Individual Investors Behavior: A Review of Indian Empirical Evidences Abstract Rakesh H M, Dr. Nalina K B Research Scholar, Assistant Professor, Dept. of MBA,JSS CMS, Mysuru The financial service sector has given the individual investor wide range of products to invest. The investment decisions of the individuals are greatly influenced by the benefits each individual owning on a particular investment. In order to understand the individual investors behavior there are many factors to consider viz. investors portfolio construction, stock preferences, risk perceptions, investments pattern, awareness level of investors, investment behavior and problems encountered by them to analyze the investments. Demographic profile, investor attitude, investors risk profile, expectations about the returns also plays a vital role in the financial markets. The present study has tried to collect the literature from worldwide relating to individual investors behavior. The study has been mainly made to know and understand the individual investor behavior. The relevant research papers have been collected from various refereed journals relating to the investors behavior. The objectives, methodology, sample, data and results of the study have been considered for the further studies. The study has tried to build a strong conceptual framework on investors behavior in different countries of the world. The paper shows the different variables that result in the behavior of investors. Keywords: Financial Sector, Investors, Investors Behavior, Literature, Conceptual Framework www.ijaetmas.com Page 213
Introduction Individual investor and Financial Assets Individual investors are those investors who purchase small amount of securities and they are also called as retail investors and mainly include household investors. The household investor s purchases very small quantity of stocks to form their portfolio. In our country, for most of the citizen investment is a tool for saving for their retirement, education etc. These types of investors are ready to take high risk for the high returns and the investment by this sector of people results in the growth of the economy. Table 1: Financial Saving of Household Sector (in percent of GNDI) Item 2011-12 2012-13 2013-14 2014-15 2015-16 Currency 1.2 1.1 0.9 1.1 1.4 Deposits 6 6 5.8 4.9 4.7 Shares and Debentures 0.2 0.2 0.4 0.4 0.7 Claims on Government -0.2-0.1 0.1 0 0.4 Insurance Funds 2.2 1.8 1.6 1.9 2 Provident and Pension Funds 1.1 1.5 1.6 1.6 1.5 Source: RBI Annual Report 2015-16 Objectives 1. To study the various factors affecting individual investors behavior as identified by various Indian researchers 2. To make a comprehensive review on studies on individual investors behavior in financial markets www.ijaetmas.com Page 214
Research methodology The present study has been conducted by considering the research work made by the researchers in the field of investor behavior. The research papers published has been considered for the study to review. The research papers have been collected from database and search engines such as SSRN and Google Scholar. The study tries to gather the information about the attitude and behavior of investors in relation to stock markets. The study on literature was undertaken in order to bring out the factors that influence an investor to invest in the stock market and suggest policy makers and investment agencies to respond to the needs of the different types of investors. The studies have been reviewed by considering objectives, methodology, respondents and factors influencing investors decisions. Review of literature Table 2: Factors Influencing Individual Investor Behavior Demographic factors: Investors gender, age, marital status, education, income, occupation etc Stock fundamentals: Beta, returns and risk, EPS, firm size, share price, share turnover, market equity ratio Lifestyle characteristics: Personal ability, confidence level, dependency level of investors Psychological influences: Desires, goals, prejudices, biases and emotions Risk bearing capacity: Safety, liquidity, capital appreciation, return and risk coverage Other factors a. Neutral information: information from government holders, information from internet, changes in stock market and price movements b. Accounting information: information about stock merchantability, expected corporate earnings, financial position, expected dividend and paid c. Self image: Information regarding product and service, reputation of the firm, expectation of getting rich and firm status d. Advocate recommendation: Advice from broker, family members, friends and stock holder e. Personal financial needs: diversification needs, easy availability of funds, need for minimizing risk and maximizing gains Source: Research work of Dr. Mandeep Kaur and Tina Vohra www.ijaetmas.com Page 215
Author Lal (1992) Gupta (1993) Gupta et. Al. (1994) Gupta et. Al (2001) NCAER (2000) Rajarajan (2002) Rajarajan (2003) Table 3: Empirical Literature Reviews on Individual investor Behavior in India Research Objectives To know the profile of Indian Investors To analyze the changing pattern of ownership of Indian households To examine the distribution of share owning population and to analyze the changing pattern of distribution over different regions To examine and compare the pattern of investors preference among mutual fund schemes and other financial products To study the primary considerations of the investors while choosing financial instruments To identify the association between demographic profile and the risk bearing capacity of individual investors in Chennai To study the determinants of portfolio choice of individual investors Sample and Respondents 1200 individual investors from different regions of India 40998 unit holders and 165819 shareholder from 19 states and 76 cities in India 165819 shareholders and 63157 debenture holders from 1060 cities in India 312 household investors 288081 Indian investors 405 individual from Chennai 405 individual from Chennai Methodology Chi Square test and Correspondenc e Multiple regression Result Indian investors preferred to invest in the larger portfolios with five or more companies The study revealed that a massive shift towards mutual fund products, moderate continuing shift towards shares and debentures and a shift away from traditional financial assets Shareholding in India was largely an urban phenomenon and followed an uneven pattern. Inadequate share market infrastructure was the cause of concentration of share ownership in few regions The study revealed that among mutual fund schemes UTI was the most popular and its position in equity schemes was weaker than others Safety and liquidity were the primary considerations of the investors while choosing an asset There was a strong association between demographic profile of individuals and risk bearing capacity The expected rate of return on investments, risk bearing capacity of investors, locus of control and investors loss avoidance behavior had a positive relationship with the www.ijaetmas.com Page 216
Kiran and Rao (2004) SCMRD (2005) Ranganathan (2006) Gupta and Jain (2008) Kumar et. Al (2008) To identify the investor group segments on the basis of demographic and psychographic characteristics of investors To understand the problems and needs of the investors To evaluate the financial behavior and to assess the conceptual awareness of individual investors towards mutual funds To bring out the investors preferences among the various types of financial assets and also their problems concerning the stock market To study the financial product preference of the respondents 96 respondents 5908 household investors from over 90 cities in India 100 respondents from Mumbai from September 2004 to October 2004 1463 household investors 120 respondents Multinomial logistic regression and factor Factor and multinomial logistic regression Analytical hierarchy process and multi criteria decision making techniques locus of control had an inverse relationship with the portfolio choice Four major investor segments were identified based on their demographic and psychographic characteristics. The risk bearing capacity of an individual was strongly dependent on the demographic and psychographic variables of the investor Too much volatility and price manipulation were found to be the major cause of worries of the retail investors Fund related qualities, fund sponsor qualities and investor related services were found to effect the investor fund selection decision but these factors varied on investor type The household investors preferred investing in shares as compared to mutual funds due to relatively lower returns because of entry loads and management fees charged by the funds The investors needed to choose the financial products from among the alternatives available according to his own priority rating of an attribute in the product www.ijaetmas.com Page 217
NCAER (2008) Walia and Ravikiran (2009) Kabra et.al. (2010) Parashar (2010) NCAER (2011) To gain insight into the motives of financial savings, the degree of financial security and sophistication of the saving and investment decisions made by households To analyze the investors expectations towards mutual funds To study the factors that influenced the investment risk tolerance and decision making process on the basis of gender and age To find out the effect of personality traits of investment choice made by individual investors To understand the behavior of household investors in dealing with various financial instruments which were traded in markets regulated by SEBI 60000 urban and rural households 100 individual investors were selected from different regions of Punjab 196 investors working in government and private sector in India 100 respondents 38000 households across 44 cities and 40 villages Ranking and rating methodology, Chi-square test, ANOVA and average preference scores Regression and factor Cluster, correspondenc e, kruskal wallis test and factor People in India saved for the long term goals such as emergencies, education and old age. The respondents preferred keeping their savings in bank and post office deposits and other liquid assets as compared to investing them in the stock market The preferences of investors vary and so innovations and added quality dimensions in existing services was required in order to continue investing in them The investors age and gender affected their risk taking ability The demographic variables such as gender, age, education, income, occupation as well as the various personality types affect the investment choice made by individual investors The survey revealed relatively low rates of participation by the households in the securities market. The degree of risk aversion was found extremely high in Indian households and so commercial banks and insurance schemes were their primary choice for saving and investment www.ijaetmas.com Page 218
Dawar and Washwa (2011) N Geetha and Dr. M Ramesh (2011) Dr. Aparna Samudra and Dr. M A Burghate (2012) Dhiraj Jain and Nakul Dashora (2012) K Jothilingam and Dr. K V Kannan (2013) To identify factors influencing investors behavior in Punjab To study the factor that influence investment behavior of people and the attitude of respondents towards different investment choices To know the preference of middle class households on investment instruments and objectives of investment To study the influence of age on investment pattern, income level on investment decisions, investment pattern on capital market information, impact of annual result of company on investors and declaration of dividend and bonus on investment pattern To find main objective of investors and assess investors attitude towards investment avenues 275 investors living in Jalandhar 210 investors of Kurumbalur town 100 investors of Nagpur city 110 investors of Udaipur city 300 investors of Namakkal district Correlation and independent sample T-test Percentage Percentage ANOVA and Chi-Square test Percentage, ANOVA and Garrett Ranking technique Neutral information, accounting information, self image, classical wealth maximization criteria, social relevance, advocate recommendation and personal financial needs were found to influence individual investor behavior in Punjab All the age groups have given importance to invest in insurance, PPF, bank deposits etc. The largest share of households have savings bank deposit and insurance is the most preferred investment alternative The investors prefer to invest both in primary and secondary market. The decision of investors are rational and based on various market information Investors prefer less risky investment avenues like gold, mutual funds and bank deposits. This could probably because of their tendency to avoid high risks. www.ijaetmas.com Page 219
Harsh Purohit, Vibha Dua Satija and Sakshi Saxena (2014) Priya Vasagadekar (2014) R Jayaraman, Dr. G Vasanthi and M S Ramaratnam (2014) Kavitha C (2015) N Panjali and Dr. R Kasilingam (2015) To identify various factors that affect the decision making of individual investors, investigate the relationship between respondents and their behavior and to find the source of information for their decision making To find out the investment habits of Indian working women, role of investment women in investment decisions and risk bearing capacity while making investment decisions Influence of psychological factors on investor behavior in equity participation and to understand the analytical aspects of investor in equity investment To find out various attitudes and perceptions towards stock market investments and to analyze how investors level of awareness influence their attention to invest in stock market To study the common life style characteristics of investors in Chennai and their influence on investment pattern 228 investors of Delhi and NCR 100 investors 80 investors of Chennai city 125 respondents 200 investors of Chennai and Chi-Square test Factor and regression and Correlation Factor, cluster, Chi- Square and ANOVA The result has shown that retail investors decision making differs with their demographics and they are rational enough while making decisions Most of the women are low in financial literacy, becomes hardly possible for them to manage their own portfolios The study has revealed that image factor has emerged as the most influencing factor in determining investor decision making. Individual optimism has become the key factor in influencing the sentiment of investors It was found that there is a significant relationship between investors attitudes and atock market investors It is said that investors of 25-35 age group are achievers and understand their inner self. Investors from service sectors and business groups are risk takers and believe good value for their purchase www.ijaetmas.com Page 220
T Mahadeva Reddy and K V Ramana Reddy (2015) K Parimalakanthi and Dr. M Ashok Kumar (2015) Dr. Krishna Mohan Vaddadi and Dr. Merugu Pratima (2016) To study the attitude of respondents towards different financial instruments and evaluate awareness about investment opportunities and to find the factors influencing investors To study the investment preference and behavior of individual investors in Coimbatore city Socio-demographic profile of online investors, identify investment motives, objectives and preferences and to examine the influence of demographic factors and risk taking ability 225 investors from Ananthpur and Guntur districts 107 investors from Coimbatore city 500 investors of Greater Visakhapatnam city and Factor Friedman test, Garratt ranking and Factor Chi-Square test The study revealed that investors invest in different avenues for fulfilling financial, social and psychological need. There was a relationship between income and occupation on investments in order to satisfy safety, return and liquidity The research paper shows that education of investors is immensely important for the present day investors in Coimbatore. The majority of investors prefer to invest in savings account followed by gold and silver, fixed deposit and the like Majority of the online investors are self directed individuals who prefer to make their own investment decisions Conclusion The diversification of financial sector will give different varieties of investment opportunities to the individual investors. The decision of the individual will depend on various aspects like owning a particular stock etc. This research has examined the published work of individual investors behavior in India. The portfolios of investors, investment preferences, risk perception, investment pattern, awareness level, problems affecting investment behavior and problems encountered by the investors. The returns expectation, demographic profile, attitude of investor, risk perception plats a very important role in financial markets. The understanding of the www.ijaetmas.com Page 221
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