The financial globalization of the world economy has led to the integration of various financial markets of the world.

Deeper financial markets and strengthened prudential regulation of financial institutions help to enhance saving and investment opportunities by offering a wider variety of financial instruments to channel savings and also by providing more security by effective regulation to investors.

Investment markets are becoming more risky and each and every passing day makes investors behave differently upon different market dynamics.

The basic methods of market analysis (Fundamental, Technical and Quantitative) though are playing an important role in investment decisions, the behavior of the investors has become more important and hence the study “Behavioral Finance” emerging and becoming the topic of various researches and studies. Behavioral finance began as an attempt to understand why financial markets react inefficiently to public information.

Structural changes have followed the transformation of India in 1991 from a highly regulated and inward oriented to an outward looking economy. Consequently, the state domination in many spheres of activity is giving way to private sector. The service sector in general and financial sector in particular has to play an important role in this change. It is the development of the financial system, which resulted in a sea change in financial transactions and transformed economics from stagnant and backward position to dynamic and vibrant ones. This fact is also applicable in case of state economy either in the form of high standard of living and low inflation rate. In the various studies on the financial markets, it is observed that the share of rural and semi-urban areas in both money and capital market are too low. All of them suggested that for the balanced development of financial market, taping of rural and semi-urban savings is necessary. The regulatory and the development agencies are continuously trying to tap the unexplored capital of these areas. In fact, some positive changes occur during the years in these aspects. With the varied options available, investment is like a cafeteria approach where one can chose as per the individual need. This has resulted in more specialized products coming up in the market targeting various sections of income group. Nevertheless, with these innovations, the charm of investment in banks and property has not lost its vain.

NEED FOR STUDY:

This analysis on household Investors’ behaviour is an attempt to know the profile of the investor and also know the characteristics of the investors so as to know their preference with respect to their investments. The study also tries to explore the influence of demographic factors like age on risk tolerance level of the investor. Different investors behave differently in different market situation before investing like return, flexibility etc but the markets will face a question mark in knowing the pulse of an investor. So a study must be made on the demographics and psychographics of the investor such that the market can know the pulse of an investor and can act upon it. Investor behavior analysis deals with analyzing the behavior of an investor based on his demographic and psychographic factors like age, gender and income groups. This will reflect what would be a preferred portfolio of an investor at a particular age, or income slab etc. This will be helpful to the stock brokers and portfolio managers so that they can offer better portfolios to their investors.

This analysis will help to strengthen investor intimacy. This analysis will also throw light on various investment avenues available in India that will help in many ways like. The expectations of different types of investors regarding particular service requirements can be identified.

1. This study will help in gaining a better understanding of what an investor looks for in an investment option.

2. It can be used by the financial sector in designing better financial instrument customized to suit the needs of the investor.

3. The common problem areas faced by the investors can be understood.

4. It also enhances new services initiatives.

5. It will also help the agents and brokers in marketing the existing financial instruments.

6. It will provide knowledge to the investors about the various financial services provided by the company to their investors.

7. It will also help the company to understand what is the requirement and expectations of different categories of investors.

This analysis will be originated in order to empower the investors with detailed study on various investments avenues available in India. The awareness level of the investors about the various investment options and what is the perception of the investors with regard to the investments they want to make.

RESEARCH OBJECTIVES:

The purpose of the analysis is to determine the investment behaviour of middle class household investors and investment preferences for the same. Keeping some specific considerations the study has the following objectives

1. To know the preference of the investment instruments of the middle class households.

2. To know the various objectives of investment of the middle class households.

3. To know the factors that governs investment decision of the middle class households

4. To know whether there has been any increase in savings and reasons for the same.

5. To study the saving pattern of the individual household.

6. To study the risk tolerance capacity of the selected investors.

7. To give suggestions for evolving better investor awareness.

SAMPLE DESIGN:

According to the National Council of Applied Economic Study (NCAES) in the Market Information Survey of Households in association with Business Standard in August 2005, the term “middle class“ applies to those earning between Rs.90,000 to Rs.10,00,000 a year. The households are further divided into aspirers, middle- middle class and upper middle class. The household’s whose annual income lies between Rs. 90000 - Rs. 200000, have been defined as aspirers, income between Rs. 2,00,000 to Rs. 5,00,000 are middle -middle class and income between Rs.5,00,000 to Rs. 10,00,000 are classified as upper middle class. The same definition would be used for this study and the three strata of the population would be divided on the above criteria. The sample was also divided on the basis of age in each sample to income group. Primary data was collected from 150 households which were selected from each of the three income slabs as defined by NCAER. The sample has also been divided on the basis of the age of the head of the household as under 35 years, 35-55 years and above 55 years. This classification of the sample would help in an in-depth analysis of the investment preference of the sample.

METHODOLOGY:

The present study is an empirical study just to identify the presence, nature and preferences of the households in Nagaon district of Assam about their investment habits. The study area is featured by a good number of salaried, professional and businessmen who have the ability to save and invest. Besides, the study area is featured with all the facilities that are needed for mobilizing and transmitting the idle savings. The study is based on personal interviews of household heads, using a structured questionnaire. Actually, the present study identifies the preferred investment avenues and investors behaviour of the individual investors using self assessment test. The study was conducted in the last part of 2011. The present study is based on primary sources of data which are collected by distribution of a close ended questionnaire to 180 respondents of the district head quarter out of which 150 respondents have replied. Moreover, special efforts are made to obtain representation of all classes relevant to financial investment, as also of livelihood of different households. The data has been analysed using simple statistical tools and to access the significance/ association between dependent variables is used which are processed by statistical software.

However, the study covered a wide range of question; factual questions about investment, questions about perceptions and intentions, questions about investors own characteristics; questions about preferred investment avenues etc.

LIMITATIONS OF THE STUDY:

This analysis is based upon investor’s behaviour for investment preferences. This analysis would be focusing on the information from the investors about their knowledge, perception and behaviour on different financial products.

The various limitations of the study are:

· The total number of financial instruments in the market is so large that it needs a lot of resources to analyze them all. Handling and analysing such a varied and diversified data needs a lot of time and resources.

· As the analysis is based on primary as well as secondary data, possibility of factual information cannot be avoided.

· As this study is limited for household sector the amount invested for starting business or any other activity is not considered for the purpose of the study.

· Reluctance of the people to provide complete information about them can affect the validity of the responses.

· The lack of knowledge of customers about the financial instruments can be a major limitation.

· This Study used only some factors to analyze the factors effecting investment behavior of individual investor.

· The survey is conducted only in three towns of Nagaon of Assam.

REVIEW OF LITERATURE:

In this paragraph an effort is made to review a number of studies that has been took place in India to examine the investment habits and preferred investment avenues among the households. The present study differs from earlier studies as it covers comparative, analytical and empirical study on the investment habits and preferred investment avenues of the middle class household in Nagaon districts of Assam.

Psychological features play an important role in the individual investment decision process. The psychological characteristics like risk taking ability and mental accounting relate to households’ expectations, their self-reported financial risk taking behaviour and their self-reported risk aversion are some of the important variables having an impact on the investment decision of an individual. An understanding of household portfolio allocation may additionally go some way helping policymakers estimate the likely impacts of various policy decisions such as change in the welfare payments and the introduction of a consumption tax as evidenced by Dilnot (1990) and Freebairn (1991). Somasundaram (1998) has found that bank deposits and chit funds were the best known modes of savings among investors and the least known modes were Unit Trust of India (UTI) schemes and plantation schemes. Tamilkodi (1983) has stated that small savings schemes have a psychological appeal and it provides an opportunity for ordinary men, women, and even children to invest their savings. Jayaraman (1987) has stated that instead of issuing special bonds for unearthing black money the Government of India can encourage investment of black money in various small savings schemes. He further stressed the need to draft the assistance of voluntary agencies at the school and college level for further mobilization of savings. Arangasami (1992) has observed that more and more dependence on mobilization of resources through small savings will ensure and promote self-reliance. The study by Mukhi (1989) has revealed that NSC has been one of the most popular tax savings instruments in this country. He has stated that contractor and others who have to provide security while bidding for contracts finds it extremely convenient to buy NSC and pledge these to the appropriate authorities while earning 12 per cent per annum on the pledged securities. Rajarajan (1999) studied the behaviour of Chennai investors and found that life cycle stage of individual investors is an important variable in determining the size of the investments in financial assets and the percentage of financial assets in risky category. Gavini and Athma (1999) found that social considerations, tax benefits, and provision for old age were the reasons cited for saving in urban areas, whereas to provide for old age etc. was the main reason in rural areas. Among the post office schemes, Indira Vikas Patra (IVP), KVP and Post Office Recurring Deposit Account (PORD) were the most popular, in both urban and rural areas. SEBI-NCAER (2000) study found that households’ investment in Shares and Debentures and in Mutual Funds ranges from 7% to 9%. Majority of the Equity investor households portfolio was found to be undiversified and of relatively small value of less than Rs. 25000. It also found that one set of households, in spite of their lower income and lower penetration level of consumer durables, are in the securities market, while another set of household with higher income and higher penetration level of consumer durables do not have investments in securities market. Rajarajan (2000) in his study revealed that there was an association between the lifestyle clusters and investment related characteristics. Karthikeyan (2001) conducted study on small investor’s perception on Post office saving schemes and found that there was significant difference among the four age groups, in the level of awareness for Kisan Vikas Patra (KVP), National Savings Scheme (NSS), and Deposit Scheme for Retired Employees (DSRE). The overall score confirmed that the level of awareness among investors in the old age group was higher than in those of younger age group. No differences were observed among male and female investors. Swarup (2003) studied on the decisions taken by the investors while investing in the primary markets. In her study she indicated that investors give importance to their own analysis as compared to their broker’s advice. Outlook Money-C fore survey (2004) of income tax payers in six cities-Bangalore, Chennai, Delhi, Hyderabad, Kolkata and Mumbai found that only one-third of the respondents favoured the option of pension funds investing in equity and an equal number if the government guarantees the higher returns. The rest one-third rejected the option, as it is ’too risky’. Kaneko (2004) focused on investment trusts and debated the behaviour of individual investors and found that investment trusts are only the means of managing assets. Byrne (2005) shows that risk and investment experience tend to indicate a positive correlation. Past experience of successful investment increases investor tolerance of risk. Inversely, unsuccessful past experience leads to reduced tolerance to risk. Therefore past investment behaviour affects future investment behaviour. Corter and Chen (2006) studied that investment experience is an important factor influencing behaviour. Investors with more experience have relatively high risk tolerance and they construct portfolios of higher risk. The review of earlier studies focuses mainly on subject of performance of Mutual Funds and Portfolio of Mutual Fund. The existing “Behavioural Finance” studies are very few and very little information is available about investor perceptions, preferences, attitudes and behaviour. All efforts in this direction are fragmented. Tamimi (2006) indentified the factors influencing the UAE investor behaviour. Using questionnaire found six factors were most influencing factors on the UAE investor behaviour namely expected corporate earnings, get rich quick, stock marketability past performance of the firm’s stock , government holdings and the creation of the organized financial markets. Ronay and Kim (2006) have pointed out that there is no difference in risk attitude between individuals of different gender, but between the groups, males indicate a stronger inclination to risk tolerance. Gender difference was found at an individual level, but in groups, males expressed a stronger pro-risk position than females. Tamrakar and Mani (2007) studied the remarkable phase ‘1984-85 to 1995- 96’ of growth of Indian economy. They substantiated the hypotheses that economic liberalization did promote savings through economic growth. This study also revealed that life insurance and provident/pension fund investments have also seen a rise may be on account of increased awareness about the need to ensure and also increased competition from the private sector. Davar and Suveera, (2007) in their paper on investment decision making revealed that the class of investors with growing age develop maturity and experience for making decisions about the usage of their surplus and available funds in the light of overall economic needs of family. Another empirical study conducted by Salam and Kusum (2008) on savings behaviour in India, revealed that household sector savings provided the bulk of national savings. The study reported that the share of total household saving has gone up from 75.9 per cent in 1980-81 more than 86 per cent in 2007-08. Gupta (2008) the investment pattern among different groups in Shimla had revealed a clear as well as a complex picture. The study showed that the more investors in the city prefer to deposit their surplus in banks, post offices, fixed deposits, saving accounts and different UTI schemes, etc. The attitude of the investors towards the securities in general was bleak, though service and professional class is going in for investment in shares, debentures and in different mutual fund schemes. Mittal and Vyas (2008) observed that investors have certain cognitive and emotional weaknesses which come in the way of their investment decisions. Over the past few years, behavioural finance researchers have scientifically shown that investors do not always act rationally. Tripathi (2008) examines the perceptions, preferences and various investment strategies in Indian stock market. Study reveals that investors use both fundamental as well as technical analysis while investing in Indian stock market. A report published by AMFI (2009) brought about the fact that mutual fund investing by households has more than doubled from 3.7 per cent in 2006 to 7.8 per cent in 2008 which shows a shift of investors from traditional investments to mutual funds to earn better returns. Ajmi (2008) used a questionnaire to know determinants of risk tolerance of individual investors and collected responses from 1500 respondents. He concluded that the men are less risk averse than women, less educated investors are less likely to take risk and age factor is also important in risk tolerance and also wealthy investors are more risk tolerance than the less wealthy investors. Ang (2009) examined the dynamic relationship between the domestic savings and investment rates in India over the period 1950-2005 by controlling for the level of financial liberalization. The results indicate that greater financial liberalization enables more domestic resources to be channeled to investment activities. Kabra et al. (2010) concluded that modern investor is a mature and adequately groomed person. In spite of phenomenal growth in the security market and quality Initial Public Offerings (IPOs) in the market, the individual investors prefer investments according to their risk preference. A majority of investors are found to be using some source and reference groups for taking decisions. Sultana (2010) concludes that the individual investor still prefers to invest in financial products which give risk free returns. This confirms that Indian investors even if they are of high income, well educated, salaried, independent are conservative investors prefer to play safe. Szyszka (2011) in his study on efficient market hypothesis to behavioural finance analysed how investor’s psychology changes the vision of financial markets. He found that investors are not always able to correctly value the utility of decision alternatives, cannot update and estimate probability and even do not diversify properly. Bennet et al. (2011) concluded that the average value of the five factors, namely, Return on Equity, Quality of Management, Return on Investment, Price to Earnings Ratio and various ratios of the company influenced the decision makers. Further, other five factors, namely, recommendation by analysts, Broker and Study Reports, Recommended by Friend, Family and Peer, Geographical location of the Company and Social Responsibility were given the lowest priority or which had low influence on the stock selection decision by the retail investors. Ali (2011) in his study showed interest in examining the relationships between individual investors perceived financial performance of companies and their trading intentions, and the mediating effect of companies images on the relationships. Mohanta AND Debasish (2011) studied that investors invest in different investment avenues for fulfilling financial, social and psychological need. While selecting any financial avenue they also expect other type of benefits like, safety and security, getting periodic return or dividends, high capital gain, secured future, liquidity, easy purchase, tax benefit, meeting future contingency etc.

Preference of the Investment Instruments

To know the preference of the selected middle class households, 4 point scale is designed viz. Most Preferred, Relatively Preferred, Preferred, Relatively less Preferred, and Least Preferred; and respondents were asked to provide due weightage against the different investment avenues. It is observed from the Table 1 that Bank deposits is considered the preferred investment avenues (35.33%) followed by Insurance and small savings and so on. The least preferred investment avenues include real estate (40%) and other investments (36%). The aggregate results of the investment options marked by the respondents show that Insurance remains the most preferred investment option of the middle class households in Nagaon at 34.67% respondents marking it as the most preferred investment option. This is followed by the Small savings where 28.67% respondents marked it as relatively preferred investment option. The reason for these two being the top two preferences of the middle class income households is the relative security in built in these instruments and these being traditional saving instruments of the investment. Bank deposits (35.33%) are the third preferred investment option as these are again secure even though the return from these investments is less. Share and mutual funds (40%) are gaining ground but remain at the fourth position as these are relatively new and the investors are worry of the uncertain return. Other investment avenues are considered as the least preferred among the middle class households of Nagaon of Assam.

Ranking of the investment avenues

It can be seen in the Table 2 that bank deposits with a total score of 318 points, stood in the first place. These are followed by insurance with total score of 260 points in the second place, and Small savings with 172 points in the third place. Next to these investment products, Shares and Mutual funds, with 156 points in the fourth place, real estate with 120 points are in sixth place. At the same time securities like other investments are placed at the end. Real estate and other investments are the least preferred investment option of the middle class income households in Nagaon. The apparent reasons behind this can be the non-liquidity associated with this investment options and the greater amount of money required for investing in real estate. Again, other investments are less preferred because of lack of marketability, liquidity, safety and reliability.

Age, income and asset choice

Whether the asset choice structures vary with respect to age is analysed in the Table 3. Relative frequencies and percentages of households holding a type of asset as a function of three age groups are summarized and interpreted.

Age wise

It is observed that the most preferred mode of investment for the households is the bank deposits among all age groups under study. However the respondents in the oldest age category (52%) of the respondents marked bank deposits as most preferred investment instrument and this preference declines to 39% in case of the younger age group. This preference can be explained by an age or life-cycle effect on the one hand: older individuals might favour this type of investment as it is very safe and does not exhibit any price volatility. On the other hand, it might be the result of a cohort effect: older cohorts grew up with savings accounts as the major savings instrument whereas younger generations are also familiar with newer types of financial investments. The age structure of the investor in insurance is probably explained by a life-cycle effect as life insurances are most likely to be found among lower and middle- aged households. Again, many of the youngest respondents do not have sufficient income to invest, while for the majority of older households life insurances have already been disbursed. These are the reasons for which Insurance investment is considered as relatively preferred one by all the age groups. Share and Mutual Funds are considered as the preferred investment by all the age groups. Small savings is considered as the Relatively less Preferred investment options by middle and higher age groups while it is least preferred by the younger age groups.

Income wise

It is observed from the Table 4 that choices of assets are classified by income shows a much more uniform pattern than the asset choice by age. It is further observed that the bank deposits and insurance are the most preferred investment and relatively preferred investment instruments respectively for all the income groups; however, inconsistency is seen in preference in shares and mutual funds, real estate and small saving schemes. Generally, wealthier households are more likely to hold any type of financial or retirement savings asset. Again, the lower and middle income groups prefer small savings while shares and mutual fund schemes are preferred by higher income class household investors. Further, lower income groups and middle income group’s shows relatively less preferred investment while high income group’s shows relatively less preferred towards real estate and other investment avenues. Finally, real estate and other investment avenues are considered as least preferred by the respondents belongs to lower and middle income class, whereas small savings is considered as less preferred investment by high income groups.

Objectives of Investment

Table 3: Age Structure of Asset Choice (In percentage)

	Under 35 years						35-55 years						Above 55 years
	1	II	III	IV	V	VI	1	II	III	IV	V	VI	1	II	III	IV	V	VI
A	39	11	16	10	19	05	38	18	15	9	14	6	52	4	14	7	16	7
B	13	36	23	06	16	06	19	28	20	15	13	5	22	28	15	13	16	6
C	15	21	25	20	11	08	17	24	25	14	13	7	7	24	29	23	9	8
D	14	20	18	19	22	07	11	21	18	23	16	11	9	20	18	24	19	10
E	06	10	15	36	27	06	9	4	19	28	32	8	5	12	14	31	33	5
1= Bank Deposits, II = Insurance, III= Shares and Mutual Funds, IV = Small Savings, V = Real Estate, VI= Others; A= Most Preferred ,B= Relatively Preferred ,C= Preferred , D= Relatively less Preferred ,E= Least Preferred ; Source : Author

Table 4: Income Structure of Asset Choice

Ranks	Rs. 90000- Rs. 2 Lakhs	Rs. 2 lakhs – Rs. 5 Lakhs	Rs. 5 lakhs – Rs.10 lakhs
A	Bank Deposits	Bank Deposits	Bank Deposits
B	Insurance	Insurance	Insurance
C	Small Savings Schemes	Small Savings Schemes	Shares and Mutual Funds
D	Shares and Mutual Funds	Shares and Mutual Funds	Real Estate, and Others
E	Real Estate, and Others	Real Estate and Others	Small Savings Schemes
A= Most Preferred ,B= Relatively Preferred ,C= Preferred , D= Relatively less Preferred ,E= Least Preferred; Source : Author

Table 5: Objectives of Investment

Objectives	Total		Rs. 90000 Rs. 2 Lakhs		Rs. 2 lakhs Rs. 5 Lakhs		Rs. 5 lakhs Rs.10 lakhs
Objectives	f	%age	f	%age	f	%age	f	%age
High Returns	24	16.00	7	20.00	8	16	9	13.85
Low risk	20	13.33	5	14.29	7	14	8	12.31
Liquidity and marketability	21	14.00	8	22.86	6	12	7	10.77
Income Generation	20	13.33	6	17.14	4	8	10	15.38
Capital appreciation	14	9.33	2	5.71	5	10	7	10.77
Risk and wealth diversification	14	9.33	5	14.29	3	6	6	9.23
Tax advantage	37	24.67	2	5.71	17	34	18	27.69
Total	150	100	35	100	50	100	65	100
Source : Author

Table 6: Investment Horizon

Income Level	Short Term		Medium Term		Long Term		Building Huge Financial Corpus		Total
Income Level	f	%age	f	%age	f	%age	f	%age	f	%age
Total	42	28	58	38.67	41	27.33	9	6.00	150	100
Rs. 90000- Rs. 2 Lakhs	16	45.71	14	40.00	5	14.29	0	0.00	35	23.33
Rs. 2 lakhs – Rs. 5 Lakhs	18	36.00	21	42.00	10	20.00	1	2.00	50	33.33
Rs. 5 lakhs – Rs.10 lakhs	8	12.31	23	35.38	26	40.00	8	12.31	65	43.33
Source : Author

Table 7: Major Concern while Investing

Factors	Male		Female		Total
Factors	f	%age	f	%age	f	%age
Security	22	21.57	12	25.00	34	22.67
Tax Saving	23	22.55	10	20.83	33	22.00
Fixed Return	15	14.71	8	16.67	23	15.33
Growth	11	10.78	5	10.42	16	10.67
Liquidity and marketability	8	7.84	6	12.50	14	9.33
Simple Procedure	10	9.80	4	8.33	14	9.33
Low lock in Period	13	12.75	3	6.25	16	10.67
Total	102	100	48	100	150	100
Source: Primary Data

Change in Savings and Investment Pattern

To ascertain whether the savings of the households have changed over the selected time period of five years, the respondents were asked to marked their answers for whether there has been an increase in their saving in the last five years. They were also asked to give the reasons for the change in the savings. It is observed from the Table 8 that the percentage of respondents reporting an increase in saving rates is also increasing with progression in income. The study results brought out the fact that 71.33% of the respondents have recorded that their savings have increased in past five years.

Reasons for increase in savings

It was found out from Table 9 that 31% of the households said that their savings have increased because of increase in their income which supports the hypothesis that the income AND savings are directly related. It can be inferred that when the savings of the households increase their capacity to save increases or the marginal propensity to save is increasing with an increase in income. The second important reason behind the increased savings is the increased need to save by these households which is basically due to the structural change in the Indian economy. The growth of GDP in the economy brings a direct impact on saving rate of the country. The third reason for increase in savings is the new and attractive investment options available to the households The economic liberalization and the opening of the financial markets have brought in foray many novel investment instruments which has encouraged the people to start investing in these new instruments.

The study also probed in knowing what has brought about the change in the investment pattern of the middle class income households in Nagaon. The study pointed out that 52% of the respondents said that positive change in income has been the prime reason for the change in their investment pattern as depicted in Table 11. This response supports the earlier results that that for majority of households in the sample the savings rate have increased and that too mainly due to increase in the income. The second reason cited by the respondents is the change in government policies which has also influenced the investment pattern of the households. The financial liberalisation of the Indian economy due to which the financial market saw an influx of new investment instruments which has made the households to invest in these instruments. In any market economy, the banking and financial system plays a key role in mobilising a society’s savings and in channelising these savings into productive uses and investments. In providing an efficient and rigorous process for intermediating the flow of a society’s savings into productive uses, the banking and financial system is one of the core determinants of the pace of a country’s economic development and increase in the standards of living of its citizens. The government of Indian by liberalising the banking and insurance sector has influenced the investment pattern of the households in India. The progressive steps taken by the government for the development of the Indian security market like the dematerialization of securities, giving more power to SEBI has also build the confidence of the investors which has made them shift from traditional to non-traditional saving instruments or in other words we have seen an increased share of the financial savings in the total household savings. The following Table 11 gives the result of the respondents for their reasons to change their investment pattern.

Table 8: Opinion about Increase in Savings

Income group	In Percentage
Income group	Yes	No
Rs. 90000- Rs. 2 Lakhs	55	45
Rs. 2 lakhs – Rs. 5 Lakhs	79	21
Rs. 5 lakhs – Rs.10 lakhs	80	20
Total	71.33	28.67
Source : Author

Table 9: Reasons for Increase in Savings

Reasons for Increase in Savings	Percentage
Increase in savings	28%
Increase in household income	31%
Reduction in liability	17%
Attractive Saving/ investments options	24%
Source: Author

Table 10: Change in Investment Pattern

Change in Investment Pattern	Yes	60%
	No	40%
Source : Author

Table11:Reasons for the Change in Investment Pattern

Reasons for Change in Investment Pattern	Percentage
Undesired rate of return from previous investments	11%
Change in Economy	5%
Change in awareness level	2%
Change in Income	52%
Change in Govt. policy	30%
Source : Author

Even though the investment pattern of the investor’s of the middle class income households has changed but still 76% of the respondents wish to change their current portfolio of the assets (Table 12).

Table 12: Plans to Change the Investment Pattern

Plan to Bring Change	Yes	No
	76%	24%
Source : Author

It was realised that the study must also find out that how do the middle class households in Nagaon take their investment decisions. This would reflect whether there is any scope of improvement in their investment behavior. It is observed from Table 13 that 42% of the respondents have reported that they take investment decisions on their own whereas 20% respondents reported that they are influenced and motivated by friends and relatives and other 18% of the respondents take professional help in making their investment choices.

Table 13: Investment Decisions

Investment Decisions	Percentage
Promotion	11%
Word of mouth	9%
Professional help	18%
On your own	42%
Friends and relatives	20%
Source : Author

Risk Tolerance of Different Age Group

From the Table 14 it is observed that 25% of Investors between the age group of under 35 yrs came under low risk category, where as the percentage of investors who came under low risk in the age group of 35-55 yrs has increased to 32.69% and it is further rose to 34.62% as and when the age of investor increases. Similar trend is also observed in case of medium risk, but inverse relation between age and risk tolerance is observed in case of high risk.

From the observed facts, we can conclude that there is a strong inverse or negative relationship between risk tolerance and age group, but all age group marked medium risk as ideal one and hence voted highly towards medium risky investments.

When Karl Pearson’s correlation coefficient is calculated, it is found to be -0.74 by which we can conclude that there is a strong negative correlation between age and risk tolerance. Age accounts for the major differences in risk taking decisions by the investors. The older an investor, the better seemed his/her performance in comparison to the younger ones. Over- confidence in their own investment ability among the youngsters largely accounts for the excessive trading among younger investors leading to lower returns and this direct to decline in the risk tolerance level.

CONCLUSION:

The saving and investment pattern of the middle class income households in Nagaon can be summarized that the bank deposits remain the most popular instrument of investment followed by insurance and small saving scheme with maximum number of respondents investing in these fixed income bearing option. Insurance remains the most preferred investment option of the middle class income households in Nagaon with 34.67% respondents marking it as the most preferred investment option. This is followed by the small saving where 28.67% respondents marked it as relatively preferred investment option. Bank deposits (35.33%) are considered as the preferred investment option among the middle class investor’s of the district. It is further observed that all age groups marked highest preference towards bank deposits and insurance investment so as to provide the benefit of safety and security of their life and investment. Similar feeling of preference towards investment in Bank deposits and insurance is also observed by all the respondents with different income slabs. It was found that majority of the respondents said that they look for tax advantage and high returns while investing in any instrument. Slight variations are also observed when respondents are classified on age and income groups. Further, it is observed that all the respondents marked interest towards medium term investment. Only some respondents of high income group show keen interest to build huge financial corpus. The study results brought out the fact that 71.33% of the respondents have recorded that their savings have increased in past five years. 31% of the households said that their savings have increased because of increase in their income which supports the hypothesis that the income and savings are directly related.

This study confirms the earlier findings with regard to the relationship between age and risk tolerance level of individual investors. The Present study has important implications for investment managers as it has come out with certain interesting facets of an individual investor. The individual investor still prefers to invest in financial products which give risk free returns. This confirms that Indian investors even if they are of high income, well educated, salaried, independent are conservative investors prefer to play safe. The investment product designers can design products which can cater to the investors who are low risk tolerant and use safe channel as a marketing avenues.

DIRECTIONS FOR POLICY FRAMING:

The study results bring out the fact that the saving habits of the selected households of the middle class are good but they don’t want to save for long term or build a financial corpus. This implies that these savings would not be available to the nation for a long period of time and hence can’t be put to use for mobilisation of projects which have long gestation period. Therefore the policies should be framed in such manner that these households are willing to part away with their consumption for a longer period of time. The tax incentives should be designed in manner that the middle class are encouraged to save. This would also help in achieving the objective of financial inclusion which may be defined as the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost. It was also found during the study that the tax advantage and security in any investment takes the first and second place respectively in the minds of the investor. The investors look for tax relief and security rather than high returns and liquidity of the instrument. This clearly indicates that the respondents are invested on the principle of compulsion not autonomous and saving instruments other than bank deposits and insurance do not make any significant mark in the mind of middle class investors’. Tax benefit, Security AND safety, high returns, liquidity and so on are the common pattern of order of investment objectives among the respondents. Therefore, it may be opined that the investors are still watching to get a strong secured and safe investment market in India. There is also a need for increasing the financial literacy of the middle class income households. It was found that the asset choice of all the age groups doesn’t differ much as all respondents favoured insurance and bank deposits as the preferred instruments of investment. It thus needs to be explained to the middle class households that the financial needs and objectives at different ages of life are also different; therefore the asset choice should be made keeping in mind their age group. The younger age group has the capacity to take more exposure in asset choice than the older age group. Such financial literacy would help in further improving the depth of the capital market in India, which would enable Corporate India to have access to larger pool of funds. The study results also illustrate that majority of the respondents of the selected middle class households take investment decision on their own. The government initiatives in this direction would help the investors to take more sound investment decisions which would in turn improve the degree of sophistication that households bring to bear in their saving and investment decisions. The government should also design policy to make people invest in various instruments rather than stashing cash at home.

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Received on 13.06.2012 Accepted on 29.07.2012

Asian J. Management 3(3): July-Sept., 2012 page 123-133

	Bank Deposits		Insurance		Small Savings		Shares and Mutual Funds		Real Estate		Others
	f	%age	f	%age	f	%age	f	%age	f	%age	f	%age
Most Preferred	26	17.33	52	34.67	38	25.33	12	8.00	10	6.67	13	8.67
Relatively Preferred	36	24.00	34	22.67	43	28.67	16	10.67	18	12.00	16	10.67
Preferred	53	35.33	34	22.67	36	24.00	26	17.33	16	10.67	25	16.67
Relatively less Preferred	23	15.33	24	16.00	28	18.67	52	34.67	46	30.67	42	28.00
Least Preferred	12	8.00	6	4.00	5	3.33	44	29.33	60	40.00	54	36.00
Ranks Order (From % age)	I		II		IV		III		VI		VII
Source : Author

Level of Risk	Total		Under 35 years		35-55 years		Above 55 years		Correlation Coefficient
Level of Risk	No.	%age	No.	%age	No.	%age	No.	%age	Correlation Coefficient
Low Risk	48	32	13	25	17	32.69	18	34.62	r = - 0.74
Medium Risk	55	36.67	15	28.30	18	33.96	22	41.51
High Risk	47	31.33	17	37.78	15	33.33	15	33.33
Total	150	100	45	30	50	33.33	55	36.67
Source: Author