Fin Investment Study to Balaji Mba Project

7/28/2019 Fin Investment Study to Balaji Mba Project

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STUDY OFINDIVIDUALSINVESTMENT

PATTERNS ANDSCOPE OF MUTUAL

FUNDS


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ACKNOWLEDGMENT

My experience of working at HSBC Bank was indeed valuable for myfuture endeavours. The happiest thing in my project comes in thanking thosewho have helped me in the way they can to make my project a success.

First and foremost I would like to thank Mr. SLEEVA RAJU investment

Relationship Manager, HSBC Bank, Hyderabad for giving me an excellentopportunity to work with HSBC Bank.

Extending my thanks to all the employees of HSBC Bank, Hyderabadfor their friendly approach, I once again thank all those who have helped mein accomplishment of this project.

PLACE: Hyderabad

Date:

**************


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DECLARATION

PLACE: Hyderabad


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CONTENTS

Acknowledgement

Declaration

Certificates

Chapter 1: Investment- Overview

1.1 What is investment?

1.2 Investment alternatives

1.3 Investment attributes

1.4 Types of investment

1.4.1 Business Management

1.4.2 Economics

1.4.3 Finance

1.4.4 Personal finance

1.4.5 Real estate

1.4.5.1 Residential Real Estate

1.4.5.2 Commercial Real Estate

Chapter 2: Portfolio Management

2.1 Portfolio Management process.

2.1.1. Specification of Investment Objectives and Constraints:

2.1.2 Choice of the Asset Mix

2.1.3 Formulation of Portfolio Strategy


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EXECUTIVE SUMMARY

MAJOR FINDINGS OF THE STUDY

1. Majority of the people are interested in investing in real estates and bank deposits2. While investing, People are taking into account the investment attributes like rate of return,

risk factor, duration, tax, good track record of the company. Majority of the people are

seeking to get 50% of the returns from their investments.

3. The people are interested to invest in less risky areas and willing to go for long termDeposits. The number of people, who are looking into the brand name and companyrefutation before investment stands 80%.

4. The people are more aware of bank deposits and real estates but still there are people whoare not aware of bank deposits. So, the banks can cater that market.

5. There are more than 50% of the people are not aware of mutual funds. They are seeking toget awareness. People are aware of mutual funds but they do not know various schemes

available.

6. Majority of the people are willing to get information through, T.V Advertisements, agents

THE AIM OF THE STUDY

There are many investments patterns but the awareness isminimal for some investment options.


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The market study is needed to know their preferredinvestment patterns and awareness levels of every option.

THE OBJECTIVES OF THE STUDY

To know the investment patterns of individuals

To know the awareness level of Mutual Funds

METHODOLOGY

Drafted a questionnaire to collect the data

After the test marketing, modifications are done in thequestionnaire.

Used SPSS software technique to analyze in differentcombinations.

Analysis is obtained by using Cluster, Factor, Chi-square,ANOVA and Regression Techniques.

Usage of Ms.Excel for special analysis.


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LIMITATIONS AND SCOPE FOR FURTHER STUDY

This study is been conducted in Hyderabad covering many areas.The results obtained will not be generalized. This survey becamea qualitative survey rather than quantitative survey. The study inother major places of India can give more accurate results.

Secondly, most of the people felt hesitated to reveal the truefigure of their income and investment patterns.

There is tremendous scope for further research in terms ofcovering many cities. Since the data is ever changing with newunprecedented styles, many more factors should be taken intoconsideration. Using different research techniques like focusgroups discussion will yield valuable results.

Chapter-1


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Investments-

Overview

1.WHAT IS AN INVESTMENT

An investment is a sacrifice of current money or other resources for future

benefits. The key aspects of any investment are time and risk. The sacrifice takes

place now and is certain. The benefit is expected in the future and tends to be

uncertain. In some investments the time element is the dominant attribute. In other

investments the risk element is the dominant attribute. In yet other investments

both time and risk are important.

Almost every one owns a portfolio of investments. The portfolio is likely to comprise

financial assets (bank deposits, bonds, stocks, and so on) and real assets( motorcycle,house, and so on).

1.1 Investment Alternatives

Non- marketable financial assets:

Bank deposits

Post office deposits

Company deposits

Provident fund deposits

Equity shares: ::

Blue chip shares

Growth shares

Income shares

Cyclical shares

Speculative shares


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Bonds: ::

Government securities

Savings bonds

Government agency securities

PSU bonds

Debentures of private sector companies

Preference shares

Money market instruments:

Treasury bills

Commercial paper

Certificates of deposit

Mutual funds:

Equity schemes

Debt schemes

Balanced schemes

Life insurance:

Endowment assurance policy

Money back policy

Whole life policy

Term assurance policy

Real Estate::

Agricultural land

Semi-urban land

Commercial property

Precious Objects:

Gold and silver

Precious stones

Art objects

Financial Derivatives:


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Options

Futures

1.2 INVESTMENT ATTRIBUTES:

For evaluating an investment avenue, the following attributes are relevant.

Rate of return

Risk

Marketability

Tax shelter

Convenience

Rate of Return:

The rate of return on an investment for a period, which is usually a period of one year, is

defined as follows:

Rate of return = Annual income + (Ending price Beginning price)

Beginning Price

Risk

The rate of return from investments like equity shares, real estate, silver, and gold can

vary rather widely. The risk of an investment refers to the variability of its rate of return:

How much do individual outcomes deviate from the expected value? A simple measure of

dispersion is the range of values, which is simply the difference between the highest and

the lowest values. Other measures commonly used in finance are as follows:

Variance : This is the mean of the squares of deviations of individual

returns around their average value.

Standard deviation : This is the square root of variance

Beta : This reflects how volatile the return from an investment is in

response to market swings.

Marketability: an investment is highly marketable or liquid if:

(a) It can be transacted quickly

(b) The transaction cost is low

(c) The price change between two successive transactions is negligible. The liquidity of a

market may be judged in terms of its depth, breadth, and resilience.

Depth refers to the existence of buy as well as sells order around the current market price.

Breadth implies the presence of such orders in substantial volume.

Resilience means that new orders emerge in response to price changes.


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Generally, equity shares of large, well-established companies enjoy high marketability

and equity shares of small companies in their formative years have low marketability and

equity shares of small companies in their formative years have low marketability. High

marketability is a desirable characteristic and low marketability is an undesirable one.

How does one evaluate the marketability of an investment like a provident fund

deposit which is non-marketable by its very nature? In such a case, the relevant question

to ask is: can withdrawals be made or loans be taken against the deposit? Such an

investment may be regarded as highly marketable if any of the following conditions are

satisfied:

(a) A substantial portion of the accumulated balance can be withdrawn without significant

penalty;

(b) A loan can be raised at a rate of interest that is only slightly higher than the rate of interest

earned on the investment itself.

Tax shelter

Some investments provide tax benefits; others do not. Tax benefits are of the following

three kinds.a) Initial tax benefit: An initial tax benefit refers to the tax relief enjoyed at the time of

making the investment. For example, when you make a deposit in a Public Provident

Fund Account, you get a tax benefit under section 80 C of the Income Tax Act.

b) Continuing tax benefit: a continuing tax benefit represents the tax shield associated with

the periodic returns from the investment. For example, dividend income and income from

certain other sources are tax-exempt, upto a certain limit, in the hands of the recipient.

c) Terminal Tax Benefit: A terminal tax benefit refers to relief from taxation when an

investment is realize or liquidated. For example, a withdrawal from a public provident

fund account is not subject to tax.

Convenience:

Convenience broadly refers to the ease with which the investment can be made and

looked after. Put differently, the questions that we ask to judge convenience are:

a) Can the investment be made readily?

b) Can the investment be looked after easily?

The degree of convenience associated with investments varies widely. At one end of the

spectrum is the deposit in a savings bank account that can be made readily and that doesnot require any maintenance effort. At the other end of the spectrum is the purchase of a

property that may involve a lot of procedural and legal hassles at the time of acquisition

and a great deal of maintenance effort subsequently.

1.3 Types of investment

The term "investment" is used differently in economics and in finance.

Economists refer to a real investment (such as a machine or a house), while financial

economists refer to a financial asset, such as money that is put into a bank or the

market, which may then be used to buy a real asset.Returns on investments will follow

the risk-return spectrum.

1.3.1 Business Management


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The investment decision (also known as capital budgeting) is one of the

fundamental decisions of business management: managers determine the assets that the

business enterprise obtains. These assets may be physical (such as buildings or

machinery), intangible (such as patents, software, goodwill), or financial (see below). The

manager must assess whether the net present value of the investment to the enterprise is

positive; the net present value is calculated using the enterprise's marginal cost of capital.

1.3.2 Economics

In economics, investment is the production per unit time of goods which arenot consumed but are to be used for future production. Examples include tangibles (such

as building a railroad or factory) and intangibles (such as a year of schooling or on-the-

job training). In measures of national income and output, gross investment I is also a

component of Gross domestic product (GDP), given in the formula GDP = C + I + G +

NX. I is divided into non-residential investment (such as factories) and residential

investment (new houses). "Net" investment deducts depreciation from gross investment.

It is the value of the net increase in the capital stock per year.

Investment, as production over a period of time ("per year"), is not capital.

The time dimension of investment makes it a flow. By contrast, capital is a stock, that is,

an accumulation measurable at a point in time (say December 31st).

Investment is often modeled as a function of income and interest rates, given

by the relation I = f(Y, r). An increase in income encourages higher investment, whereas a

higher interest rate may discourage investment as it becomes more costly to borrow

money. Even if a firm chooses to use its own funds in an investment, the interest rate

represents an opportunity cost of investing those funds rather than loaning them out for

interest.

1.3.3 Finance

In finance, investment is buying securities or other monetary or paper (financial)assets in the money markets orcapital markets, or in fairly liquid real assets, such as gold,

real estate, or collectibles. Valuation is the method for assessing whether a potential

investment is worth its price.

Types of financial investments include shares, other equity investment, and

bonds (including bonds denominated in foreign currencies). These financial assets are

then expected to provide income or positive future cash flows, and may increase or

decrease in value giving the investor capital gains or losses.

Trades in contingent claims orderivative securities do not necessarily have

future positive expected cash flows, and so are not considered assets, or strictly speaking,

securities or investments. Nevertheless, since their cash flows are closely related to (orderived from) those of specific securities, they are often studied as or treated as

investments.

Investments are often made indirectly through intermediaries, such asbanks,

mutual funds, pension funds, insurance companies, collective investment schemes, and

investment clubs. Though their legal and procedural details differ, an intermediary

generally makes an investment using money from many individuals, each of whom

receives a claim on the intermediary.

1.3.4 Personal finance
http://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Market_liquidityhttp://en.wikipedia.org/wiki/Goldhttp://en.wikipedia.org/wiki/Real_estatehttp://en.wikipedia.org/wiki/Valuation_(finance)http://en.wikipedia.org/wiki/Equity_investmenthttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Currencyhttp://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Intermediaryhttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Mutual_fundhttp://en.wikipedia.org/wiki/Pension_fundhttp://en.wikipedia.org/wiki/Insurancehttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Investment_clubhttp://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Market_liquidityhttp://en.wikipedia.org/wiki/Goldhttp://en.wikipedia.org/wiki/Real_estatehttp://en.wikipedia.org/wiki/Valuation_(finance)http://en.wikipedia.org/wiki/Equity_investmenthttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Currencyhttp://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Intermediaryhttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Mutual_fundhttp://en.wikipedia.org/wiki/Pension_fundhttp://en.wikipedia.org/wiki/Insurancehttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Investment_club


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Within personal finance, money used to purchase shares, put in a collective

investment scheme or used to buy any asset where there is an element of capital risk is

deemed an investment. Saving within personal finance refers to money put aside,

normally on a regular basis. This distinction is important, as investment riskcan cause a

capital loss when an investment is realized, unlike saving(s) where the more limited risk

is cash devaluing due to inflation.

In many instances the terms saving and investment are used interchangeably,

which confuses this distinction. For example many deposit accounts are labeled as

investment accounts by banks for marketing purposes.

Whether an asset is a saving(s) or an investment depends on where the money is

invested: if it is cash then it is savings, if its value can fluctuate then it is investment.

1.3.5 Real estate

In real estate, investment is money used to purchaseproperty for the sole purpose

of holding or leasing for income and where there is an element of capital risk. Unlike

other economic or financial investment, real estate is purchased. The seller is also called a

Vendor and normally the purchaser is called a Buyer.

1.3.5.1 Residential Real Estate

The most common form of real estate investment as it includes the

property purchased as peoples houses. The investment in residential real estate is the least

risky.

1.3.5.2 Commercial Real Estate

Commercial real estate is the owning of a small building or large warehouse a

company rents from so that it can conduct its business. Due to the higher risk of

Commercial real estate, lending rates of banks and other lenders are lower and often fall

in the range of 50-70%.

Chapter 2
http://en.wikipedia.org/wiki/Personal_financehttp://en.wikipedia.org/wiki/Shareshttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Savinghttp://en.wikipedia.org/wiki/Investment_riskhttp://en.wikipedia.org/wiki/Saving_(money)http://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Deposit_accounthttp://en.wikipedia.org/wiki/Real_estatehttp://en.wikipedia.org/wiki/Propertyhttp://en.wikipedia.org/wiki/Personal_financehttp://en.wikipedia.org/wiki/Shareshttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Savinghttp://en.wikipedia.org/wiki/Investment_riskhttp://en.wikipedia.org/wiki/Saving_(money)http://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Deposit_accounthttp://en.wikipedia.org/wiki/Real_estatehttp://en.wikipedia.org/wiki/Property


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Portfolio Management


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2. WHAT IS A PORTFOLIO?

In finance, a portfolio is a collection of investments held by an institution or a

private individual. In building up an investment portfolio a financial institution will

typically conduct its own investment analysis, whilst a private individual may make use

of the services of a financial advisor or a financial institution which offers portfolio

management services. Holding a portfolio is part of an investment and risk-limiting

strategy called diversification. By owning several assets, certain types of risk (in

particular specific risk) can be reduced. The assets in the portfolio could include stocks,

bonds, options, warrants, gold certificates, real estate, futures contracts, production

facilities, or any other item that is expected to retain its value.

2.1 Portfolio Management Process:

Investment management is a complex activity which may be broken down into the

following steps:

2.1.1. Specification of Investment Objectives and Constraints: the typical objectives sought

by investors are current income, capital appreciation, and safety of principal. The relative

importance of these objectives should be specified. Further, the constraints arising from

liquidity, time horizon, tax, and special circumstances must be identified.

2.1.2 Choice of the Asset Mix: the most important decision in portfolio management is the asset

mix decision. Very broadly, this is concerned with the proportions of stocks and bonds

in the portfolio. The appropriate stock-bond mix depends mainly on the risk tolerance

and investment horizon of the investor.

2.1.3 Formulation of Portfolio Strategy: once a certain asset mix is chosen, an appropriate

portfolio strategy has to be hammered out. Two broad choices are available; an active

portfolio strategy or a passive portfolio strategy. An active portfolio strategy strives to

earn superior risk-adjusted returns by resorting to market timing, or sector rotation, or

security selection, or some combination of these. A passive portfolio strategy, on theother hand, involves holding a broadly diversified portfolio and maintaining a pre-

determined level of risk exposure.

2.1.4 Selection of Securities: Generally, investors pursue an active stance with respect to

security selection. For stock selection, investors commonly go by fundamental analysis

and /or technical analysis. The factors that are considered in selecting bonds are yield to

maturity, credit rating, term to maturity, tax shelter, and liquidity.

2.1.5 Portfolio Execution: this is the phase of portfolio management which is concerned with

implementing the portfolio plan by buying and / selling specified securities in given

amount. Though often glossed over in portfolio management discussions, this is an

important practical step that has a bearing on investment results.

2.1.6 Portfolio Revision: the value of a portfolio as well as its composition- the relative

proportions of stock and bond components- may change as stocks and bonds fluctuate. Of

course, the fluctuation in stocks is often the dominant factor underlying this change. In

response to such changes, periodic rebalancing of the portfolio is required. This primarily

involves a shift from stocks to bonds or vice versa. In addition, it may call for sector

rotation as well as security switches.

2.1.7 Performance Evaluation: The performance of a portfolio should be evaluated

periodically. The key dimensions of portfolio performance evaluation are risk and return

and the key issue is whether the portfolio return is commensurate with its risk exposure.


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Such a review may provide useful feed back to improve the quality of the portfolio

management process on a continuing basis.

2.2 Modern portfolio theory (MPT)

Proposes how rational investors will use diversification to optimize their

portfolios, and how a risky asset should be priced. The basic concepts of the theory are

Markowitz diversification, the efficient frontier, capital asset pricing model, the alpha andbeta coefficients, the Capital Market Line and the Securities Market Line.

MPT models an asset's return as a random variable, and models a portfolio as a

weighted combination of assets; the return of a portfolio is thus the weighted combination

of the assets' returns. Moreover, a portfolio's return is a random variable, and

consequently has an expected value and a variance. Risk, in this model, is the standard

deviation of the portfolio's return

Objectives

1. Return requirements

2. Risk tolerance
http://en.wikipedia.org/wiki/Homo_economicushttp://en.wikipedia.org/wiki/Diversification_(finance)http://en.wikipedia.org/wiki/Portfolio_(finance)http://en.wikipedia.org/wiki/Harry_Markowitzhttp://en.wikipedia.org/wiki/Capital_asset_pricing_modelhttp://en.wikipedia.org/wiki/Alpha_coefficienthttp://en.wikipedia.org/wiki/Beta_coefficienthttp://en.wikipedia.org/wiki/Random_variablehttp://en.wikipedia.org/wiki/Expected_valuehttp://en.wikipedia.org/wiki/Variancehttp://en.wikipedia.org/wiki/Standard_deviationhttp://en.wikipedia.org/wiki/Standard_deviationhttp://en.wikipedia.org/wiki/Homo_economicushttp://en.wikipedia.org/wiki/Diversification_(finance)http://en.wikipedia.org/wiki/Portfolio_(finance)http://en.wikipedia.org/wiki/Harry_Markowitzhttp://en.wikipedia.org/wiki/Capital_asset_pricing_modelhttp://en.wikipedia.org/wiki/Alpha_coefficienthttp://en.wikipedia.org/wiki/Beta_coefficienthttp://en.wikipedia.org/wiki/Random_variablehttp://en.wikipedia.org/wiki/Expected_valuehttp://en.wikipedia.org/wiki/Variancehttp://en.wikipedia.org/wiki/Standard_deviationhttp://en.wikipedia.org/wiki/Standard_deviation


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Constraints and preferences


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1. Liquidity

2. Investment horizon

3. Taxes

4. Regulations

5. Unique circumstances


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Objectives

The commonly stated investment goals are:

Income: To provide a steady stream of income through regular interest/ dividend payment.

Growth: To increase the value of the principal amount through capital appreciation.

Stability: To protect the principal amount invested from the risk of loss.

Since income and growth represent two ways by which return is generated and stability

implies containment or even elimination of risk, investment objectives may be expressed

more succinctly in terms of return and risk. As an investor, you would primarily be interested

in a higher return and a lower level of risk.

However, return and risk typically go hand in hand. So you have to ordinarily bear a

higher level of risk in order to earn a higher return. How much risk you would be willing to

bear to seek a higher return, depends on your risk disposition. Your investment objects shouldstate your preference for return relative to your distasted for risk.

You can specify your investment objectives in one of the following ways:

Maximize the expected rate of return, subject to the risk exposure being held within a certain

limit.

Minimize the risk exposure, without sacrificing a certain expected rate of return .

Which of these two should you adopt? My recommendation is for you to start by defining

how much risk you can bear or how much you can afford to lose, rather than specifying how

much money you want to make. The risk you can bear depends on two key factors:

a) Your financial situation, and

b) Your temperament.

To assess your financial situation, answer the following questions: what is the position

of your wealth? What major expenses can be anticipated in the near future? What is your

earning capacity? How much money can you lose without seriously hurting your standard of

living? A careful and realistic appraisal of your assets, expenses, and earnings is basic to

defining your risk tolerance.

After appraising your financial situation, assess your temperamental tolerance for risk.Even though your financial situation may permit you to absorb losses easily, you may

become extremely upset over small losses. On the other hand, despite a not-so- strong

financial position, you may not be easily ruffled by losses. Understand your financial

temperament as objectively as you can.

Your risk tolerance level is set by either your financial situation or your financial

temperament, whichever is lower. Of course, you must realize that your risk tolerance cannot

be or should not be defined too precisely and rigorously. For practical purposes, it suffices if

you define it as low, medium, or high. Once you have articulated your risk tolerance

realistically in this fashion, it will sere as a valuable guide in your investment selection. It

will provide you with a useful perspective and prevent you from being a victim of the wavesand manias that tend to sweep the market from time to time.


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2.3.1 PORTFOLIO MANAGEMENT FRAMEWORK

Investment management, also referred to as portfolio management, is a complex process or

activity that may be divided into seven broad phases:

Specification of investment objectives and constraints

Choice of asset mix

Formulation of portfolio strategy

Selection of securities

Portfolio execution

Portfolio rebalancing

Performance evaluation

Here we discus the process of portfolio management in terms of these phases. For pedagogic

convenience, they are treated sequentially. However, it must be emphasized that they are

interrelated as shown in exhibit.

2.4. Interrelationship among Various Phases of Portfolio Management

2.5 SPECIFICATION OF INVESTMENT OBJECTIVES AND CONSTRAINTS

The first step in the portfolio management process is to specify the investment policy

which summarises the objectives, constraints, and preferences of the investor. The investment

policy may be expressed as follows


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RISK ASSESSMENT

Financial advisers, mutual funds, and brokerage firms have developed risk questionnaires to

help investors determine whether they are conservatives, moderate, or aggressive. Typically,

such risk questionnaires have 7 to 10 questions to guage a persons tendency to make risky or

conservative choices in certain hypothetical situations. While these risk questionnaires are notprecise, they are helpful inn getting a rough idea of an investors risk tolerance.

2.6 CONSTRAINTS

In pursuing your investment objective, which is specified in terms of return requirement

and risk tolerance, you should bear in mind the constraints arising out of or relating to the

following factors:

2.6.1 Liquidity: Liquidity refers to the speed with which an asset can be sold, without suffering

any discount to its fair market price. For example, money market instruments are the most

liquid assets, whereas antiques are among the least liquid. Taking into account your cash

requirements in the foreseeable future, you must establish the minimum level of cash youwant in your investment portfolio.

2.6.2 Investment Horizon: The investment horizon is the time when the investment or part thereof

is planned to be liquidated to meet a specific need. For example, the investment horizon may

be ten years to fund a childs college education or thirty years to meet retirement needs. The

investment horizon has an important bearing on the choice of assets.

2.6.3 Taxes: What matters finally is the post-tax return from an investment. Tax considerations

therefore have an important bearing on investment decisions. So, carefully review the tax

shelters available to you and incorporate the same in your investment decisions.

2.6.4 Regulations: While individual investors are generally not constrained much by law,

institutional investors have to conform to various regulations. For example, mutual funds in

India are not allowed to hold more than 10 percent of the equity shares of a public company.

2.6.5 Unique Circumstances: Almost every investor faces unique circumstances. For example, an

individual may have the responsibility of looking after ageing parents. Or, an endowment

fund may be precluded from investing in the securities of companies making alcoholic

products and tobacco products.

2.7 SELECTION OF ASSET MIX

Based on your objectives and constraints, you have to specify your asset allocation,

that is, you have to decide how much of our portfolio has to be invested in each of thefollowing asset categories:

Cash

Bonds

Stocks

Real estate

Precious metals


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The thrust of our discussion will be on determining the appropriate mix of bonds and

stocks in the portfolio. Before we examine this issue, note the following:

The first important investment decision for most individuals is concerned with their education

meant to build their human capital.

The most significant asset that people generally have during their early working years is their

earning power that stems from their human capital. Purchase of life and disability insurance

becomes a pressing need to hedge against loss of income on account of death or disability.

The first major economic asset that individuals plan to invest in is their own house. Before

they are ready to buy the house, their savings are likely to be in the form of bank deposits and

money market mutual fund schemes. Referred to broadly as cash, these instruments have

appeal because they are safe and liquid.

2.8 FORMULATION OF PORTOLIO STRATEGY

After you have chosen a certain asset mix, you have to formulate an appropriate portfolio

strategy. Two broad choices are available in this respect, an active portfolio strategy or a

passive portfolio strategy.

2.8.1 Active portfolio strategy

An active portfolio strategy is followed by most investment professionals and aggressive

investors who strive to earn superior returns, after adjustment for risk. The four principal

vectors of an active strategy are:

Market timing

Sector rotation

Security selection

Use of specialised concept

2.8.2 Passive Strategy

The passive strategy, on the other hand, rests on the tenet that the capital market is

fairly efficient with respect to the available information. Hence, the search for superior

returns through an active strategy is considered futile.Operationally, how is the passive

strategy implemented? Basically, it involves adhering to the following two guidelines:

1. Create a well- diversified portfolio at a pre-determined level of risk.

2. Hold the portfolio relatively unchanged over time, unless it becomes inadequately diversified

or inconsistent with the investors risk-return preferences.


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Chapter 3

EYE VIEW OF BANKING

SECTOR


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3.1 INTRODUCTION

It is a common assumption that the success of an organization depends on the

execution of strategy. Empirically it has been proved that an equally, if not more, important

factor is that the organization is in the right market or geography at the right time. Changes in

the environment in fact play a vital role in the success or failure of an organization.

Change is continuous and affects organizations in various ways. Changes usually take

the form of trends that affect economic markets substantially. Organizations, therefore, need

to understand these trends and how they impact the economies in which they operate. These

studies are best analyzed and understood at the industry level. The banking industry in India

is no exception.

This article looks at the changes in the business environment and the emerging trends

discernible as a consequence and study some strategies necessary to succeed in that

environment as they relate to the Indian banking industry. The discussion covers the

following:

Factors that have set in force these trends

Changes actually witnessed in the new environment

Success strategies needed in banking to cope with these trends

3.2 Four factors

Four factors are behind the changes seen in the environment- globalization; liberalization;

customers; technology.

N.R. Narayana Murthy, Chief Mentor of Infosys Technologies, has said,

Globalisation is about producing where it is most cost effectives, sourcing capital from

where its cheapest and selling it where it is most profitable.

As Mr. Murthy says, globalization forces organizations to accept the best practices in

their industry drawn from different parts of the globe. They have to adapt to and embrace

global standards, practices, systems and procedures if they are to remain competitive. Today

Indian banks are very much part of the global framework.

Globalization has impacted even the rural sector and changed the manner in which

banks are approaching this segment. Today, improved infrastructure and forward and

backward linkages have made rural areas an increasingly attractive market. Technology hasbrought about new initiatives such as ITCs e-chaupal that provide farmers greater access to

information and to markets. Banks have also brought about innovations such as village

knowledge centres.

The effects of globalization have also been felt in the retail segment. With the entry of

MNCs, retailers have come more efficient and stepped up their marketing strategies. They

have access to a much wider range of products that can be marketed locally. With retailer

even in tier II cities selling products from all parts of the globe, their requirements from the

banking system have undergone a change.

Growth resulting from globalization can perhaps be seen most in the SME segment.With goods from overseas flooding local markets, this segment had to step up its efficiency in


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terms of production and pricing strategies. With MNCs establishing a presence here, the

opportunities to supply them with goods and services have shown a quantum jump.

It should, however, be noted that the opening up of the economy and the banking

sector in particular, has been skillfully handled by the Government as well as the regulator.

This brings us to the second factor that has brought about dramatic changes.

The reform process as it affected Indian banking can be traced back to the

Narasimham committee recommendations. These laid down an entirely new set f rules for

banks to adhere to. These impacted the capital structure and areas of business. They have

brought about dramatic changes.

One major development has been the entry of a variety of institutions into banking.

Over the past five years, the distinctions between banking and other financial services have

got blurred. Banks have been entering fields such as insurance, sale of mutual fund products,

gold bullion, facilitating payment of bills, offering demat accounts and so on.

Simultaneously other institutions, not traditionally associated with banking, areoffering banking services and products. Non-banking finance companies accept deposits and

finance individuals. Mutual funds, post offices and insurance companies offer many services

that were traditionally offered only by banks. The entry of these institutions into the banking

sector has impacted the way banking is carried out.

In addition, the liberalization process opened up the industry to foreign banks as well

as the Indian private sector. This ushered in a new generation of practices, systems, methods,

tools and banks themselves. While banks themselves had to cope with these changes, the

ultimate beneficiaries of the process were the customers. This brings us to the next factor that

changed the environment.

3.3 NEW CUSTOMER PROFILE

In any environment, multiple choices help in empowering the customer. Indian

banking is no exception. The changes in Indian banking have led to a change in the profile of

the customer. Following nationalization, a whole new set of customers gained access to

banks. The most economically backward person was encouraged to enter the portals of a

bank branch. Along with massive branch expansion huge customer mass was encouraged to

seek the help of banks. But the most dramatic change was yet to take place. Even ten years

ago, banks had strict hours for business. Most bank branches opened at 10 in the morning and

closed at 2 in the afternoon. Customers had to call at a branch to transact his business. Today

the banker-customer relationship is totally different.

Multiple choices have empowered the customer. Today most customers of the bank

do not enter the branch premises for their basic transaction needs. Transactions are done

through delivery channels such as ATMs, over the internet and even over the mobile. Many

banks have introduced extended business hours such as 8 to 8 banking and Sunday

banking.

More important, changing demographics have changed the customer profile in favour

of youth with better education and qualifications. This too has changed the environment in

which banks operate. Almost 100 percent of this customer segment is techno-savvy and this

brings us to the next factor that has changed the environment.It is estimated that by the year

2011 the below 30 years age group will form a larger segment of the population than it does

today. The country stands to benefit from this change.


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3.4 TECHNOLOGY EXPANSION

The introduction of technology came almost as a natural corollary of liberalization.

Liberalization opened the doors to new players who invested in technology from the very

beginning. Public sector banks followed suit. This opened up a new world of banking which

benefited the banks as well as the customers. The customer was empowered to carry out thebulk of his transactions electronically without visiting the branch. It also brought in the

concept of anytime, anywhere banking. As a consequence branches too became flexible in

their timings trying ultimately to reach a situation of 24*7 services.

Technology enabled and popularized the use of plastic. This added to the freedom of

the customer to access banking facilities from multiple points. Technology enabled banks to

take the drudgery out of banking transactions, and allowed bank to collect and analyse data

on customers and markets that would enable them to design customer centric products.

This has created a situation in which the requirements of customers- mostly composed

of younger, financially upward mobile persons- are matched by the design and deliverymechanism of banks vis--vis products and services. Most banks are also moving towards the

provision of wealth management and similar advisory services.

Globalization is a natural corollary to the opening up of borders and countries. The

ultimate effect of globalization will be witnessed when people operated in a world without

borders. People will have a commercial world with standard practices and procedures that

will enable everyone everywhere to source products and services at their most efficient price.

3.5 THE TEN CHALLENGES

In the backdrop of the changes experienced in the environment, the banking industry will

have to face and address ten challenges:

1. Retail renaissance,

2. Seeking and servicing new markets,

3. The decision to outsource.

4. Financial inclusion,

5. Monitoring credit quality,

6. Achieving comprehensive governance of risk management,

7. Basel II: driving enterprise- wide change,

8. Corporate governance: moving to greater transparency,

9. Grooming the next generation of talent and

10. Consolidation.


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3.5.1 RETAIL RENAISSANCE:

In the coming years, the booming retail market will be another challenge that banks

will have to address. Changing demographics and profiles of customers will throw up greater

demands in terms of services and products that banks will have to design and deliver. Banks

will also have to enter areas where they have relatively less experience and expertise.Customers will become more demanding in terms of the range of products and services. A

major challenge faced by banks is that any product introduced by a bank is likely to be

commoditised by being replicated by other banks almost immediately.

3.5.2 NEW MARKETS:

The twin forces of globalization and liberalization will result in a challenge as well

as an opportunity. Changes in regulations and procedures, coupled with technology enable a

variety of products and services to be sourced from anywhere in the globe. New skills are

needed as a result of these forces. These result in new markets and customer segments

emerging.

A case in point is the BPO industry which is gradually assuming critical mass. In a more

mundane sense, banks are now looking to establish a physical presence in other countries so

that they can serve segments of expatriates as well as Indian industries establishing a

presence abroad, more effectively.

3.5.3 THE OUTSOURCING OPTION:

As the habits of the work force change, banks will have to tackle the problem and

make use of the opportunities available. Increasingly while collar workers are looking for

ways to use their time more effectively. Leisure time and quality of life are a priority for

many. They seek flexible working hours. Charles Handy has pointed out that by the year

2015 it will be the norm for most people to have two jobs. The future trend will be to have

fewer permanent employees. Banks will have to face the issue of outsourcing most of the

activities other than core functions that are done in house at the present time.

3.5.4 FINANCIAL INCLUSION:

The traditional ways of disbursing credit will have to be dispensed with in times to

come. Bringing the part of the population that has hitherto been denied access to banking

services is now an area of focus for the banking industry. It is estimated that out of every 100

only 31 have a bank account. The process of bringing these people into the banking systemknown as financial inclusion has been made feasible by technology. User friendly ATMs

operating on a biometric identification system as well as the use of mobile phones is part of

these initiatives. Today it is understood that the rural segment is becoming a market with

great potential. The focus is on providing what is known as soft infrastructure or

information and communication technology in rural areas. This expands the reach of the

banking system, government as well as private and public players.


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3.5.5 MONITORING CREDIT QUALITY:

As banks operate in a culture of greater efficiency and meet the demands of the

market place, the emphasis will shift increasingly to the quality of assets of banks. This will

call for improved monitoring of the credit being dispensed. More focused and better analytics

will have to be employed to ensure this. Technology can be leveraged by banks to strengthen

their information systems so that monitoring becomes more effective.

3.5.6 RISK MANAGEMENT:

In the context of the increasingly demanding environment, risk management measures

assume vital importance. The aim of risk management measures is to put in place a business

model based on controlled growth with proper assessment of all the risk factors involved.

Banks will devise an integrated approach to risk management.

3.5.8 BASEL II NORMS:

The implications of globalization are felt in the movement towards Basel II capital

norms. Developments of new financial products, globalization of institutions are all reflectedin the need for risk sensitive capital requirements. This in turn will have implications for

systems in banks.

Analytics for credit appraisal, information and reporting systems, controls and other

measures will have to be geared up to meet the requirements thrown up by the new accord.

Though one part of the Basel II is to do with compliance it is also an opportunity for banks to

improve their risk management systems and make use of capital more efficient.

3.5.9 CORPORATE GOVERNANCE:

Globalization and the goal of banks to operate globally will call for better corporate

governance practices. These practices will enable banks to compete with international

players. The required changes will take the form of more transparent reporting. Banks will

also have to put in place systems by which stakeholders will have better access to

information. There will also be oversight by management, by individuals not directly

involved with management but are stakeholders, by the regulator as well as traditional checks

and balances such as auditors.

3.5.10 GROOMING THE NEXT GENERATION TALENT:

With processes, systems, markets and the environment rapidly changing, the banking

system will have to prepare itself for grooming the next generation of talent. Systems of

recruitment, placement and incentivising talented personnel will be an other challenge. Thiswill take the form of reskilling a rapidly aging work force and providing an environment that

can attract and retain specialists and others in the younger generation of workers.

Further, the system will have to provide a work culture where leadership skills are

nurtured. These skills will go beyond the traditional parameters of professional management

and encompass the demands of today for an entrepreneurial outlook and attitude.


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3.5.11 CONSOLIDATION:

The way forward will call for players who will be able to approach global standards in

terms of size. While the present robust growth rates in the banking industry are likely to be

maintained in the years to come, if we are to reach a global scale, organic growth alone may

not be enough.

The industry will have to prepare itself for consolidation. However, consolidation

should result in synergies with regard to geographies, organizational cultures, technology and

so on. The days ahead for Indian banks will be turbulent but interesting.

Only banks that can adapt to change and take proactive steps will survive.

Understanding the emerging trends, shaping strategies based on the anticipated changes and

executing them effectively will be the key to success. Indias IT industry has demonstrated

that we are capable of seizing opportunities and making a positive global impact. The Indian

banking industry too will one day be the subject of another global success story.

Chapter 4


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Company Profile


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HSBC IN INDIA

The anecdotes of the HSBC group in India can be traced back to October 1853 when the

mercantile bank of India, London, and china was founded in Bombay. Starting with an

authorized capital of Rs 5 Million, the Mercantile Bank soon opened offices in London,

Chennai, and Colombo, Kandy followed by Kolkata, Singapore, Hong Kong and Shanghai by1855.

The acquisition in 1959 by the Hong Kong and Shanghai Banking Corporation Limited of the

Mercantile Bank was a decisive factor in laying the foundation for todays HSBC Group.

Founded in 1865 to serve the needs of the Merchants of the China coast and finance the

growing trade between China Europe and the United States, HSBC has been an international

bank from its earliest days.

Through the 1990s, HSBC has vigorously developed its role as one of the leading banking

and financial services organizations in the world. Its strategy of managing for value emphasis

the groups unique balance of business and earnings between older, mature economies and

faster-growing emerging markets.

The organizations adaptability, resilience and commitment to its customers have further

enabled it to survive through turbulent times and prosper through good times over the past

150 years.

HSBC as a Group it is into other fields. In India 2566o employees are working in 89 offices

of HSBC Group.

HSBC Group entities in India are as follows:

HSBC Asset Management (India) Private Limited

HSBC Electronic Data Processing (India) Private Limited

HSBC Insurance Brokers (India) Private Limited

HSBC Operations and Processing Enterprise (India) Private Limited

HSBC Software Development (India) Private Limited

HSBC Private equity management (Mauritius) Private Limited

HSBC Professional services (India) Private Limited

HSBC Securities and capital markets (India) Private Limited

HSBC The Hong Kong and Shanghai Banking Corporation Limited (HBAP)

HSBC Securities and capital markets (India) Private Limited:

HSBC Securities and capital markets (India) Private Limited has two main business lines. Its

institutional and proprietary broking business has seats on two of Indias premier stock

exchanges, the Bombay Stock Exchange and the National Stock Exchange. It deals in Indiansecurities for both Indian and international institutions and for select retail clients and is


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backed by an extensive research team. The corporate finance and advisory business offers a

full range of integrated investment banking services in India and internationally i.e. this

group provides both public and private sector with strategic financial advice and execution

capability in the areas like Mergers & Acquisitions, Capital Market Transactions,

privatizations etc..

HSBC Asset Management (India) Private Limited:

HSBC Asset Management (India) Private Limited, a subsidiary of HSBC Securities and

capital markets (India) Private Limited, is the investment manager to HSBC Mutual Fund.

This commenced Asset management business in November 2002. In India it has 16 offices

with an employee base of 151.

HSBC Electronic Data Processing (India) Private Limited (HDPI):

HSBC Global Resourcing is a fundamental component of HSBC to deliver share holder value

and competitive service through efficient, cost effective operations. HSBC Global Resourcing

in India employs over 11000 professional across 5 centers in Hyderabad, Vizag, Bangaloreand Kolkata who provide customer service to HSBC customers in US, UK,

European Union, Middle East and Asia Pacific. The company started its operations in July

2000 at Hyderabad.

HSBC Insurance Brokers (India) Private Limited:

HSBC Insurance Brokers (India) Private Limited was licensed in August 2003 to provide

advice and innovative solutions in very specialist areas of business including claims handling

services of international standards to HSBC Banks Corporate, Institutional, commercial,

HNWI. It also works with the bank on various initiatives for the SME as well as PFS

segments.

HSBC Professional services (India) private Limited:

HSBC Professional services (India) private Limited provides internal audit services to several

of the HSBC Groups internal audit units worldwide, including reviews of the IT, Treasury,

asset management, Private Banking and Insurance functions as well as centralized operations

such as Group service centers.

HSBC Software Development (India) private Limited:

HSBC Software Development (India) Private Limited is also known as Global technologyCenter (GLT) was incorporated in the year 2002 in Pune. The center has been established to

develop software solutions for the Groups global operations and to provide ongoing IT

maintenance or support services, new application development, functional and technical

architectural services with a special focus on Mainframe, AS400 Web, Vision+, Business

intelligence etc.

HSBC Private Equity Management (Mauritius) private Limited:

HSBC Private Equity management ( India) Private Limited is a Private Equity investment

advisor and a subsidiary of HSBC Private Equity Management (Mauritius) Limited. It

manages the HSBC Private Equity India Fund limited. Apart from the HSBC Group,

Shareholders in the fund include investors from the US, Europe, the Middle East and Asia.


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HSBC The Hong Kong and Shanghai Banking Corporation Limited (HBAP):

HSBC is mainly into three types of activities. They are as follows

1. Branch Banking

2. Wealth Management

3. Acquisition

Branch Banking:

Branch Banking includes mass banking. This segment mainly composed of Banking

assistants, Platform Services, Teller Supervisors. This serves up to only walk in customers.

All Mass Banking transactions takes place here. To attain these services the minimum

qualifications is to be required is, the customer should hold a Current/Savings account in

HSBC. A minimum of Rs. 25000/- of Qtly balance is to be maintained. Savings account

offers an interest of 3.5% and also provides the facility of ATM card to its customers and the

important thing here is that unlimited numbers of transactions are allowed through ATM card

in a financial year. But cash limit is Rs. 25000/- per day. HSBC provides the privilege to

draw money from any VISA ATM at free of cost.

Wealth Management:

Wealth Management is most Prestigious service that is being offered by HSBC to its

customers. If we observe, the disposable income of people in India has increased from last

few years because of the IT & its ripple effects. So it made clear that its easy to earn money.

But the question is that how to retain that? Discounting principle of economics speaks about

importance of investment. But that was made should be wise and add value to the invested

money. The days has gone to prefer investments. In fixed deposit or provident fund or insavings account as the returns are very less and cannot meet the financial goals of the

investor. The days to invest in stock have come. But risk is directly proportional to the

returns. So, though money, Inflation and Stock fluctuations, unknown requirements baffle to

reach your financial goals. So keeping all these effects in mind we (HSBC) Came with wealth

Management tools that helps you to achieve your financial goals in time and helps you to

relieve from all these headaches. In a single sentence the area of our Expertise is Wealth

Management.

The following are the packages that are offered by us (HSBC) to its customers in the area of

Wealth Management.

1. Financial Planning services

2. Power Vantage

3. Premier

Financial Planning Services:

Financial Planning Services is the tool which helps very much for a corporate employee.

Though they knew about stock its not possible for them to closely observe the Dalal Street, so

HSBC offers you tailor made financial plans to add value to your Assets. The uniqueness of

our Bank is that it is the only PROCESS ORIENTED BANK in India. In this tool FinancialPlanning Manager who is an expertise in Financial Planning offer you tailor made plan. In


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this category independent Advice, A close look at your investments, Monthly Reports to the

customers are some of the privileges offered to its customers. All these services offered are

absolutely at free of cost, as HSBC views its customer as KING.

POWER VANTAGE:

Power Vantage is another powerful tool that is offered to its customers. This offers all the

privileges offered by Financial Planning Services more-over Power Vantage Relationship

Manager who is an expert and experienced helps to plan the Assets.

It provides 24/7 service, separate service desk in front office, separate teller counters to

Power Vantage customers, the privilege of paying cheque payable at par, no bounce cheque

protection, preferential processing fee on home loans and personal loans are the privilege that

are provided by the Bank to its customers of Power Vantage and about Rs. 50000/- can be

drawn from ATM.

To be a Power Vantage customer he has to maintain Average Qtly balance of one lakh or

should have relationship like home loan or minimum investment of Five lakh Rupees inMutual Funds.

Key PowerVantage Plus Benefits

Dedicated Relationship Manager - a PowerVantage Plus relationship manager is

assigned to assist you in your banking and financial planning needs.

E- Financial Planner2 - Online tool that helps you get a basic understanding of the

financial planning process.

Unlimited Free Transactions (Cash withdrawals and balance enquiries) at 23,500

HSBC and non- HSBC Visa ATMs in India using your PowerVantage debit card.

Dedicated Service Desk and Teller Counters to assist you with your banking needs.

Free Cheques payable at par (CPP) facility in all cities where HSBC has branches,

helping you save on outstation clearing time and costs.

Joining Fee Waiver and 50% off on the annual fee of your credit card3

Higher Cash Withdrawal limit of up to Rs. 50,000 across 20,000 HSBC and non-

HSBC Visa ATMs in India and over 1 million ATMs overseas4

.

Free SmartVantage Magazine - A quarterly magazine that helps you keep yourself

updated on the market scenario besides bringing you information on lifestyle interests that are

relevant to your profile.

Use yourPowerVantage Plus Debit Card for purchases of up to Rs. 50,000 per day

at over 3,20,000 merchant establishments in India and over 14 million such establishments

overseas.

PREMIER:


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HSBC Premier is an individually tailored package of exclusive premier banking services that

can be accessed from anywhere you choose to live or work. In this package a minimum

Relationship of Rs.25 lakhs is to be maintained. This customer is treated as International

customer. Simply one cannot say any financial service that is not provided to these

customers. Premier Relationship Manager chalks out financial plan to these customers, these

customers enjoy all the facilities provided under FPS, PV and more-over they have power towithdraw an amount up to one lakh per day from ATM. These customers enjoy the facility of

HOME BANKING SERVICES which are absolutely free, Routine payments are made on

your behalf. Thus the Bank feels that these customers are most important customers to the

Bank.

Advantages of banking with HSBC Premier include:

Just one call will initiate the process to set up an HSBC Premier account in your new

country of residence. Your credit cards, debit cards and cheque books will arrive within 10

working days

A local HSBC Premier Relationship Manager will assist you in planning for your

financial needs

View your HSBC Premier accounts from anywhere in the world with our unique

Global View online banking service.

ACQUISITION TEAM:

The main function of this team is to acquire customers to the Bank this team is generally

headed by Sales manager.

WHY HSBC ONLY ???????????:

Most of the people may say that many of the Banks offer many of these facilities and what

makes HSBC to stand out from them. For this there are many specialties that makes us as

outstanding. Some of them are as follows

1. HSBC is the one and only Process Oriented Bank in India.

2. Rated as safest bank in India by Business Today-04

3. HSBC is the only Bank that uses the advanced methods such as PERSONAL FINANCIAL

REVIEW, FINANCIAL NEED PLAN, WEALTH EXPLORING PLAN to each and every

customer and prepares a tailor made plan to individual to reach his Financial goals on time.


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Financial Highlights

For the year 2007

Total operating income up 25.0 per cent to US$87,601 million (2006:

US$70,070 million).

Net operating income up 12.7 per cent to US$61,751 million (2006: US$54,793million).

Group pre-tax profit up 9.6 per cent to US$24,212 million (2006: US$22,086million).

Profit attributable to shareholders of the parent company up 21.2 per cent toUS$19,133 million

(2006: US$15,789 million).

Return on average invested capital of 15.3 per cent (2006: 14.9 per cent).

Earnings per ordinary share up 17.9 per cent to US$1.65 (2006: US$1.40).

At the year-end

Total equity up 17.8 per cent to US$135,416 million (2006: US$114,928million).

Customer accounts and deposits by banks up 23.3 per cent to US$1,228,321million (2006:

US$996,528 million).

Risk-weighted assets up 19.7 per cent to US$1,123,782 million (2006:US$938,678 million).

Dividends and capital position

Total dividends declared in respect of 2007 of US$0.90 per share, an increaseof 11.1 per cent

over dividends for 2006; fourth interim dividend for 2007 of US$0.39 per share,an increase of

8.3 per cent.

Tier 1 capital ratio of 9.3 per cent and total capital ratio of 13.6 per cent.


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Chapter 5

Market Survey


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5.1 MAJOR FINDINGS OF THE STUDY:

1. Majority of the people are interested in investing in real estates and bank deposits

2. While investing, People are taking into account the investment attributes like rate of return,

risk factor, duration, tax, good track record of the company. Majority of the people are

seeking to get 50% of the returns from their investments.

3. The people are interested to invest in less risky areas and willing to go for long term

Deposits. The number of people, who are looking into the brand name and company

refutation before investment stands 80%.

4. The people are more aware of bank deposits and real estates but still there are people who are

not aware of bank deposits. So, the banks can cater that market.

5. There are more than 50% of the people are not aware of mutual funds. They are seeking to

get awareness. People are aware of mutual funds but they do not know various schemes

available.

6. Majority of the people are willing to get information through, T.V Advertisements, agents


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5.2 ANALYSIS AND INTERPRETATION:

INVESTMENT PATTERN OF INDIVIDUALS

Frequency Percent Valid Percent Cumulative %

Bank deposits 28 28.0 28.0 28.0

Shares and bonds 18 18.0 18.0 46.0

Real estates 30 30.0 30.0 76.0

Mutual funds 8 8.0 8.0 84.0

Post office deposits 4 4.0 4.0 88.0

Others 12 12.0 12.0 100.0

Total 100 100.0 100.0

bank deposits

shares&bonds

real estates

mutual funds

post of f ice deposits

others

Pies show counts

bank deposits

28.00%

shares&bonds

18.00%

real estates

30.00%

mutual funds

8.00%

post office deposits

4.00%

others

12.00%

The above diagram and cross table analysis shows that real estates(30%) is top most preferred

one followed bank deposits (28%) shares and bounds 18%and mutual funds(8%). So banks

have to concentrate on real estates by giving loans against land. The banks can introduces

certain new schemes to capture the business.

5.2 Analysis of Investment Attributes:


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Rate of

Return Risk factor Liquidity

Tax

shield Duration

Transaction

ease

Good

Track

Record

N 100 100 100 100 100 100 100

0 0 0 0 0 0 0

Mean 1.82 1.48 2.08 2.02 2.18 2.10 2.68

Median 2.00 1.00 2.00 2.00 2.00 2.00 3.00

Mode 2 1 2 3 3 2 3

Std. Deviation .744 .674 .720 .974 .796 .785 .680

Variance .553 .454 .519 .949 .634 .616 .462

Skew ness .305 1.084 -.121 -.041 -.336 -.179 -1.863

Std. Error of

Skew ness.241 .241 .241 .241 .241 .241 .241

Kurtosis -1.129 -.038 -1.043 -1.972 -1.342 -1.349 1.837

Std. Error of

Kurtosis.478 .478 .478 .478 .478 .478 .478

Range 2 2 2 2 2 2 2

Sum 182 148 208 202 218 210 268

Percentiles 25 1.00 1.00 2.00 1.00 2.00 1.00 3.00

50 2.00 1.00 2.00 2.00 2.00 2.00 3.00

75 2.00 2.00 3.00 3.00 3.00 3.00 3.00

5.2.1 Correlations between Income Levels with Investment Attributes

Control

Variables

Rate of

Return

Risk

Factor Liquidity Tax shield Duration

Transaction

Ease

Good track

Record

Correlation 1.000 .304 -.102 -.012 .241 .190 .099

Significance

(2-tailed). .002 .317 .906 .016 .060 .330

Df 0 97 97 97 97 97 97

Correlation .304 1.000 -.020 .039 .111 -.009 .056


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Significance .002 . .843 .701 .273 .933 .582

Df 97 0 97 97 97 97 97

Correlation -.102 -.020 1.000 -.175 -.047 -.117 -.051

Significance .317 .843 . .083 .648 .249 .615

Df 97 97 0 97 97 97 97

Correlation -.012 .039 -.175 1.000 -.294 -.281 .013

Significance .906 .701 .083 . .003 .005 .897

Df 97 97 97 0 97 97 97

Correlation .241 .111 -.047 -.294 1.000 .479 .234

Significance .016 .273 .648 .003 . .000 .020

Df 97 97 97 97 0 97 97

Correlation .190 -.009 -.117 -.281 .479 1.000 .103

Significance .060 .933 .249 .005 .000 . .312

Df 97 97 97 97 97 0 97

Correlation .099 .056 -.051 .013 .234 .103 1.000

Significance .330 .582 .615 .897 .020 .312 .

Df 97 97 97 97 97 97 0

1=5000-10000. 2=10000-15000. 3=15000-20000. 4=20000-25000. 5=25000-35000. 6=Above

35000

5.2.2. Rate of Return

Frequency Percent

Vali

d

1%-30%38 38.0

30%--65% 42 42.0

65%--100% 20 20.0

Total 100 100.0


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65-10030%--65%0%-30

Fre

quency60

40

20

0

Risk Factor

Form the above diagram it is quite clear that most of the Peoples expected rate of return is30%-65%.very less number of people are aiming to get 100% returns. The38%of the people

are willing to invest in those area where they can get short term gains.

5.2.3 Risk factor

65%--100%30%--65%1%-30%

F

re

q

u

e

n

c

y

50

40

30

20

10

0

Frequency Percent

Valid 0%-30 62 62.0

30%--65% 28 28.0

65-100 10 10.0

Total 100 100.0


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65%-100%30%-65%0%-30%

F

r

e

q

u

e

n

c

y

50

40

30

20

10

0

Tax Shield

People are not willing to under go more risk. If we correlate with the above option, we can

easily understand that majority want get, rate of return 50% by taking 25%of risk. The people

(62%) are interested to invest in less risky areas.

5.2.4 Liquidity

65%-100%30%-65%0%-30%

Frequency

50

40

30

20

10

0

Liquidity

It is very descriptive that most of the people are going for more or most liquidity type of

investment.30%of the people wants 100% liquidity. These people are suitable for bank

deposits. Whereas 48% of them wants 30%-65% of liquidity. These people are suitable for

shares and bonds. The rest of them (22%) can go for real estate where duration is mostly

considered.

5.2.5 Tax shield

Frequenc

y Percent

Valid 0%-30% 22 22.0

30%-65% 48 48.0

65%-

100%30 30.0

Total 100 100.0

Frequency Percent

Valid 0%-30% 46 46.0

30%-65% 6 6.0

65%-

100%48 48.0

Total 100 100.0


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65%-100%30%-65%0%-30

Frequency

40

30

20

10

0

Transaction Ease

The figure shows clearly 48% of the people are willing to pay the TAX from their earnings.

46% of the people are not willing to pay tax. So the banks should Prepare new schemes i.e.

like Tax fund in mutual funds, concentrate those people youre not willing to pay tax.

5.2.6 Duration

The people are mostly interested in

lone term investment i.e. 42%. 34% of the

people are willing to go for, medium term

investments. The banks can seek in to long

term deposits and fixed deposit scheme as

The people are willing. There is heavy opportunity for the banks to expand in this sector.

5.2.7 Transaction Ease

We know that as the procedure is more the security also is more. But people are seeking for

less procedure transactions (36+38=74). The respondents, who are willing to under go more

transactions, are only 26.

Frequency Percent

Valid 0%-30 24 24.0

30%-65% 34 34.0

65%-100% 42 42.0

Total 100 100.0

Frequency Percent

Valid 0%-30 26 26.0

30%-65% 38 38.0

65%-

100%36 36.0

Total 100 100.0

65%-100%30%-65%0%-30

Frequency

50

40

30

20

10

0

Duration


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5.2.8 Good Track Record

Here it is evident from the output that most

of the people are looking at brand name

and popularity of the company where they are interested in investing. The people who are

interested in branded company are 80% which we have to consider most .so the company

must try to build good name and fame among the customers.

Frequency Percent

0%-30% 12 12.0

30%-65% 8 8.0

65%-100% 80 80.0

Total 100 100.0

65%-100%30%-65%0%-30%

80

60

40

20

0

Fr

e

q

u

e

n

c

y


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Analysis using Techniques

Chi-Square Analysis:

5.3. Awareness Of investment options

5.3.1 Bank Deposits

HO: There is no relationship between bank deposits and people profession (The two variables

are independent of each other).

Ha: There is relationship between bank deposits and their profession (the two variables are

dependent of each other).

Bank Deposits Total

1%-25% 25%-50% 51%-75% 76%-100% 1%-100%

Businessmen 10 6 12 16 44

Employees 2 12 16 12 42

Others 4 2 8 0 14

Total 16 20 36 28 100

Form the table it is clear that 64 out of 100

Chi-Square Tests for Bank deposits and awareness among people

Value df Asymp. Sig. (2-sided)

Pearson Chi-Square 16.350(a) 6 .012

Likelihood Ratio 20.817 6 .002

Linear-by-Linear Association .986 1 .321

N of Valid Cases 100

a.3 cells (25.0%) have expected count less than 5. The minimum expected count is 2.24.

The actual significance level (p-value) of 0.012 in the out put implies that the chances ofgetting a chi-Square value as high as 16.350 when there is no relationship between bank

deposits and profession are less than 12 in 1000.in other words the apparent relationship

between bank deposits and their profession revealed by the sample data is unlikely to have

occurred because of chance. So we safely reject null hypothesis.


48/65

5.3.2 Shares and bonds

The people who invest in shares and bonds are mostly businessman (12) and employees

(12).It is

Clear from the table that most employees are more awareness of shares and bonds than

businessman. Only 24% of the people have full knowledge about shares and bounds.

Chi-Square Tests for Shares & Bonds Awareness among people

HO: There is no relationship between awareness of shares & bonds and with people

profession (the both the variables are independent of each other).

Ha: There is relationship between awareness of shares & bonds and their profession (the both

variables are dependent of each other).

a 5 cells (33.3%) have expected count less than 5. The minimum expected count is 2.24.

The actual significance level (p-value) of 0.094 in the out put implies that the chances of

getting a chi-Square value as high as 13.561 when there is no relationship between

Awareness of shares and bonds and peoples profession are less than 94 in 1000. In other

words the apparent relationship between Awareness of shares and bonds and their profession

revealed by the sample data is likely to have occurred because of chance. So we safely accept

null hypothesis.

SHARES AND BONDS Total

0% 1%-25% 26%-50% 51%-75% 76%-100% 0%-100%

Businessmen 10 10 4 8 12 44

Employees 4 6 10 10 12 42

Others 2 2 4 6 0 14

Total 16 18 18 24 24 100







49/65

5.3.3 Mutual funds

MUTUAL FUNDS Total

0% 1%-25% 26%-50% 51%-75% 76%-100% 0%-100%


Employees 0 6 10 10 16 42

Others 2 6 2 4 0 14

Total 6 18 16 20 40 100

The most of the people who invest in mutual funds are mostly businessman (24) then

employees (16).

The awareness of mutual funds among the employees is more when compared to

businessmen. The people who have full knowledge about mutual funds 40 out of 100.but

there are people (60) who have no idea about mutual funds.

Chi-Square Tests for mutual funds and awareness among people.

HO: There is no relationship between awareness mutual funds and with people profession

(the both the variables are independent of each other).

Ha: There is relationship between awareness of mutual funds and their profession (the both





Linear-by-Linear Association 7.299 1 .007


a 6 cells (40.0%) have expected count less than 5. The minimum expected count is .84.


getting a chi-Square value as high as 23.030 when there is no relationship between awareness

of mutual funds and profession are less than 3 in 1000.

In other words the apparent relationship between awareness of mutual funds and their

profession revealed by the sample data is unlikely to have occurred because of chance. So we

safely reject null hypothesis.

Symmetric Measures


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Value

Asymp. Std.

Error(a) Approx. T(b)

Approx.

Sig.

Interval by Interval Pearson's R -.272 .102 -2.793 .006(c)

Ordinal by Ordinal SpearmanCorrelation -.277 .100 -2.858 .005(c)


a. Not assuming the null hypothesis.

b. Using the asymptotic standard error assuming the null hypothesis.

c. Based on normal approximation.

5.3.4 Real Estates

REAL ESTATES Total

1%-25% 25%-50% 51%-75% 76%-100% 1%-100%

Businessmen 10 6 12 16 44

Employees 2 12 16 12 42

Others 4 2 8 0 14

Total 16 20 36 28 100

The most of the people who invest in mutual funds are mostly businessman (24) then

employees (16).

The awareness of mutual funds among the employees is more when compared to

businessmen.

Chi-Square Tests for Real Estates and awareness among people.

HO: There is no relationship between awareness of Real Estate and with people profession

(the both the variables are independent of each other).

Ha: There is relationship between awareness of Real Estate and their profession (the both







51/65


a. 3 cells (25.0%) have expected count less than 5. The minimum expected count is 2.24.


getting a chi-Square value as high as 16.350 when there is no relationship between RealEstate and profession are less than 12 in 1000.in other words the apparent relationship

between Real Estate and their profession revealed by the sample data is unlikely to have

occurred because of chance. So we safely reject null hypothesis.

Symmetric Measures

Value

Asymp. Std.

Error(a)

Approx.

T(b)

Approx.

Sig.

Interval by Interval Pearson's R -.100 .102 -.993 .323(c)

Ordinal by Ordinal Spearman Correlation -.106 .102 -1.052 .295(c)


a Not assuming the null hypothesis.

b Using the asymptotic standard error assuming the null hypothesis.

c Based on normal approximation.

5.3.5 Post office deposits

POST OFFICE DEPOSITS Total

0% 1%-25% 26%-50% 51%-75% 75%-100% 0%


Employees 8 18 6 6 4 42

Others 0 8 4 2 0 14

Total 16 38 18 14 14 100

Chi-Square Test for post office deposits that with awareness among people.

HO: There is no relationship between awareness of Post office deposits and with people

profession (the both the variables are independent of each other).

Ha: There is relationship between awareness of Post office deposits and their profession (the

both variables are dependent of each other).



52/65



Linear-by-Linear Association 1.892 1 .169


a 4 cells (26.7%) have expected count less than 5. The minimum expected count is 1.96.


getting a chi-Square value as high as 11.712 when there is no relationship between post office

deposits and profession are less than 165 in 1000.in other words the apparent relationship

between post office deposits and their profession revealed by the sample data is likely to have

occurred because of chance. So we safely accept null hypothesis.

Symmetric Measures

Value

Asymp. Std.

Error(a)

Approx.

T(b)

Approx.

Sig.

Interval by Interval Pearson's R -.138 .086 -1.382 .170(c)

Ordinal by Ordinal Spearman Correlation -.116 .095 -1.157 .250(c)

N of Valid Cases. 100

a Not assuming the null hypothesis.

b Using the asymptotic standard error assuming the null hypothesis.

c Based on normal approximation.


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5.3.6 GOLD

GOLD Total

0% 1%-25% 26%-50% 51%-75% 76%-100% 0%


Employees 10 18 6 2 6 42

Others 4 4 6 0 0 14

Total 32 34 20 4 10 100

Chi-Square Test for Investments in Gold that with awareness among people.

HO: There is no relationship between awareness of Investment in Gold and with people

profession (The both the variables are independent of each other).

Ha: There is relationship between awareness of Investment in Gold and their profession

(The both variables are dependent of each other).

Chi-Square Tests






a 9 cells (60.0%) have expected count less than 5. The minimum expected count is .56.


getting a chi-Square value as high as 10.976 when there is no relationship between

Investment in Gold and profession are less than 203 in 1000. In other words the apparentrelationship between Investment in Gold and their profession revealed by the sample data is

likely to have occurred because of chance. So we safely accept null hypothesis.

5.4.0. Current Investments made by the customers.


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mutual funds

real estatesbank deposits

shares&bonds

post off ice deposits

6

mutual funds

10.00%

real estates

30.00%

bank deposits

30.00%

shares&bonds

2.00%

post office deposits

4.00%

6

24.00%

others

The above pie diagram vividly shows that peoples current investment are mostly in real

estates and bank deposits, i.e.30%. Where as only 10% of the total population are opting for

mutual funds .so there is heavy chance for the banks to make investor to invest in mutual

funds. It will be clearer from the above CHART.

5.4.1 Cross tabulation for the peoples current investment and their level of satisfaction.

1=notsatisfied.2=1%-25%.3=26%-50%.4=51%-75%.5=76%-100% Total

not satisfied 1%-25% 26%-50% 51%-75% 76%-100%

Mutual funds 0 0 0 8 2 10

Real estates 0 0 6 12 12 30

Bank deposits 2 4 10 6 8 30

Shares &bonds 0 0 2 0 0 2

Post office

deposits0 0 0 2 2 4

Others 10 4 0 8 2 24

Total 12 8 18 36 26 100


55/65

It is clear from the above that most of the people, who invested in real

estates, are mostly satisfied customers. Customers satisfaction in banks stands 2nd .the other

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Fin Investment Study to Balaji Mba Project

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