A Journey from Genuine Investment to Speculation

According to the Reserve Bank of India data, the household

sector accounted for 80.5 per cent of the Gross Domestic Savings in
Fixed Income investment during 2007-08, as against 84.5 per cent in
2006-07. Mutual funds accounted for the bulk of securities market
investments, with an absolute amount of Rs 5.68,000 million in 2007-
08 against Rs 3,98,030 million in 2006-07. The year 2007-08 saw
huge investments in MFs to take advantage of the booming stock
market. At the same time, speculative trading gained momentum as
compared to cash segment investment. In the recent past, average
daily traded value in cash segment of NSE decreased to Rs 10,140
crore from Rs 13,561 crore. Average daily traded value in the
derivative segment of NSE increased from Rs 13,411 crore in March
2005 to Rs 57,042 crore in September 2008. These data show that
investors are more inclined to speculate as compared to genuine
investment, because derivatives are the prominent tools used to
speculate. Speculative trading is done to maximize yield; and at the
same time, it entails high degree of risk. These facts indicate the
momentum of activities in the stock market as well as in the area of
savings and investment in India.
Questions:
1. Explain the pattern of investment made by investor in India as per the
above information.
2. What is the nature of investment and speculation from the investor
point of view?