RETAIL INVESTOR S BEHAVIOR TOWARDS SECURITIES: A CASE STUDY OF ROHTAK CITY

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1 RETAIL INVESTOR S BEHAVIOR TOWARDS SECURITIES: A CASE STUDY OF ROHTAK CITY Yogender Gour Research Scholar, Department of Commerce, M.D. University, Rohtak, India ABSTRACT 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. Result showed that the association between profile of the retail investor qualification, age, occupation and decision of investment avenues is not significant. The investment decision of the investors is influenced by other factors like friendly suggestions, advertisement, financial statement of companies, dividend policy, institutional investor s behaviors of investment, foreign market crisis. Study also revealed that that more educated people enter in the capital market for making investment as retail investors. Key Words: Investment, Retail investor and SEBI INTRODUCTION 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 this bank account. The companies that have extra income may like to invest their money in the extension of the existing firm or undertake new venture. All of those activities in a broader sense mean investment. An investor is any party that makes an investment. The term has taken on a specific meaning in financial to describe the particular type of people and companies that regularly purchase 1

2 equity or debt securities for financial gain in exchange for funding an expanding company. Less frequently, the term is applied to parties who purchase real estate, currency, commodity, derivatives, personal property or other assets. Retail investor is a person who holds a small number of securities of different companies, a minimum hundred shares of Rs.10 each for considerable time, looking appreciation of his holding defined by SEBI. Retail investors are lifeline of capital market. Capital market is lifeline of industrial development. Industrial development leads the country towards economic growth. Retail investors are backbone of capital market. They are Heart of the Financial System. Higher roles of saving lead to higher growth. Of course, the savings needed to be channelized to proper investment matter. REVIEW OF LITERATURE Raj and Murugan (2011) found that the middle aged persons (30-40) are very conscious in savings and investment. The study revealed that the Mutual Fund (MF) investment widely prevalent among men (80%) than that of women (20%) in his study area. This may be due to the reason that men are economically stronger than women. The study revealed that 22% of respondents are not graduates and the study majority of sample respondents are Graduates (78%) indicates that there is a strongly relationship between academic qualification. The study observed that majority of the people surveyed were from the salaried class (70%). The study observed that the majority of the sample investors fall in the income group of Rs. 2 lakh 3 lakh, yollowed by 1 lakh 2 lakh, followed by above 3 lakh. The study revealed that the growth fund is very popular among matual fund investors the respondents gave first rank. The respondents gave second preference for income fund and third preference for balanced fund. The study observed that the investors look for good return first in MF products followed by Capital Appreciation, Tax benefits and liquidity. Garg adn Chhabra (2010) examined the trading pattern of Foreign Institutional Investors (FIIs) and Indian mutual fund (IMFs) across the days of the week for a period of nine years from 1 January 2000 to January A set of parametric and econometric tests were employed to test the equality of daily mean investment of FIIs and IMFs. They found that net investment made by the FIIs follow Friday effect, while the investments made by the IMFs 2

3 are equally distributed among the various days of the week. As far as their relation with stock market trend is concerned, day anomalies in the Indian share market return same how correlated with the investment pattern of foreign institutional investment, as they behave in same manner as the market is behaving. Vasantavalli (2010) examined the nature of relationship between acceptable levels of risk and expected annual rate of return. The hypothesis framed and tested an individual investor responses, using chi-square test helped to obtain an idea of the risk return preferences of respondents. A hypothetical situation was outlined and 5 options given to respondents ranging from risk to successively higher levels of risk and reward. The testing of hypothesis revealed that the null hypothesis was not supported in the case of the first and fourth prize options. The urban investors are informed investors whose risk appetite is significantly influenced by the growth prospects of a stock. In other words, a normally risk averse investor of the past is now willing to consider higher risk level (even borrowing) if convinced about the potential of an investment. It is again relevant to recall that the expected rate of return of the average majority of respondents lies between percent per annum. Rajan (2000) examined a new basis, life styles and uses cluster analysis, a statistical technique, hitherto not used to segment Indian individual investors. This article brings out interesting details about the association between life styles of individual investor and their demographic and investment related characteristics on the basis of primary data collected from 405 individual investors. It suggests the use of these characteristic for a better understanding of individual investors and their financial product needs. This analysis clearly brought out the associations between life styles clusters and investment related characteristics. Hodge (2000) analyzed investors perceptions of earning quality, auditor independence and the usefulness of audited financial information. He concluded that lower perceptions of earnings quality are associated with greater reliance and firm s audited financial statements and fundamental analysis of those statements when making investment decisions. Hassan, Al Tamimi (2003) conducted a study that analysis the factors that influences individual investor behaviour of the UAE Financial market study aims at exploring the UAE investor s behaviour, representing the first attempt to be undertaken in the UAE. The study is 3

4 important for individual investor; companies listed in Dubai financial market and Abu Dhabi securities market and govern. OBJECTIVE OF THE STUDY The main objective of the study is to analyze the profile and investment choice of retail investors. RESEARCH METHODOLOGY The present study is based on primary and secondary data set. The necessary data was collected from 100 retail investors (respondents) of 5 stock broking companies of Rohtak city, due to limitations of time and money researcher has applied convenience random sampling method to gather / collect the primary data. To collect the necessary information from different types of retail investors well structured questionnaire was used as a research instrument of data collection. Moreover, chi-square test, averages and percentage have been applied to analysis the data. ANALYSIS AND RESULT In the present study simple and two way table used for processing the data. In this study simple and non-parametric test has been applied for analyzing the data like as percentage, average and chi-square test have been applied. Table: 1.1 Personal Characteristics of Sampled Investors Qualification No. of investors In (%) Sex M F Upto 10 th th Graduate Post-graduate

5 The survey conducted by the researcher revealed the fact that more educated people enter in the capital market for making investment as retail investors. In all 73 percent retail investors (as per survey results) were graduates (38%) and (35%) post-graduates. Only 27% retail-investors were of qualification of less than graduation. It shows the streak that more qualification in the investment society is useful to increase the capital market area. Further, this result indicates that the perception towards investment instruments increases in more educated person. The same result was fainet by Raj and Murugan (2011). Therefore, it may be suggested that the market administrative machinery should increase the investor s education and awareness amongst people to make the capital market more wide and investors friendly. Table: 1.2 Income Level of Retail Investors Income (Annual) in Rs. No. of Investors In (%) Below Rs. 1,00, ,00,000 3,00, ,00,000 5,00, Above 5,00, X i The investment of an individual directly correlated with the income of the investors. In this survey the small investor were classified according to their level of income. It is observed that the majority of the sample small investors (44%) fall in income group of Rs. 1 lakhs to 3 lakhs followed by Rs. 3 lakhs to 5 lakhs (27%) followed by above Rs. 5 lakhs and followed 5

6 by below Rs. 1 lakhs (13%). This result indicates the popularity of investment habit is high among income group of Rs. 1 lakh to 2 lakhs and low is income group below. The same result was found by Raj and Murugan (2011). Therefore, it may be suggested that the governments and SEBI should be make the rule and regulation for increase the investment habit of investors among income group 3 lakh to 5 lakhs and above 5 lakhs. Table: 1.3 Occupation and No. of Retail Investors Occupation No. of Investors In % Rural Urban Professional Serviceman Businessman Farmer A majority of the small investor surveyed were from the servicemen class (45%). The businessmen class (28%) also includes these people who are self-employed. The study found that 18% small investors are farmer and another 9% are professionals. Further, this result indicates the servicemen are more interested for making investment in capital market for tax benefit and capital gain. All regulatory bodies started the various programmes for increases the interest of professional, businessman and farmer in capital market. The result indicates that the most of small investors (professionals, businessman, servicemen) are related to urban area and all farmer investors are related to rural area. 6

7 Table: 1.4 Residential Area and No. of Retail Investors Area No. of investor In (%) Rural Urban Table 1.4 depicts the classification of investors according to their residential status. There are 63 percent investors from urban area and 37 percent from rural background. It may be concluded that urban residents are more about investing activities especially in capital market avenues. Further, this result indicates the awareness and investment habit of rural people are less than the urban area people. Therefore, it may be suggested that the regulatory authority should start various education and awareness plans for rural investor to make them familiar with the benefits of said investment. Table: 1.5 Personal Characteristics Age and No. of Retail Investors Age (Years) No. of Investor In (%) Below Above X a

8 The sample respondents (Small investors) were classified according to their age. As per survey that majority of the small investors (46%) are in the age group yeas, 34% investors in the age group years and 14% investors in the age group below 25 years and 9% investors in the age group above 50 years. In indicates that the middle age (25-35) investors more interested for investment in investment instruments in capital market. The same result was found by Raj and Murgan, (2011). Table: 2.1 Investment Avenues and No. of Retail Investors Investment Avenues No. of Investor Share 57 Mutual Fund 34 Bands 21 Derivative 07 Others 08 Most of the investors included in the present survey were interested in investing savings in share (57%) followed by investment in mutual funds, bands etc. It means that investors take risk for capital appreciation i.e. they are risk seeker most of investors investment in share for capital gain and capital appreciation. Further, results of this study shares that capital market as the most favored investment avenue among the investors. This also decipher that investors are risk takers and are generally interested in making investment in share capital appreciation and short term capital gain. This 8

9 study also revealed those retail investors are not aware of derivative market and instrument thereof. Table: 2.3 No. of Retail Investors Trading through Stock Exchanges Stock Exchange No. of Investor BSE 39 NSE 64 Other Stock-Exchange 14 (17 Investor overlapping) Investment activities depend upon the awareness about the investment platforms. This table (2.3) depicts that most of investors considered under study are aware about National Stock Exchange of India (NSE) (64) followed by Bombay Stock Exchanges (39) and other stock exchanges (14). The results indicate that the small investors having more investment through NSE followed by BSE stock exchange. Therefore, the NSE is most popular in capital market for investment in various investment instruments. These results are in the line of previous studies made by researchers. 17 investors invest their savings in more than one stock exchange for risk diversification. However, it may be suggested that the government, SEBI and stock exchange board should start the functions and programmes for awareness of small investors about BSE and commodity exchanges. 9

10 Table: 2.4 Awareness of Investors about any Measures Taken by SEBI / Other Regulators for Investor Protection No. of Investors Aware 72 Not-Aware 28 This table shows that majority of retail investors (72%) are aware to any measures taken by SEBI and any other regulators. Only (28%) retail investors are not-aware. Further, the result indicates that the 28% investor not aware about the any investor protection programmes (such as investors protection fund, investor education and awareness fund, contingency funds, grievance cell). The researcher observed the investor knowledge about SEBI, BSE, NSE and other regulators found that some investors are not aware of these regulators because they belong to rural area. Therefore, it may be suggested that the regulatory bodies should start the various programmes for solving the problems like investment related advertisement through T.V., radio, conferences or seminar in education institution and village and establish the same investor s education and awareness cell. 10

11 Table: 2.5 Objectives of Investment and No. of Retail Investors Objectives No. of investors Preservation of Capital 19 Growth through Balance of Capital gain and profit 45 Capital gain 16 Income only 42 The objectives behind the investment were disclosed by the investors under study. It is observed that investors had more than one objective because the total number of objectives, while added together, came to 127. It clear indicates that 22 investors have more than one objective. The objectives were preservation of capital (19%), growth through gain and profit (45%), capital gain (16%) and only profit (42%). The results indicates that maximum investors (that is more than 45%) park their in to investment avenues for growth through gain and profit. Therefore, it may be suggested that the environment of risk minimization and investor protection should be made stronger. 11

12 Table: 3.1 Income Level of Investors and Investment Avenues Income (Annually) Investment Avenues Share M.F. Bonds/ Debenture Derivatives Others Below Rs. 1,00, ,00,000 3,00, ,00,000 5,00, Above 5,00, Table 3.1 shows the investment patterns in different investment avenues / financial instruments under different level of annual income of investors. It depicts that most of the investors whose income is less than Rs. 1,00,000 park their money in shares, followed by investment in mutual funds. The same pattern has been seen in case of investors having income from Rs. 1, 00,000 to Rs. 3, 00,000 and also in case of Rs. 3,00,000 to Rs. 5,00,000. H 0 It was hypothesized that the income level of investors and investment avenues have no association. As per the analysis of the collected information, it is found that the calculated value chisquare (3.626) is less than table value (9.49, V = 4, CL = 5%). Hence, our hypothesis is accepted. It means there is no significant association between annual income level of investors and investment pattern in different investment avenues. 12

13 Table: 3.2 Qualification of Retail Investors and Investment Avenues Quatification Investment Avenues Shares M.F. Bonds Derivatives Other Upto 10 th th Graduate Post-Graduate (calculated) = 0.673, d.f. = 4, L.S. = 95% Table 3.6 shows, the investment patterns in different financial instruments differ according the educational qualification. It depicts that most of the investors whose qualification upto 10 th are interest in investing their saving in sahres. The same pattern has been seen in case of graduate and post-graduate (19) investor followed by (22 investors) by mutual found and bonds / debenture. Hypothesis: It was hypothesized there is no relationship between qualification of investors and investment avenues / financial instruments. As per table 3.2, the calculated value of chi-square (0.673) is less than table value (9.49 at V = 4, C.I. = 5%), the null hypothesis is accepted. It was found that the relationship between qualification of investors and investment avenues decision was statistically not significant. 13

14 Table 3.3 Occupation of Retail Investors and Investment Avenues Occupation Share MF Bond Derivatives Others Professional Services Business Farmer = (calculated) Table 3.7 shows that most of service people invest their savings in shares followed by mutual fund and bonds. The study reveals that the same trend of business people in capital market instrument. Majority of the professional investors are interested for investing their money in mutual funds followed by share. The study shows that most of the formers investing in share and mutual funds. H 0 : There is no association between occupation of investor and investment avenues. Since the calculated value of 2 is less than the table value (7.81). So accepted the hypothesis. It was concluded that the association between occupation of investors and their investment choice towards investment avenues are not significant. Therefore, investment choice decision was influenced by other market factors. CONCLUSION As per this study that more educated people enter in the capital market for investment as retail-inverters. In, all 73% percent retail investors (as per survey results) were graduate and post-graduates. The study reveals that 27% respondents are not graduates. Majority of the sample respondents are graduate and post-graduate indicates that there is a strong relationship between educational qualification and investment decision. The investment of an individual directly related with the income of investors. Most of retail investors (44% as per survey 14

15 results) fall in income group of Rs. 1 lakhs to 3 lakhs. A majority of retail investor surveyed were from the serviceman (45%). The study revealed that most of investors (46% as per survey) have invested their saving in capital market which lies in the age group of years and investment in share (57%) in capital market instrument for capital appreciation. The study indicates that middle age persons (25-35) are very conscious in savings and investment. The study observed that the investors look for good growth through capital gain and profit first in shares followed by income for liquidity and tax benefit. A large number of investors have invested for duration of 1-3 years. The most of investors considered under study are invested through NSE (64%), followed by BSE (39%) and 17 investors are invested their savings through stock exchange (NSE, BSE and others). Majority of retail investors (72%) are aware of measure taken by SEBI and other regulators. As per study found that main objective of retail investor of their investment are growth through capital gain and profit. As per surveyed that 22 investors out of sampled, investors have more than one objective behind their investment decision. The retail investors faced more difficulties in capital market (52%) retail investors faced the difficulties of updating of information. As per analysis hypothesis tested by chi-square test showed that the no signification association between annual income levels of investors and investment avenues. Most of investors having annual income fall in group 1,00,000 to 3,00,000 are interested in investing their saving for growth through capital gain and income as per result. This is significant relationship between income level of investor and their investment objectives most of investors have invested their saving in share for duration of below one year. The chisquare test ( 2 = at d.f. 5, 5% level of significance) shows that the association between investment avenues and investment duration is significant. There is association between age of investors and their investment duration is significant. In fact, that income level of investors and duration of investment depends on the issue other than income level. It was found that the different number of investors for different duration was statistically not significant. It was found that the relationship between qualification of investors and different investment avenues was not significant. According to the finding of the sample survey, the typical retail investors in Rohtak city are well educated and belong to the upper middle class strata of the society. The investor is a relatively new entrant to the capital markets possibly drawn to it by the investor friendly, easy 15

16 to access markets of the liberalized era. The findings of the study are encouraging in that the majority of the retail investors seen to be well aware of the nuances of the markets. Equity share is more popular than mutual funds, bonds, derivatives from the findings of the survey it may be 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 offices deposits on the basis of finding of survey, it may also be concluded that the association between characteristics of the respondents qualification, age, occupation and decision of investment avenues is not significant. The investment decision of the investors is influenced by other factors like friendly suggestions, advertisement, financial statement of companies, dividend policy, institutional investor s behaviors of investment, foreign market crisis. REFERENCES 1 La Parta, Rafall, Lopeez-De-Silanes, Florencio, Shleifer, Andrei and Vishny, Robert, Investor Protection and Corporate Valuation, The Journal of Finance, Vol. LXII, No. 3, June Bell, Leonie and Jenkinson, Tim, New Evidence of the impact of Dividend Taxation and on the Identity of the marginal investor. The Journal of Finance, Vol. LVII, No. 3, June 2002, pp Kakati, M., Risk perception of institutional investors, Finance India, Vol. XII, No. 4, Dec. 1998, pp Hartzell, C. Jay and Staeeks, T. Laura, Institutional investors and executive compensation, The Journal of Finance, Vol. LVIII, No. 6, Dec Lynch, W. Anthony and Musto, David, K., How investors interpret past fund return, The Journal of Finance, Vol. LVIII, No. 5, Oct. 2003, pp Schneller, Meir I., Mean-Variance portfolio composition when investor s revision Horizon is very long, The Journal of Finance, Vol. XXX, No. 5, Dec

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