1.

1 INTRODUCTION
Every individual undertakes different types of activities such as doing business, rendering services
or working under an employer etc. for earning income. By doing business people make profits or
losses. The profit or loss may be smaller or larger, fluctuating from period to period. By rendering
services and through profession people earn in the form of charges and fees. Many people earn
through employment in Government or private enterprises.

Employment means persons working under an employer regularly and getting salary in return of
their services. The employed people get their salary in every month and they are more or less stable
in every month.

People use part of their earnings for meeting present needs. They consume a part for food, shelter,
healthcare, education etc. Different people have different consumption behavior. Some people
believe that money earned today must be used to meet present needs. They use their entire income
for their daily consumption. Some people hold the view that some part of earnings should be saved.
Such people try to save a part of their earnings, even though their earnings are small. The
consumption behavior of people has an influence on the savings and investments habits. So when
people abstain from consumption that will result into saving.

Non resident Indians are really the wealth of our nation and the strength of Kerala. The number of
persons going abroad for employment and in search of better opportunities has shown a remarkable
increase since independence. The effect of this migration is felt in every aspect of the economy and
the society in Kerala.

NRIs have lot of investment opportunities depending on their budget and the time frame; they can
remain invested for savings form an important part of the economy of any nation. With the savings
invested in various options available to the people, the money act as the drives for growth of the
country. Indian financial scene too presents a plethora of avenues to the investor. Though certainly
not the best or deepest of the market in the world, it has reasonable options for an ordinary man to
invest his savings. One needs to invest to and earn return on your idle resources and generate a
specific sum of money for a specific goal in life and make a provision for an uncertain future. The
three golden rules for all investors are:

 Invest early
 Invest regularly
 Invest for long term and not for short term.

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1.1.1 Investors attitude towards investments
Investment and savings attitudes and behavior are influenced by the structure, complexity,
transparency and perceived past and future performance of different kinds of investment options;
the general lack of independent financial advice; the recent superior performance of property
investment; perceptions and personal tolerance of risk; the often low level of financial literacy
about products other than property; the nature of the information people use when making financial
decisions; the personal or family experience people have with investment; a general wish to have
personal control over the investment and trust in the advice of friends and family over unknown
professional advisors. Consumer decisions on saving are likely to be influenced by new or proposed
changes in the investment environment. The application of lower taxes to earnings in managed
funds, and forthcoming regulatory changes aimed at improving disclosure and prudential
arrangement supplying to financial products, providers and advisors are also likely to have an
impact.

1.1.2 Investors attitude towards risk

There general consensus among NRI investors is that most of them are unwilling to take much risk
with their money. This is the case even over the long term (five years or more). The most common
reasons cited for being averse to taking risks included the responsibility of raising a family and
taking on large financial commitments such as a mortgage. However, some of the investors were
willing to take higher risks with their money to give themselves the chance of making higher
returns. These participants tended to be young and single or higher earners. When it came to
considering risk as a factor in financial decision-making, views are mixed. Some investors would
not consider taking out anything more risky than a savings account; their sole focus, therefore,
would be on the level of return available from savings accounts. Other class of investors felt it was
important to consider the potential returns whatever the product.

1.1.3 Non-Resident Indian (NRI)

An Indian abroad, popularly known as an NRI.NRI definitions under FEMA (Foreign
Exchange Management Act, 1999):“A person resident outside India who is either a citizen of
India or a person of Indian Origin” Recently RBI has clarified that students studying abroad also
be treated as NRIs under FEMA and accordingly be eligible for foreign investments and
NRE/FCNR accounts.

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1.1.3.1 Person of Indian Origin (PIO)

Includes a person being a citizen of any country other than Pakistan and Bangladesh who:
A. Held an Indian passport at any time or
B. Himself or either of his parents or any of his grandparents were citizens of India, or
C. Is a spouse of an Indian Citizen.

1.1.3.2 Overseas Corporate Body (OCB)

Means a Company, partnership Firm, Society etc… wherein 60% or more ownership lies with NRIs
or a trust wherein 60% or more financial interest is irrevocably held by NRIs.

1.1.4 Investment options available for NRIs

NRIs can invest in:

• Bank Deposits.

• Secondary markets through Portfolio investment in equity shares/convertible debentures.

• New issues (shares/convertible debentures).

• Non-convertible debentures.

• Mutual funds provided that amount is invested out of RE/FCNR/NRO account or by inward
remittance.

• Domestic (NRO) funds through deposits in Indian companies (including Non-Banking

Finance Companies if they are registered with Reserve Bank of India) on non-repatriation
basis up-to 3 years subject to certain formalities to be completed by the concerned company.

• Bonds provided that amount is invested out of NRE/FCNR/NRO account or by inward

remittance.

• Proprietary or partnership concern in India.

• Immovable property provided that the amount is not invested for the purchase of agricultural
land, plantation property or farm house and investments are made from fresh inward
remittance or existing non-resident account.

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1.2 STATEMENT OF THE PROBLEM
The particular topic is mainly selected to analyze “Investor’s attitude and knowledge towards
investment options available in India-with special reference to NRIs of Thalassery Taluk”. The
number of NRIs in this Taluk has been increasing at an alarming rate. This shows that the structural
framework is favorable in attracting NRI investment. But it is doubtful whether sufficient
contribution has come from NRI investment to the economy of Kerala as expected by our planners.
As the NRIs visit their home country only for a short period of time and mostly once in a year, so
they are not familiar and are also not well educated about the various options in which they can
invest in. Their attitudes towards investments are guided by so many external factors and once they
decide to invest, the major problem starts with the lack of proper agency (financial advisor/
consultant) to guide the investors according to their preference. If at all the NRIs decide to invest,
they take a risk of losing their hard earned money. Hence it is very important that the NRIs
knowledge about the investment options available in India are broadened and thus gaining a
positive attitude towards the investment alternatives. It is also needed to identify which type of
investment schemes are preferred by the investor, here comes the relevance of study.

1.3 SIGNIFICANCE OF THE STUDY

The study was carried out to find the investment behavior of NRIs towards investment options
available to them in India. The study also tried to determine the risk return preference of the
investors.

1.4 SCOPE OF THE STUDY

The scope of the study was limited to the NRIs of Thalassery Taluk who have invested in India. The
study was conducted on 100 respondents.

1.5 OBJECTIVES OF THE STUDY

 To examine the investment behavior of NRIs

 To study the awareness level of the investors about the various investment affairs in India

 To analyze the attitude of the investors towards various investment alternatives.

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  To study the factors which influence the investment decisions of investors.

 To examine the regularity of investment of the investor.

 To study the influence of the educational background of the NRIs on this investment
decision.

1.6 METHODOLOGY OF THE STUDY

1.6.1 Sources of data

A pretested schedule was used to collect data from respondents. Data such as awareness about
investment options in India, attitudes towards investment, risk return preferences, factors which
influence the investment decisions etc. were collected from respondents in Thalassery Taluk
through questionnaires and method of sampling used for collecting data is stratified sampling. The
secondary data for this study were collected from magazines journals research reports publishing by
various agencies, investment etc.

1.6.2 Research design

The study is analytical in nature and available information is analyzed and critical evaluation is
made. The major purpose of this research is analysis of state of affairs as it exists at present. In this
survey the design used is analytical in nature. The information is collected from the individuals and
analyzed with the help of different statistical tools, for describing the relationship between various
types of variables, pertaining to different investment options.

1.6.3 Sampling design

The study was based on primary as well as secondary data. The primary data for this
study was collected from 50 NRI’s from Thalassery Taluk. The study was conducted during the
period 2014-2015.

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1.6.4 Tools for data analysis

The collected data were analyzed with the help of scientific statistical tools such as,

 Percentages

 Graphs

 Excel Spread Sheets.

1.7 LIMITATIONS OF THE STUDY

 Validity and Reliability of the data depends on the truthfulness of the responses from the
public. Chances of bias were more since the sample size of the study was just on 100
respondents.

 Time at the disposal of the researcher is limited.

 The size of the sample compared to the population is very small and hence it may not
represent the whole population.

 The structured questionnaire was the basis for collecting the data, so it has the usual
deficiencies attached to this technique of data collection.

1.8 CHAPTERISATION

The study is divided into five chapters. The first chapter deals with Introduction, which presents
statement of the problem, scope of the study, objectives, research methodology, significance and
limitations of the study. The second chapter deals with Review of Literature, which draws related
material from different studies carried out in the past and in different areas. The third chapter
presents theoretical framework of the study which includes explanation for various related terms.
Chapter four contains data analysis and interpretation and fifth chapter presents summery, findings,
suggestions and conclusion.

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2.1 INTRODUCTION

This section draws related material from different studies carried out in the past and in different
areas. It comprises of the introduction, review of literature and conclusion sections. The review of
literature section will focus on the various relevant empirical studies undertaken on capital structure
of firms.

2.2 REVIEW OF LITERATURE

1) HajaShareeff, K.S.G., (1989) indicate that, the Government of India has initiated a number
of steps to augment inflow of investment from Non-Resident Indians. To establish a continuous 41
dialogue with the NRI community, a committee on NRI matters has been constituted in the
Department of Economic Affairs. The committee has representatives from government, trade and
industry and NRIs representing all the continents. This has so far held a number of meetings with
Non-Resident Indians both in India and abroad. In order to provide prompt escort services to NRI
entrepreneurs, nodal officers have been designated in most of the central ministries and also at state
government level for NRI work. Quarterly meetings of nodal officers are held to review problems
in implementation of industrial projects taken up by NRIs.

2) Agarwal, R.N., (1997) indicates that, inflation rate, real exchange rate, index of economic
activity and the share of domestic capital market in the world stock market capitalization are the
four statistically significant determinants of foreign portfolio investment.

3) Gopinath, T., (1997) indicates that, market size is the important determinant of foreign
capital inflow. Positive relationship is postulated between the market size variable and the flow of
foreign investment. The high level of foreign exchange reserves in terms of the import cover
reflects the strength of the external payment position and helps to improve the confidence of the
prospective investors. Negative relationship has been hypothesized between the rate of inflation
and the flow of foreign investment. It is postulated that Gross Fiscal Deficit (GFD) and Debt
Service Ratio (DBR) also have a negative relationship with the flow of foreign investment.

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4) Parthapratimpal (1998) points out that, during the late 1980s, foreign portfolio investment
to developing countries was perceived as a symbiosis that benefited everyone. Less developed
countries were eager to welcome any kind of foreign capital inflow because after the debt crisis of
early 1980s, they were facing a shortage of both foreign capital and invisible resources. The low
correlation between movements in developed and developing country’s stock markets, 39 the
deceleration in industrial country’s markets and the high growth prospects of the less developed
markets made them an attractive option for portfolio diversification. The most important benefit
from foreign portfolio investment is that it gives an upward thrust to the domestic stock market
prices. Foreign Institutional Investors (FIIs) are the primary source of portfolio investment in India.
FIIs can invest in all the listed and unlisted securities traded on the primary and secondary markets,
including the equity and other securities instruments of companies. These would include shares,
debentures, warrants and schemes floated by domestic mutual funds.

5) Sarda, D.P., (1998) points out that, in line with the industrial policy announced by the
Government of India on 24th July 1991, several steps have been taken to encourage foreign
investments. As a result of the new policy, a large amount of foreign investment is flowing into the
country to finance new projects as well as expansion/diversification/modernization/rehabilitation
projects of existing companies. A wide range of facilities for making investments in India have
been provided to individuals of Indian nationality or origin staying abroad (NRIs) and Overseas
Corporate Bodies (OCBs) predominantly owned by NRIs. Foreign Institutional Investors (FIIs) are
also permitted to invest in securities in primary and secondary markets in India. Certain Indian
companies have been allowed to issue Global Depository Receipts (GDRs) and Foreign Currency
Convertible Bonds (FCCBs) in the international market.

6) Bhalla, V.K., (1999) indicates that, portfolio investment in India takes a variety of forms
such as investment by Foreign Institutional Investors (FIIs), issue of Global Depository Receipts
(GDRs), abating of off shore funds by Indian Corporates aboard and those under special investment
schemes designed for Non-Resident Indians. Portfolio investments have favorable implication for
overall market discipline and monitoring of economic fundamentals by both the authorities and
market players. These factors play a catalytic role in attracting foreign portfolio investment.

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7) Radhakrishnan, K.G., and Jaya PrakashPradhan (2000) mention that, the Government
of India has been taking several measures to attract foreign direct investment into India. The
Government has set up a separate body.

8) Suresh K. Chadha (2000) indicates that, foreign capital is the engine of economic
development and this statement is gaining importance in recent times. Traditionally, the various
sources of capital for developing countries were either the demand for their output by industrial
countries, or foreign aid, or loans from foreign banks, or foreign direct investment. This is
considered to be the major source of fund which may contribute considerably to growth rate of the
developing countries. Trans National Corporations (TNCs) account for two-thirds of the world trade
in services and goods. The government policy since 1991 has been aimed at encouraging foreign
investment particularly, in core and infrastructure sectors and in other wide ranging activities, such
as chemicals, food processing industries, metallurgical industries, etc. In order to provide a level
playing field to the domestic industry and to protect national interests, several measures have been
initiated to attract foreign investment in the form of dividend balancing, foreign equity neutrality,
foreign equity capital etc. based on sectorial sensitivities.

9) Radhakrishnan, K.G., and Jaya PrakashPradhan (2000) point out that, the liberalization
policy of 1991 had a distinct impact in boosting up the flow of foreign direct investment into the
country. Service sector attracts more amount of foreign direct investment. There has been a
continuous diversification of foreign direct investment inflows and that indicates the expedited
globalization of economy.

10) Purna Chandra Dash (2000-2001) states that, the major determinant of foreign direct
investment in the host country is the FDI policies which consists of rules and regulations governing
the entry and operations of foreign investors, the standard of treatment accorded to them and the
functioning of the markets within which they operate. The other economic determinants of foreign
direct investment are availability of raw materials, low cost unskilled labour and skilled labour,
technological innovatory and other created assets and physical infrastructure such as ports, roads,
power and telecommunication, income of the population, market growth, access to regional and
global markets, country-specific consumer preferences and structure of market.

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11) VeenaPailwar (2001) states that, capital formation plays an important role in the process of
development. However, in the initial stages of development, developing countries are unable to
generate 36 sufficient resources over and above their consumption requirement and therefore the
level of investment remains low in these countries. To overcome the vicious circle of low capital
formation and low growth, developing countries seek to look for help from external sources.
Foreign capital, by supplementing internal resources fills the resource gap of developing countries.
However, even when internal resources are sufficient for the development needs of a country,
foreign capital is essential as improved machinery and technology and imported raw-material can
only be bought by paying in terms of foreign exchange. Thus besides filling the resource gap,
foreign capital fills the foreign exchange gap of developing countries.

12) PrabhaShastriRanade (2001) indicates that, after economic liberalization, India has been
able to attract foreign capital in a bigger way. The issues such as size, composition and determinant
of foreign capital inflows have developed considerable interest among scholars. India aims at
accelerating and strengthening industrial development and attracting more foreign capital.

13) NaliniPrabaTripathi (2002) explains that, rapid development of the capital market and
financial liberalizations have brought a profound change in perception of entrants in the capital
market. The large sum of foreign direct investment in the country is an obvious outcome of India’s
commitment to the process of liberalization. India has emerged as one of the most attractive
investment markets in the world. The Global Depository Receipts issues of Indian companies
received an overwhelming response abroad.

14) PragatiKapoor (2002) states that, getting loans from relatives abroad is made easier by the
Reserve Bank of India. The RBI has also liberalized rules to enable residents to get foreign
exchange for medical treatment abroad without much loss of time. Earlier, Indian residents had
general permission to borrow up to $250, 00 from their close relatives living outside India provided
the loan was interest free and was not repayable before seven years. The seven years moratorium
was obviously a hurdle in obtaining loans from relatives abroad. Following due representations,
RBI has decided to reduce the minimum period, after which such loans can be repaid in one year.
According to RBI’s spokesperson, Killawala, residents are now 43 able to borrow up to $ 250,000
from their close relatives residing abroad.

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15) Sanjay K. Hansda and Partha Ray (2002) are of the opinion that, among the significant
measures of integration, portfolio 40 investment by Foreign Institutional Investors (FIIs) allowed
since September 1992, has undoubtedly been the turning point for the Indian stock market. Now
FIIs are allowed to invest in all categories of securities traded in the primary and secondary
segments including unlisted ones. FIIs are also allowed from June 1998 to trade in exchange-traded
derivatives and take forward exchange cover for equity investment. While there is no restriction on
the volume of FIIs investment or any lock-in-period, preferential allotment to FIIs is restricted to a
maximum of 15 per cent equity of a company.

16) Bhalla, V.K.,(2003) states that, foreign direct investment is one of the most dynamic
resources to the developing countries. Foreign direct investment flows are particularly important
because foreign direct investment is a package of tangible and intangible asset.

17) RuddarDatt (2003) reveals that, foreign direct investment flows are usually preferred over
other forms of external finance because they are non-debt creating, non-volatile and their returns
depend on the performance of the projects financed by the investors.

18) RenuKohil (2003) reveals that, the last decade has witnessed a tremendous increase in
international capital mobility. Cross-country trends in capital flows reveal that private capital flows
now dominate the official capital. It has tilted the composition of international capital flows towards
short-term investments, exposing individual countries to enhanced volatility and sudden
withdrawal risks. These trends have been driven by globalization, which has enabled pursuit of
higher returns and portfolio diversification, as well as market-oriented reforms in many countries,
which have liberalized access to financial market.

19) ArindamBanik, Pradip K. Bhaumik and Sunday O. Iyer (2004) point out that, foreign
direct investment flows are generally believed to be influenced by indicators like market size,
export intensity, institutions etc. irrespective of the source and the destination. This study looks at
foreign direct investment inflows in an alternative approach based on the concepts of neighborhood
and extended neighborhood. The study shows that the neighborhood concepts are widely applicable
in different contexts-particularly for China and India. Foreign direct investment inflow in the
extended intermediate neighborhood has been facilitated significantly by financial markets. The
process of global financial integration has been fueled primarily by the liberalization of markets.
Capital inflows to the extended intermediate neighborhood has also been benefited from

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technological progress that improves the timeliness, accuracy and analysis of information.
Improved information and communication technology have played major role in financial
integration. Foreign direct investment inflows to both the original and intermediate neighborhoods
attained their peak at the end of the 1980s.

20) Jongsoo Park (2004) indicates that, in developing countries, there has been a remarkable
shift in attitude towards many aspects of foreign investment. The Indian Government’s attitude
towards 46 foreign investments has been changing in the Post- Independence period. Industrial
clusters are playing an important role in economic activity. The key to promoting foreign direct
investment inflows into India may lie in industries and products that are technology-intensive and
have economies of scale and significant domestic content.

21) Rahulsen, Mukul G. Asher and Ramkishen S. Rajan (2004)reveal that, investment
relation between ASEAN and India have until now remained rather limited. Among the ASEAN
countries, Malaysia and Singapore have been the major investors in India. The findings of a recent
survey based on interviews with firms from Malaysia and Singapore have suggested that ASEAN
investors developed relatively more positive attitude towards investing in India in the mid- 1990s.
The survey indicated a high level of satisfaction among those firms that decided to invest in India
and many of them were considering expansion or diversification of investment in India. This
emphasizes the point that those who are able to change the mindset and overcome their negative
bias towards India will have positive experience and more importantly, profitability of their Indian
operations.

22) KalpanaRajaram (2004) states that, external commercial borrowings are non- concessional
borrowings at market rates with the obligation of payment of the interest as well as the principal. A
number of changes were announced in June 1996 in ECB guidelines governing the maximum
borrowing limits and end-use restrictions. External commercial borrowings act as window for
resources mobilization.

23) KalpanaRajaram (2004) states that, the public bilateral/ multilateral development
assistance is called foreign aid. It is different from other private flows which are prompted by
commercial considerations of profits and rate of return. Foreign aid as any flow of foreign capital to
an underdeveloped country should be non-commercial from the point of view of the donor, and the
interest rate and repayment period for borrowed capital should be softer than commercial terms.

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24) Kutty Krishnan Nambiar (2005) mentions that, foreign investment implies the flow of
investment funds, from countries where the capital is relatively abundant, to countries where capital
is relatively scarce. In other words, it moves from countries with low marginal productivity of
capital to countries where marginal productivity of capital is high.

25) Maathai K. Mathiyazhagan and DukhabandhuSahoo (2008) find out that, total foreign
direct investment inflows into India reached Rs.706.30 billion (US$15.73 billion) in 2006-2007,
with the largest share coming from Mauritius, followed by the United States, the United Kingdom,
the Netherlands and Singapore. The sectors that received the largest share of total foreign direct
investment inflows between August 1991 and March 2007 were electrical equipment and the
service sector, accounting for 18.77 per cent and 17.84 per cent of total foreign direct investment
respectively.

26) Bhatt, P.R., (2008) points out that, foreign direct investment is an investment involving a
long-term relationship and reflecting a lasting interest and control by a resident entity in one
country (foreign direct investor or parent enterprise) in an enterprise resident in an 38 economy
other than that of the foreign direct investor (FDI enterprise or affiliate enterprise or foreign
affiliate). Foreign direct investment implies that the investor exerts a significant degree of influence
on the management of the enterprise in the other country.

27) Sahana Joshi and R.V. Dadibhavi (2008) state that, since 1991, the role of foreign direct
investment in Indian economy is increasing due to a number of measures undertaken to liberalize
the FDI policy and expand many economic areas to foreign capital which were earlier closed.
Following economic reforms, governments at the state level are initiating measures to attract more
financial resources into the states. To attract foreign investors in their states, many of them are
offering incentive packages in the form of various tax concessions, capital and interest subsidies,
reduced power tariff etc.

28) Kamaraj, C (2009) states that, foreign direct investment is any form of investment that
earns interest in enterprises which functions outside the domestic territory of the investor. Foreign
direct investment requires a business relationship between a parent company and its foreign
subsidiary. For an investment to be regarded as foreign direct investment, the parent firm needs to
have at least 10 per cent of the ordinary shares of its foreign affiliates. The investing firm may also
qualify for a foreign direct investment if it owns voting power in a business enterprise operating in a
foreign country.

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29) Sumanjeet (2009) states that, the NRIs are permitted to acquire immovable property (other
than agricultural land, plantations and farm houses) easily. There are no restrictions regarding the
number of such properties to be acquired. The only restriction is that where the property is acquired
out of inward remittances, the repatriation is restricted to principal amount for two residential
properties. There is no such restriction in respect of commercial property. NRIs are also permitted
to avail housing loans for acquiring property in India and repayment of such loans by close
relatives.

30) RajanBharti Mittal (2010), President of the Federation of Indian Chambers of Commerce
and Industry (FICCI), stressed the need to allow greater foreign direct investment in the country to
achieve 10 per cent GDP growth. He further stressed upon the need to open up retail sector to more
foreign direct investment. A retail sector is a huge employment generator and it is a sector that
needs more foreign investment. He also states that Federation of Indian Chambers of Commerce
and Industry will focus on making India the global investment destination with a target of US $75
billion FDI by the year 2015. To reach this target FICCI will also undertake efforts and advocate
policy issues and changes needed therein to improve the policy framework.

2.3 CONCLUSION

The review of literature is a crucial aspect of the planning of the study. The review of some studies
on the area of interest of the scholar is presented in this chapter.

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3.1 INTRODUCTION

This section comprises introduction, conceptual literature and conclusion section. Conceptual
literature focuses on the explanation of various terminologies related with investment. Finally the
conclusion will provide a discussion on the theoretical framework.

3.2 MEANING OF SAVINGS AND INVESTMENTS

Savings is that part of income which is not spends for present consumption. It refers to money or
assets kept for future periods. In deposit terminology, the term savings is defined as money or assets
set aside for the purpose of future use. Savings generally represent only one part of an individual’s
assets and have a minimal exposure to risk. It represents an important part of an individual’s as well
as a nation’s basic assets.

Investment may be defined as an activity of committing funds in any financial or physical form in
the present with the expectation of receiving additional income in the future. In other words
investment is the sacrifice of certain present value for the uncertain future reward.

According to Fisher and Jordan investment is “commitment of funds made in the expectation of
some positive rate of return. If the investment is properly undertaken, the return will commensurate
with the risk the investor assumes”

According to F. Amling “investment may be defined as the purchase by an individual or

institutional investor of a financial or real asset that produces a return proportional to the risk
assumed over some future investment project”

The Business Dictionary defines investments as “money committed or property acquired for future
income”

In short investment means income set aside for the purpose of earning additional return or growth in
value.

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3.3 FACTORS AFFECTING SAVINGS

The following factors influence the savings of individuals.

3.3.1 Income
If a person’s income is more than sufficient to meet all the needs and wants, then there will have
surplus funds left over at the end of each pay cycle or pay period. This fund can be directed into
savings avenues.

3.3.2 Marginal Propensity to Consume (MPC)

After receiving income a majority of it will spend for food, shelter, clothing, etc. In Economic
terms the percentage of the income which is consumed is referred to as the Marginal Propensity to
Consume. The Marginal Propensity to Consume helps to know the relationship between rupee
earned and rupee expended. That is when an additional rupee is earned, how much of that will be
expended. The Marginal Propensity to Consume plus the household savings ratio will always equal
to 100 percentage. As such anything which affects MPC will affect saving levels also.

3.3.3 Interest rates

Interest rates will have a significant impact on the willingness to save money. When interest rate
increases, it will results into a higher financial return on the money that is saved. This will make
saving a more attractive option.

3.3.4 Availability of appropriate saving schemes

If more options are available to put the money saved, people will be attracted to save more.

3.3.5 Income tax

When persuaded income tax rates increase, it will affect disposal income. Disposal income is the
income left after paying taxes. If income tax rates increase, people won’t have much money to save.
On the other hand, when income tax rates fall, it is possible to save more money. Any money that
one earns from savings is subject to taxation. Any decision by the Government to alter the way in
which savings are taxed will also have an effect on whether or not to choose saving avenues.

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3.3.6 Rate of inflation

When inflation is high people have less money left with them to save because a major part of their
disposal income will be spend to satisfy their needs and wants.

3.3.7 Save for a future purchase

People may save with the motive to carry out a future purchase such as purchase of vehicle, house
etc.

3.3.8 Precautionary measures

Future is uncertain. So to cover future and its uncertainty people might save as a precaution and to
meet unforeseen contingencies.

3.3.9 Tastes and preferences of consumers

Savings of an individual always depends upon individual’s preference. Some people save more than
others.

3.3.10 Consumer confidence or expectation about future changes in

the economy

The consumers’ confidence or trust in financial institutions and expectation about future changes in
the economy will affect savings level. Poor expectation of future economic growth, wages and job
opportunities will result in increase in savings as a precautionary measure.

3.4 CONCEPTS OF INVESTMENT

Investment or investing is a word which may have many interpretations. Basically there are three
concepts of investment. They are:-
• Economic Investment
• Commitment Investment
• Financial investment

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3.4.1 Economic investment
The term economic investment has a precise meaning. Economic investment means net addition to
the capital stock of society. Capital stock of society refers to the goods which are used in the
production of other goods. In this sense investment refers to an increase in buildings, equipment's or
inventories over the amount of equivalent goods that existed. This is a gross, societal or aggregate
point of view.

3.4.2 Commitment investment

Commitment investment refers to money committed to satisfy personal desires. Since no rate of
return is involved in such investments no capital growth is expected.

3.4.3 Financial investment

The term financial investment is the commitment of funds to derive future income in the form of
interest, dividend, premium or appreciation in the value of initial investment. It involves assets such
as shares, debentures, bonds, real estate, gold etc.

3.5 CHARACTERISTICS OF INVESTMENTS

The characteristic features of investments are return, risk, safety and liquidity.

3.5.1 Return

All investments are characterized by the expectation of a return. Investments are made with the
primary objectives of deriving a return. The return may be received in the form of yield plus capital
appreciation. Capital appreciation is the difference between sale price and the purchase price of the
investments. The dividend or interest from the investment is the yield. Different type of investment
promise different rates of return. The return from an investment depends upon the nature of
investments, the maturity period, market demand and a number of other factors.

3.5.2 Risk

Risk is inherent in any investment. The risk may relate to loss of capital, delay in repayment of
capital, nonpayment of interest or variability of returns. The risk of an investment depends on the
following factors.

18
3.5.2.1 Maturity period

The longer the maturity period, the longer is the risk. When the expected time in which the
investments has to be returned is longer, the uncertainty surrounding the return flow from the
investment increases. This uncertainty leads to a higher risk level for the investment with longer
maturity than on an investment with shorter maturity.

3.5.2.2 The repayment capacity

The lower the repayment capacity of the borrower, higher is the risk. This factor is termed as the
credit worthiness or value generation capacity of investment.

3.5.2.3 Variability of return

The risk of variability is more in the case of ownership capital as the return varies with the net
profits after all commitments are met. So equity share and preference share all more risky than
debentures or bonds.

3.5.2.4 The nature of investments

The nature of investment namely debt investment or fixed deposit or ownership investment like
equity or preference share also determines risk.

3.5.2.5 The nature of tax liability on the instruments

The tax provision would influence the return as the net effective return for a tax payer would be
higher for tax free instruments or those whose interest income is tax free up to a limit.

3.5.3 Safety

The safety of an investment implies the certainty of return on capital without loss of money or time.
Safety is another feature which an investor desires for his investment. Every investor expects to get
back his capital on maturity without loss and without delay.

19
3.5.4 Liquidity

An investment which is easily salable or marketable without loss of time is said to posses liquidity.
Some investments like company deposits are not marketable. Some investment instruments like
share are marketable. If there is no buyer in case of any investment instrument their liquidity is
negligible. Equity shares of companies listed on stock exchanges are easily marketable through the
stock exchanges.

An investor generally prefers liquidity for his investment, safety of his funds, a good return with
minimum risk or maximization of return.

3.6 REASONS FOR INCREASING POPULARITY OF

INVESTMENTS

In the past, investing has been an activity related to the rich and business class. But today investing
is popular with people from all walks of life. The following factors contributed in the increasing
popularity of investments.

3.6.1 Increase in working population

Increased working population results into larger family incomes. This will consequently
result in higher savings and increase in investing.

3.6.2 Provision of tax incentives

A tax planning could lead to substantial increase in amount of savings. Various tax
incentives offered by the Governments make this possible. Provisions of income tax and
wealth tax act are important to an investor in planning investments.

3.6.3 Availability of investment opportunities

There are various schemes available to the investors which are offered by the Government
of India, public sector financial institutions, public limited companies, public sector
enterprises and other institutions.

20
3.6.4 Increase in related information sources

For taking a right investment decisions, investors generally need to know the best source of
information. The investors are now having better information of market conditions to reap
more benefit. The best source of information to an investor is financial periodicals, satellite
channels, global affairs, national economic affairs, associations, company information
quotations, publications etc.

3.6.5 Ability of investment to provide income and capital gains

The ability to provide return by the investment also attracts people to make investments.

3.7 ESSENTIALS OF INVESTMENT PLANS AND POLICIES

Before choosing specific investment plan, investors should have definite ideas regarding expected
return and risk for their investments. For successful investments and for choosing right investments,
the investor must follow the investment principles.

3.7.1 Capital appreciation

Capital appreciation is the difference between the net selling price and purchase price. Investors
constantly seek for capital appreciation of the investments also.

3.7.2 Tax implications

Some investments enjoy tax benefits and hence their net return will be higher. The other forms of
tax benefit are the exemption or rebate with respect to wealth tax or capital gains tax etc. Therefore
important taxation provisions and tax planning possibilities are to be kept in mind while planning an
investment strategy.

3.7.3 Purchasing power consideration

An investment always involves the commitment of current funds with the objective of receiving
greater amounts of future funds. So the purchasing power of the future fund should be considered
by the investor. For maintaining purchasing power stability, investors should carefully study the
following,

21
 • The degree of price level inflation they expect in the near future.

• The possibilities of gain and loss in the investment available to them.

• The limitations imposed by personal and family considerations.

3.7.4 Government control

Various Government statutes and controls like, The Gold Control Act, The Urban Land Ceiling Act
etc. affect investment decisions.

3.7.5 Legality

Laws relating to Minors, Estates, Trusts, Shares and Insurance should be studied and investments
should be approved by law.

3.7.6 Transferability

The financial or physical assets must be easily and legally transferable both on monitory terms and
non monitory terms.

3.7.7 Tangibility

Some investors prefer Tangible investments because intangible assets may have lost their value due
to price level changes, regulations of laws or collapse etc.

To conclude, savings are money or other assets kept over a long period of time without much risk of
loss or making profit. Investments are money or other assets purchased with the hope that it will
generate income, reduce costs, or appreciate in future.

The objectives of savings are short term. The main purpose of savings is to use them for a specific
purpose. They are liquid and available when they need. The objective of investment is long term
capital growth or higher return.

The risk factor in savings is very low. There is no chance of losing the principal amount. In the case
of investments the risk factor varies depending on the type of assets owned.

22
The returns for savings are low. The returns from investments are much higher than savings. The
return may be in the form of interests, dividends or capital gains etc.

The major form of savings are Bank Deposits ,Insurance Policies, Chit funds, Pension Fund,
Provident funds etc. while investments are in corporate securities, Government securities, Mutual
funds ,Debentures ,Gold ,Commodities etc.

The main benefit of savings is that money is safe and accessible at any time. Whereas the main
benefit of investments is that some investments may give inflation adjusted rate of return.

The major drawback of savings is that they are idle and there will be some kind of risk due to
inflationary changes. The major drawback of investments is that there is a possibility to lose money
if investments decline in value.

3.8 TYPES OF INVESTMENTS

3.8.1 Stocks

When you buy shares of a company’s stock, you own a piece of that company. Stocks come in a
wide variety, and they often are described based the company’s size, type, performance during
market cycles and potential for short- and long-term growth. Learn more about your choices—from
penny-stocks to large caps and more.

3.8.2 Annuities

An annuity is a contract between you and an insurance company, in which the company promises to
make periodic payments, either starting immediately—called an immediate annuity—or at some
future time—a deferred annuity. Learn about the different types of annuities.

3.8.3 Retirement

Numerous types of investments come into play when saving for retirement and managing income
once you retire. For saving, tax-advantaged retirement options such as a 401(k) or an IRA can be a
smart choice.

Managing retirement income may require moving out of certain investments and into ones that are
better suited to a retirement lifestyle.

23
3.8.4 Commodity future
Commodity futures contracts are agreements to buy or sell a specific quantity of a commodity at a
specified price on a particular date in the future. Commodities include metals, oil, grains and animal
products, as well as financial instruments and currencies. With limited exceptions, trading in futures
contracts must be executed on the floor of a commodity exchange.

3.8.5 Insurance
Life insurance products come in various forms, including term life, whole life and universal life
policies. There also are variations on these—variable life insurance and variable universal life—
which are considered securities. See how insurance products may fit into an overall financial plan.

3.8.6 Security futures

Federal regulations permit trading in futures contracts on single stocks, also known as single stock
futures, and certain security indices. Learn more about security futures, how they differ from stock
options and the risks they can pose.

3.8.7 Investment funds

Funds—such as mutual funds, closed-end funds and exchange-traded funds—pool money from
many investors and invest it according to a specific investment strategy. Funds can offer
diversification, professional management and a wide variety of investment strategies and styles. But
not all funds are the same. Understand how they work, and research fund fees and expenses.

3.8.8 Mutual fund

A mutual fund is an entity that pools the money of many investors -- its unit-holders -- to invest in
different securities. Investments may be in shares, debt securities, money market securities or a
combination of these.

3.8.9 Shares

The capital of a company is divided into shares. Each share forms a unit of ownership of a company
and is offered for sale so as to raise capital for the company.

24
3.8.10 Debentures

A debenture is a type of debt instrument that is not secured by physical assets or collateral.
Debentures are backed only by the general creditworthiness and reputation of the issuer. Both
corporations and Governments frequently issue this type of bond to secure capital. Like other types
of bonds, debentures are documented in an indenture.

3.8.11 Real estate

Real estate is property comprised of land and the buildings on it as well as the natural resources of
the land including uncultivated flora and fauna, farmed crops and livestock, water and minerals.
Although media often refers to the "real estate market" from the perspective of residential living,
real estate can be grouped into three broad categories based on its use: residential, commercial and
industrial. Examples of residential real estate include undeveloped land, houses, condominiums, and
townhomes; examples of commercial real estate are office buildings, warehouses, and retail store
buildings; and examples of industrial real estate are factories, mines, and farms.

3.8.12 Bank deposit

Bank deposits consist of money placed into banking institutions for safekeeping. These deposits are
made to deposit accounts such as savings accounts, checking accounts and money market accounts.
The account holder has the right to withdraw deposited funds, as set forth in the terms and
conditions governing the account agreement.

3.9 NON-RESIDENT INDIAN (NRI)

Non-Resident Indian or NRI refers to a person of Indian origin staying in a different global location
for employment/carrying on business or vocation. They are spread across the world with an
estimated population of 50 to 150 million. Most of the NRI populate have migrated to alien
countries for better job prospect and future but with the advent of global MNCs (Multinational
companies) and implementation of revised foreign policies in India, the NRIs are driven to become
a part of this fastest emerging economy. NRIs can make investments in all the investments options,
which are available to Resident Indians. However, Persons of Indian Origin can only make
investments in non-agricultural businesses in the country. To encourage this initiation of NRIs to
resettle and return back to India, they are granted the following facilities:

25
  Maintenance of bank accounts in India.

 Investments in securities/shares of, and deposits with Indian firms/companies.

 Investments in immovable properties in India.

Transferring of money to India is no longer a tedious procedure for the NRIs as the availability of
efficient Money Exchange Service Providers helps them to send money directly into any bank
account within no time. Most of these service providers offer PayPal transfers and 24x7 Customer
Support for the expediency of NRIs. To appreciate the interest of NRIs in India’s immovable
properties, the government of India has come up with beneficial investment policies for the NRIs.
The Reserve Bank of India allows them to acquire, hold, and transfer or dispose of land by way of
sale or inheritance. Such properties are meant for the purchaser’s bonfire residential use and they
are purchased through normal banking channels / home loans or NRE and FCNR (Foreign Currency
Non-Resident Account).

3.10 FINANCIAL ADVISORS

Financial advisors play an important role in helping you to make the right investment decisions.
Depending on the type of financial advisors that you choose, they can make your life easy or
difficult. It is critical for you to learn about different types of financial advisors; so that you may
understand which of them suit your requirements.

3.11 FACTORS FAVORABLE FOR INVEST IN INDIA

The investment market should have a favorable environment to be able to function

effectively. In India where all business activities are marked by social, economic and
political considerations. It is important that the political and economic institutions are favorable.
Generally, there are four basic considerations which foster growth and bring opportunities for
investment. They are:

26
3.11.1 Legal safeguards

A stable government which frames adequate legal safeguards encourages accumulation of savings
and investments. Investors will be willing to invest their funds if they have the assurance of
protection of their contractual and property rights. In India the investors have the dual advantage of
free enterprise and government control. Freedom, efficiency and growth are ensured from the
competitive forces of private enterprises. On the other hand being a mixed economy, government
control exerts discipline and curtails some element of freedom. A combination of the public sector
controlled by the government and private sector left free to operate, hopes to achieve
the benefits of both socialistic and capitalist forms of government without their disadvantages.
In India, the political culture is conducive to investment as government control leads
stability to the capital market.

3.11.2 Well Organized Monitory System

A well organized monetary system with definite planning and proper policies is a necessary
prerequisite to an investment market Most of the investments such as bank deposits, life insurance
and shares are payable in a fixed amount of the currency of the country. A proper monetary policy
should neither promote acute inflationary pressures nor prepare for a deflation model. Neither
condition is satisfactory. Price inflation destroys power of investments. Inflation occurs generally in
unstable conditions like war or floods bus into the last decade, it also discernible in peace
conditions especially in developing countries because of huge government deficit financed by bank
credit. A reasonable stable price level which is produced by wise monetary and fiscal management
contributes towards proper control, good government, economic well-being and a well-disciplined
growth oriented investment market and protection to the investor.

3.11.3 Existence of Financial Institutions to encourage Savings

The presence of financial institutions, which encourage savings and direct those to
productive uses, helps the investment market to grow. The financial institutions generally in
existence in most countries are commercial banks, life insurance companies and investment
companies.

27
3.12 FEATURES OF AN INVESTMENT PROGRAM

3.12.1 Safety of principal

The investor to be certain of safety of principal should carefully review the economic and industry
trends before choosing the types of investment. Adequate diversification, mixing investment
commitments by industry, geographically, by management, by financial type and by maturities,
proper combination of these factors would reduce losses. Diversification helps to great extent in
proper investment programming. But it must be reasonably accomplished and should not be carried
out to extremes.

3.12.2 Liquidity

Every investor requires a minimum liquidity in his investment to meet emergencies. Liquidity will
be ensured if the investor buys a Proportion of readily salable securities out of his total portfolio. He
may therefore keep a small proportion of cash, fixed deposit and units, which can be immediately
made liquid. Investment like stocks, property or real estate cannot ensure immediate liquidity.

3.12.3 Income stability

Regularity of income at a consistent rate is necessary in any investment pattern. Not only stability,
it is also important to see that the income is adequate after taxes. It is possible to find out some good
securities, which pay practically all their earnings in dividends.

3.12.4 Appreciation and purchasing power stability

Investor should balance their portfolio to fight against any purchasing power instability. Investors
should judge price level inflation; explore the possibility of gain and loss in the investment
available to them, limitations of personal; and family considerations. The investors should also try
and forecast which securities will possibly appreciate. Purchase of property at the right time will
lead to appreciation in time. Growth stock will also appreciate over time. These, however, should be
done thoughtfully and not in a manner of speculation or gamble.

28
3.12.5 Legality and freedom from care
Law should approve all investment. Law relating to minors, estates, trusts, shares and insurance
should be studied. Illegal securities will bring out many problems for the investor. One way of
being free from care is to invest insecurities like Unit Trust of India or Life Insurance Corporation
or Savings Certificates. The management of securities is then left to the care of the trust that
diversifies the investment according to safety, Stability and liquidity with the consideration of their
investment policy. The identity of legal securities and investment in such securities will also help
the investor in avoiding many problems.

3.12.6 Tangibility

Intangible securities have many times lost their value, due to price level inflation, confiscatory laws
or social collapse. Some investors prefer to keep a part of their wealth invested in tangible
properties like building, machinery and land. It may, however, be considered that tangible property
does not yield an income apart from the direct satisfaction of possession of property.

3.13 NRE ACCOUNTS (NON-RESIDENT (EXTERNAL)

ACCOUNT)

The rates of interest on term deposit kept under NR (E) are generally higher than the rates of
interest on NRO deposits. The following highlights some of the key features of NRE accounts.

• No income Tax.

• No joint account with an Indian residence.

• Non-Resident account holders can grant a power of attorney or such other authority to any
residents in India for operating their NR (E) Accounts in India. Such authority is however,
restricted to withdrawals for local payments. The attorney holder cannot repatriate funds
held in accounts outside India under any circumstances or make payment of gifts on behalf
of the account holder.

• The rates of interest payable on NR (E) accounts are subject to change from time to time
as per directions issued from Reserve Bank of India.

• An eligible Non-Resident Indian can open an account with any RBI approved authorized
bank.

29
3.13.1 Disadvantages of NR(E) Accounts

 NR (E) Accounts are opened in Indian rupees, and all foreign exchange remittances received
for credit of that account are first converted to Indian rupees at the buying rates by the
banks. The bank will permit any withdrawal in foreign currency, by converting Indian
rupees in the account to foreign currency at the selling rate. All balances in the account are
held in Indian rupees and are thus exposed to exchange fluctuation risk Note:

 The NRO account can't be converted into NRE. Also funds can't be transferred from NRO to
NRE account without a special permission from RBI and proof of all existing funds
required, which is a complex procedure than opening a new NRE account.

 The entire credit balance (inclusive of interest earned thereon) can be repatriated outside
India at any time without any reference to Reserve Bank of India.

 Once you go back to India for good and become an Indian resident, NRE account can be
converted into your normal Resident Rupee Account.

3.14 FCNR ACCOUNTS

Foreign Currency Non Resident (B) Account [FCNR (B)] is governed by the
provisions of [Foreign Exchange Management (Deposit) Regulations, 2000.].FCNR is
maintained in foreign Currency viz. US Dollar (USD), Pounds Sterling (GBP), Euro Currency
(EUR) and Japanese Yen (JPY), but only as fixed deposits. The principal and interest earned
thereon are repatriable the deposit Under FCNR (Banks) scheme is held in foreign currency. The
interest and the repayment of the deposit are also made in the same foreign currency in
which the account is maintained. The depositor may at his own will, obtain repayment in Indian
rupees, converted at the buying rate on the date of repayment. Deposits under this scheme are
held for the following period: 6 months and above, but less than 1 yr-1 yr and above but less
than 2 yrs-2 yrs and above but less than 3 yrs-3 yrs only. Premature withdrawal is allowed, but there
will be a penalty. Non-Resident Account holders can grant power of attorney (for a specimen click
here) or such other authority to residents in India for operating their FCNR(B) accounts in India.
Interest rates are subject to the RBI guidelines.

30
These accounts are opened for periods ranging from 12 months to 3 years. This is the only option
available for NRIs for keeping their deposits in foreign currency. This account has a clear
advantage that the customer’s fund is protected from fluctuations in exchange rates.
Moreover, the investor can earn an interest on this deposit in the designated foreign currency.
Interest earned on FCNR deposit is exempt from Income Tax as far as the depositor is not Resident
of India or not Ordinarily Resident in India as per the Income Tax Act. Deposit exempted from
wealth tax.

Note:
Opening of FCNR (B) accounts in the names of NRIs of Bangladesh/ Pakistan

Nationality/ ownership require approval of Reserve Bank of India.

3.15 TERM DEPOSIT ACCOUNTS

Term deposits can be opened by remittances from abroad or by transfer of funds from existing
NRE/FCNR/NRO/NRSR accounts of the same person with other banks in India or from other
branches of the bank or by tendering foreign currency notes/ travelers cheques brought by NRI's
during their visit to India.

3.16 PORTFOLIO INVESTMENT SCHEDULE (PIS)

This is similar to the NRE/NRO savings a/c. The NRI can trade in the secondary stock market with
Repatriation (from NRE PIS a/c) and on non-repatriation basis (from NRO PIS a/c). Demat a/c’s
can be opened with signatures of power of attorney (POA).

3.17 UNIT DEPOSIT

It is a fixed deposit scheme wherein you can withdraw your deposit to the extent of your need
and leave the remaining amount undisturbed to earn your interest at the contracted rate.
Apart from these, NRIs are permitted to make direct investments in proprietary/partnership
concerns in India as also in shares/debentures of Indian companies. They are also permitted to make
portfolio investments i.e. purchase of shares/debentures of Indian companies through stock

31
exchanges in India. These facilities are granted both on repatriation and non repatriation basis.
Investment by NRIs in India can be broadly classified as investment on repatriation basis and on
non-repatriation basis. Repatriation basis means the income/dividend/ interest earned from
the investment and the sale/maturity proceeds of investment can be repatriated outside India at any
time or can be credited to NRE account of the investor subject to deduction/payment of
Income Tax. Non repatriation basis denotes that the amount invested and its capital appreciation
will not be allowed to be repatriated. However, the interest/dividend/income earned may be
permitted to be repatriated/ credited to NRE account of the investor; subject to terms prescribed by
RBI. Investment on repatriation as well as non-repatriation basis is permitted in the
following categories,

 Government dated securities (other than bearer securities)/treasury bills.

 Units of domestic mutual funds.

 Bonds issued by a public sector undertaking (PSU) in India.

 Shares in Public Sector Enterprises being disinvested by the Government of India, provided
the purchase is in accordance with the terms and conditions stipulated in the notice inviting
bids.

 Shares and convertible debentures of Indian companies under FDI scheme (including
automatic route & FIPB).

 Shares and convertible debentures of Indian companies through stock exchange under
Portfolio Investment Scheme.

3.18 EQUITIES

With sentiments running negative in favour of stock markets and risk aversion being the flavour of
the scene an average investor is wary of investing in stocks markets. But despite all the negativity
surrounding India at this moment the fact still remains that apart from China India is the only
country in the world that is growing over 7% and has the potential of growing by 8–9 % annually.
Even by the estimates of the World Bank, India will grow at 7%.This annual growth coupled with
the rupee appreciation expected in few months coupled with the interest rates reduction Indian stock
markets remains a destination where putting your money can give you extremely good returns in a
medium to long term.

32
3.19 BONDS

With the reserve bank of India showing signs of start of the interest rates cycle the bond prices are
expected to rise in the coning few months and it would be safe to assume that they would be
offering good returns with no or very less risk. With the rupee depreciation offering currency
conversion benefits these returns also can easily surpass the returns that investors can earn in the
western world

3.20 24% AND 40% SCHEMES

The 24% Scheme allows Indian companies, except those engaged in agricultural activities, to issue
up to 24% of their shares and debentures to NRIs with repatriation benefits. Similarly, the 40%
scheme allows for purchase of equity, preference shares and convertible debentures not exceeding
51% of the face value of each issue. Repatriation of up to40% of the new issue is allowed. Under
this scheme, NRIs can invest in new projects or in expansion and diversification projects of existing
companies.

3.21 DIFFERENT TAX BENEFITS AVILABLE TO NRIs

 Bank deposits, investment in shares, units of Mutual Funds etc. are exempt from wealth
tax in India.

 Interest earned on NRE and FCNR accounts is completely tax-free.

 In 1997, gift tax was abolished. So both the donor as well as the recipient did not have to
pay any tax on the gifts received. Consequently people started misusing the vacuum left
behind by scrapping of gift tax. There was a widespread transfer of insincere gifts from the
non-relatives. In order to fill up this void, Section56 (2)(v) of Income Tax Act was passed in
2004.As per Section56 (2)(v) of the Income Tax Act , any amount exceeding Rs25,000
obtained by a person or a Hindu Undivided Family (HUF)without any consideration from
non-relative would be taxed. The o n l y c a s e s e x e m p t e d w e r e t h e g i f t s g i v e n
d u r i n g m a r r i a g e , inheritance left behind in a will or if the payer has died.

33
3.22 TAX PORVISIONS AND CONCESSIONS FOR NRIs

Residents in Dubai and the UAE do not have to pay income tax. There’s an all round good feeling
about this that attracts people from all over. When it comes to NRI, the feeling is doubly good.
They don’t have to pay tax back home for income earned abroad. But those earning an income
from investments made in India have to be attentive to taxes that accrue on them. What attract tax
are the non-resident’s investments in shares, debentures, deposits and properties in India. The
exemption limit is Rs. 160,000.

3.23 INCOME TAX

Under the Income Tax Act, an NRI is a person who has stayed outside India for 182 days or more in
a financial year (from April 1 to March 31). If a person have come back after being an NRI for nine
consecutive years, then he is an R-NOR (Resident but Not Ordinarily Resident), and can still obtain
some of the benefits for two consecutive financial years. An individual can also obtain NRI benefits
if he has been in India for not more than 729 days during the preceding seven financial years. NRI’s
don’t need to think about income earned outside the country, until and unless the organization the
individual is employed with is Indian. Neither does the person have to think twice before parking
money in a Non-Resident External (NRE) account. However, interest accrued on a Non-Resident
Ordinary Account (NRO) is taxed at the rate of 30.9%, is deducted by the bank at
source. Also once income is earned on money (convertible foreign exchange) invested in India, the
question of tax arises. These are called the Foreign Exchange Assets (FEA) and the categories are:

a) Shares in Indian Company.

b) Debentures issued by a Public Limited Company

c) Deposits in a Public Limited Company

d) Securities of the Central (federal) Government.

e) Any other notified asset.

34
The interests gained from these investments are taxed at a flat rate of 20%.And profit out of the
long term capital gains that is, selling a capital asset such as a pro10%. Similar gains from equity
shares and equity mutual funds are tax exempt if held for more than 12 months. But if sold before
12 months, there is a short-term capital gains tax of 10%.Capital gains are determined at the rate of
exchange on the date of sale. But there is a catch here. The sale of these investments is tax-exempt,
if the sale proceeds are reinvested in similar investments within six months. If the sale proceeds of
these assets are partially re-invested, then the exemption is proportionate to the amount re-invested.

3.24 CONCLUSION

An NRI may choose to be assessed as either an NRI or as an Ordinary Indian Resident. Residents in
Dubai and the UAE do not have to pay income tax.

35
 Table:4.1

Classification of Gender

Gender No. of respondents Percentage

Male 70 70
Female 30 30
Total 100 100
Source: Primary data

Chart: 4.1

Classification of Gender

30

Male
Female

70

Interpretation:

Table no: 4.1 shows that 70 percent of the respondents are male and 30 percentage are female.

36
 Table: 4.2

Employment status

Employment status No. of respondents Percentage

Salaried 50 50
Professional 10 10
Business 30 30
Others 10 10
Total 100 100
Source: Primary data

Chart: 4.2

Employment status

50

50
45
40
30
35
30
25
20
10 10
15
10
5
0
Salaried Professional Business Others

Interpretation:

Table no: 4.2 shows that employment status of respondents, 50 percent of the respondents are
salaried, 30 percent of the respondents doing business, and 10 percentage of the respondents are
professional and working in other sector respectively.

37
 Table: 4.3

Monthly income

Income No. of respondents Percentage

Below 10000 10 10
10000-50000 10 10
50000-100000 20 20
Above 100000 60 60
Total 100 100
Source: Primary data

Chart: 4.3

Monthly income

60
60

50

40

30
20
20
10 10
10

0
Below 10000 10000-50000 50000-100000 Above 100000

Interpretation:

Table no: 4.3 explains that estimated monthly income, 60 percent of the respondents earns income
above 100000, 20 percent of the respondents are in a range between 50000-100000, and 10 percent
of the respondents have below 10000 and 10000-50000 respectively.

38
 Table: 4.4

Purpose for saving

Particulars No. of respondents Percentage

Children’s education 20 20
Retirement plan 14 14
Health care expenses 8 8
Home purchase 42 42
Others 16 16
Total 100 100
Source: Primary data

Chart: 4.4

Purpose for saving

42
45
40
35
30
25 20
20 16
14
15
8
10
5
0

Interpretation:

Table no: 4.4 shows that purpose for saving. 20 percent of the respondents saving for children’s
education, 14 percent for retirement plan, 8 percent for health care expenses. 42 percent for home
purchase and 16 percent for other purpose.

39
 Table: 4.5

Investment portfolio objective

Particulars No. of respondents Percentage

Income and capital preservation 64 64
Growth and income 26 26
Long term growth 4 4
Aggressive growth 6 6
Total 100 100
Source: Primary data

Chart: 4.5
Investment portfolio objective

64
70
60
50
40 26
30
20 6
4
10
0

Interpretation:

Table no: 4.5 shows the investment portfolio objective of respondents. 64 percent opined that their
aim is income and capital preservation, 26 percent opined growth and income as their investment
objective, 4 percent opined long term growth as their objective and 6 percent opined aggressive
growth as their objective.

40
 Table: 4.6

Frequency of investment in India

Particulars No. of respondents Percentage

Monthly 56 56
Quarterly 26 26
Half yearly 8 8
Annually 10 10
Total 100 100
Source: Primary data

Chart: 4.6

Frequency of investment n India

56
60

50

40
26
30

20
10
8
10

0
Monthly Quarterly Half yearly Annually

Interpretation:

Table no: 4.6 shows frequency of investment in India. 56 percent of respondents make monthly
investment in India, 26 percent opt for quarterly investment, 8 percent invest half yearly and 10
percent invest annually.

41
 Table: 4.7

Consultation of financial advisor

Particulars No. of respondents Percentage

Yes 20 20
No 80 80
Total 100 100
Source: Primary data

Chart: 4.7

Consultation of financial advisor

20

Yes
No

80

Interpretation:

Table no:4.7 is shown that 80 percent of the respondents are not consulting a financial advisor for
taking the investment decision and remaining 20 percent of the respondents are consulting a
financial advisor.

42
 Table: 4.8

Source of financial advice

Particulars No. of respondents Percentage

Friend/ Relatives 30 30
Financial consultant 20 20
Investors institution 40 40
Portfolio department bank 10 10
Total 100 100
Source: Primary data

Chart: 4.8

Source of financial advice

40

40

35 30

30

25 20

20

15 10

10

Interpretation:

In table no: 4.8 we can see that only 20 percent of respondents are consulting a financial advisor.
Among the 100 respondents 30 percent of the respondents consult with their friends and relatives,
20 percent consult with financial consultant, 40 percent consult with financial institutions and 10
percent consult with portfolio department bank.

43
 Table: 4.9

The institution having Investment portfolio

Particulars No. of respondents Percentage

Bank deposit 60 60
Post office 16 16
Gold 4 4
Share/ Bond/ Debenture 8 8
Mutual fund 6 6
Real estate 4 4
Life insurance 2 2
Total 100 100
Source: Primary data

Chart: 4.9

The institution having Investment portfolio

60
60

50

40

30
16
20
8 6
10 4 4 2

Interpretation:

Table no: 4.9 shows that 60 percent of the respondents have bank deposit, 16 percent of the
respondents have deposit with post office, 8 percent of the respondents invest in
Share/Bond/Debenture, 6 percent of the respondents invest in Mutual fund, 4 percent of the
respondents invest in gold and Real estate, 2 percent of the respondents invest in life insurance .

44
 Table: 4.10

Most preferred investment sector if invest in shares

Particulars No. of respondents Percentage

IT sector 18 18
Textile sector 12 12
Auto sector 4 4
Banking sectors 44 44
FMCG sector 16 16
Oil sector 6 6
Total 100 100
Source: Primary data

Chart: 4.10

Sector of Investment Avenue

44
45
40
35
30
25 18
16
20 12
15
10 4 5
5
0

Interpretation:

Table no: 4.10 shows that 44 percent of the respondents prefer to invest in Banking sector, 18
percent of the respondents prefer IT sector, 16 percent of the respondents prefer FMCG sector, 12
percent of the respondents prefer Textile sector, 6 percent of the respondents prefer oil sector, and 4
percent of the respondents prefer Auto sector.

45
 Table: 4.11

Ranking with the Investment according to priority

Particulars No. of respondents Percentage

Bank deposit 26 26
Life insurance 38 38
Mutual fund 14 14
Shares 10 10
Real estate 6 6
Gold 2 2
Post office 4 4
Total 100 100
Source: Primary data

Chart: 4.11

Ranking with the Investment according to priority

38
40
35
30 26
25
20 14
15 10
10 6
4
2
5
0

Interpretation:

Table no: 4.11 shows that 38 percent of the respondents gave 1 st ranking to bank deposit, 38 percent
gave for life insurance, 14 percent gave for mutual fund, 10 percent gave for shares, 6 percent
gave real estate, 2 percent gave gold schemes and 4 percent gave post office.

46
 Table: 4.12

Awareness with investment avenues as a NRI

Particulars No. of Percentage
respondents
Bank deposit 36 36
Shares/ convertible debentures/ non convertible debentures 10 10
Mutual fund 18 18
Bond-invested out of NCERT/ FCNR/ NRO 12 12
Immovable property 6 6
Proprietary/ partnership concern in India 8 8
Deposit in Indian companies through NRO account 10 10
Total 100 100
Source: Primary data

Chart: 4.12

Awareness with investment avenues as a NRI

36
40
30
18
20 10 12 10
6 8
10
0

Interpretation:
Table no: 4.12 shows that 36 percent of the respondents are aware about Bank deposit , 18 percent
of the respondents are aware about mutual fund, 12 percent of the respondents are aware about
Bond-invested out of NCERT/ FCNR/ NRO, 10 percent of the respondents are aware about
shares/convertible debentures/non convertible debentures, deposits in Indian companies through
NRO accounts, 8 percent of the respondent are aware of Proprietary/partnership concern in India,
and remaining 6 percent of the respondents are aware about immovable property are investment
avenues as a NRI.

47
 Table: 4.13

Satisfaction level on the investment made

Particulars No. of respondents Percentage

Highly satisfactory 60 60
Satisfactory 20 20
Unsatisfactory 20 20
Total 100 100
Source: Primary data

Chart: 4.13

Satisfaction level on the investment made

20

Highly satisfactory
Satisfactory
Unsatisfactory

60 20

Interpretation:

Table no: 4.13 shows that 60 percent of the respondents are highly satisfactory, and 20 percent of
the respondents are satisfactory and unsatisfactory level on the investment made.

48
 Table: 4.14

Investment experience

Particulars No. of Percentage

respondents
Beginner (no investment experience) 12 12

Moderately experienced investor (mutual fund and 30 30

bank deposit
Knowledgeable investor (has bought or sold individual 50 50
shares of stock or bond)
Experienced investors (has bought or sold individual 8 8
shares of stock or bond)
Total 100 100
Source: Primary data

Chart: 4.14

Investment experience

50
50
40 30
30
12
20 8
10
0

Interpretation:

Table no: 4.14 shows investment experience of respondents. 12 percent of respondents opined that
they are beginner, 30% opined that they are moderately experienced investor, 50 percent
respondents opined that they are knowledgeable investor and 8 percent opined that they are
experienced investor.

49
 Table: 4.15

Risk composition on investment

Particulars No. of respondents Percentage

Low risk 60 60
Medium risk 30 30
High risk 10 10
Total 100 100
Source: Primary data

Chart: 4.15

Risk composition on investment

10

Low risk
Medium risk
High risk

30

60

Interpretation:

Table no: 4.15 shows the extent of risk composition. 60 percent of respondents would like to have
low risk, 30 percent like medium risk and 10 percent like high risk.

50
 Table: 4.16

Response with the comfortable with the investment

Particulars No. of respondents Percentage

Agree 50 50
Disagree 30 30
Strongly disagree 20 20
Total 100 100
Source: Primary data

Chart: 4.16

Response with the comfortable with the investment

50
50
45
40
35 30
30
25 20
20
15
10
5
0
Agree Disagree Strongly disagree

Interpretation:

Table no: 4.16 shows that 50 percent of the respondents agreed, 30 percent of the respondents
disagreed, and 20 percent of the respondents strongly disagreed with investment that may
frequently experience large declines in value if there is a potential for higher returns.

51
 Table: 4.17

Mostly influenced factor in investment decision

Particulars No. of respondents Percentage

Safety 4 4
Liquidity 16 16
High return 30 30
Regular income 40 40
Capital appreciation 10 10
Total 100 100
Source: Primary data

Chart: 4.17

Mostly influenced factor in investment decision

40

40

35 30

30

25

20 16

15 10

10
4
5

Interpretation:

Table no: 4.17 shows that mostly influenced factor while taking investment decision. For 4 percent
of respondents it is safety, for 16 percent it is liquidity, for 30 percent it is high returns, for 40
percent it is regular income and for 10 percent it is capital appreciation.

52
 Table: 4.18

Approximate period to make withdrawal

Particulars No. of respondents Percentage

3-5 years 10 10
5-9 years 24 24
10 years or more 66 66
Total 100 100
Source: Primary data

Chart: 4.18

Approximate period to make withdrawal

66
70

60

50

40

30 24

20
10
10

0
3-5 years 5-9 years 10 years or more

Interpretation:

Table no: 4.18 shows the approximate period to make withdrawal. 10 percent of respondents opined
that it is 3-5 year, 24 percent opined that it is 5 -9 year and 66 percent of respondents opined that it
is above ten year they plan to make first withdrawal from the investment.

53
5.1 FINDINGS
 Gender wise classification of respondents show that most of the respondents are male.

 Employment status of respondents show that most of the respondents are salaried.

 Monthly income wise classification of respondents show that most of the respondents have
more than 100000 lakh monthly income.

 Home purchase is the purpose for saving for majority of respondents.

 Income and capital appreciation is the investment portfolio objective of majority of

respondents.

 The frequency of invest in India show that most of the respondents invest in India on
monthly basis.

 Only a few respondents are consulting financial advisor for investment.

 Most of the respondents seek advice from friends/relatives while taking investment
decisions.

 Majority of the respondents have bank deposit as investment portfolio.

 Banking sector is the most preferred investment sector if invest in shares for majority of
respondents.

 Most of the respondents preferred life insurance according to priority.

 Most of the respondents are aware about Bank deposit.

 Most of the respondents are highly satisfied with the present investment portfolio.

 Majority of the respondents rated them self as they are knowledgeable investor.

 Low risk composition on investment preferred by most of the respondents.

 Majority of the respondents strongly agreed that they are comfortable with the investment.

 Regular income is the mostly influenced factor in investment decision for majority of
respondents.

 10 years or above is the approximate period to make withdrawal for majority of respondents.

54
5.2 SUGGESTIONS

 Provide more detailed information to NRIs about investment alternatives because they
are not frequent visitors to their home country.

 Most of the NRIs are risk averters because of lack of knowledge about the golden rule of
investment that higher risk will give more return. Hence bank, financial agencies or
consultancies would try to educate the NRIs about the benefits of taking higher risk.

 Government has to conduct awareness programs and also develop and motive NRIs to
invest in their home county, rather than in the country in which they stay.

 The frequency of investment adopted by the NRIs is annually. Because of lack of

awareness about different investment alternatives. They are reluctant to invest their
hard-earned money in those investment which they do not have sufficient information.
Thus by conducting seminars, publishing journals, investors could be made more aware.

 Encourage the NRIs to invest in profitable investment opportunities (like post office
schemes shares, etc…).

55
5.3 CONCLUSION

The study was conducted on 100 NRIs to find out their attitude and perception towards the different
investment alternatives available back home.

The various factors identified in study also helped in providing some valuable inputs regarding the
investor’s pattern, their preference and priorities.

The study reveals that the investor has great preferences for safety and this is proved by their
investments in life insurance, gold and bank deposit. The NRI investors are looking for investment
alternatives that would help them to earn a steady income back home and also an investment
alternative that does not have risk of loss attached to them.

The survey also helped to analyze, the investors awareness about the various investment avenues
available to them back home. Through the study it was evident that the investors are not fully aware
of the options available to them. Thus through creating awareness and educating the NRIs about the
investment alternatives in which they can invest will help the individual as well as the country as a
whole to develop.

56