CHAPTER - I INTRODUCTION AND RESEARCH DESIGN 1.1 INTRODUCTION OF THE STUDY Savings is common to all human societies, even if saving practices differ from one another. Why people save and what make them not to invest? (V.K. Somasundaram 1999). Motivations vary, but caution, social pressures and ambitions for future consumption are the key drivers encouraging people to save. Yet, the experience of industrialised countries in the early stages of development showed that people of lower income levels were precluded from depositing their savings in Post offices. One of the most pressing concerns for the economies of the developing world is the need for mobilising domestic financial resources. Despite the variety of vehicles that are intended to mobilise and allocate financial resources in developing countries, many financial strategies were framed to help the needs of the poor and lower income people. Postal savings funds play a significant role in financing public debt. In a number of countries the funds are intermediated through a variety of policy based financial institutions with developmental objectives, returning the funds to the direct benefits of the community savers. The outstanding advantage in providing financial services through a Postal system is the post s ubiquitous character. Financial services can be made available to all by virtue of the broad network facilities. Postal financial services and Postal savings in particular begin with a social mandate which embraces the strength of Postal network s brick and mortar facilities. When postal financial services and Postal savings are running a agency agreements for separate savings banks or postal private financial institutions, it is the synergy between the postal and financial operations that makes them uniquely efficient. The shared cost and common facilities operated in a combination of high or low volume branches, keeps down the cost of providing both postal and financial services. Actual savings in a society depends on two proximate determinants, namely the ability to save and the desire or motivation for saving. The ability to save depends on the level of income, other things being the same. Given the income, saving of a household is 1
governed by consumption expenditures, which in turn, is influenced by the size of the family, age composition, availability of desired goods and services, and their standard of living etc.,. A variety of motivations encourage the desire or the will to save. As Panickar (Author on Financial Management) puts it, The underlying presumption is that savings is not a chance variable, a mere residue of income over consumption expenditure, but the outcome of a deliberate decision making on the part of the saver. The motivations may be a felt need to set aside a portion of current earnings to ensure a steady flow of income in the future. To offset a fall in income anticipated, to acquire more assets, to meet the educational and management expenditures of children or to meet various contingencies in the future. According to Rao a renowned economist, Defines Consumption in to the future or providing for future consumption or acquisition of future consumption goods including residential accommodation or meeting other lump sum liabilities expected to accrue in the future. However, households in the rural areas are beset with many problems, which stand in the way of realising these savings. During pre independence period in India, people spent most of their income on consumption and only a small amount of income was left in the form of saving. The permanent income hypothesis is a better fit in the urban areas in India where as in the rural area saving behavior is more in accordance with the absolute income hypothesis. That marginal propensity to save is an increasing function of income at lower level of development (K.L.Gupta 1970). As a result the savings rate was very low. Since the attainment of independence in 1947, the major objective of the government has been the promotion of saving and capital formation as they are the primary instruments of economic growth. The increase in the savings, use of increased savings has accelerated the growth. The use of increased savings will lead to further financing the required investment constitute the strategy of economic growth. This process may continue still savings, investment ratio to income would get stabilised and there would be steady and self sustained increase in national income and economic welfare. Money is an inextricable part of our life. People toil to earn money to purchase a house, to marry off their children, live and to eat. So saving is necessary to survive. To 2
save means to put aside a portion of income deferring its consumption until a future date. In economics, personal savings has been defined as personal income minus personal consumption expenditure. Saving may take the form of increase in bank deposits, purchase of securities, or increased cash holdings. The extent to which individuals savings was affected by their preference for future over present consumption, their expectations of future income and extent, by the rate of interest. The money earned is partly spent and the rest is saved for meeting the future expenses. In India there are multiple investment avenues available to meet differing needs of investors. These investment options differ from each other, based on their returns, maturity period, and risk taking capacity of the investors, among other things. In terms of their returns they can be classified into high return or low return classes. However risk and returns go hand in hand, the higher the risk involved the higher returns to be expected. The future is uncertain, and you must determine how much risk you are willing to bear since higher return is associated with accepting more risk (Lobes 1987). Investors who aspires high returns have to bear a high level of risk as well. The financial instruments which are in short term involve Savings Bank Account, Money Market or Liquid Funds, and Fixed Deposit with Banks. On the other hand, there are some financial instruments which offer a long term horizon for instrument. These include Post Office Savings, Public Provident Fund (PPF), Company Fixed Deposits, Bonds and Mutual Funds. Small Saving Schemes in India are framed and enacted by Central Government Savings Bank Act 1873 and Government Savings Certificate Act, 1959. Small Savings Schemes came into existence after independence with the objective of providing safe and simple investment opportunities to the lower and middle income groups. These schemes were channelised and administered by government institutions such as Post offices and Nationalised Banks. With the same objective, the PPF was established in 1968 for individuals to save for their investments. The financial literacy of an individual today is increasing in terms of different investment or tax savings instruments. The risk taking capacity of people to invest in stock markets and mutual funds is also increasing. 3
Regardless of the presence of alternate investment options, small savings schemes continue to be the preferred choice for a great portion of the investing population. The high safety levels tied with attractive returns make small savings schemes a 'most preferre' proposition for most investors. There are various schemes offered by the Government of India through Post offices across the country. These schemes include the Post Office Savings Account, The Post Office Recurring Deposit Account, The Post Office Time Deposit Account, The Post Office Monthly Income Account, Public Provident Fund Account, The Kisan Vikas Patra, The National Savings Certificate, and the Senior Citizens Savings Scheme. The Post office has become a medium to mobilize large resources running in to hundreds of crores every year for plan projects. The fact that approximate 30% of the total collections on small savings in the country are drawn from rural population shows how well and deep the post office has penetrated the fastest and isolated villages of India. That is how the post office savings receipt has accelerated from decade by registering Rs. 785 cr in 1970-71, Rs. 3119 cr in 1980 81, Rs. 18,016 cr in 1990-91, Rs. 79,311 cr in 2004 05, Rs. 1,73,283 cr in 2005-06.Rs. 1,54,836 cr in 2006-07 and Rs. 1,23,652 cr in 2007-2008, Rs.1,468,01 cr in 2008-2009, Rs.2,155,62 cr in 2009 2010, Rs.2,402,36 cr in 2010 2011, Rs.1,898,04 cr in 2011 2012. Hence an attempt has been made in the study to probe into the awareness of Investment avenues, Investment pattern, Investors behavior, Investors level of satisfaction. 1.2 STATEMENT OF THE PROBLEM As stated in the preceding paragraphs, the small and household investors constitute a vital segment of the Indian money market and greater understanding of the investors preferences, and the behaviour of these investors is very vital in the policy formulation on development and regulation of these savings market to ensure the promotion and protection of interests of small and household investors. The present research work, thus attempts to study the socio-economic profile of the investors in Coimbatore city. It is a very predominant area where more number of people has 4
awareness towards their perceptions, and behaviour in respect of various investments avenues. The study also aims to study the needs, concerns, and problems of small investors in the given socio-economic backdrop. The present research also provides a foundation of facts relating investors behaviour towards various types of investment and investment avenues risks. Most of the investors generally have limited information about the developments in the money market. The information available from newspaper, media and television and internet, some time may not be sufficient for investment decision making. These problems made the investors to rely on agents and experts to invest. Investors desiring to invest in post offices require a lot of preparation and home work. It is very important to know their risk appetite and investment objectives for better decision- making. Hence the present study is an attempt to know the investment pattern of investors. The study is made to examine investors awareness on the investment avenues, investment objectives of investors and the evaluation of the investment by the investors. 1.2 OBJECTIVES OF THE STUDY To analyse the socio-economic status of the investors and their level of awareness towards various Postal schemes. To analyse the Investors behaviour in various investment avenues available in Post offices. To analyse the Investors level of satisfaction towards Post office savings schemes. To assess the relationship between the investment behaviour and preference of investment in Post office savings schemes. To ascertain the strength, weakness, opportunity and threats of Post office savings schemes. 5
1.4 NEED FOR THE STUDY In many countries postal savings have long enabled provision of financial services to all segments of the population, particularly to rural communities and the urban poor and to mobilise savings for investment in development. The postal department aims in promoting the saving habit among the common public. Investment culture among the people of a country is an essential prerequisite for capital formation and the faster growth of an economy. Investment culture refers to the attitudes, perceptions, and willingness of individuals, and institutions in placing their savings in various financial assets, more popularly known as investments or Postal Savings. A study on the investment behaviour and preferences thus assumes a greater significance in the formulation of policies for the development and regulation of savings in general and protection and promotion of small and house-hold investors in particular. This is because of lack of awareness among the small and household investors, poor investment climate, and loss of confidence of existing investors in postal savings. It is extremely important for the policy makers and regulatory authorities to understand the investors perceptions, preferences, and their concerns on the market. This has become necessary on account of dramatic withdrawal of small investors in the year 1990. It is very clear from the literature review that many studies have been undertaken exclusively to study the perception, preferences, and behaviour of the small and household investors, a very crucial area in the formulation of policies and procedures for the orderly growth and development of savings market in any nation. It has become all the more important to study and analyse the investors awareness, perceptions, and preferences, behaviour of various investment avenues available to them in the market. This may help the policy makers in evolving suitable strategies to get small and household investors once again large in numbers into the savings market operations. Hence, the present investigation is an attempt in that direction. The issues investigated in the present study include the awareness of investment avenues, investment pattern, and the most preferred objectives of investors and investors evaluation. 6
1.5 HYPOTHESES OF THE STUDY There exist no significant difference between the age of the respondents and personal savings made by the depositors There exist no significant difference between the gender and personal savings made by the depositors every month. There exist no significant difference between the family income and personal savings made by the depositors every month. There exist no significant difference between the personal savings made by the depositors and percentage of savings made. There exist no significant difference between the number of members available in the family and the tenure of investment made in the Post office. There exist no significant difference between the annual income and personal savings made by the depositors every month. 1.6 METHODOLOGY OF THE STUDY The present study is mainly based on the primary data and is behavioural in nature. However, the secondary data is also made use of, at places of the study wherever it became necessary. The primary data is collected through a structured schedule (Annexure- I). The schedule is designed keeping in view the objectives of present research work and is pre-tested by means of pilot study. The relevant secondary data is gathered from the reports, books, journals, periodicals, dailies, and magazines, and websites. The data and the information collected with the help of a schedule are processed and analysed using SPSS software. 1.6.1 Sampling Design As the universe of the study is entire Coimbatore region, an attempt is made to stratify the region into strata. The stratification is done on the basis of geographical and administrative factors. In order to collect the primary data, for the purpose of the study, Multi-stage sampling technique is adopted. The sampling frame for the collection of questionnaire was classified under. The Coimbatore city has been classified under four 7
divisions viz.,( East, South, Central, and North). Under these four classifications there are sub post offices available. The following table ensures the classification of pin codes for the respective sub post office. The East coimbatore has 1 sub post office (Coimbatore civil aerodrome post- 641014), The South coimbatore consist of 1 sub post office (Coimbatore industrial estate 641021), The coimbatore Central has 5 sub post office (Coimbatore Bazaar 641001, Coimbatore fort south 641001, Coimbatore central south 641018, coimbatore courts south 641018, Coimbatore collectorate- 641018) and the coimbatore North has 1 sub post office (coimbatore press colony 641019). Further the sampling respondents were classified as below: S.No Area Place Pincode No.of Respondents 1 Coimbatore Aero drome 641014 133 2 Coimbatore Bazaar 641001 133 3 Coimbatore Collectorate 641018 133 4 Coimbatore Central south 641018 133 5 Coimbatore Courts 641018 133 6 Coimbatore Fort 641001 133 7 Coimbatore Industrial estate 641021 133 8 Coimbatore Press colony 641019 137 Total 1068 1.6.2 Tools of Analysis The statistical tools used to carry out the analysis are mean scores, frequencies, percentage, for all the variables used in the study were calculated. The nature of distribution of the variables examined in the study could be assessed from the mean scores given by the sample respondents and ranks were also awarded in order to know their level of significance. 8
1.7 DATA COLLECTION Data collection enables to formulate and test working assumption about the process and develop information that will lead to improvement of the key quality characteristics of the product or service. Data collection improves the decision making by helping oneself focus on objective information about what is happening in the process, rather than subjective opinions. Data collection has been done through primary data, which was done by personal interview with the investors and secondary data through leading journals, the internet and the encyclopedia etc. 1.7.1 Primary Data In order to fulfill the objectives set out, a sample study was undertaken using a well framed questionnaire and got it duly filled in by the respondents. Respondents of varying nature were selected based on the important aspects such as their Age, Educational qualification, Occupation and so forth. A structured questionnaire was pretested and suitable modifications were carried out later. 1.7.2 Secondary Data The primary data were supplemented by enough secondary source data. The secondary data pertaining to the study were gathered from books, journals, internet, and by utilising the well equipped libraries at Bangalore, Chennai, and Coimbatore. They were utilised to get the necessary and the latest information required for the study. Further, the secondary data was collected from leading journals, the internet and the encyclopedia etc. A number of standard text books were referred to obtain the pertinent literature on the investment behaviour. 1.7.3 Discussion and Informal Interviews In order to know the investment behaviour, several rounds of discussion were held with subject experts, in the field. For this purpose, a good rapport has been established with resourceful Post Masters, Head post office Post master and Research supervisors related to investment behaviour. 9
1.7.4 Constructions of Interview schedules & questionnaire The key aspect of the present research was identified from investment behaviour concepts, different websites, journals and with the help of some selected books. Then the researcher conducted preliminary interview (pilot study) with some selected respondents. The drafted questionnaire and interview schedule were circulated among some research experts, Post masters of various Post offices, and research scholars for a critical view with respect to verbalising, format, sequence and the likes of the questionnaire. It was redrafted in the light of their comments. 1.7.5 Tools of Data Collection By virtue of a mass data obtained from the research survey through questionnaire, as well as data from secondary sources were collected and presented in this report, descriptive and analytical research was considered the most appropriate for the study. The research problem, questionnaire was formed accordingly. The suggestions offered in the final chapter of the present research report are emerged from the inferences drawn from the sample respondent s information who have invested in Post office schemes. The researcher have used Close and Open ended questions in the questionnaire to collect the primary data. 1.7.6 Pilot study and Pre- Test The pilot study was conducted by circulating the questionnaire to 50 respondents belonging to different place of Coimbatore city. According for the final study the questionnaire was modifications to fit in the track of the present study. The finding of the pilot study enabled the researcher to design the study in a better way and to frame the hypothesis. 1.7.7 Analytical frame work The core area of the study being Investment Behaviour and Motives for Investment the study focused around a dependent variable viz., the Level of Satisfaction perceived towards the investment avenues on Post office schemes. The data thus collected were analysed with the help of SPSS (19.0) package. 10
1.7.8 Statistical Tools used to access the Investment Behaviour and Level of Satisfaction To analyse the investors behaviour, data were collected from different types of respondents based on their Age, Designation, Educational Qualification, Work Experience, Monthly Income Level, Marital Status and Family Size, which were studied by means of two way tables, percentage analysis, averages, ranges and standard deviation, chi- square test, multiple regression, factor analysis and visual partial least square method as and when they were found necessary. The different tools of analysis and the variables studied were as follows: Percentage Analysis The frequency distribution (Descriptive/Percentage analysis) of the variables were calculated with the help of simple percentage, by writing the formula fd = f/n * 100 Where, fd denotes frequency distribution, f denotes the number of respondents, and n denotes the total number of sample population. Chi-square Test The chi-square is one of the most popular statistics because it is easy to calculate and interpret. There are two kinds of chi-square tests. The first is called a one-way analysis, and the second is called a two-way analysis. The purpose of both is to determine whether the observed frequencies (counts) markedly differ from the frequencies that we would expect by chance. If there is only one column or one row (a one-way chi-square test), the degrees of freedom is the number of cells minus one. For a two way chi-square, the degrees of freedom are the number or rows minus one times the number of columns minus one. Using the chi-square statistic and its associated degrees of freedom, the software reports the probability that the differences between the observed and expected frequencies occurred by chance. Generally, a probability of.05 or less is considered to be a significant difference. The degree of influence of the following independent variables pertaining to the 11
respondent s opinion on the attitude, perception and behaviour of the investors towards Post office savings schemes are tested through Age and Gender Educational Qualification Occupational Status Family Size Monthly Family Income Level Annual Income The Chi-square test is an important test amongst the several tests of significance developed by statisticians. Chi-square, symbolically written as χ 2 (pronounced as kisquare), Chi-square as a test of independence enables a researcher to explain whether or two attributes are associated or not and the formula used is furnished below 2 2 O E E With Degree of Freedom (D.F) = (c-1) (r-1) Where, O = Observed frequency E = Expected frequency c = Number of columns r = Number of rows The value obtained as such should be compared with relevant table value and the inference can be drawn. If the calculated value is greater than the table value the hypotheses framed will be rejected, otherwise accepted. The entire hypothesis test in this study was carried out at 5 percent level of significance. The researcher quite often faced measurement problem (since there is a want of valid measurement but may not obtain it), especially when the concepts to be measured are complex and abstract and there is no need to possess the standardised measurement tools. 12
Factor Analysis Factor analysis is a statistical method used to study the dimensionality of a set of variables. In factor analysis, latent variables represent unobserved constructs and are referred to as factors or dimensions. Factor analysis includes both component analysis and common factor analysis. Factor analysis is a method for investigating whether a number of variables of interest Y1, Y2,., Yl, are linearly related to a smaller number of unobservable factors F1, F2,, Fk. To examine the various attributes of the schemes Post office influencing the respondents, factor analysis was employed. The principal component analysis of factor analysis has been ascertained through VARIMAX rotation in order to identify the influencing factors. Partial Least square Partial Least square (PLS), is a structural equation modeling technique using PLS- Graph. PLS demands fewer rigors from measures, sample size and residual distributions. PLS is highly flexible for predictor specification and has advantages relative to maximum likelihood. The measurement models may be tested simultaneously allowing researchers to consider contribution of the indicators of measure and of the variables to an aggressive model. PLS allows generating statistics in order to assess the reliability and validity of the measures of the latent contract specifically. PLS generates factor loading which can be interpreted as in principal components analysis. Henry Garrett s Ranking Technique Garrett s ranking technique is used to identify the reason for choosing the particular type of investment schemes. Respondents were asked to rank according to the magnitude of the problems. The order of merit given by the respondents was converted into ranks by using the following formula. 100 R ij 0.5 Percentage position= The percentage position of each rank thus obtained was converted into scores by referring to the table given by Henry Garrett. Then for each factor the scores of individual 13 N j
respondents were added together and were divided by the total number of respondents for whom the scores were added. These mean scores for all the factors were arranged in the order of ranks and consequently inferences were drawn on the basis of scores of these factors. Multiple Regression Analysis Regression is a statistical relationship between two or more variables. When there are two or more independent variables, the analysis that describes such relationship is the multiple regression. The main objective of using this technique is to predict the variability of the dependent variable, based on its co-variance with all the independent variables. In this study, the Multiple Regression Analysis of perception on Post office savings schemes is performed with the variables of personal factors that have been made. 1.8 LIMITATION OF THE STUDY The present study aims at analysing the investment behaviour of individual investors with special reference to Coimbatore city. Hence, the scope of the present study is confined to the study of perceptions, preferences, and behaviour of small and household investors of Coimbatore city. Any study of this sort, which is essentially based on primary data would have its own limitations and the present study is not an exception. The investors are normally reluctant to part with information relating to their personal life. Instilling confidence at the time of data collection is quite a hard task but after winning their confidence, eliciting information is made easy and available to some extent. However, the overall objective of this study is not affected by the above said limitations. As has been started earlier, this study is a modest beginning to understand the investors perception and preferences in Coimbatore city. There were constraints of time and money, which have resulted in limiting the scope of the study. The researcher personally and individually contacted the investors. It was a hard task to make them willingly to answer the questions in the questionnaire. The investors expressed willingness to answer some questions. Hence, the following are the limitations of the present study: 14
1. Many respondents were unwilling to share information about maintenance of accounts, sources of finance due to different perception about the researcher and the research. 2. Most of the data collected was based on the memory of the respondents and the inferences drawn based on the data may not sometimes reflect the actual situation. However, every effort has been made by the researcher to pursue the respondents to provide information, sometimes through informal discussion assuring them that the information shared will be used for academic purpose and individual will not be identified. 1.9 CHAPTER LAY OUT The study is mainly based on the primary data and is exploratory in nature. The objective of the study is to have a comprehensive understanding of Perceptions, Preferences, and Behaviour of small and household investors in Coimbatore city. In order to have clear dissemination of the information, the report is divided into seven chapters. A brief outline on the different chapters is presented below: Chapter I Chapter II Chapter III Chapter IV The introductory chapter deals with the role of investment culture, the need and objectives of the study, methodology, sample design, scope and limitations of the study and design of the study. It deals with the Review of Literature. Theoretical perspective of various Post office savings schemes. It is titled as Socio- Economic profile of Investors in Coimbatore city is organized into two parts. The first part presents the socio economic scenario of Coimbatore city covering the aspects like demographic distribution, of the respondents. The later part deals with the analysis on the level of awareness of investors covering the aspects of distribution of sample investors. This chapter provides a lead to the study of other issues of the proposed research work in the subsequent chapters. 15
Chapter V The fifth chapter entitled as, Investors Behaviour discusses the factors influencing the Investors Behaviour on various Post office Savings schemes and Investors Attitude analyses the Behaviour of investors in terms of various investment avenues available from the Post office. Chapter VI It deals with relationship between the Investment Behaviour and Preference of Investment. Chapter VII The last and final chapter presents the summary and conclusions emerging from the research study. 16
REFERENCES 1. V.K.Somasundaram (1999), A Study on the Savings and Investment Pattern of Salaried Class in Coimbatore District, Ph.D Thesis submitted to Bharathiar University, Coimbatore. 2. Gupta, K.L. (1970). Personal Saving In Developing Nations, Further Evidence, Economic Record, June House, PVT Ltd. New Delhi. 3. Lobes (1987), Analysis of investors risk Perception towards mutual funds services, international Journal of Business and Management. Vol 4, pp.234 236 4. http://www.articlealley.com/small-savings-schemes-for-you-1026065.html 5. RBI Monthly Bulletin, December 2012. 17