investment pattern v25_jul2012

of 74

A Project Report on

“Investment Pattern among ITES Employees”

TOWARDS FULFILLMENT OF THE PROJECT REQUIREMENTS FOR

JUNIOR MANAGEMENT LEADERSHIP PROGRAM, 2012

SUBMITTED BY :

NAME IBPO EMP ID E-mail AddressBHAVANI KARINJA 926410 [email protected] NARAYANA 904630 [email protected] SHOBHA 926438 [email protected] MUKHERJEE 925688 [email protected]

UNDER THE GUIDANCE OF

Prof. HEMA DORESWAMY

Prin. L. N. WELINGKAR INSTITUTE OF MANAGEMENT DEVELOPMENT AND RESEARCH, BANGALORE

of 74

STUDENT DECLARATION

We, Ms. Bhavani Karinja, Mr. Krishna Narayana, Ms. Merlin Shobha, and Ms. Sunia Mukherjee; enrolled for the Junior Management Leadership Program of Welingkar Institute of Management Studies, Electronic City, Bangalore, hereby declare that we have completed the project titled “INVESTMENT PATTERN AMONG ITES EMPLOYEES” as a part of the course requirements for JMLP Programme.

We further declare that the information presented in this project is true and original to the best of our knowledge.

Team Members Signature

BHAVANI KARINJA

KRISHNA NARAYANA

MERLIN SHOBHA

SUNIA MUKHERJEE

Date: July 28, 2012

Place: Bangalore, India

of 74

CERTIFICATE FROM THE INTERNAL GUIDE

I, Prof. Hema Doreswamy hereby certify that Ms. Bhavani Karinja, Mr. Krishna Narayana, Ms. Merlin Shobha, and Ms. Sunia Mukherjee; enrolled for the Junior Management Leadership Program of Welingkar Institute of Management Studies, Electronic City, Bangalore, have completed a project on “Investment Pattern among ITES employees” under my guidance during the course.

Their work has been found to be satisfactory.

Date: July 28, 2012

Place: Bangalore, India

(Signature of the Guide)

of 74

ACKNOWLEDGEMENTS

We would like to thank Infosys BPO Management for having started such a wonderful program – JMLP – Junior Management Leadership Program – wherein we are able to learn while earning.

We would like to thank all the WE School Professors for making this program very interesting and putting their passion for teaching in every session which enabled us to increase our knowledge and skill sets.

We would like to thank all other JMLP students for making this program more interesting with each other’s interaction and support.

We would like to thank our reporting managers and other colleagues at work for providing their support to us to complete this work.

We would like to thank to all the sources from where we referred the content and prepared this report.

We would like to thank all the respondents for having taken time & providing their inputs. Without their inputs, we would not have been able to proceed further on the data analysis.

We would like to thank our project mentor, Prof. Hema Doreswamy, for guiding us in every step of the project.

of 74

Contents & Index Page

Chapter One – Research Design 06 to 18

1.1 Introduction to ITES Industry 06

1.2 Importance of the Study 08

1.3 Statement of the problem 09

1.4 Scope of the Study 09

1.5 Review of the Literature 10

1.6 Objectives of the Study 16

1.7 Period of the Study 17

1.8 Limitations 17

1.9 Methodology 17

1.10 Chapter Scheme 18

Chapter Two – Profile 19 to 45

2.1 Profile of Savings and Investments 19

2.2 Profile of ITES Companies 39

Chapter Three – Data Analysis and Interpretation 46 to 67

Chapter Four – Summary of Findings & Suggestions 68 to 74

Findings & Suggestions 68

Conclusion 73

Bibliography (References) 74

of 74

CHAPTER 1: RESEARCH DESIGN

1.1 Introduction to ITES Industry

The word ITES stands for Information Technology Enabled Services. What a layman can

understand by the term is that any service which is given to the customer by virtue of IT

can be classified under ITES. Another name for this industry is BPO (Business Process

Outsourcing). Any non-core activity of an organization being done by a different party is

termed as ‘Outsourcing’. When the same work is being done at a different location in

another country, it is termed as ‘Off-shoring’.

Business process outsourcing (BPO) is a subset of outsourcing that involves the contracting

of the operations and responsibilities of specific business functions (or processes) to a

third-party service provider. Originally, this was associated with manufacturing firms, such

as Coca Cola that outsourced large segments of its supply chain. In the contemporary

context, it is primarily used to refer to the outsourcing of business processing services to an

outside firm, replacing in-house services with labour from an outside firm.

BPO is typically categorized into back office outsourcing - which includes internal business

functions such as human resources or finance and accounting, and front office outsourcing

- which includes customer-related services such as contact centre services.

Often the business processes are information technology-based, and are referred to as

ITES-BPO, where ITES stands for Information Technology Enabled Service. Knowledge

process outsourcing (KPO) and legal process outsourcing (LPO) are some of the sub-

segments of business process outsourcing industry.

Benefits and limitations:

An advantage of BPO is the way in which it helps to increase a company’s flexibility.

However, several sources have different ways in which they perceive organizational

flexibility. Therefore business process outsourcing enhances the flexibility of an

organization in different ways. Outsourcing may provide a firm with increased flexibility in

its resource management and may reduce response times to major environmental changes.

of 74

Another way in which BPO contributes to a company’s flexibility is that a company is able

to focus on its core competencies, without being burdened by the demands of bureaucratic

restraints.

Key employees are herewith released from performing non-core or administrative

processes and can invest more time and energy in building the firm’s core businesses. The

key lies in knowing which of the main value drivers to focus on – customer intimacy,

product leadership, or operational excellence. Focusing more on one of these drivers may

help a company create a competitive edge.

A third way in which BPO increases organizational flexibility is by increasing the speed of

business processes. Supply chain management with the effective use of supply chain

partners and business process outsourcing increases the speed of several business

processes, such as the throughput in the case of a manufacturing company.

Finally, flexibility is seen as a stage in the organizational life cycle: A company can maintain

growth goals while avoiding standard business bottlenecks. BPO therefore allows firms to

retain their entrepreneurial speed and agility, which they would otherwise sacrifice in

order to become efficient as they expanded. It avoids a premature internal transition from

its informal entrepreneurial phase to a more bureaucratic mode of operation.

A company may be able to grow at a faster pace as it will be less constrained by large

capital expenditures for people or equipment that may take years to amortize, may become

outdated or turn out to be a poor match for the company over time.

Although the above-mentioned arguments favour the view that BPO increases the

flexibility of organizations, management needs to be careful with the implementation of it

as there are issues, which work against these advantages. Among problems, which arise in

practice are: A failure to meet service levels, unclear contractual issues, changing

requirements and unforeseen charges, and a dependence on the BPO which reduces

flexibility. Consequently, these challenges need to be considered before a company decides

to engage in business process outsourcing.

of 74

A further issue is that in many cases there is little that differentiates the BPO providers

other than size. They often provide similar services, have similar geographic footprints,

leverage similar technology stacks, and have similar Quality Improvement approaches.

Threats:

Risk is the major drawback with Business Process Outsourcing. Outsourcing of an

Information System, for example, can cause security risks both from a communication and

from a privacy perspective. For example, security of North American or European company

data is more difficult to maintain when accessed or controlled in the Sub-Continent. From a

knowledge perspective, a changing attitude in employees, underestimation of running costs

and the major risk of losing independence, outsourcing leads to a different relationship

between an organization and its contractor.

Risks and threats of outsourcing must therefore be managed, to achieve any benefits. In

order to manage outsourcing in a structured way, maximizing positive outcome,

minimizing risks and avoiding any threats, a Business continuity management (BCM)

model is set up. BCM consists of a set of steps, to successfully identify, manage and control

the business processes that are, or can be outsourced.

1.2 Importance of the Study

Savings are the excess of Income over expenditure for any economic unit.

Thus: S=Y- E, where S is the savings, Y is the income and E is the expenditure.

Excess funds or surplus in profits or capital gains are also available for investment. Savings

is abstaining from present consumption for a future use. Savings are something

autonomous coming from households as a matter of habit. But bulk of the savings come for

specific objectives like interest income, future needs, contingencies, precautionary

purposes or growth in future wealth leading to rise in the standard of living etc.

Let us learn more about how people earn, how they spend, how they keep money for future

needs, and how they use their earnings to get some return.

of 74

1.3 Statement of the Problem

Few years ago, people would have hardly heard about BPO industry, or at least, they would

have so many notions on the BPO industry as such. BPO is a sunrise industry which started

to spread its wings just close to a decade ago. Initially, this industry provided voice support

to the customers in English-speaking nations like United States & United Kingdom. One of

the major requirements for hiring folks was good communication skills in English &

graduation was not considered as one of the criteria.

To attract talent, pay package in this Industry was way above the normal expectations.

Also, this was considered as an easy route to get into highly-paid jobs for people who

couldn’t complete even graduation. Higher pay packages led to a different lifestyle for

these employees.

As the industry started to mature, pay packages stabilized over a period of time in

comparison with other industries. Due to a mismatch between higher expenses due to a

different lifestyle versus the income, few people started to get into the debt trap as well.

Hence, it was felt appropriate to conduct a study & understand the financial aspects of an

employee working in the ITES industry. This study tries to unearth the answers to the

questions on whether the employees of this industry invest. If so, what are the options

exercised to invest their money.

1.4 Scope of the Study

This study covers investment pattern of the employees of some of the major ITES

organizations operating from Bangalore. Collection of primary data includes the inputs

from the employees of following organizations:

Infosys BPO (IBPO)

Accenture BPO

IBM

Hewlett-Packard

Fidelity BPO

GENPACT

ANZ BPO

of 74

Dell BPO

& Others

Profiles of these organizations have been covered at a later stage of this document.

1.5 Review of Literature

Following literature was reviewed and highlights have been provided below:

1. Factors Influencing Investment Decision of Generations in India: An Econometric

Study

This study was undertaken by Gaurav Kabra, Prashant Kumar Mishra, & Manoj Kumar

Dash. This study was conducted to gain knowledge about key factors that influence

investment behaviour and ways these factors impact investment risk tolerance and

decision making process among men and women among different age groups.

Today the field of investment is even more dynamic than it was only a decade ago. There is

a rapid change in the events that alter the values of specific assets. Individuals have so

many assets to choose from, and the amount of information available to the investors is

staggering and continually growing. The turnover rate in investments should exceed the

inflation rate and cover taxes as well as allow you to earn an amount that compensates the

risks taken. Savings accounts, money at low interest rates and market accounts do not

contribute significantly to future rate accumulation. While the highest rate come from

stocks, bonds and other types of investments in assets such as real estate. Nevertheless,

these investments are not totally safe from risks, so one should try to understand what

kind of risks are related to them before taking action.

In this paper, researchers focussed their study in trying to find out the factors which affect

individual investment decision, difference in perception of investors in the decision of the

basis of the age, & difference in perception of the investors in the decision of the basis of

the gender.

At the end of the study it was concluded that the modern investor is a mature and

adequately groomed person. In spite of the phenomenal growth in the security market and

quality Initial Public Offerings (IPOs) in the market, the individual investors prefer

of 74

investments according to their risk preference. For e.g. risk-averse people choose life

insurance policies, fixed deposits with banks and post office, PPF, and NSC. Occasions of

blind investments are scarce, as a majority of investors are found to be using some source

and reference groups for taking decisions. Though they are in the trap of some kind of

cognitive illusions such as overconfidence and narrow framing, they consider multiple

factors and seek diversified information before executing some kind of investment

transaction. The purpose of this study was to determine whether the variables such as

demographic characteristics (age, gender) and investment patterns could be used

individually or in combination to both differentiate among levels of men and women

investment decisions and risk tolerance and develop some guidelines to the investment

managers to design their investment schemes by considering these views of individuals.

2. Investment Patterns and its Strategic Implications for Fund Managers: An

Empirical Study of Indian Mutual Funds Industry

This study was conducted by D N Rao & S B Rao and was published in January, 2010. The

mutual fund industry in India presents an interesting scenario of 48 million investors at the

time of the study, a large variety of product offerings and coexistence of private, public and

foreign Asset Managing Companies. The study, adopting the classification of investors and

categorization of funds by Association of Mutual Funds in India (AMFI) empirically

researches the investment patterns of the five investor groups in the eight fund categories;

examines the portfolios of the investor groups to identify their propensity for specific fund

categories and identifies the dominant investor groups in terms of quantum of investment

and investor folios.

The significant findings of the study have been that (a) Corporates are the dominant

investor group in the Indian Mutual Fund Industry and they account for almost 48% of the

total investment (AUM) in the industry and they are more oriented towards non-equity

funds which offer high security & liquidity and hence their propensity towards

Liquid/Money Market and Debt-oriented funds; The second dominant group in the

industry is the Retail investors’ group which accounts for almost 24% of the total

investment (AUM) in the industry, while they account for 98% of the 48 million investors

in the industry at the time of the study. The portfolio of this group is highly skewed

of 74

towards equity oriented schemes (almost 80%) which offer high return, capital

appreciation coupled with high risk and 18% of the portfolio accounts for Debt-oriented

and Balanced funds.

3. Changing Trend of Investment Pattern in India and Emergence of Mutual Fund

Industry

This study was done by Sheeba Lole. This project is about how the Investor's behaviour is

changing and they are now leaving behind the sacred investment options like the fixed

deposits, company deposits, gold etc. Investors are now looking towards equity linked

investment options.

Like most developed and developing countries the mutual fund cult has been catching on in

India. There are various reasons for this.

Mutual Fund makes it easy and less costly for investors to satisfy their need for capital

growth & income preservation. In addition to this, a mutual fund brings the benefit of

diversification and money management to the individual investor, providing an

opportunity for financial success that was once available only to a select few.

In this project the researcher has given a brief about economy, inflation, and equity and

debt market. Then it is explained how to cope with the inflation and how mutual fund is

one of the best investment options today.

A mutual fund is a pool of money, collected from investors, and is invested according to

certain investment objectives. The term mutual means that investors contribute to the

pool, and also benefit from the pool. There are no other claimants to the funds. The pool of

fund mutually invested in by investors is the mutual fund. A mutual fund's business is to

invest the funds thus collected, according to the wishes of the investors who created the

pool. In many markets these wishes are articulated as ‘investment mandates’. Usually, the

investors appoint professional investment managers, to manage their product, and offer it

for investment to the investor. A Mutual fund belongs to the investors who have pooled

their funds. The ownership of the mutual fund lies in the hands of the investors. Investment

professional and other service providers, who earn a fee for their services, from the fund,

manage the mutual fund.

of 74

The researcher had done a comparison of different instruments and provides a comparison

based on the features of each of the instruments. The researcher has found that Mutual

funds are good instruments and provide good returns to the investors. The researcher has

provided the detailed benefits of investing in Mutual Funds and the winning features of this

instrument over other forms of traditional investment avenues. Finally, it has been

concluded that Mutual Funds offers product which combines low-risk of capital loss along

with potential to earn reasonable returns in even an uncertain environment.

Table from this study has been reproduced below for quick reference:

Table 1.1: Comparison of instruments over various factors

FDs FI Bonds Mutual Fund

Accessibility Low Low Low

Tenor Fixed (medium) Fixed (Long) No lock in period

Tax Benefit None Under Section 80C None

Liquidity Low Very Low None

Convince Medium Tedious Very High

Transparency None None Very High

4. Working Papers on International Investment – Investment Patterns in a longer-

term perspective

This study was done by Stephen Thomsen and was published in April 2000 and focuses on

the macroeconomic investments. The author has focused on long-term patterns and has

demonstrated how FDI (Foreign Direct Investment) has evolved from an activity largely

undertaken by large multinational enterprises (MNEs) located in a handful of countries

into a global phenomenon.

Both trade and investment have grown rapidly during the late 90s relative to economic

growth more broadly. There have been periods of rapid FDI growth before, such as at the

of 74

beginning and end of the 1980s, which were subsequently interrupted by economic

recessions in major economies.

The upward trend in FDI flows can also be interrupted temporarily by a decline in global

growth. Like any form of investment, FDI is affected by the business cycle. Slower growth in

home countries reduces investor profits at home which could have been used for

acquisitions abroad. Economic growth influences both the “supply” and “demand” for FDI.

Slower growth in the home country reduces both earnings and equity prices and hence

limits the pool of capital available for expansion abroad. Similarly, recession in host

countries lowers the short-term profitability of a potential investment.

To conclude what we can say is evidence on long-term trends suggests that the 1990s

represented not so much a watershed as an acceleration of trends already underway. Many

firms from developing countries are now important foreign investors in their own right.

Though this study does not focus on individual investors, it makes a good reading to

understand the trends of investment patterns of large companies and mid-sized companies

in different geographies and different economic status.

5. On Being a Woman: How Our Differences Shape Our Investment Techniques

This study was conducted by Nicole Alper and focuses on the difference in the investment

pattern based on the gender.

According to Ruth Hayden, author of ‘How to Turn Your Life Around: The Money Book For

Women’, many of the more appealing ‘female’ characteristics, such as patience, tenacity,

and pragmatism make women better investors than men, once they actually get started.

"Women have an intuitive sense. They are practical and understand that things work in

stages and are therefore comfortable with volatility. And once they're in the market, they'll

stay put."

If a woman's patience is her virtue, then riding out the peaks and valleys of an ever-

changing market should be her pay off. After all, according to most financial planners, it is

those investors who stay in it for the long-term who reap the full benefits of the market.

Women normally do not believe in rapid return philosophy. They do not invest in risky

of 74

instruments which might yield profits overnight; however sometimes lose out on lucrative

opportunities.

But according to a survey on women's investment patterns conducted by Merrill Lynch,

women are not doing what they need to for total financial independence and retirement. In

fact, it is far from it. The statistics are worrying: 48% of women vs. 38% of men do not feel

knowledgeable when selecting between investment options; and only 49% of women (vs.

62% of men) say the total amount of their savings and investments are greater than the

total amount they own on any consumer debt.

Women, because they earn less and live longer, need to be planning for retirement early

and aggressively. Ruth says this is more common than people think. "Men jump in fast.

Women often just don't jump. There are two things that prevent a woman from getting

started: experience and knowledge."

Professor Hersh Shefrin, the Mario L Belotti Professor of Finance at Santa Clara University

and author of ‘Beyond Greed and Fear: Understanding Behavioural Finance and the

Psychology of Investing’, agreed that popular psychology studies depict women as "more

collaborative" and "sharing" by nature. Hence women invest much better if they are in a

group, and they exchange information. Also if their partners are accommodative, then

women invest much better.

According to Professor Shefrin, "women should pick a sensible mix of index funds,

including bonds and foreign stocks, in order to achieve their goals. They need to invest for

the long-term and limit the amount invested in individual stocks to under-10% of their

portfolio."

Though this paper was based on Ruth Hayden’s book and surveys done by Merrill Lynch

and Professor Hersh Shefrin, however, this gives us an insight of the investment patterns of

women.

6. Savings and Investment pattern of IT Employees of Bangalore

This research study paper was conducted by Hema Doreswamy, who also happens to be

our mentor for this study. The study tries to understand the behaviour of people while

of 74

making investment decisions by studying the behaviour of software professionals in

Bangalore city.

Objectives: In the research paper, objectives of the study have been clearly outlined:

To examine history, growth and development of investment avenues in the city

To analyze investment pattern of software professionals in Bangalore city.

To find out the most accepted investment option in the city.

To offer suggestions on the basis of findings with reference to profitability, tax

benefits, liquidity and risk.

Methodology: This study was conducted by using both the primary data as well as the

secondary data. The primary source of data was collected through direct interview with

the employees as well as through questionnaires. The random sampling technique was

used pertaining to the primary data.

Key Findings: Overall growth of the investment options available is very good. There are

lots of investment avenues available through which the investors can maximize their

returns and minimize their risk. The researcher has found that investing in real estate, life

insurance, and Jewellery rank high in respondent’s portfolio. It is evident from the study

that the savings of the respondents is less compared to their income level. Factors which

predominantly affect respondents while investing are risk, return, and tax exceptions.

Conclusion: The researcher has concluded on the basis of analysis done that there are lots

of investment options available for all kinds of investors like risk averse, risk takers,

moderate investors etc. The investors should rightly select the investments in such a way

that the risk is hedged properly and the return is also maximized. The investors should

update themselves to properly analyze the investment options before going for investing.

1.6 Objectives of the Study

This study has been made with the following objectives:

This study focuses on understanding the investment behaviour of employees of ITES

Industry – which predominantly employs youngsters

To understand how ITES employees manage their ‘Finance’

of 74

To understand investment avenues available based on different type of investors

To get an understanding on the preference of investments by ITES employees

Take experts’ opinion and suggest the various investment opportunities available

1.7 Period of the Study

This study was conducted over a period of six months.

1.8 Limitations

The findings of this study are based on sample size, so they can’t be generalized.

The research period is very short. So time constraint was a limiting factor.

Limited knowledge of respondents about the topic of the study.

All are working members, and hence, time & efforts put in this study is very limited.

1.9 Methodology

This study was conducted based on both primary data and secondary data.

1.9 (A) Primary Data

Primary data was collected based on preparing a ‘questionnaire’ – a popular data collection

tool to get the answers to our questions. This questionnaire was floated to ITES employees

based at Bangalore on a ‘random sample’ basis.

This study covers a sample size of 202 employees working in ITES industry.

1.9 (B) Secondary Data

We have made extensive use of resources available in the Internet & other print media to

gather the information, do the analysis, and arrive at the conclusion. Information from

various sources has been used to understand more about various investment alternatives

& to provide suggestions for choosing better investment portfolio.

1.9 (C) Analytical Tools

As mentioned earlier, ‘Questionnaire’ (a technique or a method used for obtaining specific

information about a defined topic) was used to collect the primary data. This questionnaire

contains both close-ended (questions wherein respondent has to select based on the

of 74

options provided) as well as open-ended questions (respondent has to provide his / her

personal opinion). Questionnaire that was floated has been attached.

1.10 CHAPTER SCHEME

First chapter titled ‘Research Design’ consists of introduction, importance of study,

statement of the problem, review of literature, objectives of the study, scope of the study,

limitations of the study, methodology, and the chapter scheme.

Second chapter titled ‘Profile’ provides details on the research problem and other

information pertaining to the topic.

Third chapter titled ‘Data Analysis and Interpretation’ provides analysis on the topic of our

study. Findings of the answers of the respondents have been provided both in table format

and have been put as charts for pictorial representation. Hence, 17 such tables and charts

could be found in this chapter.

Fourth chapter titled ‘Summary of Findings and Suggestions’ provides the key findings of

this study in a nutshell. Suggestions have been made and incorporated in this chapter. We

believe everyone would benefit by following some of the simple suggestions. This chapter

provides the conclusion drawn from this study. Also, this chapter consists of list of

references and finally ends with acknowledgements.

of 74

CHAPTER 2: PROFILE OF THE STUDY

2.1.1: Savings and Investments

Savings are the excess of Income over expenditure for any economic unit.

Thus: S=Y- E, where S is the savings, Y is the income and E is the expenditure.

Excess funds or surplus in profits or capital gains are also available for investment. Savings

is abstaining from present consumption for a future use. Savings are something

autonomous coming from households as a matter of habit. But bulk of the savings come for

specific objectives like interest income, future needs, contingencies, precautionary

purposes or growth in future wealth leading to rise in the standard of living etc.

When people start saving they search for various investment options to invest their

savings. During this process they consider various factors like risk, return, duration,

liquidity, tax planning, hedge against inflation, safety etc.

In earlier days the investment options available to investors were very limited like

insurance, jewellery, fixed deposits, debentures, shares etc.

But in the liberalized economy there are many investment options, which promise very

high returns. After private players started operating in Insurance, there are many policies

available which not only cover the risk, but they also promise high return with good capital

appreciation.

Individuals engage themselves in such activities to earn money. The money they earn is

normally spent on meeting daily needs like buying vegetables, groceries, clothes, giving

school fees, telephone bills etc. People also generally try to keep aside a part of their

earnings to meet future needs like marriage of their sons and daughters, buying a house,

health care, etc. People also use part of their earning to deposit in banks or in buying

shares, property or gold. By doing so, these people are also able to generate some extra

earnings for themselves.

2.1.2 Income

As we know, individuals engage in one or the other occupations to earn their livelihood.

For example, a person may be employed in Bank and draw salary, a person may engage in

of 74

selling books and earn a profit, a doctor or a lawyer may do the private practice and get

fees for their services. The earning from all these sources is called income. Sometimes we

find people earn from more than one source. For example, a teacher can write books for

schools and he gets some money from the publishers. If he is a singer, he can sing for All

India Radio (AIR) for which AIR gives him some money. Thus, one individual can engage in

different occupations to earn money. The earnings from different sources are collectively

called as his total income. This total income in a month is called as his monthly income and

in a year is annual income.

Sources of Income:

Some may earn from a single source and others may have multiple sources. Let us learn

about the various sources from which people earn their income.

Business: Individuals engaged in business earn income by way of profit.

Employment: People who are in employment earn their income by way of salary or

wages.

Profession: You have seen doctors, lawyers and chartered accountants. They

provide personal services of special nature and charge fees for their services. This

fee is the source of income for professionals.

Vocation: As we know vocation is the application of one’s special skill or knowledge

to earn money. For example, a good cook can cook food at marriage parties and earn

some income. A carpenter can make or repair furniture and earn income.

Agriculture: When we cultivate land we produce crops, paddy, vegetables etc. All or

a part of it can be sold which gives us a return. This earning is called agricultural

income.

Property: Normally owning land or a home is considered as owning property. This

property can be given on rent or lease to someone for use and we get a return on it.

Thus, it becomes a source of income for us.

Other Income: People keep a part of their earning either in banks, post office or they

can buy shares and debentures, government bonds etc. All these give them some

return in the form of interest/dividend. These are also called their income.

of 74

2.1.3 Expenditure

When we buy goods or products we pay money for them. Similarly when we avail of some

services like consulting a doctor during illness or getting water and electricity for use, we

also pay for them. Normally we pay for all these goods and services since we use them.

Sometimes we present some gift items to our friends and relatives for their use. Besides

this, we also spend money on charity and donation to the poor persons and also to the

cyclone or earthquake victims. In these cases, we do not earn any money out of such

spending. These are our expenditure. Sometimes we spend money and use it for other

purposes to get some additional income. That spending is a type of expenditure through

which we generate further income. This is called investment. To clarify the concepts

further let us observe the activities of a housewife and a restaurant owner. Both of them

buy vegetables. A housewife buys them for consumption of her family and the restaurant

owner buys them to prepare different dishes and sells them at a profit.

In the first case the housewife does not get any monetary return. Thus, it is expenditure for

her. In the second case i.e., in case of restaurant owner, spending on vegetable can be

termed as investment, because the spending on vegetables finally generates additional

income for him. Thus, the term ‘Expenditure’ refers to spending of money on any item,

which does not give any additional monetary income in return to the person who spends

that amount.

Avenues of Expenditure:

Generally, most of us spend a major portion of our income on buying goods and services for

daily consumption. Besides spending on goods and services there are also many other

areas in which we spend money like expenditure on celebrations, on entertainment, charity

and donation, etc. The different areas in which we spent our earnings are called avenues of

expenditure.

Expenditure on Goods and Commodities: We may spend money on various types of

goods and commodities needed for use in our daily living. These may be perishable

goods like vegetables, milk, fish, etc. or may be consumer durables like television,

radio, furniture etc.

of 74

Expenditure on Services: We also spend money for availing of different types of

services. It may be for availing banking services, postal services, transport services,

communication services etc.

Expenditure on Celebrations: In our daily life we find several occasions for

celebration. It may be a birthday, an anniversary, a festival, a marriage ceremony

etc. On such occasions we spend a lot of money.

Expenditure on Entertainment: In our busy life we often feel like taking a break for

some sort of enjoyment through entertainment programs. This may include going to

watch a movie or drama or dance or cricket match or even going for a picnic or tour.

Expenditure on Charity and Donation: Sometimes people spend money by donating

to individuals or institutions engaged in social services or charitable work. These

are called expenditure on charity and donation.

Expenditure on Health and Education: In a family people usually spend some money

on health and education of their children. When individuals go for higher education

it requires more money. Thus, money spent on health and education may be termed

as expenditure.

Other Expenditure: The modern age has paved newer avenues of expenditure for

people. For example, now-a-days people go to a gymnasium to keep themselves

physically fit, go to beauticians to take care of their body and beauty, surf the

Internet to gather information and also send e-mails, etc.

2.1.4: Savings

Savings refer to the amount of money which is kept aside from the current income for

future use. We may be able to keep aside this money either by reducing our expenditure or

by increasing our income or by doing both.

Investors are savers but all savers cannot be good investors as an investment is a science

and an art. Savings are sometimes autonomous and sometimes induced by the incentives

like fiscal concessions or income or capital appreciation. Savers come from all classes

except in the case of the population who are below the poverty line. The growth of

urbanization and literacy has activated the cult of investment. More recently, since the

eighties the investment activity has become more popular with the change in the govt.

of 74

policies towards liberalization and financial deregulation. The process of liberalization and

privatization was accelerated by the govt. policy changes towards a market oriented

economy, through economic and financial reforms started in July 1991.

Need for Savings:

Savings are essential not only for individuals, family or businessmen but it is also very

much required for a nation. Growth is practically impossible without savings. Individuals

save because of several reasons. Let us discuss why we all require savings.

Savings help us to meet future requirements: We need money in future for various

purposes like spending money on higher education, on marriages and other celebrations,

owning some immovable assets like house, land, farms etc. With savings at hand we, can

meet all these expenses.

Savings help us to meet expenses during emergencies: There are events which are

uncertain and may occur in future. All these events may require some amount of money to

be spend, which we can have from our savings. For example, we may require money during

emergencies like sudden illness, accidents, etc.

Savings help us to raise our standard of living: Savings accumulated over a period of time

become a substantial amount, which enables us to buy something, which is better,

comfortable or even luxurious. For example, you can buy a vehicle of your own, home, good

furniture; you can use generators/inverters at home to avoid power cut, etc. All these

improve your standard of living.

Savings help us to generate further income: We can use our savings or part of it in buying

shares, debentures or bonds, in buying property and renting it out or even in keeping

money in a bank for a fixed period. All of these can give us an assured return in terms of

dividend, rent or interest. This is an additional income for us.

Savings help the nation in its economic development: When we keep our savings in a bank

or in a post office, we get interest in return. But have you ever thought what they do with

our money? How do they generate more money from our savings? Actually they utilize our

money for various productive purposes. For instance, banks may give our money to the

business houses as loan and charge more interest from them. Similarly, government may

of 74

use our savings in various industrial activities, by taking it from the post offices or banks.

Thus, our savings help in development of business activities, which ultimately contributes

to the overall economic development of the country.

Impact on Inflation:

All the investments lose in value due to inflation or rise in prices leading to depreciation of

the rupee. When the rate of inflation or rise in prices leading to depreciation of the rupee.

When the rate of inflation is about 10%, the real value of money is lost by 10% every year.

The investors have therefore to protect themselves from this loss of real values of their

assets by proper investment planning and by securing returns, higher than the inflation

rate.

Some investments give only income like bank deposits, Post Office certificates, company

deposits etc. Some assets show capital appreciation if they are shares in companies or

bullion, land and buildings. Some are safe and liquid, like the investments in government

securities, bonds of PSU, etc. A few investments like Indira Vikas Patra are easily

transferable and marketable. So also the shares and securities listed and traded on the

stock exchanges. But all the above investments do not satisfy all the needs and objectives of

investors, referred to later, including securing a hedge against inflation. All objectives of

income, capital appreciation, safety, marketability, liquidity, & hedge against inflation can

be secured only by proper investment in corporate securities.

Tips on Saving:

We have learnt that savings are required for every individual. Let us learn some tips so that

we will be able to save.

Keep a record of your total income and its sources: This is essential as you get to know

when and how much you earn and to plan your expenditure accordingly. Keep a record of

your current expenditure: As you know there are certain expenses which you have to incur

regularly and the amount you spend is almost certain. For example, expenditure on food,

tuition fee for children, electricity and water bill, expenses on newspaper, house rent, etc.

These are your current expenditure. Once you know about these expenditures which you

cannot avoid, you can plan for other expenses keeping current expenditure in mind.

of 74

Plan your expenditure: There are certain expenses which do not occur regularly. For

example, buying a TV, refrigerator, washing machine, computer, etc… To spend on these

you have to make a priority list and then you can defer the expenditure, which is least

important.

For example, suppose you plan your expenditure on 25th December and fix your

requirements as a refrigerator, a computer and a washing machine. You prioritized your

requirements in the following order – washing machine, refrigerator, and computer. This is

so because you find that a computer shall be most useful during the next academic session,

a refrigerator shall be most useful during summer (next March) and washing machine is

urgent as it is becoming difficult to wash cloth manually in winters. So naturally you will

spend on the washing machine and defer your expenditure on the refrigerator for three

months and the computer for six months.

Here, we would like to highlight on one of the aspects that we have recently noticed. Most

of the youngsters working in the ITES industry spend on having latest expensive mobile

phones by changing their mobile phones quite often. Thanks to the rapid changes

happening in the technology front, we have new versions of mobile phones every now and

then. Many of the youngsters grab the new phones for snobbish appeal, sometimes, going

to the extent of buying it on debt. If they could resist the temptation of going for the latest

expensive gadgets, they could use that amount of money to invest for the future.

Cut down on expenditure: There are certain expenses which one may incur in an

unplanned way. For example, suppose you have gone to Shimla on a tour in the month of

March and got some winter clothes. You may use them at Shimla but coming back from

Shimla you may not be requiring all those winter clothes. This sort of expenditure may be

cut short.

Try to generate additional income and don’t spend it. This is a very good way of savings.

Whatever we earn from a regular source we can spend it on our livelihood. But the extra

earnings that we make from other sources can be kept aside for future use. For example,

suppose one of your articles is published in the newspaper or magazine and you are paid

some money for that. You can keep aside this money for future use.

of 74

2.1.5: Investment

We have already learnt that sometimes people spend some money on buying shares, bonds,

properties, etc… which gives them some monetary return. Sometimes people also keep

their savings or a part of it as a recurring or fixed deposit in the banks or post offices and

earn interest on it. Similarly some people deposit their money in Mutual Funds, Public

Provident Fund Account etc. some buy National Savings Certificates from the post office

and some take Life Insurance Policies etc. All these give them some additional income.

These types of expenditures are called investment. Thus, the term ‘investment’ refers to

depositing or spending money on some items that generate additional income either

immediately or in the future. For example, if you deposit money in Public Provident Fund

Account it will give you some amount of return in the form of interest. So, this is your

investment.

Objectives of Investor:

Income

Appreciation of capital

Safety

Liquidity

Hedge against inflation

A method of tax planning

The mix of these objectives may also depend on the time frame of the investment.

Short-term/day to day trading gains

Short term capital gain up to one year

Long term appreciation of more than 1 to 3 years

Investment preferences of public may be set out in terms of their savings for:

Transaction purpose (for daily needs or regular payment)

Precautionary purpose (for contingencies or special needs)

Speculation or asset purposes (for capital gain or building of assets)

Let us learn about avenues available for investment.

of 74

Deposits in Banks and Post Offices: These are the most common, popular, risk-free, and

trustworthy investments. In banks and post offices, individuals deposit their money in

savings account, where they can withdraw the money whenever required. They can also

deposit money for a fixed period on one-time basis or a recurring basis. All these

investments are safe and give an assured return. There is something known as recurring

deposits. That means in Banks we can open recurring deposit accounts, and every

month/quarter, we can deposit the fixed amount and the bank will give a fixed interest on

that money which is usually higher than the regular interest rates in the banks.

Other Schemes/Certificates of Bank, Post Office: Apart from deposits, the banks and post

offices also offer various other schemes like Monthly Income Scheme, National Savings

Scheme, Public Provident Fund, National Savings Certificates, Kissan Vikas Patra etc., which

provide assured return and are risk-free.

National Savings Certificates (NSC) Ninth (IX) Issue

No maximum limit for investment

INR 100 grows to INR 234.35 after 10 years

Minimum INR 100; No maximum limit available in denominations of INR 100, 500,

1000, 5000, & 10,000

A single holder type certificate can be purchased by an adult for himself or on behalf

of a minor or to a minor

Rate of interest: 8.90%

Maturity value of a certificate of INR 100 purchased on or after 1.4.2012 shall be

INR. 238.87 after 10 years

Kissan Vikas Patra

Minimum Investment of INR 500; No maximum limit

Rate of interest 8.40% compounded annually

Money doubles in 8 years and 7 months

Provident Fund

Employee Provident fund scheme came into effect in 1952, and this was done on a

mandatory basis so that employees save on a monthly basis through a government scheme.

of 74

The Government gives interest on the money which is deducted in PF. All the employees

(including casual, part time, Daily wage contract etc.) other than an excluded employee are

required to be enrolled as members of the fund the day, the Act comes into force in such

establishment. Ideally when someone attains the age of 55, or over and retires from his

duties, then s/he is eligible to withdraw the PF.

Public Provident Fund

Public Provident Fund (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.

The account can be opened in designated post offices, State Bank of India branches, and

branches of some nationalised bank. ICICI Bank is the first private sector bank which has

been authorized to open PPF account.

Minimum yearly deposit of INR 500 is required

Limit of subscription: INR 70,000 in a year

Rate of Return on PPF is 8.6 % p.a. (Compounded annually)

The minimum tenure of the PPF account is 15 years

The subscription, which shall be in multiples of INR 5, for any year, be paid into the

account in one lump sum, or instalments not exceeding twelve in a year

Government Bonds: Sometimes government and semi-government organizations accept

deposits from individuals for a fixed period and promise to pay a fixed amount after the

stipulated period. These are in the form of bonds, which are also risk-free and provide

assured return.

Life Insurance policies: Post offices, Life Insurance Corporation of India, and other private

sector life insurance companies insure the life of individuals for a specific amount for a

specified period upon payment of a premium amount. The individual who is insured gets a

good return on maturity of the policies. This is a very important form of investment. People

should look if they are adequately covered. A person’s net worth plays a huge role in

determining the amount of policy s/he should have. If a person’s earnings are high, then

the lifestyle changes accordingly. Hence individuals should ensure that they buy enough

of 74

coverage so that if case of their unfortunate death, their family can survive well on that

insurance money.

UTI and other mutual funds schemes: There are some financial institutions (may be

government, semi-government or private) which raise money from individuals and invest

the collected amount in securities and deposits and thereby earn a good return. This return

is then distributed among the investors as dividend. These types of investments are risky. It

may give you very good return or it may also lead to losses.

Here, to avoid some of the disadvantages associated with Mutual Funds, Systematic

Investment Plan (SIP) has been introduced.

A systematic investment plan or SIP (as it is more commonly known) is a way to invest in

mutual funds regularly.

The idea is to set apart a sum every month or quarter, and use that to buy units of a

particular mutual fund, regardless of its price. People like such a system because it helps

them save regularly and build up an investment.

Benefits of SIP:

Regular saving habit: Perhaps the best benefit of setting up a SIP is that it forces us

to set apart some money every month and enforces saving discipline.

Protects from timing the market: If we commit an amount of money to a SIP, we

would most likely continue to invest, regardless of a big fall or huge gains in the

market. This in turn will enable us to invest regularly rather than try to time the

market, which not many small investors can do successfully.

Corporate securities and deposits: There are companies which accept deposits from public

for a fixed period. People can invest their savings in these companies. This is bit risky as

your money goes into private hands. But if the company is good and a reputed one, you can

get assured return. Similarly people sometime invest in buying shares of the company. If

the company is performing well the shareholders get good return otherwise the

shareholders may not get anything. These investments are again risky.

of 74

Real estate: Sometimes people spend money on buying a plot of land, an apartment or a

house etc., the value of which appreciates over a period of time. By giving it on rent, they

can earn money. These types of investments are less risky.

Business activities: You must have observed that some people invest money to carry on

various business activities. They may start the business individually i.e., in the form of sole

proprietorship, or by inviting others to invest money with them i.e., they can start

partnership form of business. By investing their money and putting their best effort then

can get return in the form of profit.

Investment in the share market: A person can invest his money in the share market by

purchasing shares. A share market is a public institution and it serves the growth of the

capital market. In a stock market, purchase and sale of shares are made in conditions of

free competition. It is organized as voluntarily, non-profit making association of brokers to

regulate and protect their interests. Whenever a company raises capital through public

issue of securities, its securities are required to be listed on the stock exchange within ten

weeks of the closing of the subscription list mainly to provide liquidity to the investors.

Gold, Silver, Precious Metals, and Precious Stones: All these items vary as per the market

rates. And in the past few years, the rates of them have only increased.

Now if we see the gold price per 10 gram on Jan 2009, it was INR 13,664. And it was INR

27,322 on Jan 1, 2012. So in 3 years it went up by INR 13,658, which is almost 100%. So if

someone had invested in gold at the right time, then it brings in good results.

The same goes for silver too. Silver price on Jan 1, 2009 was INR 13,753 per kilogram and it

went up to INR 51,043 per kilogram on Jan 1, 2011. So the increase was INR 37,290 per

kilogram that means the increase was 271%. Hence, people who had invested in silver had

reaped a better return than investing in gold. In fact on May 1, 2011 it went up to INR

71,576 per kilogram.

Venture Capital: Venture capital (VC) is financial capital provided to early-stage, high-

potential, high risk, growth start-up companies. The venture capital fund makes money by

owning equity in the companies it invests in, which and usually have a novel technology or

business model in high technology industries, such as biotechnology, IT, software, etc. The

of 74

typical venture capital investment occurs after the seed funding round as growth funding

round (also referred to as Series A round) in the interest of generating a return through an

eventual realization event, such as an IPO or trade sale of the company. Venture capital is a

subset of private equity. Therefore, all venture capital is private equity, but not all private

equity is venture capital.

In addition to angel investing and other seed funding options, venture capital is attractive

for new companies with limited operating history that are too small to raise capital in the

public markets and have not reached the point where they are able to secure a bank loan or

complete a debt offering. In exchange for the high risk that venture capitalists assume by

investing in smaller and less mature companies, venture capitalists usually get significant

control over company decisions, in addition to a significant portion of the company's

ownership (and consequently value).

This option is usually applicable for High Net-worth Individuals (HNIs) to consider who

have a huge risk-appetite.

New developments in Investment avenues:

Exchange traded funds: (ETFs) are a new variety of mutual funds that first became

available in 1993. ETFs have grown rapidly and now hold nearly $80 billion in assets. ETFs

are sometimes described as more 'tax efficient' than traditional equity mutual funds, since

in recent years, some large ETFs have made smaller distributions of realized and taxable

capital gains than most mutual funds.

REIT (Real estate investment trust): REITs are companies which own properties such as

office buildings, shopping complexes, and hotels etc, which are giving continuous income.

As these companies pass most part of their income to the shareholders, they get tax

benefits from their income. Like other stocks that are traded in the stock exchanges, REIT

can also be traded in the stock exchange. REITs give a new opportunity to the retail and

institutional investors to diversify their portfolio.

Classification of Investments:

There are different methods of classifying the investment avenues.

of 74

A major classification is:

Physical investment: Example of physical investments is land, property, flats, house, gold,

precious metals and stones, paintings, etc…

Financial investment: Examples are Fixed Deposits, Bonds, Shares, and Mutual Funds etc.

Most of the financial assets, barring cash are used for production or consumption, or

further creation of assets, useful for production of goods and services.

Among different types of investments, some are marketable and transferable and others

are not. Examples of marketable assets are shares and debentures of public limited

companies, particularly the listed companies on stock exchanges, bonds of P.S.Us,

Government securities, etc. Non-marketable securities or investments are bank deposits,

provident fund and pension funds, insurance certificates, post office deposits, NSC bonds,

company deposits, private limited companies shares etc.

Difference between Savings and Investments:

Savings are money or other assets kept over a long period of time, usually in a bank

without any risk of loss or making profit. Investments are money or other assets purchased

with the hope that it will generate income, reduce costs, or appreciate in the future. In an

economic sense, an investment is the purchase of goods that are not consumed today but

are used in the future to create wealth. In finance, an investment is a monetary asset

purchased with the idea that the asset will provide income in the future or appreciate and

be sold at a higher price. And usually it has also a risk of some loss.

As far as we are talking about investment then it is certain amount of money which is saved

or used in some projects where we can take profit more than the money we have saved or

invested. In general terms investment means the use of money to make more money.

Features of investment avenues:

The investor has various alternative avenues of investment for his / her savings to flow in

accordance with his / her preferences. All investments involve some risk or uncertainty.

The objective of the investor is to minimize the risk involved in investment and maximize

the return.

of 74

1. Risk: The risk depends on the following factors:

The longer the maturity period, the larger is the risk.

The more the creditworthiness of the borrower or agency issuing securities, the less

is the risk.

The nature of instrument, namely, the debt instrument or fixed deposit or

ownership instrument like equity or preference share, also determines risk.

The risk of variability of returns is more in the case of ownership capital as the

return varies with the net profits after all commitments are met.

The nature of tax liability on the instrument

2. Return: A major factor influencing the pattern of investment is its return, which is its

return and capital appreciation, if any. The difference between the purchase price and the

sale price is capital appreciation and the yield is the interest or dividend divided by its

purchase price.

3. Safety: The safety of the capital is the certainty of return on capital without loss of money

or time involved. In all cases of money lent, some transaction costs and time are involved in

getting the funds back.

4. Liquidity: If a capital asset is easily realizable, saleable or marketable, then it is said to be

liquid. An investor generally prefers liquidity for his /her investments, safety of his /her

funds, a good return with a minimum risk or minimization of risk and maximization of

return (dividend and capital appreciation).

5. Marketability: This refers to transferability or saleability of an asset. Those listed in stock

market are more easily marketable than those that are not listed.

6. Tax benefits: Some instruments enjoy good tax benefits; hence their net return is higher.

Risk-return Relationships:

Risk and return are directly correlated with each other, when the risk is high; return is also

high, and vice versa.

The relationship between risk and return is a fundamental financial relationship that

affects expected rates of return on every existing asset investment. The Risk-Return

of 74

relationship is characterized as being a ‘positive’ or ‘direct’ relationship meaning that if

there are expectations of higher levels of risk associated with a particular investment, then

greater returns are required as compensation for that higher expected risk. Alternatively,

if an investment has relatively lower levels of expected risk then investors are satisfied

with relatively lower returns.

This risk-return relationship holds for individual investors and business managers.

Greater degrees of risk must be compensated for with greater returns on investment. Since

investment returns reflects the degree of risk involved with the investment, investors need

to be able to determine how much of a return is appropriate for a given level of risk. This

process is referred to as ‘pricing the risk’. In order to price the risk, we must first be able to

measure the risk (or quantify the risk) and then we must be able to decide an appropriate

price for the risk we are being asked to bear.

Think Before Making an Investment:

When we are investing money, we must look into some factors to reduce the risk involved

in investment. Following factors determine where to invest the money:

Ability to save: Some of the investments require regular contributions of certain

amount of money like payment of LIC premium or instalments in a recurring

deposit. We need to assess our ability to save before taking such decision.

Safety: We must look into the various risks or drawbacks of the instruments where

we are going to invest to ensure safety of our investments.

Easy Liquidity: Any investment we make must be capable of being converted into

cash, whenever necessary.

Rate of Interest: Rate of interest is more important than the amount of return we

get. Savings and Investment normally, for larger deposits, higher rates of interest

are fixed.

Tax relief: One must take into consideration the various tax benefits we can avail of

through our investments.

Personal Tax planning for an Individual

of 74

Some people have a wrong notion that tax planning is useful only once we are well settled

in life. Rather, the best time to start tax planning is right from the day we start earning any

income in our name.

For any individual, tax planning occupies a prominent position in the investment planning

process.

Tax Planning: Everyone is entitled to arrange his / her affairs to reduce his / her tax

liability, but the arrangement must be real and genuine, and not a sham. Thus tax planning

ensures not only the accrual of tax benefits within the four corners of law but also that the

tax obligations are properly discharged to avoid penal provisions. It should not be mixed

with tax evasion and tax avoidance.

Tax planning at different stages of life through various Investments:

When a person starts earning by default the company s/he works for deducts the PF which

is exempted from tax. Also, Insurance policy (life Insurance, medical insurance u/s 80D and

retirement plans) can be planned as deduction can be availed u/s 80C.

Next stage is to own a house. The biggest advantage of putting your money in residential

house property is tax haven in one hand while on the other hand; you get a secure place of

your own to live in. The repayment of principal is deductible up to one lakh in a year u/s

80C.

Usually, a person has to spend a lot on the education of children. Tax planning can be used

as effective tool in this respect as it may ensure that the capital base is not eroded or

adversely affected. Sec 10(14) and rule 2BB provides for certain allowances that are

exempt according to the limit specified in respect of each such allowances.

Senior citizens can invest special Senior Citizens schemes launched by govt. of India.

Tax planning brings fiscal discipline in the functioning of a taxpayer and reduces the

transfer of money, from the person who has earned it by hard labor, to the govt. for waste

and ostentation. Thus the amount invested enhances the capacity of the taxpayers for

expansion and growth, which in turn increases the tax revenue of the govt.

Wealthy Investors

of 74

According to a study undertaken jointly by Merrill Lynch, CapGemini, Ernst and Young,

High Net worth Individuals [HNIs] or wealthy investors are proactive in portfolio

management, risk management, consolidation of financial assets and use of diversification

strategies as actively as large institutions. HNIs are proactive in identifying new investment

options and take inputs from professional advisors in volatile market conditions.

HNIs are dynamic in modifying their asset allocation and were among the first investors to

move from equities to fixed income during 2001-2002 period of downturn in equity

markets. They shifted back to equities when they identified favourable market trends.

Needs of wealthy investors

Wealthy investors being aware of the emerging investment opportunities use sophisticated

investment strategies such as:-

Leveraging on the professional advisors' capability to analyse market trends and

make appropriate investments

Searching for innovative products to enhance value

Diversifying across various types of assets

Investing across emerging geographies

Consolidating financial information and assets

Investment products and avenues

Managed products: Managed product service is the most popular investment

strategy adopted by wealthy investors globally.

Real Estate: Wealthy investors have found this asset class very attractive and have

invested directly in real estate and indirectly through real estate investment trusts.

Art and passion: Wealthy investors also have their investment in art, wine, antiques,

and collectibles.

Precious Metals: Gold and other precious metals are attractive investment options

to balance the asset allocation.

Commodities: Wealthy investors have turned to commodities to offset the lower

returns from fixed income securities.

of 74

Alternative investments: Hedge funds and Private equity investments such as

venture funds are becoming increasingly popular with wealthy investors to reduce

the investment risks related to stock market fluctuations.

This is because these alternative instruments have low correlation with equity asset

class performance. Investment in non correlated assets, such as commodities helps to

improve diversification of the portfolio amidst volatile market conditions.

Characteristics of wealthy investor

The wealthy investor of today is:-

Young, educated and knowledgeable

Well informed about global trends

Willing to take risks

Demanding and quality conscious

Performance oriented in taking decisions and less loyal

Techno savvy and seeks information from various sources

Smart in looking for the best deal

Not attracted by traditional status symbols that do not add value

Hands on in checking investments, making deals and getting personally involved

Special needs of wealthy investors

The strategies and characteristics of wealthy investors have led to financial institutions

innovating and expanding their product range to meet the growing demands of such

investors.

A financial advisor should keep in mind the following special needs and expectations of the

wealthy clients:

Demand broader range of services and skills: Wealthy clients not only are on the lookout

for multiple investment avenues, unlike other clients, but are also ready to face the risks

associated with newer products.

Net worth and goals need to be matched and assets need to be planned tax effectively:

Since wealthy investors have surplus funds that can be passed on to the next generations

of 74

and also come into the high tax-paying category, investors need to advise them on the best

methods to transfer their assets after death as well as on the best tax saving investments.

Estate planning and tax planning: In-depth knowledge about tools of estate planning such

as wills, trusts, and power of attorney is necessary. It is also important to know the

succession rules and tax rules to do effective tax planning resulting in minimal/no tax on

transfer of assets.

Educate the client: Educating the client on various and different types of investment

avenues that will suit him the best will prove very beneficial for the financial advisor.

Wealthy clients, especially those who are self made, may assume that if they can make

wealth in one industry they can manage their own portfolio as well. In such cases it is best

to educate the client about the best investment options rather than trying to push a

product; because if one is trying to push a product, the client is unlikely to get interested

since he/she will be having enough people chasing him/her for investments.

of 74

PROFILE 2: Profile of ITES Industry

The Indian information technology (IT) / IT enabled Services (ITeS) industry has played a

key role in putting India on the global map. Over the past decade, the Indian IT-BPO sector

has become the country’s premier growth engine, crossing significant milestones in terms

of revenue growth, employment generation and value creation, in addition to becoming the

global brand ambassador for India.

The Indian IT-BPO sector including the domestic and exports segments continue to gain

strength, experiencing high levels of activity both onshore as well as offshore. The

companies continue to move up the value-chain to offer higher end research and analytics

services to their clients.

The Indian IT-BPO industry has grown by 6.1 percent in 2010, and is expected to grow by

19 percent in 2011 as companies coming out of recession harness the need for information

technology to create competitive advantage.

India’s fundamental advantages—abundant talent and cost—are sustainable over the long

term. With a young demographic profile and over 3.5 million graduates and postgraduates

that are added annually to the talent base, no other country offers a similar mix and scale of

human resources.

Realizing the wealth of potential in the IT-ITES sector, the central and state governments

are also working towards creating a sound infrastructure for the IT-ITES sector. CII aims to

make the Indian IT and ITES industry world class by continuously providing a platform for

understanding and adoption of the new developments & best practices worldwide in this

sector, taking up issues and concerns of the Indian industry with the relevant ministries at

National and State level, coming up with studies, reports and surveys to help understand

the potential of Indian IT and ITES market and the issues faced.

As one of the key growth engines of the economy, the Indian IT/ITES industry has been

contributing notably to the economic growth accounting for around 5.6% of the country’s

GDP and providing direct employment to about 2.3 million people and indirect

employment to many more.

of 74

Profile of ITES Companies (in alphabetic order)

Before we proceed with the profiles of the companies, we need to understand and

differentiate between two types of BPO:

Captive BPO: This is a type of BPO wherein work would be off-shored to its wholly-owned

subsidiary instead of a third-party vendor. The benefit of doing such an arrangement

would be to leverage the cost savings of using offshore resources, while maintaining

complete control over process and delivery. The costs of such an arrangement are

generally higher than using a vendor.

Third-party BPO: This is a type of BPO wherein work is outsourced to a third-party vendor

who would run the operations.

It is interesting to note that the captive business model was the pioneer of BPO services but

many of the captives are reconsidering the decision by preferring third-party vendors.

Third-party vendors are usually preferred over captive outfits because of substantially

lower costs, flexibility, and the ability to enforce price and quality competition.

From this project point of view, getting further information from official sources is a

challenge as it is not usually disclosed.

Accenture BPO: Accenture is a global management consulting, technology services and

outsourcing company, with more than 249,000 people serving clients in more than 120

countries.

Initially called Andersen Consulting, Accenture was formally established in 1989 when a

group of partners from the Consulting division of the various Arthur Andersen firms

around the world formed a new organization focused on consulting and technology

services related to managing large-scale systems integration and enhancing business

processes.

In April 2001, Accenture’s partners voted overwhelmingly to pursue an initial public

offering, and Accenture became a public company on July 19, 2001, when it listed on the

New York Stock Exchange under the symbol ACN.

of 74

The majority of Accenture employees are organized in one of four ‘workforces’ (Consulting,

Services, Solutions and enterprise) and they chose to open their BPO Wing in Bangalore in

April 2003. The company generated net revenues of US$25.5 billion for the fiscal year

ended Aug. 31, 2011.

ANZ BPO: Captive BPO Unit of ANZ is known by the name ‘ANZ Support Services India Pvt.

Ltd.’ and is located in Bangalore.

ANZ stands for Australia and New Zealand – one of the premier banking institutions.

In Bangalore, ANZ currently employs close to 5000 people in technology development,

operations and shared services roles. The group has been servicing ANZ’s technology needs

for more than 21 years and has in recent years extended its capabilities to include

operations and support functions.

Dell BPO: Dell BPO is a captive BPO unit of Dell.

Dell Inc. (NASDAQ: DELL) is an American multinational computer technology corporation

based in Texas. Dell is listed as one of the top 50 companies in the Fortune 500 list.

Revenues of the Dell Group stand at US $ 63.07 billion. It was founded by Michael Dell, and

bears the surname of the founder. It is the third-largest PC vendor in the world after HP

and Lenovo.

Dell started its operations in India by incorporating as Dell Computer India Private Ltd. in

Bangalore in 1996, Dell has been among the fastest growing technology companies in India

and continues to be among the top three today. Dell employs more than 110,000

employees.

Dell’s first India-based contact centres opened in Bangalore and Hyderabad in 2003;

Chandigarh was added in 2005 and Gurgaon contact centre opened in 2006. Dell India

accounts for the company's largest employee base outside of the United States.

Fidelity: FMR LLC (Fidelity Management and Research) or Fidelity Investments is an

American multinational financial services corporation. It is one of the largest mutual fund

and financial services groups in the world. It was founded in 1946 and serves North

American investors. Fidelity Ventures is its venture capital arm. Fidelity International

of 74

Limited (FIL) was an international affiliate founded in 1969, serving most countries in the

rest of the world. In September 2011, FIL was rebranded as 'Fidelity Worldwide

Investment'.

Fidelity Investments manages a large family of mutual funds, provides fund distribution

and investment advice services, as well as providing discount brokerage services,

retirement services, wealth management, securities execution and clearance, life insurance

and a number of other services.

Fidelity is a privately held company founded by Edward C. Johnson II in 1946, which is

owned by employees and the Johnson family. Fidelity Management & Research Company,

the US investment management division of Fidelity Investments, acts as the investment

adviser to Fidelity's family of mutual funds. FMR Co has three fund divisions: Equity

(headquartered in Boston, Massachusetts), High-Income (Boston) and Fixed-Income

(Merrimack, New Hampshire). The company's subsidiaries serve as distributors and

transfer agents to the entire Fidelity fund family.

Fidelity has headquarters in Boston, Massachusetts, U.S.

Genpact: Genpact Limited (NYSE: G) is a global provider of business process and

technology management services, offering a portfolio of enterprise and industry-specific

services. It was formerly a GE owned company called GE Capital International Services or

GECIS. It operates from India, China, Guatemala, Hungary, México, Morocco, the Philippines,

Poland, the Netherlands, Romania, Spain, South Africa, Australia, UAE, Brazil and the United

States.

Genpact went public on NYSE on August 2, 2007 under the symbol "G". It currently employs

around 55,000-plus employees and has revenues of $1.6 Billion.

The NYSE symbol "G" was initially allocated to the Gillette Company. After the Gillette

Company was acquired by Procter and Gamble, the symbol became free and Genpact and

Google booked it. It was Genpact in the end that got to keep G as its stock symbol.

Foundation of GENPACT:

of 74

Pramod Bhasin started GE Capital International Services (GECIS) in 1997 as the in-house

BPO division of General Electric (GE) when K.P. Singh convinced Jack Welch, the former

CEO of GE, to outsource certain services to India at Gurgaon. It was under Pramod that GE

hired Raman Roy, pioneered business process outsourcing in India, and expanded its

operations from India to countries like China, Hungary, Guatemala, Poland, Mexico,

Morocco, the Philippines, Romania, South Africa and the United States.

GENPACT began in 1997 as a business unit within GE and this lineage has contributed to

the company’s deep understanding of process. Starting first with the business of GE Capital

and then expanding scope across GE businesses, to providing business process

management capabilities that delivered outstanding business impact for the company.

Hewlett-Packard: HP BPO started off as a captive BPO unit of Hewlett-Packard.

Hewlett-Packard Company (NYSE: HPQ) or HP is an American multinational hardware and

software corporation headquartered in Palo Alto, California, United States. It provides

products, technologies, software, solutions and services to consumers, small- and medium-

sized businesses (SMBs) and large enterprises, including customers in the government,

health and education sectors.

The company was founded in a one-car garage in Palo Alto by William (Bill) Redington

Hewlett and Dave Packard. HP is the world's leading PC manufacturer. It specializes in

developing and manufacturing computing, data storage, and networking hardware,

designing software and delivering services. Major product lines include personal

computing devices, enterprise, and industry standard servers, related storage devices,

networking products, software and a diverse range of printers, and other imaging products.

HP markets its products to households, small- to medium-sized businesses and enterprises

directly as well as via online distribution, consumer-electronics and office-supply retailers,

software partners and major technology vendors. HP also has strong services and

consulting business around its products and partner products.

Worldwide, it has approximately 349,600 employees and has revenues of US $ 127.24

billion.

HP was founded in 1939.

of 74

Corporate headquarters are in Palo Alto, California.

Meg Whitman is CEO and President.

HP is the world's largest IT Company, with revenue totalling $127.2 billion for fiscal

2011 ending October 31, 2011.

HP's 2011 Fortune 500 ranking (in US): No. 11 & Fortune 28 (in Global).

IBM: International Business Machines Corporation, or IBM, is an American multinational

technology and consulting corporation headquartered in Armonk, New York, United States.

IBM manufactures and sells computer hardware and software, and it offers infrastructure,

hosting and consulting services in areas ranging from mainframe computers to

nanotechnology.

The company was founded in 1911 as the Computing Tabulating Recording Corporation

through a merger of three companies: the Tabulating Machine Company, the International

Time Recording Company, and the Computing Scale Corporation. CTR adopted the name

International Business Machines in 1924, using a name previously designated to CTR's

subsidiary in Canada and later South America. Its distinctive culture and product branding

has given it the nickname Big Blue.

In 2012, Fortune ranked IBM the #2 largest U.S. firm in terms of number of employees

(433,362), the #4 largest in terms of market capitalization, the #9 most profitable, and the

#19 largest firm in terms of revenue.

Globally, the company was ranked the #31 largest in terms of revenue by Forbes for 2011.

Other rankings for 2011/2012 include #1 company for leaders (Fortune), #1 green

company worldwide (Newsweek), #2 best global brand (Interbrand), #2 most respected

company (Barron's), #5 most admired company (Fortune), and #18 most innovative

company (Fast Company).

IBM’s revenues has crossed US $ 100 billion and stood at US $ 106.91 billion.

Infosys BPO: Initially, BPO subsidiary of Infosys Limited was started as Progeon. Progeon

was established in April 2002 and today is among the top third-party BPOs in India

according to NASSCOM. It was started as a 74% and 26% joint venture between Infosys and

Citibank Investments. In 2006 Infosys bought out Citibank's share at a price of Rs 592 per

of 74

share. Today it has operations in Bangalore, Chennai, Gurgaon, Jaipur, and many other

Indian Cities along with international centres like Monterrey (Mexico), Lodz (Poland), Brno

(Czech Republic), Atlanta (USA), Hangzhou (China), Manila (Philippines), and Brazil.

Infosys BPO, the Business Process Outsourcing subsidiary of Infosys Limited (NASDAQ:

INFY), is an end-to-end outsourcing services provider.

Infosys BPO is a global company operating in the Americas, APAC, Australia and Europe

with over 21,421 employees and revenues of $494.9 million as of March 31, 2012.

KPMG: KPMG is one of the largest professional services networks in the world and one of

the Big Four auditors, along with Deloitte, Ernst & Young (EY) and PwC. Its global

headquarters is located in Amstelveen, Netherlands.

KPMG employs 145,000 people and has three lines of services: audit, tax, and advisory. Its

advisory services are further divided into three service groups - Management Consulting,

Risk Consulting, and Transaction & Restructuring.

It has revenues of US $ 22.7 billion and employs 145,000.

KPMG was established in India in September 1993, and has built a significant competitive

presence in the country. The firm operates from its offices in Mumbai, Pune, Delhi, Kolkata,

Chennai, Bangalore, Hyderabad, Kochi, Chandigarh and Ahmedabad, and offers its clients a

full range of services, including financial and business advisory, tax and regulatory, and risk

advisory services.

of 74

CHAPTER 3: DATA ANALYSIS AND INTERPRETATION

This study is being conducted to know the investment pattern of ITES professionals in

Bangalore city. Questionnaire was floated to a sample size of 202 employees. Following

parameters are being used for the analysis:

Sample Size: 202

Age Group

Income level

Percentage of Salary being invested

Investment Horizon

Preferred Investment Avenues

Reasons for Investment

Total Investment

Risk Profile

& other factors

Analysis & interpretation for this study is being carried on based on the answers provided

by our respondents to the questionnaire.

of 74

Age Group of the Respondents

First question in our survey was pertaining to their age. This was probably one of the

easiest questions and there was no Finance-knowledge string attached to this question.

We all are aware that ITES is a young industry and employs lot of youngsters including

students directly out of college. 41% of our respondents are in the age group of 25 to 30

years, followed closely by age group of 30 to 40 years at 36%. Overall, it is interesting to

note that almost all of our respondents (whooping 98%) are within 40 years of their age.

Table 3.1: Age Group of the respondents

Age Group Count PercentageBelow 25 42 21%25 to 30 Years 82 41%30 to 40 Years 73 36%40 to 50 Years 04 02%Above 50 Years 01 00%

Out of 202 respondents, 5 respondents were above 40 years but only one respondent was

more than 50 years old.

Chart 3.1: Age Group of the respondents

21% of our respondents were aged below 25 who started their career.

of 74

Annual Income

Initially, when we had thought of taking this topic as our study, we had perplexing

questions that were posed as ITES employees usually complain that their salaries are

lesser, and hence, they would not have any investment. This might be true for the career-

starters but find that 44% of our respondents are earning more than INR 500,000 per

annum.

Table 3.2: Annual Income of the respondents

Annual Income Count PercentageBelow 100,000 0 0%100,000 - 200,000 41 20%200,000 - 400,000 52 26%400,000 - 500,000 20 10%More than 500,000 89 44%

Chart 3.2 displays the annual income of the respondents in a graphical representation.

of 74

Insurance Cover

Over 90% of our respondents have insurance cover. However, majority of the respondents

have the insurance cover provided by the organization they work.

Table 3.3A – Whether respondents have insurance cover?

Insurance Cover Count

Yes 181

No 21

Chart 3.3A provides the information in a graphical format.

Table 3.3B provides the information on the type of insurance cover they have. At least

around half of our respondents have personal life insurance.

Type of Insurance Cover Count

Company Life 121

Company Health 129

Personal Life 97

Personal Health 31

Car Insurance 9

Property Insurance 10

of 74

Chart 3.3B displays the type of insurance cover respondents have.

of 74

Percentage of salary being invested

Fourth question in our survey pertained to percentage of the salary being invested & table

3.4 depicts the same

Percentage of salary being investedBelow 5% 46 23%5% to 15% 75 37%15% to 25% 49 24%25% to 40% 16 8%Above 40% 16 8%

More than one-thirds (37%) of our respondents invest between 5% and 15% of their

salary. Close to one-fourths (24%) of our respondents invest between 15% and 25% of

their salary.

Chart 3.4: Percentage of Salary Being Invested

of 74

Investment Horizon

Fifth question in our survey pertains to the horizon of their investments. More than half of

our respondents are long-term oriented. As majority of our respondents are youngsters, it

looks like they invest having long-term horizon in mind to create wealth.

Table 3.5 displays the investment horizon of the respondents

Investment Horizon Count PercentageShort-Term 23 11%Mid-Term 61 30%Long-Term 114 56%Not Yet Invested 4 2%

30% of our respondents invest keeping medium-term goals in mind.

Chart 3.5: Investment Horizon

of 74

Investment Options

Sixth question in our survey tried to find out the type of investments that our respondents

make the investments. This is one of the important questions which provide an eye-opener

on the topic: ‘Investment pattern’.

No investment instrument emerged as the clear winner. In fact, none of the instrument

crossed even a one-quarter (25%) mark milestone.

Table 3.6 displays the preference among the investment options available

Investment Options Count PercentagePPF 30 8%Government Bonds 12 3%Fixed Deposits 88 22%Property & Real Estate 50 13%Gold / Silver / Precious Metals 46 12%Mutual Funds 38 10%Equities 18 5%Insurance 95 24%Others 18 5%

Insurance is the top choice. However, Fixed Deposits comes very close to the top spot. If

Insurance is considered as a necessity to guard against any contingencies, Fixed Deposit

would occupy the top slot as the preferred investment instrument amongst ITES

employees.

of 74

Chart 3.6: Preference of Investment by Respondents

Many of the experts on the Investing advise youngsters to have equity exposure, especially

through Mutual Funds. However, we could find that only 5% invest in the Equity market,

and only 10% have investments in Mutual Funds.

of 74

Reasons (Events) for Investment

Table 3.7 displays the reasons for which respondents invest.

Events (Multiple choice) Count PercentageProperty 82 19%Retirement 73 17%Career Planning 86 20%Education 40 9%Tax Planning 71 16%Increasing Wealth 72 17%Others 10 2%

There is no single answer given by all the respondents. Here, we could understand that

respondents invest for the following reasons: Career Planning, Property, to plan for

retirement, to increase wealth, tax planning, & others.

Chart 3.7 displays the reasons for the Investment

Most of the respondents invest for multiple reasons. Some of them invest not only to

increase their wealth but simultaneously plan for reduction of tax as well.

of 74

Loan Taken

Our eighth question was designed to understand whether loan has been taken, if yes, the

reasons for taking the loan.

Table 3.8A depicts the answer to close-ended question: whether loan has been taken?

Loan Taken Count

No 99

Yes 103

Chart 3.8A: Whether Loan has been taken?

of 74

Table 3.8B depicts the reason for taking a loan

Type of Loan Count

Home Loan 37

Vehicle Loan 33

Personal Loan 28

Others 15

Chart 3.8B: Type of Loan Taken

of 74

Total Investment

Table 3.9 provides the details of the total investment

Total Investment Count Percentage

Within INR 100,000 71 35%

100,000 to 500,000 53 26%

500,000 to 1,000,000 (a Million) 10 5%

1 Million to 2 Millions 12 6%

2 Millions to 5 Million 5 2%

5 Million to 10 Million 2 1%

More than 10 Millions 3 1%

Do not wish to disclose 46 23%

35% of respondents have investments within INR 100,000. 61% of respondents has

investments lesser than half-a-million mark.

As the size of the investment increases, count of respondents decreases. At least 11% of

our respondents had investments crossing a million. This has been considered by adding

investment range starting from a million.

Around 23% of respondents did not wish to disclose their total investments.

of 74

Chart 3.9: Total Investment

of 74

How often are Investments being made?

Table 3.10

Period Count PercentageOnce a month 73 26%Once in 6 months 94 33%Once in a year 106 38%No Investment 8 3%

Around 38% of the respondents make an investment once a year. Another 33% of the

respondents invest once in six months. However, only 26% of the respondents invest once

in a month.

This question answers whether investment has been made as a habit or not.

Chart 3.10:

of 74

Risk Profile

Table 3.11: Risk Profile of the Respondents

Risk Profile Count Percentage

High Risk 24 12%Medium Risk 107 53%Low Risk 28 14%No Risk 43 21%

53% of respondents have medium risk appetite. 12% of respondents have high-risk

appetite. Though most of our respondents are youngsters, however, 14% have a low-risk

appetite. 21% of respondents prefer traditional methods of investments and looks like

they do not want to venture into Equity markets or invest through Mutual Funds.

Chart 3.11: Risk Profile

of 74

Investment Losses

Table 3.12: Investment Losses encountered by respondents

Whether Investment Losses were suffered? Count Percentage

Yes 71 35.1%

No 131 64.9%

Investment Losses have been suffered by 35% of our respondents. Sometimes, when

investors encounter losses during their first tryst with investment, probably, they are taken

back and try to be risk-averse and reduce their risk-appetite.

Chapter 3.12

of 74

Since how long are the investments being made?

Table 3.13 has been provided below which provides the details from the responses

received by the respondents to our survey on how long are they investing.

Investments Since Count Percentage

Within 2 Years 27 13%2 Years - 5 Years 30 15%5 Years - 10 Years 96 48%10 Years - 20 Years 33 16%More than 20 Years 1 0%Not Yet Invested 15 7%

Close to half of our respondents stated that they have been investing since five to ten years

period. This is a positive trend as people have been investing from quite some time. 16%

of our respondents have been investing for more than ten years now.

Chart 3.13: How long are the investments being made?

of 74

Advantages

Fourteenth question in our survey tried to unearth the answer to what are the advantages

that our respondents thought of on investing. Table 3.14 displays the results.

40% of our respondents felt that investing helps in securing their future. It is heartening to

note that ITES employees (though the majority of the employees are of young age) have

thought about the future. 22% of our respondents see it as a way to grow wealth.

Advantages Count PercentageSecured Future 138 40%To increase wealth 74 22%To meet educational expenses 32 9%Alternate sources of Income 16 5%Contingencies 39 11%Good habit 14 4%Increases the knowledge of the market 4 1%Tax Saving 19 6%Others 8 2%

Government lures citizens to make investment by offering tax saving advantages; however,

only 6% of our respondents think tax saving as an advantage for investing.

Chart 3.14: Advantages of Investing – as perceived by respondents

Disadvantages

of 74

Fifteenth question tries to find out the perception of our respondents on whether they find

any disadvantages of investing. Table 3.15 provides the disadvantages of investing, as

perceived by respondents of our questionnaire.

Disadvantages Count Percentage

None 80 33%Reduction in Liquidity 52 22%Less expenditure 25 10%Risk Attached 64 27%Lesser than expected returns 19 8%

As above table provides the details, 33% of our respondents do not feel any disadvantages

of investing. However, 27% feel that there are risky investments which act as a deterrent

to investing, & another 22% find that their liquidity reduces when they invest.

of 74

Difficulties

Table 3.16 lists the difficulties faced by our respondents while investing.

Difficulties Count PercentageNone 82 29%Lack of proper guidance 89 31%Suitable instrument not available 21 7%Limited earnings & Inflation 18 6%Lump sum Investment not possible 38 13%Not sure about optimum investment 9 3%Not enough clarity 12 4%Legal implications 3 1%Unable to save 12 4%

This table clearly illustrates that lack of proper guidance is one of the important reasons

which shies away the potential investors from investing. Appropriate financial awareness

sessions are required to plug the gap between one’s understanding and the reality.

Chart 3.16: Difficulties faced while investing

of 74

Monthly Maintenance Expenses

Table 3.17 lists the percentage of salary being spent on monthly maintenance expenses.

Monthly Maintenance ExpensesPercentage Count PercentageBelow 25% 33 16%25% - 35% 41 20%35% - 50% 56 28%50% - 75% 39 19%More than 75% 33 16%

28% of respondents spent between 35% and 50% on monthly maintenance expenses.

35% of respondents spend more than 50% of their salary on monthly maintenance

expenses.

Chart 3.17: Monthly Maintenance Expenses as a percentage of Salary

of 74

CHAPTER 4: Summary of Findings, Suggestions, and Conclusion

Overall findings of the study are:

62% of our respondents are aged within 30 years

44% of our respondents earn more than half-a-million Indian Rupees per annum

90% of the respondents have an insurance cover

Most of the respondents are being provided with an insurance cover by the

organization they work

37% of our respondents invest between 5% and 15% of their salary

56% of our respondents have long-term investment horizon

Insurance is the preferred investment with 24% followed by Fixed Deposit at 22%

Equity preference revolves at 5% for our respondents

10% of our respondents prefer Mutual Funds

Around 50% of our respondents have taken a loan

18% of our respondents have taken home loan

61% of respondents have a total investment of within INR 500,000

11% of respondents have a total investment of more than a million INR

38% of respondents invest once in a year

53% of respondents have medium-risk appetite

35% of respondents have incurred investment losses

64% of respondents have been investing at least since 5 years

40% of respondents feel that biggest advantage of investing is that it provides

secured future

33% believe that there are no disadvantages for investing

27% of the respondents feel that the risk of investing is the biggest disadvantage

31% of respondents feel that they do not have proper guidance which acts as a

biggest difficulty to invest

36% of respondents spend more than 50% of their income in the maintenance

expenses while 28% of respondents spend between 35% and 50% of their salary on

monthly maintenance expenses

of 74

Suggestions

We feel that since the higher education policy is very good in the BPO industry, all the

employees should avail it. Instead of complaining that the salaries are lower in the ITES

industry compared to the IT industry, they should avail the courses of their choice. All the

companies give 50-100% concession in the course fees and the management gives full

support (like the employee is not engaged in work during the class hours, some companies

provide transport if the classes happen in the University Campus, leaves for preparation for

the exams etc.). They should look at the cost of these courses in the market and the

concession they are getting because of being an employee of such MNCs. Also most of the

companies give promotion and progression/ role change to the employees who go for

higher education through the company’s HEP/Executive MBA programs. Thus, we can

pursue the studies without hampering our earning capability. In short, we could refer it as

‘Learn while you Earn’.

Employees should look at buying a separate life insurance the moment they start earning.

They can look at term insurance where the premiums are low, but the returns are very high

in case of the unfortunate death of the employee. This gives a huge security to the family,

especially if s/he is the only bread earner.

Employees should look at health insurance for sure. Many employees shared their

unfortunate experience of losing their savings or selling their assets during any major

illness of self/ family. Many employees had not added their parents in the health insurance

policy and had to pay huge sums during hospitalization. Employees should not depend only

on the health insurance through office, but should take separate health insurance for the

entire family. And since the premiums are low at young age, employees should look at that

option. It saves tax under 80C/CC/CCC.

All the employees should save from their first pay check. They may look at the option of RD

or PPF and make small investments there. By the power of compounding, it will grow over

the years.

We observed that the employees who did not save in their 20s had to face problems, and

hence, had to save and invest aggressively in their 30s. They had to curb their desires a lot

of 74

in their 30s as they had to make up for the losses in their 20s. Hence we suggest the

employees to save from their first pay check.

When there is huge amount of spending without a check and keep borrowing, we fall into a

vicious circle of debt trap. Not only individuals, but many nations have fallen into the debt

trap and the after-effects of such debt trap can be understood in the wake of recent Greece

economic crisis.

Employees should never withdraw the PF amount when they change companies. PF is a

forced investment which the Govt. makes an employee to do and every employee should

safeguard it. And they should not even look at the option of taking a loan against PF unless

there is any emergency.

Every employee should submit the medical bills (up to Rs. 15000 is tax exempted) and LTA

bills as they are exempted from tax. We observed that most of the young employees are not

aware of it and are not depositing it and paying tax unnecessarily.

Employees should submit the rent receipt and /or rent agreement to claim the tax

submission on a year on year basis. We found that most of the employees whom we

interviewed were not doing it.

Employees should look at investing in property at a young age. It is ok if they do not buy a

very good flat/ house. It is ok to buy a plot/ house in an upcoming area at a cheaper rate

and avail the tax benefit as the property costs go up with time. Also if we do the

calculations, we will see that rent + some more money= EMI. Even if we do not stay in that

house, we can put it on rent and have a second income.

Employees, who buy a home, should buy an insurance to protect the home loan. It should

cover any natural calamity and damage to the property, job loss, disability etc. so that your

loved ones should inherit your property, not your loan in case of death or disability.

Employees should do thorough research before buying a property, MFs or exposing

themselves to the Equity market. The risks are high and the returns too are high. However

incorrect moves can incur a lot of losses. Also when an employee is young (below 35) s/he

can do aggressive investment as s/he can make up for the losses. Most of the employees in

of 74

their 30s mentioned that as of now they are at ‘Medium Risk Medium Return stage’,

however after a few years they will take lesser risks as they will be nearing retirement.

In the 20s, all the employees should concentrate on their careers fully as they can reap the

benefits when they grow older. Also, they should not get into the debt trap as many of the

ITES employees we interviewed had got into. The credit cards are easily given to this young

group as the salaries are high and in big cities the avenues of spending money are higher.

And the culture in the ITES industry is quite westernized, and the young employees easily

fall for the partying, movies, shopping mode using credit cards and personal loans. They

should avoid taking car/bike loans as all the ITES companies provide transport and vehicle

is a depreciating asset. Also the habit of balance transfer in credit cards should be avoided

and if one needs to use the CC, then should pay off the entire balance every month. There

should be no evolving credit. Using the credit card judiciously and using the 45-day credit

period is good, but not otherwise.

Employees can consider buying gold and silver. Gold has given more than 150% return in

the last 4 years. Silver too has given more than 160% returns. In fact diamonds and

platinum does not have much of resale value. Hence employees can think buying it for

personal use, and not think that it is an investment. Also ornaments are not exactly an

investment as while selling, due to wastage, making charge etc. a lot of money is wasted.

Employees should look at bullions or ETFs.

Employees should remember than every rupee saved is every rupee earned. Hence should

minimize wastage. Every employee should make a budget and document the expenses on a

regular basis. They should look at reducing wastages and stick to a budget. We observed

that the employees who had spent prudently had managed to save, invest, and enjoy all at

the same time as they stuck to their budgets.

It is important to note the significance of savings for an economy. Recession in developed

economies, like United States and other European nations provides an insight on the

importance of savings of the individuals to the economic growth of the nation.

This study gains further importance as this industry predominantly employs youngsters.

As such, it would be interesting to study the pattern of their investments. Also, ‘Power of

of 74

Compounding’ suggests that the wealth generation can be maximized when a person starts

investing at a young age.

We suggest that young employees start investing so that they can benefit from the ‘Power

of Compounding’. Also, it does not mean that they have to shell out huge amounts of money

every month as investment, but can start with as little as they can. As their disposable

income reduces, this also ensures that they concentrate more on their spending pattern.

Every employee should look at a second income source. There are many part-time jobs

which they can do over the weekends (Freelance training, web designing, modelling, music

or any other vocational training, tuitions etc.). There are a lot of works from home options

which employees can do if they have a PC and internet connection at home / cyber café.

Every employee should look at such options.

We suggest the employees not to spend more than 50% of their salaries for maintenance

expenses. In the initial years of the career, it is a little difficult specially if one has to pay

rent etc…, however, if one manages by staying in shared accommodation etc. at a young

age, then the later years become easy for them. Youngsters, who live lavishly in their 20s on

credit, face challenges later. Hence, we suggest every employee to think before spending,

and not spend, and then think.

Every employee should have at least 6 months maintenance expense in their bank

accounts. This is for any contingency like sudden illness, job loss etc... Employees who have

regular EMIs should always keep aside 6 months EMI to mitigate any contingency.

Every employee should look at tax saving options and invest enough to save tax. Every year

minimum 1 lakh should be saved for those employees who fall under the tax bracket. And

the young employees who have just joined and their salaries are not taxable should also

save prudently.

One of the golden rules of investment is “As and when our salary increases, we should

increase our investments”. All the ITES employees should follow that.

Another golden rule is, “Never keep all your eggs in one basket”. Employees should follow

that principle and invest in debt and equity. Also, they should invest in high risk

instruments like property, bullion, equity and MFs and should have safe options like PPF,

of 74

FD, NSC, Govt Bonds, etc... More the portfolio is diversified; the better it is for any

employee.

Many ITES employees do the mistake of not including the names of their parents/spouses

as nominees for their life insurance. In the situation of an unfortunate death, the company

has to go through the hassles of allocating the money to the next of kin. Every employee

should do that mandatorily when they join the company and should contact the HR team, if

there are any changes in the details.

Conclusion

All the ITES employees should have a check on the amount of money that is being spent. At

least part of the income should be saved on a regular basis. Once Savings is made as a

habit, most part of the savings should be invested.

There are many investment options available based on individual’s income & risk profile.

Hence, all the employees should make investing a habit.

We would like to quote Warren Buffett which is quite apt for this particular study.

Earnings: Never depend on a single income. Make investment to create a second

income.

Spending: If you buy things you do not need, soon you will have to sell things you

need.

Savings: Don’t save what is left after spending but spend what is left after savings.

Taking Risk: Never test the depth of the river with both feet.

Investment: Don’t put all your eggs in a single basket.

of 74

Bibliography & References

http://en.wikipedia.org/wiki/Business_process_outsourcing

www.mbanerds.com

http://www.infocentre.in

http://www.nios.ac.in/Secbuscour/28.pdf

http://wiki.answers.com/

http://www.marketonmobile.com/gold_price_2011.php?m=February

http://www.mutualfundsindia.com/unit.asp

http://uwf.edu/rconstand/5994content2003/T1-Overview/T1-OverviewP04.htm

http://www.pwc.com/en_IN/in/assets/pdfs/publications-2011/Indian_IT-ITeS_Industry_-

_Changing_Landscape_and_emerging_trends.pdf

http://www.infosysbpo.com

http://www.accenture.com

http://www-935.ibm.com/services/us/en/it-services/gts-it-service-home-page-1.html

http://info.shine.com/company/IBM-Daksh/270.aspx

http://www8.hp.com/us/en/business-services/it-services.html?compURI=1079461

https://india.fidelity.com/india/our_company_fmr_india.htm

http://www.genpact.com/home/about-us/company-profile

http://www.anz.com/india/en/about-us/our-company/anz-india/

http://content.dell.com/us/en/corp/about-dell.aspx?c=us&l=en&s=corp

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1538491

http://www.indianmba.com/Occasional_Papers/OP72/op72.html

investment pattern v25_jul2012

Economy & Finance