

Coimbatore city

Friedman test,

Garratt ranking

and Factor

analysis

The research paper shows that

education of investors is

immensely important for the

present day investors in

Coimbatore. The majority of

investors prefer to invest in

savings account followed by

gold and silver, fixed deposit

and the like

Dr. Krishna

Mohan

Vaddadi and

Dr. Merugu

Pratima (2016)

Socio-demographic

profile of online

investors, identify

investment motives,

objectives and

preferences and to

examine the influence of

demographic factors and

risk taking ability

500 investors of Greater

Visakhapatnam city Chi-Square test

Majority of the online

investors are self directed

individuals who prefer to

make their own investment

decisions

Conclusion

The diversification of financial sector will give different varieties of investment opportunities to

the individual investors. The decision of the individual will depend on various aspects like

owning a particular stock etc. This research has examined the published work of individual

investors behavior in India. The portfolios of investors, investment preferences, risk perception,

investment pattern, awareness level, problems affecting investment behavior and problems

encountered by the investors. The returns expectation, demographic profile, attitude of investor,

risk perception plats a very important role in financial markets. The understanding of the




investors behavior will be of great help to know the market anomalies and help policy makers,

investment agencies and researchers to respond to the varying moods of investors.

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November 2011-Vol 1 Issue 6 - Online - ISSN 2249 – 2585 - Print - ISSN 2249 – 8672

individual investors’ behavior: a review of indian ... · massive shift towards mutual fund...

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