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Chapter 1


The money you earn is partly spent and the rest saved for meeting
future expenses. Instead of keeping the savings idle you may like to
use savings in order to get return on it in the future, which is known as
'Investment'. There are various investment avenues such as Equity,
Bonds, Insurance, Bank Deposit etc. A Portfolio is a combination of
different investment assets mixed and matched for the purpose of
achieving an investor's goal.
The two key aspects of investment are time and risk. Sacrifice takes
place now and is certain. Benefit is expected in the future and tends to
be uncertain. In some investments (like stock options) risk element is
dominant attribute and in some investment (like govt. bonds) time is
dominant attribute .There are various factors which affects investors'
portfolio such as annual income, government policy, natural
calamities, economical changes etc.
Almost every one owns a portfolio of investments. The portfolio is
likely to comprise financial assets (bank deposits, bonds, stocks, and
so on) and real assets (motorcycle, house, and so on)

The Companies Act 1850, introduced the concept of limited liability
to India, served to stimulate the activity in the stock market. From
then number of acts are passed to boost the revolutionary change. The
global capital market registered spectacular growth in the decade of
1990's which had an effect on the growth of Indian market.
The world market capitalization grew at an average annual rate of
16% during the decade, it grew from about US $ 9.3 trillion in 1990
to about US $ 36 trillion in 2000 but fell to about US $ 28 trillion by
The turnover on all markets taken together has grown nearly 19 times
from US $ 5.5 trillion in 1990 to US $ 48 trillion in 2000 before
depleting to about US $ 42 trillion in 2001.
The turnover in developed markets has, however, grown more sharply
than that in emerging markets. The US alone accounted for about 70%
of world wide turnover in 2011. Despite having a large number of
companies listed in its stock exchanges, India accounted for a merger
of 59% in 2011 as compared to 1.06% in 2000.
The stock markets world wide has grown in size as well as depth:
since last one decade. During the last decade , the world
market: capitalization/GDP ratio more than doubled from 51% to
120%. Value traded GDP rose from 29% to 103% and turn over ratio
shot up from 48% to 89%. The combined market capitalization of a
select 22 emerging economies increased US $ 339 billion in 2000 to
US $ 2.2 trillion in 2012.
The average market capitalization increased from 3.6% to 7%, Annual
value of shares traded increased from $ 180 billion to $ 2.2 trillion
increased from 16.7% to 45.5%.
For India the total capitalization grew from $ 38,567 million at the
end of 1990 to $ 110,396 million at the end of 2011. Turn-over of
stocks increased from $ 21,198 million in 1990 to $ 249,298 million
in 2011. Market capitalization as a percentage of GDP grew from
12.2% in 1999 to 32.4% in 2011 .while turnover ratio went up from
65.9% in 1999 to 191.4% in 2010. The number of listed companies in
India was 5,975 as at end of 2011. There are very few countries,
which have higher turnover ratio than India. Standard and Poor (SP)
ranked India, 25th in terms of market capitalization, 15th in terms of
total value traded in stock-exchanges and 6th in terms of turn-over
Globalization of the financial market has led to a manifold increase in
investment. New markets have been opened; new instruments have
been developed new services have been launched.
India has a well established capital market mechanism where in
effective and efficient transfer of money capital or financial resources
from the -vesting class to the entrepreneur class in the private and
public sector of the economy occurs. Indian capital market has a long
history of organized trading which started with the transaction in loan
stocks of the East India Company from; at time it has undergone
drastic changes to meet the requirements of the globalization.
The Indian Capital Market had been dormant in the 70's and 80's - 3S
witnessed unprecedented boom during the recent years. There has
been a shift of household savings from physical assets to financial
assets, particularly:" i.e. risk bearing securities such as shares and
debentures. Capital markets 3tructure has also undergone sea changes
with number of financial services and banking companies, private
limited companies coming in to the scene which lade the competition
in the market stiffer.
The Companies Act 1850, introduced the concept of limited liability
in India, served to stimulate the activity in the stock market. From
then number of acts are passed to boost the revolutionary change. The
global capital market registered spectacular growth in the decade of
1990's which had an effect on the growth of Indian market.

Indian Securities Market
The past decade in many ways has been remarkable for securities
market in India. It has grown exponentially as measured in terms of
amount raised from the market, number of stock exchanges and other
intermediaries, the number of listed stocks, market capitalization,
trading volumes and turnover on stock exchanges, and investor
population. Along with this growth, the profiles of the investors,
issuers and intermediaries have changed significantly. The market has
witnessed Fundamental institutional changes resulting in drastic
reduction in transaction costs and significant improvements in
efficiency, transparency and safety.

Dependence on Securities Market
Three main sets of entities depend on securities market. While the
corporate and Governments raise resources from the securities market
to meet their obligations, the households invest their savings in the
securities. Corporate Sector: The 1990s witnessed emergence of the
securities market as a major source of finance for trade and industry.
A growing number of companies are accessing the securities market
rather than depending on loans from FIls/banks. The corporate sector
is increasingly depending on external sources for meeting its funding
There appears to be growing preference for direct financing (equity
and debt) to indirect financing (bank loan) within the external sources.

Rationale and Scope of study:

Research in behavioural finance is an important application. A better
understanding of behaviour process and outcome is important for financial
planner because an understanding of how investor generally respond to market
movement should help in future investments as advisor devise for appropriate
asset allocation strategies for other investors.
For companies, to identify the most influencing factors on their investors
behaviour would affect their future policies and strategies for their future
financial plans.
For government , to identify the most influencing factors on investors behaviour
would affect the required legislation and the additional procedure needed in
order to satisfy investors desires and also to give more support to market
efficiency i.e. help to SEBI.
The research can help guide portfolio allocation decision both by helping us to
understand the kind of errors that investors tends to make to manage their
portfolio and also allow us to better understand locating the profit opportunities
for investment managers.
It will also help to lay foundations of human behaviour in financial markets to
facilitate the formulation of macroeconomic policy and developing new financial
Key Objectives:


To study the various factors influencing the investment behaviour.


To identify the influence of the accounting information on the
investors behaviour.
To interpret the effect of the factors related to personal financial needs
on investors behaviour.
To study investment time horizon of investors based on their personal
To study the investment pattern of the investors based on their risk
taking abilities.


The hypothesis or assumption about a population parameter we wish to test,
usually an assumption of the status quo.
- The individual investors investment behaviour is affected by attitudes &
disposition, barriers, influencers and motivators.

The conclusion we accept when the data fail to support the null hypothesis.
- The individual investors investment behaviour is not affected by any of the
Attitudes &dispositions

Attitudes & dispositions: overall investor disposition towards investing or
trading in the stock market in the mind of the investor.
Barriers: key obstacles that may hinder investment in stock market.
Influencers: other factors influencing the investment pattern.
Motivators: key constraints that may encourage investment in stock