KSD’s Model College

Kanchangaon Village, Khambalpada, NR. R.B.T. School,

Thakurli East -421201.

CERTIFICATE

This is to certify that Mr. Pisharody Hrithik Ramchandran has worked and duly completed his
Project Work for the degree of Bachelor in Commerce (Accounting & Finance) under the
Faculty of Commerce in the subject of International Finance & SAPM and his project is entitled,
“Risk Perception & Portfolio Management In Equity Markets” under my supervision.

I further certify that the entire work has been done by the learner under my guidance and that no
part of it has been submitted previously for any Degree or Diploma of any University.

It is his own work and facts reported by his personal findings and investigations.

Asst. Prof. Akansha Sant

 A PROJECT REPORT ON RISK PERCEPTION AND PORTFOLIO
MANAGEMENT IN EQUITY MARKET.

A PROJECT SUBMITTED TO UNIVERSITY OF MUMBAI FOR

PARTIAL COMPLETION OF THE DEGREE OF BACHELOR IN
COMMERCE (ACCOUNTING AND FINANCE) UNDER THE FACULTY
OF COMMERCE

BY

PISHARODY HRITHIK RAMCHANDRAN RAJANI

UNDER THE GUIDANCE OF

ASST. PROF. AKANSHA SANT

KSD’s MODEL COLLEGE

KANCHANGAON VILLAGE, KHAMBALPADA, NR. R.B.T. SCHOOL,

THAKURLI EAST -421201.

 A PROJECT REPORT ON RISK PERCEPTION AND PORTFOLIO
MANAGEMENT IN EQUITY MARKET.

A PROJECT SUBMITTED TO UNIVERSITY OF MUMBAI FOR

PARTIAL COMPLETION OF THE DEGREE OF BACHELOR IN
COMMERCE (ACCOUNTING AND FINANCE) UNDER THE FACULTY
OF COMMERCE

BY

PISHARODY HRITHIK RAMCHANDRAN RAJANI

UNDER THE GUIDANCE OF

ASST. PROF. AKANSHA SANT

KSD’s MODEL COLLEGE

KANCHANGAON VILLAGE, KHAMBALPADA, NR. R.B.T. SCHOOL,

THAKURLI EAST -421201.

 TABLE OF CONTENTS

SERIAL NO. DESCRIPTION PAGE NO.

1 CERTIFICATE i.
2 DECLARATION ii.
3 ACKNOWLEDGEMENT iii.
4 CHAPTER 1:
INTRODUCTION
5 CHAPTER 2:
RESEARCH METHODOLOGY
6 CHAPTER 3:
LITERATURE REVIEW
7 CHAPTER 4:
DATA ANALYSIS & INTERPRETATION
8 CHAPTER 5:
CONCLUSION
 Declaration
I the undersigned Mr. Pisharody Hrithik Ramchandran Rajani here by, declare that the work
embodied in this project work titled “Risk Perception and Portfolio Management in Equity
Market”, forms my own contribution to the research work carried out under the guidance of Asst.
Prof. Akansha Sant is a result of my own research work and has not been previously submitted to
any other University for any other Degree/ Diploma to this or any other University.

Wherever reference has been made to previous works of others, it has been clearly indicated as
such and included in the bibliography.

I, here by further declare that all information of this document has been obtained and presented
in accordance with academic rules and ethical conduct.

Pisharody Hrithik Ramchandran Rajani

B.com (Accounting & Finance)

Certified by

Name and Certificate of the Guiding Teacher

 Acknowledgement
To list who all helped me is difficult because they are so numerous and the depth is so enormous.

I would like to acknowledge the following as being idealistic channels and fresh dimensions in
the completion of the project.

I take this opportunity to thank the University of Mumbai for giving me chance to do this
project.

I would like to thank my Principle, Dr. Vinay Bhole for providing the necessary facilities
required for completion of this project.

I take this opportunity to thank our Coordinator Asst. Prof. Geeta Nair, for her moral support
and guidance.

I would also like my sincere gratitude towards my project guide Asst. Prof. Akansha Sant
whose guidance and care made the project successful.

I would like to thank my College Library, for having provided various reference books and
magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly helped me in the
completion of the project especially my Parents and Peers who supported me throughout my
project.

Pisharody Hrithik Ramchandran Rajani

1 INTRODUCTION

For most of the investors throughout their life, they will be earning and spending money. Rarely,
investor’s current money income exactly balances with their consumption desires. Sometimes,
investors may have more money than they want to spend; at other times, they may want to
purchase more than they can afford. These imbalances will lead investors either to borrow or to
save to maximize the long-run benefits from their income.

When current income exceeds current consumption desires, people tend to save the excess. They
can do any of several things with these savings. One possibility is to put the money under a
mattress or bury it in the backyard until some future time when consumption desires exceed
current income. When they retrieve their savings from the mattress or backyard, they have the
same amount they saved.

Another possibility is that they can give up the immediate possession of these savings for a
future larger amount of money that will be available for future consumption. This tradeoff of
present consumption for a higher level of future consumption is the reason for saving. What
investor does with the savings to make them increase over time is investment. In contrast, when
current income is less than current consumption desires, people borrow to make up the
difference.

Those who give up immediate possession of savings (that is, defer consumption) expect to
receive in the future a greater amount than they gave up. Conversely, those who consume more
than their current income (that is, borrowed) must be willing to pay back in the future more than
they borrowed.

The rate of exchange between future consumption (future rupee) and current consumption
(current rupee) is the pure rate of interest. Both people’s willingness to pay this difference for
borrowed funds and their desire to receive a surplus on their savings give rise to an interest rate
referred to as the pure time value of money. This interest rate is established in the capital market
by a comparison of the supply of excess income available (savings) to be invested and the
demand for excess consumption (borrowing)at a given time.
An investment is the current commitment of rupee for a period of time in order to derive future
payments that will compensate the investor for:

(1) The time the funds are committed,

(2) The expected rate of inflation, and

(3) The uncertainty of the future payments.

The “Investor” can be an individual, a government, a pension fund, or a corporation. Similarly,

this definition includes all types of investments, including investments by corporations in plant
and equipment and investments by individuals in stocks, bonds, commodities, or real estate. This
study emphasizes investments by individual investors. In all cases, the investor is trading a
known rupee amount today for some expected future stream of payments that will be greater than
the current outlay.

DEFINATION OF AN INDIVIDUAL INVESTMENT:

“An individual who purchases small amounts of securities for themselves, as opposed to an
institutional investor, Also called as Retail Investor or Small Investor.”

At this point, researcher has answered the questions about why people invest and what they want
from their investments. They invest to earn a return from savings due to their deferred
consumption. They want a rate of return that compensates them for the time, the expected rate of
inflation, and the uncertainty of the return.

In today’s world everybody is running for money and it is considered as a root of happiness. For
secure life and for bright future people start investing. Every time investors are confused with
investment avenues and their risk return profile. So, even if Researcher focuses on past, present
or future, investment is such a topic that needs constant upgradation as economy changes. The
research study will be helpful for the investors to choose proper investment avenue and to create
profitable investment portfolio.
ELEMENTS OF INVESTMENTS:

The Elements of Investments are as follows:

a) Return: Investors buy or sell financial instruments in order to earn return on them. The return
on investment is the reward to the investors. The return includes both current income and capital
gain or losses, which arises by the increase or decrease of the security price.

b) Risk: Risk is the chance of loss due to variability of returns on an investment. In case of every
investment, there is a chance of loss. It may be loss of interest, dividend or principal amount of
investment. However, risk and return are inseparable. Return is a precise statistical term and it is
measurable. But the risk is not precise statistical term. However, the risk can be quantified. The
investment process should be considered in terms of both risk and return.

c) Time: time is an important factor in investment. It offers several different courses of action.
Time period depends on the attitude of the investor who follows a ‘buy and hold’ policy. As time
moves on, analysis believes that conditions may change and investors may revaluate expected
returns and risk for each investment.

d) Liquidity: Liquidity is also important factor to be considered while making an investment.

Liquidity refers to the ability of an investment to be converted into cash as and when required.
The investor wants his money back any time. Therefore, the investment should provide liquidity
to the investor.

e) Tax Saving: The investors should get the benefit of tax exemption from the investments.
There are certain investments which provide tax exemption to the investor. The tax saving
investments increases the return on investment. Therefore, the investors should also think of
saving income tax and invest money in order to maximize the return on investment.

INVESTMENT ATTRIBUTES:

Every investor has certain specific objective to achieve through his long term or short term
investment. Such objectives may be monetary/financial or personal in character. The Three
financial objectives are:-
1. Safety & Security of the fund invested (Principal amount)

2. Profitability (Through interest, dividend and capital appreciation)

3. Liquidity (Convertibility into cash as and when required)

These objectives are universal in character as every investors will like to have a fair balance of
these three financial objectives. An investor will not like to take undue risk about his principal
amount even when the interest rate offered is extremely attractive. These factors are known as
investment attributes.

There are personal objectives which are given due consideration by every investor while
selecting suitable avenues for investment. Personal objectives may be like provision for old age
and sickness, provision for house construction, provision for education and marriage of
children’s and finally provision for dependents including wife, parents or physically handicapped
member of the family. Investment Avenue selected should be suitable for achieving both the
financial and personal objectives. Advantages and disadvantages of various investment avenues
need to be considered in the context of such investment objectives.

1) Period of Investment:- It is one major consideration while selecting avenue for investment.
Such period may be,

a. Short Term (up to one year) – To meet such objectives, investment avenues that carry
minimum or no risk are suitable.

b. Medium Term (1 year to 3 years) – Investment avenues that offers better returns and may
carry slightly more risk can be considered, and lastly

c. Long Term (3 years and above) – As the time horizon is adequate, investor can look at
investment that offers best returns and are considered more risky.

2) Risk in Investment : Risk is another factor which needs careful consideration while selecting
the avenue for investment. Risk is a normal feature of every investment as an investor has to part
with his money immediately and has to collect it back with some benefit in due course. The risk
may be more in some investment avenues and less in others.
Risk connected with the investment are, liquidity risk, inflation risk, market risk, business risk,
political risk etc. Thus, the objective of an investor should be to minimize the risk and to
maximize the return out of the investment made.

INVESTMENT ALTERNATIVES:

Wide varieties of investment avenues are now available in India. An investor can himself select
the best avenue after studying the merits and demerits of different avenues. Even financial
advertisements, newspaper supplements on financial matters and investment journals offer
guidance to investors in the selection of suitable investment avenues.

Investment avenues are the outlets of funds. A bewildering range of investment alternatives are
available, they fall into two broad categories, viz, financial assets and real assets. Financial assets
are paper (or electronic) claim on some issuer such as the government or a corporate body. The
important financial assets are equity shares, corporate debentures, government securities, deposit
with banks, post office schemes, mutual fund shares, insurance policies, and derivative
instruments. Real assets are represented by tangible assets like residential house, commercial
property, agricultural farm, gold, precious stones, and art object. As the economy advances, the
relative importance of financial assets tends to increase. Of course, by and large the two forms of
investments are complementary and not competitive.

Investors are free to select any one or more alternative avenues depending upon their needs. All
categories of investors are equally interested in safety, liquidity and reasonable return on the
funds invested by them. In India, investment alternatives are continuously increasing along with
new developments in the financial market.

Investment is now possible in corporate securities, public provident fund, mutual fund etc. Thus,
wide varieties of investment avenues are now available to the investors. However, the investors
should be very careful about their hard earned money. An investor can select the best avenue
after studying the merits and demerits of the following investment alternatives:

1) Shares

2) Debentures and Bonds

3) Public Deposits

4) Bank Deposits

5) Post Office Savings

6) Public Provident Fund (PPF)

7) Money Market Instruments

8) Mutual Fund Schemes

9) Life Insurance Schemes

10) Real Estates

11) Gold-Silver

12) Derivative Instruments

13) Commodity Market (commodities) For sensible investing, investors should be familiar with
the characteristics and features of various investment alternatives. These are the various
investment avenues; where individual investors can invest their hard earn money.

As my project title is restricted to shares only, there might be some limitations.

SHARES:

‘Share means a share in the share capital of a company. A company is a business organization.
The shares which are issued by companies are of two types i.e. Equity shares and Preference
shares. It is registered as per Companies Act, 1956. Every company has share capital. The share
capital of a company is divided into number of equal parts and each of such part is known as a
'share'. A public limited company has to complete three stages. The first is registration. The
second is raising capital and the third is commencement of business. A public limited company
issues shares to the public for raising capital. The first public issue is known as Initial Public
Offerings (IPO). The shares can be issued at par, premium or discount. Each share has a face
value of Rs. 1, 2, 5 or 10. In order to issue shares a prospectus is prepared and it is got approved
from Securities and Exchange Board of India (SEBI). These shares are listed with the stock
exchange so that the shareholders can sale these shares in the market. The company has to make
an application to the stock exchange for listing of shares.

The shares are also called as "stock". Nowadays, shares are issued in DEMAT form. It means
shares are credited to a separate account of the applicant opened with depository participant. This
is also called paperless security because shares are not issued in physical form. Demat account is
compulsory when the shares are issued through Book Building Process, Book Building is a
method of public issue of shares by a company in which the price is determined by the investors
subject to a price band or range of prices given by the company. Investment in shares is more
risky because the share prices go on changing day by day. Today, the market is more 'volatile'
means more fluctuating. The share prices may go up or go down. If the stock market falls the
share prices will go down and the investor will lose money in the investment However, the return
on investment in shares is higher. The return on investment in shares is in the form of regular
dividend, capital appreciation, bonus and rights. There is also liquidity in this kind of investment.
The shares can be sold in stock market and money can be collected within 3 to 4 days.
Investment in shares is not a tax saving investment.’

Companies (Private and Public) need capital either to increase their productivity or to increase
their market reach or to diversify or to purchase latest modern equipments. Companies go in for
IPO and if they have already gone for IPO then they go for FPO. The only thing they do in either
IPO or FPO is to sell the shares or debentures to investors (the term investor here represents
retail investors, financial institutions, government, high net worth individuals, banks etc.).

Investors in Mumbai are so familiar to the ups and downs in the stock markets, but still no one
has loosed the confidence over the investment in shares. Even a small investors keeping long
term view in mind, are investing some part of their hard earn money inshares. Many investors are
playing in market on the basis of the cash balance or the margin funding allowed by the
depository (service provider). In Mumbai there are two secondary markets they are as follows,

1. Bombay stock exchange (BSE)

2. National stock exchange (NSE)

Investors in Mumbai are playing in both the markets i.e. primary market and secondary market.
Shares constitute the ownership securities and are popular among the investing class.
Investment in shares is risky as well as profitable. Transactions in shares take place in the
primary and secondary markets. Large majority of investors (particularly small investors) prefer
to purchase shares through brokers and other dealers operating on commission basis. Purchasing
of shares is now easy and quick due to the extensive use of computers and screen based trading
system (SBTs). Orders can be registered on computers. The shares available for investment are
classified into different categories. Shares certificates in physical form are no more popular in
India due to DEMAT facility. It gives convenience in handling and transfer of shares. For this,
DEMAT account can be opened in the bank which provides depository services.

The shares are listed and traded on stock exchanges which facilitate the buying and selling of
stocks in the secondary market. The prime stock exchanges in India are The Stock Exchange
Mumbai, known as BSE and the National Stock Exchange India ltd known as NSE. The purpose
of a stock exchange is to facilitate the trading of securities between buyers and sellers, thus
providing a marketplace. Investing in equities is riskier and definitely demands more time than
other investments.

There are two ways in which investment in equities can be made:

i. Through the primary market (by applying for shares that are offered to the public)

ii. Through the secondary market (by buying shares that are listed on the stock exchanges)

DEFINITION OF STOCK EXCHANGE:

"Stock exchange means anybody or individuals whether incorporated or not, constituted for the
purpose of assisting, regulating or controlling the business of buying, selling or dealing in
securities." It is an association of member brokers for the purpose of self-regulation and
protecting the interests of its members. It can operate only, if it is recognized by the Government
under the securities contracts (regulation) Act, 1956. The recognition is granted under section 3
of the Act by the central government, Ministry of Finance.
NATURE AND FUNCTIONS OF STOCK EXCHANGE:

There is an extraordinary amount of ignorance and of prejudice born out of ignorance with
regard to nature and functions of Stock Exchange. As economic development proceeds, the
scope for acquisition and ownership of capital by private individuals also grow. Along with
it, the opportunity for Stock Exchange to render the service of stimulating private savings and
challenging such savings into productive investment exists on a vastly great scale. These are
services, which the Stock Exchange alone can render efficiently.
The Stock Exchanges in India have an important role to play in the building of a real
shareholders democracy. To protect the interest of the investing public, the authorities of the
Stock Exchanges have been increasingly subjecting not only its members to a high degree of
discipline, but also those who use its facilities-Joint Stock Companies and other bodies in
whose stocks and shares it deals.
The activities of the Stock Exchange are governed by a recognized code of conduct apart from
statutory regulations. Investors both actual and potential are provided, through the daily Stock
Exchange quotations. The job of the Stock Exchange and its members is to satisfy the need of
market for investments to bring the buyers and sellers of investments together, and to make
the 'Exchange' of Stock between them as simple and fair as possible.

NEED FOR A STOCK EXCHANGE:

As the business and industry expanded and economy became more complex in nature, a need for
permanent finance arose. Entrepreneurs require money for long term needs, whereas investors
demand liquidity. The solution to this problem gave way for the origin of 'stock exchange',
which is a ready market for investment and liquidity.

As per the Securities Contract Act, 1956, "STOCK EXCHANGE" means anybody of individuals
whether incorporated or not constituted for the purpose of regulating or controlling the business
of buying, selling or dealing in securities.
BY-LAWS:

Besides the above act, the securities contracts (regulation) rules were also made in 1957 to
regulate certain matters of trading on the stock exchanges. There are also by-laws of exchanges,
which are concerned with the following subjects.

Opening / closing of the stock exchanges, timing of trading, regulation of blank transfers,
regulation of Badla or carryover business, control of the settlement and other activities of
the stock exchange, fixation of margins, fixation of market prices or making up prices, regulation
of Taravani business (jobbing), etc., regulation of brokers trading, Brokerage charges, trading
rules on the exchange, arbitration and settlement of disputes, Settlement and clearing of the
trading etc.

PROFILE OF NATIONAL STOCK EXCHANGE (NSE):

The NSE was incorporated in November 1992 with an equity capital of Rs.25crs. The
International Securities Consultancy (IS C) of Hong Kong helped in setting up NSE. ISC
prepared the detailed business plans and installation of hardware and software systems. The
promotions for NSE were Financial Institutions, Insurances Companies, Banks and SEBI Capital
Market Ltd., Infrastructure Leasing and Financial Services Ltd. and Stock Holding Corporation
Ltd.

It has been set up to strengthen the move towards professionalization of the capital market as
well as provide nationwide securities trading facilities to investors.

NSE is not an exchange in the traditional sense where brokers own and manage the exchange.
A two tier administrative setup involving a company board and a governing board of
the exchange is envisaged.

NSE is a national market for shares of Public Sector Units Bonds, Debentures and Government
securities, since infrastructure and trading facilities are provided.
NSE-NIFTY:

"Nifty" means National Index for Fifty Stocks. The NSE on April 22, 1996 launched a new
equity Index. The NSE-50. The new Index which re places the existing NSE-100 Index is
expected to serve as an appropriate Index for the new segment of futures and options.

The NSE-50 comprises 50 companies that represent 20 broad Industry groups with an
aggregate market capitalization of around Rs.1,70,000 crs. All companies included in the Index
have a market capitalization in excess of Rs.500 crs each and should have traded for 85% of
trading daysat an impact cost of less than 1.5%.The base period for the index is the close of
prices on Nov3, 1995 which makes one year of completion of operation of NSE's capital market
segment. The base value of the Index has been set at 1000.

NSE-MIDCAP INDEX:

The NSE midcap Index or the Junior Nifty comprises 50 stocks that represents 21 board Industry
groups and will provide proper representation of the midcap segment of the Indian capital
Market. All stocks in the Index should have market capitalization of greater than Rs.200 crs and
should have traded 85% of the trading days at an impact cost of less 2.5%.

The base period for the index is Nov 4, 1996 which signifies two years for completion of
operations of the capital market segment of the operation. The base value of the Index has been
set at 1000. Average daily turn over of the present scenario 2,58,212 (Lacs) and number
of average daily trades 2,160 (Lacs).

At present, there are 24 stock exchanges recognized under the Securities Contract (Regulation)
Act, 1956. They are:

Sr. No. NAME OF THE STOCK EXCHANGE YEAR

 Bombay Stock Exchange 1875
 Hyderabad Stock Exchange 1943
 Ahmedabad Share and Stock Broker Association 1957
 Calcutta Stock Exchange Association Limited 1957
 Delhi Stock Exchange Association Limited 1957
 Sr. No. NAME OF THE STOCK EXCHANGE YEAR
 Madras Stock Exchange Association Limited 1957
 Indoor Stock Broker Association 1958
 Bangalore Stock Exchange 1963
 Cochin Stock Exchange 1982
 Pune Stock Exchange Limited 1982
 U.P. Stock Exchange Association Limited 1982
 Ludhiana Stock Exchange Association Limited 1983
 Jaipur Stock Exchange Limited 1984
 Gauhathi Stock Exchange Limited 1984
 Mangalore Stock Exchange 1985
 Maghad Stock Exchange Limited, Patna 1986
 Bhuvanesh Stock Exchange Association Limited 1989
 Over the Stock Exchange Limited 1989
 Saurashtra Kutch Stock Exchange Limited 1990
 Vadodara Stock Exchange Limited 1991
 Coimbatore Stock Exchange Limited 1991
 Meerut Stock Exchange Limited 1991
 National Stock Exchange Limited 1992
 Integrated Stock Exchange 1999

PROFOLE OF BOMBAY STOCK EXCHANGE:

This Stock Exchange, Mumbai, popularly known as "BOMBAY STOCK EXCHANGE

(BSE)"was established in 1875 as ''The Native Share and Stock Brokers Association", as a
voluntary non-profit making association. It has evolved over the years into its present status as
the premiere Stock Exchange in the country. It may be noted that the Stock Exchange is the
oldest one in Asia, even older than the Tokyo Stock Exchange, which was founded in 1878.
The exchange, while providing an efficient and transparent market for trading in securities,
upholds the interests of the investors and ensures redressal of their grievances, whether against
the companies or its own member brokers. It also strives to educate and enlighten the investors
by making available necessary informative inputs and conducting investor education
programmes.

A governing board comprising of 9 elected directors, 2 SEBI nominees, 7 public

representatives and an executive director is the apex body, which decides the policies and
regulates the affairs of the exchange. The Executive director as the chief executive officer is
responsible for the day to day administration of the exchange.

BSE INDICES:
In order to enable the market participants, analysts etc., to track the various ups and downs in the
Indian stock market, the Exchange introduced in 1986 an equity stock index called BSE-
SENSEX that subsequently became the barometer of the moments of the share prices in the
Indian stock market. It is a "Market capitalization-weighted" index of 30 component
stocks representing a sample of large, well established and leading companies. The base year of
SENSEX is 1978-79. The SENSEX is widely reported in both domestic and international
markets through print as well as electronic media.

SENSEX is calculated using a market capitalization weighted method. As per this

methodology, the level of the index reflects the total market value of all 30 component stocks
from different industries related to particular base period. The total market value of a company is
determined by multiplying the price of its stock by the number of shares outstanding.
Statisticians call an index of a set of combined variables (such as price and number of shares) a
composite Index. An Indexed number is used to represent the results of this calculation in order
to make the value easier to work with and track over a time. It is much easier to graph a chart
based on Indexed values than one based on actual values world over majority of the well known
Indices are constructed using "Market capitalization weighted method".

In practice, the daily calculation of SENSEX is done by dividing the aggregate market value
of the 30 companies in the Index by a number called the Index Divisor. The Divisor is the only
link to the original base period value of the SENSEX.
The Divisor keeps the Index comparable over a period of time and it is the reference point for the
entire Index maintenance adjustments. SENSEX is widely used to describe the mood in the
Indian Stock markets. Base year average is changed as per the formula:

Base year average is changed as per the formula

New base year average = old base year average *(new market value/old market value)

Nowadays, behavioral finance is becoming an integral part of the decision making process,
because it greatly affects investors’ behavior regarding decision making. Hence, a better
understanding of behavioral finance will assist the investors to select a better investment
portfolio. In addition, several economic and financial theories assume that investors act
rationally; however, they are only human. They act according to market sentiments and some
even follow their gut feeling when making financial decisions (Raiz, Hunjra and Azam, 2012 and
Abdeldayem b, 2015).
Since the traditional finance theory arises to play a limited role in understanding and
interpreting certain issues such as: (1) why do individual investors trade in the stock market, (2)
how do they perform the task, (3) how do they choose and build their portfolios to conform their
conditions, and (4) why do returns differ so quickly even across stocks and portfolios for reasons
other than risk, therefore, the behavioral finance emerged to answer such questions and help
to interpret why and how individual investors behave in their choice of investment (Prabhakaran
and Karthika, 2011).
Several studies show behavior finance perspective on individual investor, such as Slovic
(1986), Lopes(1987), Schubertl et al. (1999), and Abdeldayem and Assran (2015). Those authors
argue that individual investor would demonstrate different risk attitude when facing alternative
investments. While, the question of what is the impact of investors’ perception of risk on
portfolio management remains unanswered.
Furthermore, determinants of risk attitudes of individual investors are of great interest in the
behavioral finance. Behavioral finance focuses on the individual attributes, Psychological or
otherwise, that shape common financial and investment practices. Unlike traditional assumptions
of expected utility maximization with rational investors in efficient markets, behavioral finance
assumes people are normal. Despite great interest in this area, not much research looks at the
under lying factors that may lead to individual differences and play a significant role
in determining people’s financing and investment strategies in emerging markets.
Risk perception can be managed if the investors are aware of their level of risk perception (Singh
and Bhowal, 2008). While making investment decisions, the investors make proper
tradeoffs between risks and return (Fischer and Jordan, 2006). In a specific situation, people who
are risk- seekers and are concerned about high returns are likely to have low risk perception,
whereas those who are risk-averse have high risk perception; consequently affecting the
investment behavior (Rana et al, 2011).
Portfolio management concerns the constructions and maintenance of a collection of investment.
It is investment of funds in different securities in which the total risk of the portfolio is
minimized, while expecting maximum return from it. It mainly involves reducing risk rather than
increasing return. Return is obviously important though, and the ultimate objective of portfolio
manager is to accomplish a chosen level of return by bearing the least possible risk.
Moreover, risk can be also considered as a deviation of an expected outcome. In investing we
can look at risk as a deviation of expected investment returns. This deviation can be either
positive or negative. The probability and magnitude of the deviation is what an investor is
concerned a bout. There are many factors that can affect risk and there are portfolio
management tools to measure and mitigate the risk factors. Hence, understanding the types of
investment risk allows an investor to manage risk and optimize returns. Accordingly, in this
research effort we look at the different types of investment risk and how a portfolio management
can help to improve the probability of positive outcomes instead of negative outcomes.

INTRODUCTION OF PORTFOLIO:

“Portfolio means combined holding of many kinds of financial securities i.e. shares, debentures,
government bonds, units and other financial assets.” The term investment portfolio refers to the
various assets of an investor which are to be considered as a unit. It is not merely a collection of
unrelated assets but a carefully blended asset combination within a unified framework. It is
necessary for investors to take all decisions as regards their wealth position in a context of
portfolio. Making a portfolio means putting ones eggs in different baskets with varying element
of risk and return. The object of portfolio is to reduce risk by diversification and maximize gains.
Thus, portfolio is a combination of various instruments of investment. It is also a combination of
securities with different risk-return characteristics. A portfolio is built up out of the wealth or
income of the investor over a period of time with a view to manage the risk-return preferences.
The analysis of risk-return characteristics of individual securities in the portfolio is made from
time to time and changed that may take place in combination with other securities are adjusted
accordingly. The object of portfolio is to reduce risk by diversification and maximize gains.

PORTFOLIO MANAGEMENT:

Portfolio management means selection of securities and constant shifting of the portfolio in the
light of varying attractiveness of the constituents of the portfolio. It is a choice of selecting and
revising spectrum of securities to it in with the characteristics of an investor.

Portfolio management includes portfolio planning, selection and construction, review and
evaluation of securities. The skill in portfolio management lies in achieving a sound balance
between the objectives of safety, liquidity and profitability. Timing is an important aspect of
portfolio revision. Ideally, investors should sell at market tops and buy at market bottoms.
Investors may switch from bonds to share in a bullish market and vice-versa in a bearish market.

Portfolio management is all about strengths, weaknesses, opportunities and threats in the choice
of debt vs. equity, domestic vs. international, growth vs. safety, and many other tradeoffs
encountered in the attempt to maximize return at a given appetite for risk.

Portfolio management is an art and science of making decisions about investment mix and
policy, matching investments to objectives, asset allocation for individuals and institutions, and
balancing risk against performance.

Portfolio management in common parlance refers to the selection of securities and their
continuous shifting in the portfolio to optimize the returns to suit the objectives of the investor.
This however requires financial expertise in selecting the right mix of securities in changing
market conditions to get the best out of the stock market. In India, as well as in many western
countries, portfolio management service has assumed the role of specialized service now a days
and a number of professional merchant bankers compete aggressively to provide the best to high
net-worth clients, who have little time to manage their investments. The idea is catching up with
the boom in the capital market and an increasing number of people are inclined to make the
profits out of their hard earned savings. Markowitz analysed the implications of the fact that the
investors, although seeking high expected returns, generally wish to avoid risk. It is the basis of
all scientific portfolio management. Although the expected return on a portfolio is directly
related to the expected returns on component securities, it is not possible to deduce a portfolio
riskiness simply by knowing the riskiness of individual securities. The riskiness of portfolio
depends upon the attributes of individual securities as well as the interrelationships among
securities.

A professional, who manages other people's or institution's investment portfolio with the object
of profitability, growth and risk minimization is known as a portfolio manager. He is expected to
manage the investor's assets prudently and choose particular investment avenues appropriate for
particular times aiming at maximization of profit. Portfolio management includes portfolio
planning, selection and construction, review and evaluation of securities. The skill in portfolio
management lies in achieving a sound balance between the objectives of safety, liquidity and
profitability.

Timing is an important aspect of portfolio revision. Ideally, investors should sell at market tops
and buy at market bottoms. They should be guarded against buying at high prices and selling at
low prices. Timing is a crucial factor while switching between shares and bonds. Investors may
switch from bonds to shares in a bullish market and vice-versa in a bearish market.

Portfolio management service is one of the merchant banking activities recognized by Securities
and Exchange Board of India (SEBI). The portfolio management service can be rendered either
by the SEBI recognized categories I and II merchant bankers or portfolio managers or
discretionary portfolio manager as defined in clause (e) and (f) of rule 2 SEBI (portfolio
managers) Rules 1993.

According to the definitions as contained in the above clauses, a portfolio manager means any
person who pursuant to contract or arrangement with a client, advises or directs of undertakes on
behalf of the client (whether as a discretionary portfolio manager or otherwise) the management
or administration of a portfolio of securities or the funds of the client, as the case may be. A
merchant banker acting as a portfolio Manager shall also be bound by the rules and regulations
as applicable to the portfolio manager. Realizing the importance of portfolio management
services, the SEBI has laid down certain guidelines for the proper and professional conduct of
portfolio management services. As per guidelines only recognized merchant bankers registered
with SEBI are authorized to offer these services.

Portfolio management or investment helps investors in effective and efficient management of

their investment to achieve their financial goals. The rapid growth of capital markets in India has
opened up new investment avenues for investors. The stock markets have become attractive
investment options for the common man. But investors should be able to effectively and
efficiently manage investments in order to keep maximum returns with minimum risk.

A portfolio manager by virtue of his knowledge, background and experience is expected to study
the various avenues available for profitable investment and advise his client to enable the latter
to maximize the return on his investment and at the same time safeguard the funds invested.

CONSTRUCTION OF PORTFOLIO:

Portfolio construction means determining the actual composition of portfolio. It refers to the
allocation of funds among a variety of financial assets open for investment. Portfolio theory
concerns itself with the principles governing such allocation. Therefore, the objective of the
theory is to elaborate the principles in which the risk can be minimized subject to a desired level
of return on the portfolio or maximize the return subject to the constraints of a certain level of
risk. The portfolio manager has to set out all the alternative investments along with their
projected return and risk, and choose investments which satisfy the requirements of the investor
and cater to his preferences.

It is a critical stage because asset mix is the single most determinant of portfolio performance.
Portfolio construction requires a knowledge of the different aspects of securities. The
components of portfolio construction are (a) Asset allocation (b) Security selection and (c)
Portfolio structure. Asset allocation means setting the asset mix. Security selection involves
choosing the appropriate security to meet the portfolio targets and portfolio structure involves
setting the amount of each security to be included in the portfolio.
Investing in securities presupposes risk. A common way of reducing risk is to follow the
principle of diversification. Diversification is investing in a number of different securities rather
than concentrating in one or two securities. The diversification assures the benefit of obtaining
the anticipated return on the portfolio of securities. In a diversified portfolio, some securities may
not perform as expected but other securities may exceed expectations with the effect that the
actual results of the portfolio will be reasonably close to the anticipated results.

TYPES OF PORTFOLIO:

When it comes to investing there are many options available to individuals. A person can invest
in stocks, bonds, mutual funds, etc. Once a person invests in multiple products their performance
needs to be tracked and strategies made to ensure the investor reaps the most profit possible. This
is where the investment portfolio comes into play. According to Investor Awareness, it is a term
that describes all investments owned. To take this definition a little farther, an investment
portfolio is a significant aspect in diversification. Maintaining a diverse portfolio helps to
mitigate loss because the investor has not placed all of their eggs in one basket. There are
different types of investment portfolios. Perhaps the most common type’s individuals are
exposed to are: Conservative, Balanced and Aggressive Growth.

A portfolio is a combination of different investment assets mixed and matched for the purpose of
achieving an investor's goals. Items that are considered a part of Investors portfolio can include
any asset that they own - from real items such as art and real estate, to equities, fixed-income
instruments and their cash and equivalents. For the purpose of this section, Investors will focus
on the most liquid asset types: equities, fixed-income securities and cash and equivalents. The
asset mix they choose according to their aims and strategy will determine the risk and expected
return of their portfolio.

 Aggressive Investment Portfolio

In general, aggressive investment strategies - those that shoot for the highest possible return - are
most appropriate for investors who, for the sake of this potential high return,have a high risk
tolerance and a longer time horizon. Aggressive portfolios generally have a higher investment in
equities. Aggressive investment portfolios are for investors not afraid of high risk. This type of
portfolio may incorporate mutual funds that aim for high capital gain, equities, stocks, bonds,
cash and maybe some commodities. In the short-term, growth will be very small and some loss
will be observed. As a result, aggressive portfolios perform better in the long term - about five
years or longer. An actively traded aggressive portfolio will typically gain maximum returns for
the investor. The loss factor is why only individuals who are willing to take a high financial risk
should seek an aggressive investment portfolio.

 Balanced or Moderate Investment Portfolio

A moderately aggressive portfolio is meant for individuals with a longer time horizon and an
average risk tolerance. Investors who find these types of portfolios attractive are seeking to
balance the amount of risk and return contained within the fund. The portfolio would consist of
approximately 50-55% equities, 35-40% bonds, 5-10% cash and equivalents. The Moderate
Portfolio's primary investment objective is to seek long-term capital appreciation and also the
Moderate Portfolio seeks current income.

 Conservative Investment Portfolio

The conservative investment strategies, which put safety at a high priority, are most appropriate
for investors who are risk averse and have a shorter time horizon. Conservative portfolios will
generally consist mainly of cash and cash equivalents, or high-quality fixed-income instruments.
The main goal of a conservative portfolio strategy is to maintain the real value of the portfolio, or
to protect the value of the portfolio against inflation. The portfolio shown below would yield a
high amount of current income from the bonds and would also yield long-term capital growth
potential from the investment in high quality equities. The conservative investment portfolio is
geared towards preserving capital. A minimal risk investment strategy is used. This type of
portfolio is ideal for retirees who are focused more on having assets available than a stream of
income from interest. Since the primary goal is to preserve capital, investors can dip into their
principal to supplement living expenses instead of relying on the portfolio's earned income. The
Conservative Portfolio's primary investment objective is to seek preservation of capital and
current income. The Conservative Portfolio also seeks capital appreciation. Under normal market
conditions, the Conservative Portfolio will invest approximately 65% of its total assets in fixed
income securities and cash and approximately 35% of its total assets in equity securities. The
Conservative Portfolio can invest up to 100% of its total assets in fixed income securities and or
some time up to 20% of its total assets in equity securities.
 RESEARCH METHODOLOGY

Investing in various types of assets is an interesting activity that attracts people from all walks of
life irrespective of their occupation, economic status, education and family background. When a
person has more money than he requires for current consumption, he would be coined as a
potential investor. The investor who is having extra cash could invest it in securities or in any
other assets like gold or real estate or could simply deposit it in his bank account.

In the past, investment avenues were limited to real estate, gold, schemes of post office and
banks. At present, a wide variety of investment avenues are open to the investors to suit their
needs and nature. The required level of return and risk tolerance level decide the choice of the
investor. This paper deals with investors’ preference towards Mutual Funds and equity shares.
This paper also covers the most important attribute for investment consideration, the purpose of
investment, type of Mutual Fund preferred, preferred mode of investment (SIP/one time
investment) for mutual funds and preferred mode of trading in case of investment in equity
shares.

TITLE OF THE STUDY

The present study is tilted as “The project report on Portfolio Management and Risk Perception
in Equity Market.

The study is made with the special preference to Investment.

OBJECTIVES OF THE STUDY

The following are the objectives of the present study:

 To know about various risks involved in Investment

 To get detail information of Portfolio Management and Risk Perception involved in
Investments
 To study in detail about various kind of portfolios and their management
DATA METHODOLOGY

 For the purpose of the present study both primary and secondary were used
 Secondary data collected from books, magazines, journals, news reports, website, and
various publish articles

 LIMITATIONS OF THE STUDY

The study has got all the limitation of using secondary data because inferences were made based
on that.

 CHAPTER LAYOUT

The present study is arranged as follows:

 Chapter-I; Introduction- Gives introduction to the “A project report on comparison

between investment in equity and mutual fund”.
 Chapter-II; Research Methodology- Gives introduction to the report.
 Chapter-III; Deals with the Theoretical view of “A project report on comparison between
equity and mutual fund”.
 Topic under study is given in forth chapter.
 Chapter-V; summarizes the results of the study
 LITERATURE REVIEW

The published work relating to the topic is reviewed by the Researcher. The relevant literature is
reviewed on the basis of Books, Periodicals, News Papers and Websites. The detailed review is
given below:-

Various studies on Investment pattern & Investment behavior of investors had been conducted in
foreign countries. However, in Indian context, the number is quite few. Depending on the various
issues of investment, the review has been discussed in brief as follows:

Deepa Mangala and R.K.Mittal (2005) in their article, “Anomalous Price behavior – An
Evidence of Monthly effect in Indian Stock Market”, published in the Indian Journal of
Commerce, April-June, 2005, concluded that the mean return for the first half of a trading month
is significantly higher than the mean returns for the second half. The increased liquidity might
induce the demand for equities resulting in the monthly effect.

Ranganathan (2003), has stated the investor behavior from the marketing world and financial
economics has brought together to the surface an exciting area for study and research:
behavioral finance. The realization that this is a serious subject is, however, barely dawning.
Analysts seem to treat financial markets as an aggregate of statistical observations, technical and
fundamental analysis. A rich view of research waits this sophisticated understanding of how
financial markets are also affected by the „financial behavior‟ of investor’s. With the reforms of
industrial policy, public sector, financial sector and the many developments in the Indian money
market and capital market, mutual funds that has become an important portal for the small
investors, is also influenced by their financial behavior. Hence, this study has made an attempt to
examine the related aspects of the fund selection behavior of individual investors towards Mutual
funds, in the city of Mumbai. From the researchers and academicians point of view, such a study
will help in developing and expanding knowledge in this field.

Shrotriya (2003) conducted a survey on investor preferences in which he depicted the linkage of
investment with the factor so considered while making investment. He says “There are various
factors and their linkage also. These factors help us how to ensure safety, liquidity, capital
appreciation and tax benefits along with returns.”

Dijk (2007) has conducted 25 years of research on the size effect in international equity returns.
Since Banz's (1981) original study, numerous papers have appeared on the empirical regularity
that small firms have higher risk-adjusted stock returns than large firms. A quarter of a century
after its discovery, the outlook for the size effect seems bleak. Yet, empirical asset pricing
models that incorporate a factor portfolio mimicking underlying economic risks proxied by firm
size are increasingly used by both academics and practitioners. Applications range from event
studies and mutual fund performance measurement to computing the cost of equity capital. The
aim of this paper is to review the literature on the size effect and synthesize the extensive debate
on the validity and persistence of the size effect as an empirical phenomenon as well as the
theoretical explanations for the effect. We discuss the implications for academic research and
corporate finance and suggest a number of avenues for further research.

Vasudev (2007) analyzed the developments in the capital markets and corporate governance in
India since the early 1990s when the government of India adopted the economic liberalization
programme. The legislative changes significantly altered the theme of Indian Companies Act
1956, which is based on the Companies Act1948 (UK). The amendments, such as the permission
for nonvoting shares and buybacks, carried the statute away from the earlier “business model”
and towards the 'financial model' of the Delaw are variety. Simultaneously, the government
established the Securities Exchange Board of India (SEBI), patterned on the Securities and
Exchange Commission of US. Through a number of other policy measures, the government
steered greater investments in the stock market and promoted the stock market as a central
institution in the society. The article points out that the reform effort was inspired, at least in part,
by the government’s reliance on foreign portfolio inflows into the Indian stock market to fund
the country’s trade and current account deficits.

Johnson (2008) has stated that Product quality is probably under-valued by firms because there
is little consensus about appropriate measures and methods to research quality. The authors
suggest that published ratings of a product's quality are a valid source of quality information with
important strategic and financial impact. The authors test this thesis by an event analysis of
abnormal returns to stock prices of firms whose new products are evaluated in the Wall Street
Journal. Quality has a strong immediate effect on abnormal returns, which is substantially higher
than that for other marketing events assessed in prior studies. In dollar terms, these returns

translate into an average gain of $500 million for firms that got good reviews and an average loss
of$200 million for firms that got bad reviews. Moreover, there are some important asymmetries.
Rewards to small firms with good reviews of quality are greater than those to large firms with
good reviews. On the other hand, large firms are penalized more by poor reviews of quality than
they are rewarded for good reviews. The authors discuss the research, managerial, investing, and
policy implications.

Patnaik and shah (2008) has analyzed on the preferences of foreign and domestic institutional
investors in Indian stock markets. Foreign and domestic institutional investors both prefer larger,
widely dispersed firms and do not chase returns. However, we and evidence of strong differences
in the behavior of foreign and domestic institutional investors.

Bhatnagar (2009) has analyzed of Corporate Governance and external finance in transition
economies like India. The problem in the Indian corporate sector is that of disciplining the
dominant shareholder and protecting the minority shareholders. Clearly, the problem of
corporate governance abuses by the dominant shareholder can be solved only by forces outside
the company itself particularly that of multilateral financial institutions in the economic
development. India has relied heavily on external finance as their domestic saving rates have
been much lower than their investment rates. The less promising prospects for the global supply
of external finance the need for an increase in the multilateral financial institutions. India being a
transition economy is changing from a centrally planned economy to a free market. It is
undergoing economic liberalization, macroeconomic stabilization where immediate high
inflation is brought under control, and restructuring and privatization in order to create a
financial sector and move from public to private ownership of resources. These changes often
may lead to increased inequality of incomes and wealth, dramatic inflation and a fall of GDP.

Mayank (2009) has analyzed the role of two important forces - the regulator and the capital
market as determinant of external finance in transition economies analyses the changing pattern
and future prospectus of external finance to India and reviews the role of external finance. Under
this framework, the study evaluates current Indian corporate governance practices in light of
external finance.

Barents Group LLC (1997) studied that India‟s household savings and foreign investors are
key sources of this capital and can and will be increasingly attracted to more efficient, safe and
transparent market. Retail investors in India are mostly short-term traders, and day trading is not
uncommon. To the extent that buying publicly traded equities is perceived as a risky and
speculative short-term activity, many potential investors will simply avoid capital market
instruments altogether in deciding to allocate savings.

R. Dixon and R.K. Bhandari (1997) said in their study that consequently derivative instruments
can have a significant impact on financial institutions, individual investors and even national
economies. Using derivatives to hedge against risk carries in itself a new risk was brought
sharply into focus by the collapse of Barings Bank. There is a clear call for international
harmonization and its recognition by both traders and regulators. There are calls also for a new
international body to be set up to ensure that derivatives, while remaining an effective tool of
risk management, carry a minimum risk to investors, institutions and national/global economies.
Considers the expanding role of banks and securities houses in the light of their sharp reactions
to increases in interest rates and the effect their presence in the derivatives market may have on
market volatility.

Patrick McAllister and John R. Mansfield (1998) stated that derivatives have been an
expanding and controversial feature of the financial markets since the late 1980s. They are used
by a wide range of manufacturers and investors to manage risk. This paper analyses the role and
potential of financial derivatives investment property portfolio management. The limitations and
problems of direct investment in commercial property are briefly discussed and the main
principles and types of derivatives are analyzed and explained. The potential of financial

derivatives to mitigate many of the problems associated with direct property investment is
examined.

Yoon Je Cho (1998) showed in his study that increasing turnover figures in the Indian stock
exchanges from 1994-95 to 1996-97, implying that they are dominated by speculative
investments, which is not unusual in emerging markets. However, trading volumes in the Indian
capital market are fairly large compared to those in other emerging markets. The substantial

increase in turnover may be attributed primarily to the expansion of the NSE‟s trading network.
But this also reflects the fact that the Indian stock market is dominated by speculative
investments for short-term capital gains, rather than long-term investment.

Abdulla Yameen (2001) delivered massage, investors will need to be alert to any new
development in capital market and take advantage of the Investor Education and Awareness
Campaign program which to be undertaken by the Capital Market Section to acquaint of the risks
and rewards of investing on the Capital market. Speech was also focused on to create a new
breed of financial intermediaries, which will deal on the market for their clients. These
intermediaries have to be professionals with quite advanced knowledge on stock exchange
operations, techniques, law and companies valuation. Investors depend to a large extent on their
professional advice when investing on the market. Furthermore, these intermediaries must be
men of integrity and honesty as they would deal with clients‟ money Confidence of investors in
these professionals is a key to the success of the capital market.

Makbul Rahim (2001) argued in his speech that the regulatory framework must provide the
right environment for the development and the growth of the market. High standards of probity
and professional conduct have to be maintained and reach world class standards. Integrity is very
important as well confidence. The development of a proper free flow of information and
disclosure helps investors to make informed investment decisions.

P. M. Deleep Kumar and G. Raju (2001) showed that the capital market is becoming more and
more risky and complex in nature so that ordinary investors are unable to keep track of its
movement and direction. The study revealed that the Indian market is probably more volatile
than developed country markets, which is probably why a much higher proportion of savings in
developed countries go into equities. More than half of individual shareowners in India belonged
to just five cities. The distribution of share ownership by States and Union Territories show that
just five States accounted for 74.7 per cent of the country‟s share ownership population and 71.7
per cent of the aggregate value of the shareholdings of individuals in India. Among the five
States Maharashtra tops the list with Gujarat as a distant second followed by West Bengal, Delhi
and Tamil Nadu. In the midpoint of the study also argued that introduction of derivatives is the
first step to hedge the risk of unfavourable movement in the market. This will also lower
transaction cost and provides depth and liquidity to the market.

Peter Carr and Dilip Madan (2001) disclosed that generally does not formally consider
derivatives securities as a potential investment vehicles. Derivatives are considered at all, they
are only viewed as tactical vehicles for efficiently re-allocating funds across broad asset classes,
such as cash, fixed income, equity and alternative investments. They studied that under
reasonable market conditions, derivatives comprise an important, interesting and separate asset
class, imperfectly correlated with other broad asset classes. If derivatives are not held in our
economy then the investor confines his holdings to the bond and the stock and the optimal
derivatives position is zero.

Prof. Peter McKenzie (2001) in his speech at seminar investors have a c÷hoice instead of
placing their money in only one company they can pick areas of growth and move their money,
buying and selling and placing it where it is going to be most profitable. The individual investor
does not have to make an individual decision where to place his savings. These decisions are
made by an expert fund manager, which would spread the risk by spreading the investments
across different sectors of the economy.

Hong Kong Exchanges and Clearing Ltd. (2002) surveyed on derivatives retail investors, and
argued first based on empirical evidence that years of trading experience and usual deal size have
a positive correlation. Second, Male investors traded to trade more frequently than female
investors. Third, the usual deal size of investor with higher personal income traded to be larger.
Fourth majority of respondents are motivated by their stock trading experience to start
derivatives trading. Fifth, trading for profit is the key reason for derivatives trading other than
high rate of return, hedging, etc. Sixth, the most significant motivating factors are more liquid
market and more transparent market. Seventh, majority of traders are infrequent in trade- 3 times
or less in a month and Index futures is the most popular product to trade most frequently. Ninth,
a large proportion of the investors invest in exchange cash products than derivatives or
investment avenues.
Through empirical evidence form investor‟s opinion, study argued that the liquidity of
derivatives products other than futures is low. High transaction costs or margin requirement is
the barrier for active participation in derivatives market. But also shows that more active traders
do not have much complaint towards transaction costs and margin requirement.

S. M. Imamual Haque and Khan Ashfaq Ahmad (2002) argued that the sluggish trends in
primary equity markets need to be reverse by restoring investors‟ confidence in market. Savings
for retirement essential seek long term growth and for that investment in equity is desirable. It is
a well established fact that investments in equities give higher returns than debt and it would,
therefore, be in the interest of the banks to invest in equities.

Warren Buffet (2002) argued that derivatives as time bombs, both for the parties that deal in
them and the economic system. He also argued that those who trade derivatives are usually paid,
in whole or part, on “earnings” calculated by mark-to-market accounting. But often there is no
real market, and “mark-to-model” is utilized. This substitution can bring on large scale mischief.
In extreme cases, mark-to-model degenerates into mark-to-myth. Many people argue that
derivatives reduce systemic problems, in that participant who can’t bear certain risks are able to
transfer them to stronger hands. He said that the derivatives genie is now well out of the bottle,
and these instruments will almost certainly multiply in variety and number until some event
makes their toxicity clear.

Swarup K. S. (2003) empirically found that equity investors first enter capital market though
investment in primary market. The main reason for slump in equity offering is lack of investor
confidence in the primary market. It appeared from the analysis that the investors give
importance to own analysis as compared to brokers‟ advice. They also consider market price as a
better indicator than analyst recommendations. Accordingly number of suggestive measures in
terms of regulatory, policy level and market oriented were suggested to improve the investor
confidence in equity primary markets.

Leyla Şenturk Ozer, Azize Ergeneli and Mehmet Baha Karan (2004) studied that the risk
factor is one of the main determinants of investment decisions. Market participants that are
rational investors ultimately should receive greater returns from more risky investments. They
also concluded that the crisis and resulting deep recession in 2002 changed many things,
including market confidence of investors and financial analysts. In addition to decreasing trading
volume of Istanbul Stock Exchange (ISE), the number of individual investors reduced and
investment horizon of investors shortened and liquid instruments.

JenniferReynolds-Moehrle (2005) used a sample of derivative user and non-user firms; they
came to know that analysts‟ forecast accuracy increased and that unexpected earnings are
incorporated into subsequent earnings forecasts to a greater extent subsequent to disclosure of
sustained hedging activity. Additionally, the findings indicated an increase in the earnings return
relation in the hedging activity period.

Rajeswari, T. R. and Moorthy, V. E. R. (2005) said that expectations of the investors

influenced by their perception and human generally relate perception to action. The study
revealed that the most preferred vehicle is bank deposit with mutual funds and equity on fourth
and sixth respectively. The survey also revealed that the investment decision is made by
investors on their own, and other sources influencing their selection decision are newspapers,
magazine, brokers, television and friends or relatives.

Chris Veld and Yulia V. Veld-Merkoulova (2006) found that investors consider the original
investment returns to be the most important benchmark, followed by the risk-free rate of return
and the market return. Study found that investors with longer time horizon would generally be
better off investing in stocks compared to investors with shorter time horizon. They knew
through the question on risk perceptions that investors who are more risk tolerant would benefit
from relatively larger investment in stocks. Their study showed the investors optimize their
utility by choosing the alternative with the lowest perceived risk.

G.N.Bajpai (2006) showed that continuously monitors performance through movements of share
prices in the market and the threats of takeover improves efficiency of resource utilization and
thereby significantly increases returns on investment. As a result, savers and investors are not
constrained by their individual abilities, but facilitated by the economy’s capability to invest and
save, which inevitably enhances savings and investment in the economy. Thus, the capital
market converts a given stock of investible resources into a larger flow of goods and services and
augments economic growth. The study concluded the investors and issuers can take comfort and
undertake transactions with confidence if the intermediaries as well as their employees (i.) follow
a code of conduct and deal with probity and (ii) are capable of providing professional services.

J. K. Nayak (2006) interpreted the preferred mode of investment is first equity, banks, mutual
fund and then any other in a descending order. It means Investor’s faith has increased and their
risk taking ability has also increased. One thing that could be drawn from this study is that
problems are mostly broker related and therefore that is one area where reforms are required. The
investors feel that the amount of knowledge available on the equity market is not satisfactory.
Investors, it appears, need to be educated more. Investors still considered the capital market as
highly risky. But from the investment pattern from the descriptive statistics it seems that the
number of people willing to invest in capital market has increased.

Narender L. Ahuja (2006) expressed Futures and options trading helps in hedging the price risk
and also provides investment opportunity to speculators who are willing to assume risk for a
possible return. They can also help in building a competitive edge and enable businesses to
smoothen their earnings because non-hedging of the risk would increase the volatility of their
quarterly earnings. At the same time, it is true that too much speculative activity in essential
commodities would destabilize the markets and therefore, these markets are normally regulated
as per the laws of the country.

Randall Dodd and Stephany Griffith-Jones (2006) studied that derivatives markets serve two
important economic purposes: risk shifting and price discovery. Derivatives markets can serve to
determine not just spot prices but also future prices (and in the options the price of the risk is
determined). In the research, interviews with representatives from several major corporations
revealed that they sometimes prefer to use options as a means to hedge. They also argued
derivatives have a potential to encourage international capital inflows.

K. Ravichandran (2007) argued the younger generation investors are willing to invest in capital
market instruments and that too very highly in Derivatives segment. Even though the knowledge
to the investors in the Derivative segment is not adequate, they tend to take decisions with the
help of the brokers or through their friends and were trying to invest in this market. He also
argued majority the investors want to invest in short-term funds instead of long-term funds that
prefer wealth maximization instruments followed by steady growth instruments. Empirical study
also shows that market risk and credit risk are the two major risks perceived by the investors, and
for minimizing that risk they take the help of newspaper and financial experts. Derivatives acts
as a major tool for reducing the risk involved in investing in stock markets for getting the best
results out of it. The investors should be aware of the various hedging and speculation strategies,
which can be used for reducing their risk. Awareness about the various uses of derivatives can
help investors to reduce risk and increase profits. Though the stock market is subjected to high
risk, by using derivatives the loss can be minimized to an extent.

Nicole Branger and Beate Breuer (2007) showed that investors can benefit from including
derivatives into their portfolios. For retail investors, however, a direct investment in derivatives
is often too complicated. They argued if the investor can trade only in the stock and money
market account, the exposure of his portfolio to volatility risk will be zero, and the relation
between the exposure to stock diffusion risk and jump risk will be fixed. They proved through
documentation both theoretically and empirically that investors can increase their utility
significantly by trading plain vanilla options. And also told that in a complete market and with
continuous trading, it does not matter which derivatives an investor uses to realize his optimal
asset allocation. But with incomplete markets, and in particular, discrete trading, on the other
hand, the choice of derivatives may actually matter a lot. This problem particularly sever for
retail investor, who are hindered from implementing their optimal payoff profile by too high
minimum investment amounts, high transaction costs or margin requirements, short-selling
restrictions and may be also lack of knowledge.

Philipp Schmitz and Martin Weber (2007) exposed that the trading behavior is also influenced
if the underlying reaches some exceptional prices. The probability to buy calls is positively
related to the holding of the underlying in the portfolio, meaning that investors tend to leverage
their stock positions, while the relation between put purchases and portfolio holdings of the
underlying is negative. They also showed higher option market trading activity is positively
correlated with past returns and volatility, and negatively correlated with book-to-market ratios.
In addition they report that investors open and close long and short call positions if past week's
return is positive and write puts as well as close bought and written put positions if the past
returns are negative.
B. Das, Ms. S. Mohanty and N. Chandra Shil (2008) studied the behavior of the investors in
the selection of investment vehicles. Retail investors face a lot of problem in the stock market.
Empirically they found and concluded which are valuable for both the investors and the
companies having such investment opportunities. First, different investment avenues do not
provide the same level of satisfaction. And majority of investors are from younger group.

Gupta and Naveen Jain (2008) found that majority of the investors are from younger group and
as per occupation, salaried persons are more inclined towards investment. Study also argued
education qualification is the major influenced factor in investment. Their most preferred
investment is found to be shares followed by mutual funds. Empirically they found and argued
the Indian stock market is considerably dominated by the speculating crowd, the large scale of
day trading and also fact the futures trading in individual stocks is several times the value of
trading in cash segment. They also found the largest proportions of the investors are worried
about too much volatility of the market. For trader and speculators, price volatility is an
opportunity to make quick profits. In the study, high proportions of investors have a very
favorable opinion about the capital market regulation.

Prasanna P. K. (2008) empirically fond that foreign investors invested more in companies with
a higher volume of shares owned by general public. Foreign investors choose the companies
where family shareholding of promoters is not essential. The study concluded that corporate
performance is the major influencing factor for investment decision for any investor. As far as
financial performance is concerned the share return and earnings per share are significant factors
influencing investment decision. The study concluded that it is required to understand when FII
withdraw their funds and when they pump in more money.

Deleep Kumar P M and Deyanandan M N (2009) analyzed the opinion of retail investors on the
major market reforms as well as their investment performance. The study revealed
introduction of derivatives trading and internet trading are found useful by only a marginal
group of investors. The empirical results of the study concluded that even though SEBI claims
itself to be the champion of investor protection, it has not been successful in instilling a sense
of confidence in the minds of majority of investors.
G. Ramakrishna Reddy and Ch. Krishnudu (2009) summarized that a majority of the
investors are quite unaware of corporate investment avenues like equity, mutual funds, debt
securities and deposits. They are highly aware of traditional investment avenues like real estate,
bullion, bank deposits, life insurance schemes and small saving schemes. Study argued the
primary motive of investment among the small and individual investors is to earn a regular
income either in form of interest or dividend on the investment made. The other motives like
capital gains, tax benefits, and speculative profits are stated to be the secondary motives of
investment. From empirical research they argued to motivate the people to invest their savings in
the stock market to be achieved only if the regulatory authorities succeed in providing a
manipulation free stock market.

K. Logeshwari and V. Ramadevi (2009) advocated that a commodities market provides a

platform for the investors as well as hedgers to protect their economic interests as well as
increase their investible wealth. Commodity prices are generally less volatile than the stocks.
Therefore it’s relatively safer to trade in commodities. But the volume being traded in
commodities is much less than the stock market. This is because of the two reasons that the
investors are less aware about the commodities market and their risk perception.

Nidhi Walia and Ravi Kiran (2009) studied that to satisfy the needs of investors’ mutual funds
are designing more lucrative and innovative tools considering the appetite for risk taking of
individual investors. A successful investor is one who strives to achieve not less than rate of
return consistent with risk assumed. They also argued as per observation by survey responses of
the individual investor’s fact is clear that overall among other investment avenues capital market
instruments are at the priority of investors but level of preference varies with different category/
level of income, and an association exists between income status of investors and their
preference for capital market instrument with return as objective.

Vinay Mishra and Harshita Bhatnagar (2009) documented that Derivatives are considered to
be extremely versatile financial instruments, as they help to manage risks, lower funding costs,
enhance yields and diversify portfolios. The contributions made by derivatives have been so
great that they have been credited with having changed the face of finance in the world.
Derivatives markets are an integral part of capital markets in developed as well as in emerging
market economies. These instruments assist business growth by disseminating effective price
signals concerning exchange rates, indices and reference rates or other assets, thereby, rendering
both cash and derivatives markets more efficient.

Ashutosh Vashishtha and Satish Kumar (2010) studied encompasses scope an analysis of
historical roots of derivative market of India. The emergence of derivatives market is an
ingenious feat of financial engineering that provides an effective and less costly solution to the
problem of risk that is embedded in the price unpredictability of the underlying asset. In India,
since its inception derivatives market has exhibited exponential growth both in terms of volume
and number of traded contracts. They argued that NSE and BSE has added more products in their
derivatives segment but still it is far less than the depth and variety of products prevailing across
many developed capital markets.

Daniel Dorn (2010) concluded market for OTC derivatives have grown rapidly during the last
decade in many Asian and European countries. Investors often face a choice between dozens of
OTC options that differ only slightly in their attributes. He argued that professional advice can
help uninformed investor better navigate the menu of choices, unless issuers raise complexity or
offer advisors incentives to share in industry profit.

David Nicolaus (2010) studied that retail derivatives allow retail investors to pursue
sophisticated trading, investment strategies and hedging financial instruments. Retail investors‟
motivation for improving the after tax return of their household portfolio represents a major
driver of the derivatives choice of the products and that provide only little equity exposure for
the investor. The derivatives reveal the divergent belief of retail investors about the future price
level of the underlying as these can be tailored to specific demand of the investor. He argued the
potential role of search costs and financial advice on the portfolio decisions of retail investors,
the flexibility of retail derivatives and low issuance costs are likely to emphasize the existing
frictions in financial retail markets such as an increase of strategies and heuristics used by retail
investors to cope with the complex decision situation or an inadequate disclosure of conflicts of
interest in financial retail markets.

Gaurav Kabra, Prashant Mishra and Manoj Dash (2010) studied key factors influencing
investment behaviour and ways these factors impacts investment risk tolerance and decision
making process among men and women and those different age groups. They said that not all
investments will be profitable, as investor will not always make the correct investment decisions
over the period of years. Through evidence they proved that security as the most important
criterion; there is no significant difference of security, opinion, hedging in all age group. But
there is significant difference of awareness, benefits and duration in all age group. From the
empirical results they concluded the modern investor is a mature and adequately groomed
person.

Rajiv Gupta (2010) argued in Capital Market 2009-10 IPO-QIP Report there have been several
noticeable trends over the past five years. First, the size of offerings by Indian issuers has been
growing and there are more and larger size global offerings reflecting the maturing and
increasing depth of the Indian capital markets. Second, India has become a destination and
region in its own right for 13 raising capital - previously companies could not raise more than a
few hundred million, but now have capital issues like Reliance Power, in excess of Rs. 13,200
crore ($ 3 billion). While the ADR/GDR markets remain attractive, fewer companies are using
that route as Indian markets have become strong and have the appetite for large transactions.
Third, Indian capital markets now attract companies across sectors, rather than in any single
sector.

R R Rajamohan (2010) analyzed the role of the financial knowledge is important in decision
making in information intensive assets like stocks and other risky securities. Hence, reading
habit, as a proxy for financial knowledge. Younger people have greater labor flexibility than
older people; if the returns on their investments turn out to be low, they could work more or
retire later. Hence age an important factor to be considered in household portfolio analysis.

Sheng-Hung Chen and Chun-Hung Tsai (2010) wanted to identifying key factors influencing
individual investor’s decision to make portfolio choices is of importance to understand their
heterogeneous investment behavior. Through conjoint analysis examine how individual investors
derive their preferences for financial assets. Study stated female investors tend to be more detail
oriented; elder is more likely to have low level of risk tolerance; the level of education is thought
to impact on a person’s ability to accept risk; increasing income level of individual investor is
associated with increased levels of risk tolerance. At last they argued single investors are more
risk tolerance than married investors.
Shyan-Rong Chou, Gow-Liang Huang and Hui-Lin Hsu (2010) expressed that faced with the
series of financial events leading to the current turmoil, unpleasant investor experience has
become common and personal experiences and reports of such are demonstrated in risk and
attitudes to risk. The paper showed that investors are able to choose an investment with potential
risk and returns to suit their own preferences. Products of lower potential profit are tolerated
when the risk associated with those products is similarly low. In their study they found that
attitude to risk is very similar for both the genders. The study shows most stock trading is
transacted by individual rather than institutional investors, therefore the capital gains and losses
from stock price fluctuations are felt first-hand by individual investors.

Yu-Jane Liu, Ming-Chun Wang and Longkai Zhao (2010) found options are important
investment financial instruments as their flexibility makes financial market complete.
Accordingly, options are complicated for those who do not educate themselves on the subject.
Study found a trader who is more professional, sophisticated, and experienced is less susceptible
to isolate his decision-making sets and simplify complicated investment strategies to form his
portfolios. The study revealed that traders in option markets don‟t trade call/put contracts to such
a great degree. In general, most investors prefer to trade front-month or near-the-money. Trading
in a futures market for option traders, this suggests that almost half of the investors are trading in
both options and futures market.

Gopikrishna Suvanam & Amit Trivedi (2011) studied derivative trading is essential tool for
the health of markets as they enhance price discovery and supplement liquidity. In a span of a
year and a half after that index options, stock options and lastly stock futures were introduced,
derivatives volumes have grown to multiples of cash market volumes and have been a mode of
speculation and hedging for market participants, not possible otherwise through cash markets.
The investor invests for a certain period, the issuer of the product constantly uses derivatives
segment to hedge his positions to create the desired payoff for its clients.

M. Sathish, K. J. Naveen and V. Jeevanantham (2011) studied in the options available to

investors are different and the factors motivating the investors to invest are governed by their
socio-economic. They argued that instead of investing directly, the investors particularly, small
investors may go for indirect investment because they may not be in a position to undertake
fundamental and technical analysis before they decide about their investment options. Their
empirical study showed that majority of the investors of mutual funds is also belongs to equities
who give the first preference to that avenue which gives good return. From the study, concluded
that lack of knowledge as the primary reason for not investing in investment vehicle.

S. Gupta, P. Chawla and S. Harkant (2011) stated financial markets are constantly becoming
more efficient providing more promising solutions to the investors. Study also proved that
occupation of the investor is not affected in investment decision. The most preferred investment
avenue is insurance with least equity market. The study also argued that return on investment and
safety are the most preferred attributes for the investment decision instead of liquidity.

S. Saravanakumar, S. Gunasekaran and R. Aarthy (2011) showed the upswing in capital

market allows the investors to harvest handsome return in their investments, but day-trader in
stock market hard to take advantage in bullish and bearish market conditions by holding long or
short positions. Now the derivative instruments offer them to hedge against the adverse
conditions in the stock market. They argued that secondary market is the most preferred than
primary market and cash market is the most preferred market than derivatives market because of
high risk when derivatives market is preferred than cash market for higher return.

Dhananjay Rakshit, (2008) in his article “Capital Market in India and Abroad – A Comparative
Analysis”, published in Indian Journal of Accounting, December, 2008 concluded that Indian
Market is being continuously preferred by the foreign investors and the only cause of concern is
its high analyzed volatility.

Deepa Mangala and R.K.Mittal (2005) in their article, “Anomalous Price behavior – An
Evidence of Monthly effect in Indian Stock Market”, published in the Indian Journal of
Commerce, April-June, 2005, concluded that the mean return for the first half of a trading month
is significantly higher than the mean returns for the second half. The increased liquidity might
induce the demand for equities resulting in the monthly effect.

M.S.Narasimhan and L.V.Ramana in their article “Pricing of Initial Public Offerings: Indian
Experience, with equity issues”, published in Portfolio Management, Research Series in Applied
Finance, the ICFAI Journal of Applied Finance, concluded that

 Homogeneity in the degree of underpricing across time periods is observed.

  The extent to which premium issues are underpriced is greater than in the case of the
first trading day.
 Under pricing is not related to the time interval between the offer day and the first
trading day.

They further concluded that companies offering their stock at a premium prefer to play it safe in
spite of the freedom granted to them operating at suboptimum levels to derive a satisfaction of
the issue being fully subscribed may be a major factor in determining the pricing process.

James H. Lorie, Peter Dodd and Mary Hamilton, (1985) Kimpton, in their book, “The Stock
Market – Theories and Evidence”, IFCAI Publication, Hyderabad, 1985 pointed out that the
value of a corporation’s stock is determined by expectations regarding future earnings of the
corporation and by the rate at which those earnings are discounted. In a world of no uncertainty,
all securities would offer a certain return equal to the real rate of return in capital.

Ranganathan K. (2006) in his article “A Study of Fund Selection Behavior of Individual

Investors towards Mutual Funds: With Reference To Mumbai City” published in ICFAI Journal
of Behavioral Finance, 2006, noted that financial markets are affected by the financial behavior
of investors. She observed that consumer behavior from the marketing world and financial
economics had brought together a need to study an exciting area of ‘behavioral finance’. this
study was an attempt to examine the related aspects of the fund selection behavior of individual
investors towards mutual funds in the city of Mumbai.

Singh J. and S. Chander (2006) in their article “Investors Preference for Investment in Mutual
Funds: An Empirical Evidence” Published in The ICFAI Journal of Behavioral Finance, 2006.
Pointed out that since interest rates on investments like public provident fund, national saving
certificate, bank deposits, etc. are falling, the question to be answered is: What investment
alternative should a small investor adopt? Direct investment in capital market is an expensive
proposal, and keeping money in saving schemes is not advisable. One of the alternatives is to
invest in capital market through mutual funds. This help the investor avoid the risks involved in
direct investment. Considering the state of mind of the general investor, this article figured out
the preference attached to different investment avenues by the investors. The preference of
mutual funds schemes over others for investment. The source from which the investor gets
information about mutual funds and the experience with regard to returns from mutual funds.
The results showed that the investors considered gold to be the most preferred form of
investment, followed by NSC and post office schemes. Hence, the basic psyche of an Indian
investor, who still prefers to keep his savings in the form of yellow metal, is indicated. Investors
belonging to the salaried category, and in the age group of 20-35, years showed inclination
towards close-ended growth (equity-oriented) schemes over the other scheme types. A majority
of the investors based their investment decision on the advice of brokers, professionals and
financial advisors. The findings also revealed the varied experience of respondents regarding the
returns received from investments made in mutual funds. Mittal M. and A. Dhade (2007) in
their research paper “Gender Difference In Investment Risk-Taking: An Empirical Study”

published in The ICFAI Journal of Behavioral Finance, 2007, Observed that risk-taking involves
the selection of options that might result in negative outcomes. While present is certain, future is
uncertain. Hence, all investment involves risk. Decourt (2007) indicated that the process of
making investment decisions is based on the ‘behavioral economies’ theory which uses the
fundamental aspects of the ‘Prospect Theory’ developed by Kahneman and Tversky (1979).

Mittal M. and R. K. Vyas (2008) in their article “Personality Type and Investment Choice: An
Empirical Study” published in The ICFAI UNIVERSITY Journal of Behavioral Finance, 2008.
Observed that investors have certain cognitive and emotional weaknesses which come in the way
of their investment decisions. According to them, over the past few years, behavioral finance
researchers have scientifically shown that investors do not always act rationally. They have
behavioral biases that lead to systematic errors in the way they process information for
investment decision. Many researchers have tried to classify the investors on the basis of their
relative risk taking capacity and the type of investment they make. Empirical evidence also
suggests that factors such as age, income, education and marital status affect an individual’s
investment decision.

Jignesh B. Shah and Smita Varodkar in their article “Capital Market: Trends in India and
abroad – impact of IPO Scam on Indian Capital Market”, published in the Souvenir, All India
Accounting Conference, November, 22-23, S.D.School of Commerce, Gujarat University,
Ahmadabad, concluded that the recent IPO Scam indicates that even a highly automated system
will not prevent mal practices. But steps should be taken by SEBI to restrict such IPO Scam by
applying know your customer (KYC) and unique identification number to market players and
investors.

P. K. Das (2006) in his Research paper “A Review of Tax Planning for Educational Expenses on
Children”, published in The Journal of Accounting and Finance, April September 2006
concluded that Proper Tax Planning is very much helpful in minimizing the burden of Income
Tax for incurring expenses on children education as well as having total exemption available. He
suggested that the investor should keep a proper account of all relevant expenses incurred on the
education of children, during the same financial year so that planning can be made, as required,
to get Deductions And Exemptions.

J. S. Pasricha And Umesh C. Singh (2001) in there article “Foreign Institutional Investors and
Stock Market Volatility”, published in the Indian journal of commerce, july september 2001
concluded that the era of Foreign Institutional Investors (FIIs) in India originated in 1993 as a
consequence of the major policy initiative towards Globalization of economy by Government of
India. FIIs operating in India comprise of pension funds, mutual funds, trusts, assets management
companies, portfolio managers, etc. according to their study it has been founded that FIIs have
remained net investors in the country except during 1998-99 and their investment has been
steadily growing since their entry in the Indian markets. They are here to stay and have become
the integral part of Indian capital market. Although their investment in relation to market
capitalization is quite low, they have emerged as market movers. The market has been moving,
in consonance with their investment behavior. However, their entry has led to greater
institutionalization of the market and their activities have provided depth to it. They have also
contributed towards making Indian markets modern comparable with the international standards.
This has brought transparency in the market operations and simplified the procedures. The FIIs
investment has always been the subject of debate in terms of desirability. This is so because FII
money is known to be ‘hot money’ that would flee at the first sign of trouble. In the light of this,
their research paper tries to analyse the impact of FII’s investment on Indian capital market.

S. Saravana Kumar (2010) in his article “An Analysis of Investor Preference Towards Equity
and Derivatives” published in The Indian journal of commerce, July-September 2010 concluded
that the most of the investor are aware of high risk involved in the derivative market. To reduce
the risk in the market, the investors should strictly follow the stop loss method. The study reveals
that most of the investor prefers cash market where the script can be held for long term and the
risk is less and it is transferable to others with minimal time period. Even though risk is higher,
some investors prefer derivative market where return is also higher. The investors are suggested
that before going for investment proper study about the script is essential. The study has
highlighted a few suggestions for removing constrain in the crucial variables which directly
affect the investor and company. The investors are highly satisfied with equity shares because of
many reasons, i.e., liquidity, low investment, capital appreciation etc.

Lalit Mohan Kathuria and Kanika Singhania (2010) in their research paper “Investor
Knowledge and Investment Practices of Private Sector Bank Employees” published in The
Indian journal of commerce, July-September 2010 concluded that The present study was
conducted with an objective to analyze the level of knowledge regarding various investment
avenues and present investment practices of employees of private sector banks in Ludhiana city.
A sample of 150 respondents was selected from 19 private sector banks in Ludhiana. The
Findings of the study revealed that print media and websites were the two most important
sources of information that helped the respondents to make investment decisions. Thus, the
marketers of investment avenues should keep advertising in the print as well as electronic media.
It was surprising to note that a large majority of the respondents had invested in secured mode of
investments like employee provident fund, public provident fund, and post office saving
schemes. Another highlighting finding of the study was that even the bank employees considered
insurance as an investment tool rather than risk coverage instrument. Also, another significant
finding was that only four per cent of the respondents made their investment decisions with the
help of investment planner. There is an immense need to raise the level of awareness about the
various investment avenues among the bank employees, as based upon the scoring model; only
forty per cent of the respondents had high level of awareness regarding various investment
avenues.

Neeraj Maini and Sanjeev Sharma (2009) in their research paper “Capital Market Reforms and
Investors Satisfaction: A Study of Retail Investors of Punjab” published in The Indian journal of
commerce, July-September 2009 concluded that the investors seemed to be quite satisfied with
the SEBI’s guidelines in relation to the capital market regulatory measures but on the other hand
they have also showed their dissatisfaction in relation to some guidelines. They also suggested
that there is a need of educating the investors.

Gupta L.C. & Jain (2008) in their article “The Changing Investment Preferences of Indian
Households” survey 2008, conducted by society for capital market research and development,
new Delhi. Pointed out that ‘too much volatility’, ‘too much price manipulation’, ‘unfair
practices of brokers’ and ‘corporate mismanagement and frauds’ as the main worries of
investors.

Abdul Aziz Ansari and Samiran Jana (2009) in their article “Stock Price Decision of Indian
Investors” published in The Indian journal of commerce, July-September 2009 concluded that
there will be two kinds of investors – rational traders and noise traders. His study shows that
rational traders are using both fundamental analysis and technical analysis as stock selection
tools, which does not support the view of finance theorist. In an uncertain situation decision
making process of noise trader will go through mental biases – self attribution bias, loss aversion
bias, confirmation bias and overconfidence bias. As a result the noise traders will belief that
some irrelevant information will be more important for price decision and they will trade more.
This study has proved that some of the rational traders decision process also guided by all these
biases. So rational traders also will not be able to predict the mental behavior of noise traders and
effect of sentiment will be at Indian stock market.

A. Lalitha and M. Surekha (2008) in their article “Retail Investor in Indian Capital Market :
Profile, Pattern of Investment and Profitability” published in The Indian journal of commerce,
July-September 2008 concluded that the retail investor is here to stay and the capital markets
may well emerge as strong contenders for traditional investment avenues like bank/post office
deposits. They also focused on investor’s education and investment decision of retail investors.

Joseph Anbarasu D, Clifford Paul S and Annette B (2011) in their article “An Empirical
Study on Some Demographic Characteristics of Investors and its Impact on Pattern of their
Savings and Risk Coverage Through Insurance Schemes” published in The IUP Journal of Risk
& Insurance, January 2011 concluded that The saving pattern of the people is crucial to the
government in designing policies to promote savings and investment. Their study reveals that the
people are aware about the importance of saving, but the awareness about investment
opportunities is low. Steps have to be taken by the government and private companies to increase
the awareness by advertising campaigns. Investment companies need to offer schemes that are
affordable by the low income, uneducated, unsalaried and families with children. Investment
companies should make the provision and increase benefits, for their schemes, to allow people to
invest in the monthly mode, which is preferred by most investors. If people invest in long term
saving schemes and infrastructure, the national saving rate will increase, which in turn will lead
to a more prosperous India.

Krishnamoorthi C. (2009) in his research paper “Changing Pattern of Indian Households:

Savings in Financial Assets” published in RVS Journal of management, 2009 concluded that
irrespective of the developments in the capital market/economic conditions, investors like to
invest regularly and this investment behavior is highly related to educational background. Their
occupation, reading habit of investment news and the time taken for investment decision making
process.

Muhlesen M (1997) in his article “Improving India’s Saving Performance” published in Finance
& Development, 1997 said that India’s saving rate is relatively high, compared to other
countries. He concludes that with a view to increase the efficiency of savings, allocation and
financing the heavy infrastructure needs of the Indian economy, particular attention should be
paid to long-term saving instruments.

Sarita aggrawal and Monika Rani (2011) in their article “Attitude Towards Insurance Cover”
published in The IUP Journal of Risk & Insurance, January 2011 concluded that:-

 People are mostly aware about the life insurance and also the insurance companies.
 Private companies offer very attractive plans and policies to the public.
 After analysis it has been found that the LIC is still on the top, it means that LIC still rules
the economy.
 Survey revealed that people prefer public sector for the insurance than the private sector
insurance, the reason behind this is the trust and faith in LIC.
 People from every occupation, age, income level and qualification want to secure their
future by taking a policy, besides good return on investment and rebate on tax.
Harsh Roongta (2011) in his article “ULIPs: New Look, New Feel” published in IUP
Publication The Analyst, February 2011 concluded that investment continues to be a push
activity in India and consumers willing to pay for advise are a small percentage of the overall
consumer. ULIPs will have necessarily have to be sold as long-term protection cum savings
products.

R. L. Narayanan (2011) in his article “Concern for Retail Investors in Rising Markets: Trade
Cautiously” published in Dalal street Investment journal, 24 April 2011 concluded that Though
the Indian market is among the leaders in the emerging market pack, the current year is not good
for the emerging markets. A concern about high inflation and high interest rates is palpable in
most markets and India is no exception. As the markets have rallied back sharply from the lows
of the year, invest cautiously as opportunities will always be there, though valuation and macro
factor remain a concern. When the markets are rising retail investors should be careful about
spiraling crude prices, interest costs and inflation, since all the four cannot rise simultaneously.

Chalam G. V. (Dr) (2003) in his article “Investors Behavioral Pattern of Investment and Their
Preferences of Mutual Funds.” Published in SOUTHERN ECONOMIST, Feb 1, 2003
concluded that off all the sections of the society, the household group contributes much of the
capital, forming the lifeblood for the economy. According to his analysis, the mutual fund
business in India is still in its embryonic form as they currently account for only 15 % of the
market capitalization. The success of mutual funds business largely depends on the product
innovation, marketing, customer service, fund management and committed manpower. The
investment pattern of the investors reveals that a majority of the investors prefer real estate
investments followed by mutual fund schemes, gold and other precious metals.

Agarwal S. P. (Dr) (2001) in his article “Public Provident Fund Account – A Matchless
Investment Scheme.” Published in SOUTHERN ECONOMIST, Feb 15, 2001 concluded that
Public Provident Fund (PPF) account is most beneficial investment for all categories i.e. salaried
class, retired persons or businessmen either tax-payers or non-taxpayers.

Parthapratim Pal (1998) in his article “Foreign Portfolio Investment in Indian Equity Markets:
Has The Economy Benefited?” published in Economic and Political Weekly, march 14, 1998
concluded that instead of lifting the level of domestic savings and investment, financial
liberalization in general has rather increased financial instability. Financial activities have
increased financial deepening, but without benefiting industry and commerce.

Gopal Nathani (2011) in his article “Good news for portfolio management scheme (PMS)
investors” published in TAXMANN’S corporate professionals Today, Analytical studies, Direct
tax laws, May 1 to 15, 2011 concluded that the taxation of income from share transaction is a
vexed issue. The author opines that the portfolio investment route is not just profit making, but it
is a means to a secured maximized return. The very object to undertake investment through
portfolio manager within defined parameters is itself a sufficient pointer to hold that the profit
made on sale of such investments would be capital in nature being chargable under the head
‘capital gains’.

Rajesh Dhawan (2011) in his article “Gold ETF – An investment option” published in
TAXMANN’S corporate professionals Today, investment planning, May 1 to 15, 2011
concluded that gold ETFs are open-ended mutual fund schemes that will invest the money
collected from investors in standard gold bullion (0.995 purity). The investors holding will be
denoted in units, which will be listed on a stock exchange. The author have attempts to explain:
how ETFs works, and what are its advantages. He opines that given the uncertainty in global
markets and the consequent volatility in equity markets, investor should warm up to the idea of
including gold ETFs in their asset allocation plan.

Philip Z. Maymin and Gregg S. Fisher (2011) in their article “Preventing Emotional
Investing: An Added Value of an Investment Advisor” published in The Journal of Wealth
Management, Spring 2011 concluded that an important service provided by investment advisors,
and apparently desired by individual investors, is the barrier the advisor provides to prevent the
individual from aggressively trading and thereby losing money. The authors analyze a unique,
comprehensive, multi-decade dataset of all communications with clients by a boutique
investment advisory and investment management firm to explore the behavior of individuals
involved in financial decision making. They propose and test a theory of self-regulation to
explain both the appeal and the value of investment managers to individual investors, and they
find that all of the predictions of the theory are borne out by the data.
 DATA ANALYSIS AND INTERPRETATION

CASE STUDIES

PORTFOLIO ANALYSIS

A company’s portfolio has an uncanny habit of growing. Growing as companies grow, growing
as customer demands change, growing to take advantage of new technologies. But R&D budgets
are limited, and the capacity of the company to continue to service mature offerings can be
restricted over time. Understanding your portfolio and categorizing your offerings into core and
non-core, market leading or market following, opportunities to invest or opportunities to divest is
critical. Determining migration and product retirement strategies are as important as launching
new offerings to meet changing market demands.

BWCS has developed a proprietary method which enables a company to categorise products and
services into a solutions framework which fits with your corporate and marketing strategy. The
resulting framework can be used to communicate what the solutions do for your customers, how
they are to be developed and where there are opportunities to be more efficient in development
funding. Our framework enables the sales teams to provide targeted feedback, guiding your
R&D efforts to match the demands of the market. Our deliverables include roadmaps for
individual portfolio elements, highlighting how the efforts of your R&D teams must be directed
to truly drive your products forwards and deliver competitive advantage.

BWCS worked with a major European Defence and security player to rationalize a portfolio of
offerings which had grown up independently in four national markets. Our deliverable was a
durable framework within which offerings could be categorized and easily communicated, and
future development planned. Where there was duplication and overlap between different national
offerings, we identified market leading elements to support difficult prioritisation decisions.
Often these were operational methodologies – rather than clever bits of code – and highlighting
the competitive advantage created in this way was a key finding. Our financial analysis of the
companies past and planned performance enabled investment decisions to be based on future
revenues, rather than the development teams’ technology ambitions, and our roadmaps provided
the framework for managing implementation.

Portfolio Strategy Matrix

Keith Ambachsteer has developed a matrix shown in the following Exhibit which pull together
the elements of timing and selectivity. It can be useful guide for developing your portfolio
strategy.

Keith Ambachsteer, “Portfolio Theory and Security Analyst”, Financial Analysts Journal, Nov-
Dec 1972.

Portfolio Mix Strategy

Ability to select undervalued

securities /
Ability to forecast overall Good Poor
market
 Concentrate holdings  Concentrate holdings
in selected in selected
undervalued securities undervalued securities
Good rather than diversify rather than diversify
broadly. broadly.
 Shift beta above and  Keep beta stable at the
below the desired desired long-term
long-term average average.
based on market
forecasts.
 Hold a broadly  Hold a broadly
diversified list of diversified list of
securities. securities.
 Poor  Shift beta above and  Keep beta stable at
below desired average, desired long-term
based on market average.
forecasts.

Measures for Evaluation of Portfolios

Many investors mistakenly base the success of their portfolios on returns alone. Few investors
consider the risk involved in achieving those returns. Since the 1960s, investors have known how
to quantify and measure risk with the variability of returns, but no single measure actually looked
at both risk and return together. Today, there are three sets of performance measurement tools to
assist with portfolio evaluations.

The Treynor, Sharpe, and Jensen ratios combine risk and return performance into a single value,
but each is slightly different. Which one is best? Perhaps, a combination of all three.

Treynor Measure

Jack L. Treynor was the first to provide investors with a composite measure of portfolio
performance that also included risk. Treynor's objective was to find a performance measure that
could apply to all investors regardless of their personal risk preferences. Treynor suggested that
there were really two components of risk: the risk produced by fluctuations in the stock market
and the risk arising from the fluctuations of individual securities.

Treynor introduced the concept of the security market line, which defines the relationship
between portfolio returns and market rates of returns whereby the slope of the line measures the
relative volatility between the portfolio and the market (as represented by beta). The beta
coefficient is the volatility measure of a stock portfolio to the market itself. The greater the line's
slope, the better the risk-return tradeoff.

The Treynor measure, also known as the reward-to-volatility ratio, is defined as:

(Portfolio return - Risk - Free Rate)/Beta

The numerator identifies the risk premium, and the denominator corresponds to the portfolio
risk. The resulting value represents the portfolio's return per unit risk.

To illustrate, suppose that the 10-year annual return for the S&P 500 (market portfolio) is 10%
while the average annual return on Treasury bills (a good proxy for the risk-free rate) is 5%.
Then, assume the evaluation is of three distinct portfolio managers with the following 10-year
results:

Managers Annual Average Return Beta

Manager A 10% 0.90
Manager B 14% 1.03
Manager C 15% 1.20

The Treynor value for each is as follows:

Calculation Treynor Value

T(market) (010-0.05)/1 0.05
T(manager A) (0.10-0.05)/0.90 0.056
T(manager B) (0.14-0.05)/1.03 0.087
T(manager C) (0.15-0.05)/1.20 0.083

The higher the Treynor measure, the better the portfolio. If the portfolio manager (or portfolio) is
evaluated on performance alone, manager C seems to have yielded the best results. However,
when considering the risks that each manager took to attain their respective returns, Manager B
demonstrated the better outcome. In this case, all three managers performed better than the
aggregate market.

Because this measure only uses systematic risk, it assumes that the investor already has an
adequately diversified portfolio and, therefore, unsystematic risk (also known as diversifiable
risk) is not considered. As a result, this performance measure is most applicable to investors who
hold diversified portfolios.

Sharpe Ratio
The Sharpe ratio is almost identical to the Treynor measure, except that the risk measure is the
standard deviation of the portfolio instead of considering only the systematic risk as represented
by beta. Conceived by Bill Sharpe, this measure closely follows his work on the capital asset
pricing model (CAPM) and, by extension, uses total risk to compare portfolios to the capital
market line.
The Sharpe ratio is defined as:

(Portfolio Return – Risk – Free Rate)/Standard Deviation

Using the Treynor example from above, and assuming that the S&P 500 had a standard deviation
of 18% over a 10-year period, we can determine the Sharpe ratios for the following portfolio
managers:

Manager Annual Return Portfolio Standard Deviation

Manager X 14% 0.11
Manager Y 17% 0.20
Manager Z 19% 0.27

Calculation Sharpe Value

S(market) (0.10-0.05)/0.18 0.278
S(manager X) (0.14-0.05)/0.11 0.818
S(manager Y) (0.17-0.05)/0.20 0.600
S(manager Z) (0.19-0.05)/0.27 0.519

Again, we find that the best portfolio is not necessarily the portfolio with the highest return.
Instead, a superior portfolio has the superior risk-adjusted return or, in this case, the fund headed
by manager X.

Unlike the Treynor measure, the Sharpe ratio evaluates the portfolio manager on the basis of
both rate of return and diversification (it considers total portfolio risk as measured by standard
deviation in its denominator). Therefore, the Sharpe ratio is more appropriate for well-diversified
portfolios because it more accurately takes into account the risks of the portfolio.
Jensen Measure

Similar to the previous performance measures discussed, the Jensen measure is calculated using
the CAPM. Named after its creator, Michael C. Jensen, the Jensen measure calculates the excess
return that a portfolio generates over its expected return. This measure of return is also known as
alpha.

The Jensen ratio measures how much of the portfolio's rate of return is attributable to the
manager's ability to deliver above-average returns, adjusted for market risk. The higher the ratio,
the better the risk-adjusted returns. A portfolio with a consistently positive excess return will
have a positive alpha while a portfolio with a consistently negative excess return will have a
negative alpha.

The formula is broken down as follows:

Portfolio Return – Benchmark Portfolio Return

Where,

Benchmark Portfolio Return= Risk – Free Rate of Return + Beta(Return of Market – Risk-
Free Rate of Return)

If we assume a risk-free rate of 5% and a market return of 10%, what is the alpha for the
following funds?

Manager Average Rate of Return Beta

Manager D 11% 0.90
Manager E 15% 1.10
Manager f 15% 1.20

We calculate the portfolio's expected return:

ER(D) 0.05+0.90(0.10-0.05) 0.0950 or 9.5% return

ER(E) 0.05+1.10(0.10-0.05) 0.1050 or 10.5% return
ER(F) 0.05+1.20(0.10-0.05) 0.1100 or 11% return
We calculate the portfolio's alpha by subtracting the expected return of the portfolio from
the actual return:

Alpha D 11%-9.5% 1.5%

Alpha E 15%-10.5% 4.5%
Alpha F 15%-11% 4.0%

Which manager did best? Manager E did best because although manager F had the same annual
return, it was expected that manager E would yield a lower return because the portfolio's beta
was significantly lower than that of portfolio F.

Both the rate of return and risk for securities (or portfolios) will vary by time period. The Jensen
measure requires the use of a different risk-free rate of return for each time interval. To evaluate
the performance of a fund manager for a five-year period using annual intervals would require
also examining the fund's annual returns minus the risk-free return for each year and relating it to
the annual return on the market portfolio minus the same risk-free rate.

Conversely, the Treynor and Sharpe ratios examine average returns for the total period under
consideration for all variables in the formula (the portfolio, market, and risk-free asset). Similar
to the Treynor measure, however, Jensen's alpha calculates risk premiums in terms of beta
(systematic, undiversifiable risk) and, therefore, assumes the portfolio is already adequately
diversified.

Portfolio performance measures are a key factor of the investment decision. These tools provide
the necessary information for investors to assess how effectively their money has been invested
(or may be invested). Remember, portfolio returns are only part of the story. Without evaluating
risk-adjusted returns, an investor cannot possibly see the whole investment picture, which may
inadvertently lead to clouded decisions.

RISK PERCEPTION

PSYCHOLOGICAL APPROACH
The psychological approach began with research in trying to understand how people process
information. These early works maintained that people use cognitive heuristics in sorting and
simplifying information, leading to biases in comprehension. Later work built on this foundation
and became the psychometric paradigm. This approach identifies numerous factors responsible
for influencing individual perceptions of risk, including dread, novelty, stigma, and other factors.

Research also shows that risk perceptions are influenced by the emotional state of the perceiver.
The valence theory of risk perception only differentiates between positive emotions, such as
happiness and optimism, and negative ones, such as fear and anger. According to valence theory,
positive emotions lead to optimistic risk perceptions whereas negative emotions influence a more
pessimistic view of risk.

Heuristics and biases:

The earliest psychometric research was done by psychologists Daniel Kahneman and Amos
Tversky, who performed a series of gambling experiments to see how people evaluated
probabilities. Their major finding was that people use a number of heuristics to evaluate
information. These heuristics are usually useful shortcuts for thinking, but they may lead to
inaccurate judgments in some situations – in which case they become cognitive biases.

Cognitive Psychology:

The majority of people in the public express a greater concern for problems which appear to
possess an immediate effect on everyday life such as hazardous waste or pesticide-use than for
long-term problems that may affect future generations such as climate change or population
growth. People greatly rely on the scientific community to assess the threat of environmental
problems because they usually do not directly experience the effects of phenomena such as
climate change. The exposure most people have to climate change has been impersonal; most
people only have virtual experience through documentaries and news media in what may seem
like a “remote” area of the world. However, coupled with the population’s wait-and-see attitude,
people do not understand the importance of changing environmentally destructive behaviors
even when experts provide detailed and clear risks caused by climate change.

Psychometric paradigm:
Research within the psychometric paradigm turned to focus on the roles of affect, emotion, and
stigma in influencing risk perception. Melissa Finucane and Paul Slovic have been among the
key researchers here. These researchers first challenged Starr's article by examining expressed
preference – how much risk people say they are willing to accept. They found that, contrary to
Starr's basic assumption, people generally saw most risks in society as being unacceptably high.
They also found that the gap between voluntary and involuntary risks was not nearly as great as
Starr claimed.

ANTHROPOLOGY/SOCIOLOGY APPROACH

The anthropology/sociology approach posits risk perceptions as produced by and supporting

social institutions. In this view, perceptions are socially constructed by institutions, cultural
values, and ways of life.

Cultural theory:

One line of the Cultural Theory of risk is based on the work of anthropologist Mary Douglas and
political scientist Aaron Wildavsky first published in 1982. In cultural theory, Douglas and
Wildavsky outline four “ways of life” in a grid/group arrangement. Each way of life corresponds
to a specific social structure and a particular outlook on risk. Grid categorizes the degree to
which people are constrained and circumscribed in their social role. The tighter binding of social
constraints limits individual negotiation. Group refers to the extent to which individuals are
bounded by feelings of belonging or solidarity. The greater the bonds, the less individual choice
are subject to personal control. Four ways of life include: Hierarchical, Individualist, Egalitarian,
and Fatalist. Risk perception researchers have not widely accepted this version of cultural theory.
Even Douglas says that the theory is controversial; it poses a danger of moving out of the
favored paradigm of individual rational choice of which many researchers are comfortable.
National Culture and Risk Survey:

The First National Culture and Risk Survey of cultural cognition found that a person's worldview
on the two social and cultural dimensions of "hierarchy-egalitarianism," and "individualism-
solidarism" was predictive of their response to risk.

INTERDISCIPLINARY APPROACH

Social amplification of risk framework:

The Social Amplification of Risk Framework (SARF), combines research in psychology,
sociology, anthropology, and communications theory. SARF outlines how communications of
risk events pass from the sender through intermediate stations to a receiver and in the process
serve to amplify or attenuate perceptions of risk. All links in the communication chain,
individuals, groups, media, etc., contain filters through which information is sorted and
understood.

The framework attempts to explain the process by which risks are amplified, receiving public
attention, or attenuated, receiving less public attention. The framework may be used to compare
responses from different groups in a single event, or analyze the same risk issue in multiple
events. In a single risk event, some groups may amplify their perception of risks while other
groups may attenuate, or decrease, their perceptions of risk.

The main thesis of SARF states that risk events interact with individual psychological, social and
other cultural factors in ways that either increase or decrease public perceptions of risk.
Behaviors of individuals and groups then generate secondary social or economic impacts while
also increasing or decreasing the physical risk itself.

These ripple effects caused by the amplification of risk include enduring mental perceptions,
impacts on business sales, and change in residential property values, changes in training and
education, or social disorder. These secondary changes are perceived and reacted to by
individuals and groups resulting in third-order impacts. As each higher-order impacts are reacted
to, they may ripple to other parties and locations. Traditional risk analyses neglect these ripple
effect impacts and thus greatly underestimate the adverse effects from certain risk events. Public
distortion of risk signals provides a corrective mechanism by which society assesses a fuller
determination of the risk and its impacts to such things not traditionally factored into a risk
analysis.

CASE STUDIES

For evaluating an investing avenue, the following criteria are relevant.

  Rate of return
 Risk
 Marketability
 Tax shelter
 Conveinence

Rate of Return

The rate of return on an investment for a period (which is usually a period of one year) is defined
as follows:

Rate of Return = Annual Income + (Ending Price - Beginning Price) / Beginning Price
To illustrate, consider the following information about a certain equity share:
 Price of the beginning of the year :Rs.60.00
 Dividend paid toward the end of the year :Rs.2.40
 Price at the end of the year :Rs.66.00
The rate of return on this share is calculated as follows:
2.40 + (66.0 – 60.0) / 60.00 = 0.14 or 14%
It is helpful to split the rate of return into two components, viz., current yield and capital gains/
losses yield as follows:
Annual Income / Beginning + Ending Price – Beginning Price / Beginning Price

Current Yield Capital Gains/ losses yield

The rate of return of 14 percent in the example above may be broken down as follows:
2.40/ 60.00 + (66.00 - 60.00)/ 60.00 = 4% + 10%

Current Yield Capital Guys Yield

Risk The rate of return from investment like equity shares, real estate, silver, and gold can vary
rather widely. The risk of an investment refers to the variability of it’s rate of return. How much
do individual outcomes deviates from the expected value? A simple measure of dispersion is the
range of values, which is simply the difference between the highest and the lowest values. Other
measures used commonly in finance are as follows:
 Variance :This is the mean of the squares of deviations individual returns around
their average value.
 Standard Deviation :This is the square root of variance.
 Beta :This reflects how volatile is the return from an investment relative to
market swings.