Essay on Investors and their Investment | India | Financial Management

Here is an essay on ‘Investors and their Investment’ for class 11 and 12. Find paragraphs,long and short essays on ‘Investors and their Investment’ especially written for school and college students.

Essay # 1. Investment Pattern of Indian Household Sector:

An analysis of the investment pattern of Indian Household sector shows that the savings in physical assets has been increasing while that of financial assets decreasing. Since 1999-2000, the rate of household sector saving in the form of physical assets has been higher than that in financial assets.

In 1999-2000 the savings of the households in physical assets was 10.7 percent. In the next three years it increased to 12.7 percent in 2002-03 and decreased to 12.0 percent in 2003-04 and further to 11.7 percent in 2004-05. The improvement in the stock market sentiments from 2003-04 has seen a reversal of this pattern. The structure of household savings has undergone a minor change in that the savings in physical assets has declined to 11.7 percent in 2004-05 thus, pointing towards a favour of financial assets by households.

Essay # 2. Households Financial Asset Holding Pattern:

The propensity of the household sector to save in financial assets rose marginally from 10.5 percent in 1999-2000 to 11.5 percent during the period 2003-04 and declined 10.3 percent in 2004-05.

The figures for 2004-05 reveal that bank and non-banking deposits constitute nearly two fifths and contractual savings—life insurance funds and provident funds—constitute more than one fourth at 26.3% of the household sectors’ financial assets. Currency holdings were at 9.16 percent, claims on Government such as small savings schemes at 24.0 percent and UTI Units and investments in shares and debentures were at 1.04 percent.

A comparison of the figures for 2003-04 and 2004-05 show that, there has been – (a) A decrease in the share of bank and non-bank deposits from 41.58 percent in 2003-04 to 39.47 percent in 2004-05; (b) A decrease in the share of currency holdings from 10.5 percent to 9.15 percent, (c) A marginal drop in Life Insurance and Provident and Pension Funds from 27.56 percent to 26.30 percent; (d) An increase in claims on Government from 20.2 percent to 24.0 percent and (e) A marginal increase in the share of investment in shares, debentures and UTI units from 0.098 percent to 1.046 percent.

It appears at the outset that the financial asset preference of Indian individual investors is being guided by safety and returns. This explains the predominance of small savings schemes, life insurance, provident and pension funds (50.1%) dominating the asset portfolio of the household sector.

After considering these macro trends at national level, it would be interesting to know the investment profile of the investors.

Essay # 3. Present Investments of Investors:

The investors have wide choice of financial instruments to select from and invest. Financial investment is one which is held as equity shares, preference shares, debentures, fixed deposits, tax saving bonds, insurance, small savings, mutual fund schemes etc. These investments vary in terms of risk and return associated with them.

Here we consider Equity shares, Mutual fund schemes, Tax saving bonds and other Bonds and debentures as investment types. These vary widely in terms of risk and return, in that equity shares at one extreme are of high risk and uncertain returns and tax saving bonds and debentures at the other extreme are with low risk and assured return.

Nearly 96 percent of the investors hold equity shares. 46 percent of them have invested in Mutual Fund schemes, 37.7% in tax saving bonds and 15.2% of the investors have invested in bonds and debentures.

This shows that this group of investors is primarily equity investors with some of them having invested in mutual fund schemes and tax saving bonds. However, it seems that they are not that much interested in investing in bonds and debentures as only 15 percent of them have invested in those so far.

Sex Wise Classification of Present Investments:

Further, the investors’ present holdings of investments were classified based on their sex, age, income and city.

The sex-wise classification of present investments shows that male and female investors hold 86% and 14% respectively of equity and mutual fund schemes. The percentage of male investors increase slightly in case of tax saving bond holdings and the percentage of female investors increase significantly in case of bonds and debentures holdings.

Age Wise Classification of Present Investments:

The investors’ present holdings of investments were classified based on their age. Age is an important factor in determining the choice of investment. It would be interesting to know the present investments of investors are classified based on their age.

Nearly two fifths of the equity investors were of 36-50 years age group and one fifth was in 51-60 years age group. Up to 35 years age group investors accounted for 27 percent and above 60 years group accounted for 13% of the equity investors. On an overall basis, mutual fund investments were made by 46% of the investors only. Within that two fifths were in the 36-50 years age group and a little over one fifth were in the upto 35 years age group.

The tax saving bonds, an investment option to reduce income tax was opted by 38 percent of the investors. The 36-50 years age group was largest group followed by up to 35 years age group in this investment category. Investments in bonds and debentures were not familiar with this group. However, with in that meager number of investors who have invested in bonds and debentures, three fifths were in the 36-50 years age group.

On an overall basis the 36-50 years of age group investors were the largest group in terms of numbers as well as in percentage across all types of present investments.

Income Wise Classification of Present Investments:

The present investments of investors were further classified on the basis of the income level of investors.

Nearly one seventh of the equity investors were in Rs.20,001 to 30,000 income group and a little above one fifth were in up to Rs.10,000 income group whereas a little less than two thirds of investors constitute Rs.10,001-20,000 and above Rs.30,000 income groups almost equally. All the investors in the income groups Rs.10,001-20,000 and Rs.20,001 to Rs.30,000 had invested in equity shares.

On an overall basis 46 percent of the investors have invested in Mutual fund schemes. On further classification of these investors into income groups, above Rs.30,000 accounted for the maximum number of mutual fund investors. 45.6 percent of mutual fund investors were from this income group followed by 25.4 percent from Rs.10,001-20,000 income group.

Of the 387 investors invested in tax savings bonds 184 (47.6%) were from the highest income group i.e., above Rs.30,000 and 123 (31.8%) were from Rs.10,001-20,000 income group. It can be understood that investors in high income group have the capability to invest in tax saving bonds as an investment as well as a way of reducing their income tax burden. Thus, these two income groups account for nearly four fifths of the tax saving bond investors.

The Bonds and debentures as an investment option were not much familiar with the investors. 46 percent of bonds and debentures investors were from the highest income group of above Rs.30,000 per month.

City Based Classification of Present Investments:

The present investments of investors in selected financial assets were further classified based on the city of their living.

All the investors from the four cities Bangalore, Coimbatore, Hyderabad and Kolkata, have invested in equity shares. Only few investors from the rest of the seven cities have not invested in equity shares, with Mumbai leading the group with fourteen equity non-investors, followed by Chandigarh twelve and New Delhi eight equity non-investors.

City-wise, Chennai, Hyderabad and Ahmedabad ranked first, second and third in the percentage of equity investors. Of the mutual fund investors Chennai had the largest chunk of nearly 16.0% followed by Hyderabad (14.4%) and Kolkata (11.4%). Trivandrum (2.8%) and New Delhi (3.8%) had the least number of mutual fund investors.

Nearly 38 percent of investors have invested in tax saving bonds on an overall basis. However four cities Chandigarh, Coimbatore, Hyderabad and Kolkata had a higher proportion of tax saving bond investors compared to the overall percentage. Trivandrum had the lowest number of Tax saving Bond investors (3.1%).

Mumbai had the maximum number of Bond and Debenture investors. Nearly 17% of the Bond and debenture investors are from Mumbai. The investors from Trivandrum have not invested in bonds or debentures, while Madgaon and Coimbatore had few investors having invested in these financial assets. On an overall basis investment in bonds and debentures was very low at just 16% of the total investors.

Number of Shareholders in the Household:

There may be more than one shareholder in a household.

Of the 1027 investors 40 investors does not have any equity shares. Nearly 32% of investors had one shareholder in their household and 39% had two shareholders in the household. Nearly one fourth of the investors had more than two shareholders in their households of which 1.4% reported 5 or more shareholders in their households.

Investors’ Entry into Equity Market:

Nearly two fifths of the investors had their first purchase of equity before 1990. They entered the market before liberalization regime. One fifth of the investors entered during the introduction of liberalization into Indian Economy. One in every ten investors entered in the equity cult between 1994 and 96 and nearly 14% entered the equity during the present bull run of the market starting from 2003. The period 1997-99 attracted the least percentage of investors in to the equity fold.

Investors’ Year of Latest Purchase of Shares:

Of the 1027 investors, 94% are still in the stock market, buying and selling shares as of March 2005. They have entered the market during different phases. Only 5.4% of investors have made their latest purchase during an earlier period. Of them, 2.7% have made their latest purchase before 1990. However, these 5.4 percent shareholders continue to hold some shares, even though they are not buying or selling shares at present.

It seems that as many as 80 percent of the shareholders still active in the market have entered before 2003. However, the percentage of shareholders entering into the market after 1990 shows a declining trend.

This may be due to scams and irregularities prevailing in the market during this period and also the long bearish trend experienced by the market. However, there seems to be a reversal of this trend with the onset of present bull run commencing from 2003.

Investors’ Equity Investment Strategy:

Another aspect which was examined is the investment strategy adopted by the investors in their equity investment.

The investment strategy of the investors is quite interesting. Nearly two fifths have said that they sell the shares as soon as the price reaches their target. For them the period of holding is immaterial. Twenty nine percent of the investors have said they sell within a year and they are short-term investors or speculators.

Nearly 15 percent of investors said they keep revising the target as price level rises. It is any body’s guess at what time or price they will sell and these are the investors who usually get trapped in times of unexpected turn of events. Only eight percent of the investors were not interested in selling. They can be said to be the long-term investors.

Age Based Classification of Investment Strategy:

The investors classified based on their investment strategy were further classified on the basis of their age.

High proportion of investors across all the age groups except 51-60 years follow the investment strategy of selling the shares as soon as its price reaches their target level.

On the other hand in the 51-60 years age group, a high proportion of investors follow the policy of selling the shares within a few weeks or months or within a year. It can be said that these investors have a short-term outlook in their investments. The 36-50 years age group had more number of investors who were not interested in selling.

That is they can be said as long-term investors. The chi square value of 40.788 is significant at 0.000 levels indicates that there exist significant differences among the age groups with respect to their investment strategies.

Income Based Classification of Investment Strategy:

The investors’ investment strategy was further classified based on their income.

The monthly income of up to Rs.10,000 group is dominated by investors who sell the shares within a few days or months or within a year and income group of Rs.20,001-30,000 is dominated by investors who sell the shares as soon as the price reaches their target irrespective of the period.

The Rs. 10,001-20,000 group too is dominated by those investors who sell the shares within a few days or months or within a year and the above Rs.30,000 group is dominated by those who sell the shares as soon as the price reaches their target price.

The investors who keep on revising their target as price rises have a large number of Rs.10,001-20,000 income per month investors and the group not interested in selling have large number of above Rs.30,000 per month income investors. The Chi square value of 100.966 is significant at 0.000 levels which indicate that there exists significant difference among the income groups on the basis of the investment strategies of its investors.

City Based Classification of Investment Strategy:

The investment strategies of investors were classified on the basis of their cities. 

Trivandrum had the highest proportion of Strategy 1 investors, Kolkata had the highest proportion of strategy 2 investors, Chandigarh had the highest proportion of Strategy 3 investors and Hyderabad had the highest proportion of Strategy 4 investors in their groups.

Coimbatore had the least proportion of investors in strategy 1 group and Madgaon had the least proportion of investors in the strategy 4 group. The Chi- Square value is significant indicating that there exist highly significant differences among the investors from various cities based on their investment strategies.

Conclusion:

To conclude, the investment related characteristics reveal that this group of investors is primarily equity investors and they are not that much interested in investing in bonds and debentures. The analysis helps us to identify significant relationships between Age, Sex, income and city of living and the investment related characteristics. The demographic characteristics significantly differentiated the investors’ investment related characteristics.

The results are given below:

The sex based classification of their present investments does not differ from their sex based proportion in the total. The age based classification of present holdings reveals that 36-60 years age groups’ investors formed nearly three fifths of the equity investors. Above 60 years age group accounted for 13% of the equity investors.

Three fourths of mutual fund investors were up to 50 years age group. The 36-50 years age group was largest group followed by up to 35 year’s age group to invest in tax saving bonds. Three fifths of the bonds and debenture investors were in the 36-50 years age group.

All the investors in the income groups Rs.10,001-20 000 and Rs.20,001 to Rs.30,000 had invested in equity shares. The above Rs.30,000 income group accounted for the maximum number of mutual fund investors. Similarly 48 percent of the investors invested in tax savings bonds were from the above Rs.30,000 income group. Forty Six percent of bonds and debentures investors too were from the highest income group of above Rs.30,000 per month.

All the investors from the four cities Bangalore, Coimbatore Hyderabad and Kolkata have invested in equity shares. Only few investors from the other seven cities have not invested in equity shares. Of the mutual fund investors Chennai had the largest chunk of nearly 16.0% followed by Hyderabad (14.4%) and Kolkata (11.4%) Trivandum (2.8%) and New Delhi (3.8%) had the least number of mutual fund investors.

Four cities Chandigarh, Coimbatore, Hyderabad and Kolkata had a higher proportion of tax saving bond investors compared to the overall percentage. Trivandrum had the lowest number of Tax saving Bond investors (3.1%) of the Total. Mumbai had the maximum number of Bond and Debenture investors.

Nearly one third of investors reported one shareholder in their household. Majority of the investors have reported two or more shareholders in their household. 80 percent of the shareholders still active in the market have entered before 2003. The percentage of shareholders entering into the market after 1990 shows a declining trend. However, there seems to be a reversal of this trend with the onset of present bull run commencing from 2003.

Regarding the investment strategy followed, nearly two fifths of the investors sell the shares as soon as the price reaches their target and twenty nine percent of the investors sell within a year. Eight percent of the investors were long-term investors not interested in selling.

A high proportion of investors across all the age groups except 51-60 follow the strategy of selling the shares as soon as its price reaches their target level. The 51-60 age groups have a short-term outlook in its investments. The 36-50 years age group had more number of long-term investors who were not interested in selling.

The investment strategies classified on the income reveals up to Rs.10,000 per month income group is dominated by short term investors who sell the shares within a year and Rs.20,001-30,000 income group is dominated by investors who sell the shares as soon as the price reaches their target.

The investors who keep on revising their target as price rises have a large number of Rs.10,001-20,000 income group investors and the group not interested in selling have large number of above Rs. 30,000 per month income investors.

Trivandrum had the highest proportion of short term investors Kolkata had the highest proportion investors who sell as soon as the price reaches their target, Chandigarh had the highest proportion of investors who keep revising their targets and Hyderabad had the highest proportion of long term investors.

86 percent of investors are of the opinion that stock markets give higher returns when compared to bank deposits. 72 percent favoured stock market returns compared to mutual fund growth schemes and nearly 52 percent favoured compared to chit funds and metals. Nearly two thirds of the investors have said real estate gives better returns than stock market.

It seems that investors across all age groups and income groups have similar stock market return expectations. The investors from Chennai followed by Hyderabad and Mumbai were more optimistic regarding the stock market giving more returns over other forms of investments. Other cities’ has nearly similar percentage of investors who expect stock markets to give better returns than other forms of investment.

Nearly 70 percent of investors expect stock market to give higher returns in the long term i.e., more than a year and the remaining within a year. The investors expecting the stock market to give better returns within a year is dominated by the up to 35 years, between 1-3 years is dominated by above 60 years, over a period of more than 3 years is dominated by 51-60 years age groups. It can be concluded that investors of above 35 years have long term orientation in their stock market investment.

The income group expecting better returns within a period of one year is dominated by Rs.20,001-30,000 income group, between one and three years is by Rs.10,001-20,000 group and over a period of above three years by investors having monthly income of above Rs.30,000.

The city wise classification reveals that investors from Chennai dominate all the three groups. However, investors expecting the stock market to give better returns within a year are further dominated by investors from Ahmedabad and Madgaon, between one and three years by investors from New Delhi and above three years by investors from Mumbai.

The analysis regarding reasons for stock market investing reveals the overall fall in interest rates has forced the investors to invest in stock market to earn quick and higher returns. Investors investing to satisfy their gambling instincts or to get pride of ownership of companies are the least preferred reasons. The above 60 age group have preferred investment in stocks due to fall in interest rates, up to 35 years age group preferred for the quick and higher returns from stock investment.

The income wise analysis of reasons reveal that up to Rs.10,000 per month income group has invested in stocks due to fall in interest rates and the Rs.20,001-30,000 income group invested for quick and higher returns.

The investors from Trivandrum invest in equity mostly due to fall in interest rates. They are the investors who invest for quick and higher returns too. The Goan investors preferred equity investment for the pride of ownership of companies. Hyderabad investors preferred due to hassle free investment and investors from Delhi invested to satisfy their gambling instincts.

The investors prefer to invest in equity in future too. Nearly 95 percent of the investors are likely to continue with equity investments in future. 68 percent of investors are likely to invest in MF growth schemes, 30 percent are likely to invest in MF income schemes and only 9 percent of the investors are likely to invest in Bonds and debentures.