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Investment preferences of salaried individuals towards financial products

Article · January 2012

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 INVESTMENT PREFERENCES OF SALARIED INDIVIDUALS
TOWARDS FINANCIAL PRODUCTS
Puneet Bhushan Sood
Yajulu Medury

ABSTRACT
Financial products act as an investment avenue and provide the required financial security to the investors
based on the risk-return profile of the financial products. In the past, traditional financial products were
offered in India by banks (deposit account, credit account), Life Insurance Corporation (LIC), and postal
department (recurring deposit, National Saving Certificate, Kisan Vikas Patra). However, in recent years
with the advent of liberalization of financial services industry, diverse financial products have been
introduced such as mutual funds, shares, derivatives, life and non-life insurance schemes (Unit Linked
Investment Plans (ULIPs), pension plans, children education plans, etc.). Investment preference differs
from person to person, as every individual behaves differently while investing. Investment behaviour of
an individual is guided by his own set of circumstances. With an expectation of generating high returns
over a period of time and certain levels of risk, individuals invest in different financial products. The
present study is an attempt to analyze the investment preferences of salaried individuals towards financial
products based on various demographic factors.

INTRODUCTION
Financial products act as an investment avenue and provide the required financial security to the investors
based on the risk-return profile of the financial products. In the past, traditional financial products were
offered in India by banks (deposit account, credit account), Life Insurance Corporation (LIC), and postal
department (recurring deposit, National Saving Certificate, Kisan Vikas Patra). However, in recent years
with the advent of liberalization of financial services industry, diverse financial products have been
introduced such as mutual funds, shares, derivatives, life and non-life insurance schemes (Unit Linked
Investment Plans (ULIPs), pension plans, children education plans, etc.). Investment preference differs
from person to person, as every individual behaves differently while investing. Investment behaviour of
an individual is guided by his own set of circumstances. With an expectation of generating high returns
over a period of time and certain levels of risk, individuals invest in different financial products. Today, a
number of investment avenues are available to an individual but an individual, after a thorough market
study and according to his needs and circumstances, has to decide which investment avenue has to be
chosen. The present study is an attempt to analyze the investment preferences of salaried individuals
towards various financial products based on demographic factors.

LITERATURE SURVEY
For long researchers have researched on the demographic factors that influence the investment decisions
of an individual. The focus has mostly remained on core factors such as age, gender, income, marital
status, profession, education and financial knowledge. A number of research studies have been
undertaken in India and abroad to identify the investment behaviour of retail investors and households.

Gupta et al. (2001) studied the Indian household investors’ preferences, future intentions and experiences
and found that bonds were regarded as an investment for the retired people but that did not have much
appeal for young people. The market penetration achieved by mutual funds was found to be much lower
than equity shares for all age classes.

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Gupta and Jain (2008) on the basis of an all-India survey of 1463 households found the preferences of
investors among the major categories of financial assets, such as investment in shares, indirect investment
through various types of mutual fund schemes, other investment types such as exchange-traded gold
fund, bank fixed deposits and government savings schemes. The study provides interesting information
about how the investors’ attitude towards various investment types are related to their income and age,
their portfolio diversification practices, and the over-all quality of market regulation as viewed by the
investors themselves.

Verma (2008) studied the effect of demographics and personality on investment choice among Indian
investors and found that mutual funds were popular amongst professionals, students and the self
employed. Retirees displayed their risk aversion by not investing in mutual funds and equity shares. It was
also found that higher the education, higher was the level of understanding of investment complexities.
Graduates and above in qualification preferred to invest in equity shares as well as mutual funds.

Nagpal and Bodla (2009) studied the lifestyle characteristics of the respondents and their influence on
investment preferences. The study concludes that investors’ lifestyle predominantly decides the risk taking
capacity of investors. The study found that inspite of the phenomenal growth in the security market, the
individual investors prefer less risky investments, viz., life insurance policies, fixed deposits with banks
and post office, PPF and NSC.

Davar and Gill (2009) investigated the underlying dimensions in the selection of different investment
avenues for the households. The results of the study revealed emphasis on familiarity, satisfaction,
opinion and demographic dimensions for all investment avenues.

Chitra and Sreedevi (2011) analyzed the influence of seven personality traits—emotional stability,
extraversion, risk, return, agreeability, conscientiousness and reasoning—on the choice of the investment
pattern. The results of the study show that these personality traits of the investors have an impact on the
individuals while taking decisions and also have a strong influence on determining the method of
investment. The study found that the influence of personality traits on the investment decision is more
compared to that of demographic variables.

From the review of literature it can be said that various studies on investment behavior and preferences
provide a piecemeal account of investment behavior of salaried individuals. Very few studies on
investment behavior have been carried out in India. The present study bridges this gap.

RESEARCH OBJECTIVES
The objectives of the study are:
• To study the investment preferences of salaried individuals towards various financial instruments.
• To study the association between demographic variables and investment preference of salaried
individuals towards financial instruments.

HYPOTHESES
A number of researches have shown that investment choice is affected by various demographic factors
associated with the individual. The target population of this research work is salaried individuals who are
assumed to have relatively more exposure, hence expected to behave rationally irrespective of various
demographic factors like gender, age, marital status, employment status and income. For the purpose of
this study, following hypotheses have been proposed.

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Hypothesis 1
H0: Investment preference for various financial instruments is independent of age group.
H1: Investment preference for various financial instruments is not independent of age group.
Hypothesis 2
H0: Investment preference for various financial instruments is independent of gender.
H1: Investment preference for various financial instruments is not independent of gender.
Hypothesis
Hypothesis 3
H0: Investment preference for various financial instruments is independent of income.
H1: Investment preference for various financial instruments is not independent of income.
Hypothesis 4
H0: Investment preference for various financial instruments is independent of marital status.
H1: Investment preference for various financial instruments is not independent of marital status.
Hypothesis 5
H0: Investment preference for various financial instruments is independent of employment status.
H1: Investment preference for various financial instruments is not independent of employment status.

RESEARCH METHODOLOGY
In this study, survey method was adopted to collect the primary information from the salaried individuals.
A questionnaire was prepared which was aimed to collect the required information from the participants.
The sample was probabilistic where area sampling was used. The sample was drawn from Delhi, Gurgaon
and Noida and it represented salaried individuals with different economic, social and geographical
characteristics. Total of 200 questionnaires were distributed out of which 160 questionnaires were
received. From these 160 questionnaires, 27 questionnaires were discarded due to some missing data in
them. For the purpose of the study 133 questionnaires were used.
The participants of the survey were asked to fill in their demographic details and were asked questions
pertaining to their investments made in mutual funds, life insurance policies, fixed deposits, recurring
deposits and market investments (shares).
The analysis was carried using Statistical Packages for Social Sciences (SPSS) 16.0. Chi-square test has
been applied to find out significance, if any, between the preferences of salaried individuals towards
financial products based on various demographic factors. Calculated value of chi-square is compared with
the table value for given degree of freedom at 5 % level of significance. If calculated value is more than
the table value, the difference is considered as significant, i.e. it could not have arisen due to fluctuations
of sampling. On the other hand, if the calculated value is less than the tabular value, the difference is
considered as insignificant i.e. it is regarded as due to fluctuations of simple sampling and hence ignored.

ANALYSIS
After analysing the demographic profile of the respondents, it was observed that 68% respondents are
males. 25% and 24% of the respondents fall in the age group of 25-30 years and 31-40 years respectively.
Around 50% respondents have an annual income of Rs. 5-10 lakhs. Majority of the respondents are
married and are private employees. Table 1 gives the summary of the demographic characteristics of the
respondents

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 TABLE 1: DEMOGRAPHIC CHARACTERISTICS OF RESPONDENTS
VARIABLE FREQUENCY PERCENTAGE
MALES 90 68
GENDER
FEMALES 43 32
25-30 33 25
31-40 44 33
AGE (IN YEARS)
41-50 26 19
51 AND ABOVE 30 23
UPTO 2 6 5
2-5 34 26
ANNUAL INCOME
5-10 67 50
(IN RS. LAKHS)
10-15 11 8
15 AND ABOVE 15 11
SINGLE 25 19
MARITAL STATUS
MARRIED 108 81
GOVERNMENT 33 25
NATURE OF EMPLOYMENT PRIVATE 100 75

ASSOCIATION BETWEEN AGE AND INVESTMENT CHOICES

From table 2 and figure 1 it is observed that respondents in the age group of 25-30 years invest mostly in
Life Insurance Products followed by Fixed Deposits. Those in the age group of 31-40 years invest mostly
in Life Insurance Products followed by Mutual Funds. Fixed Deposits are favourite among respondents
in the age group of 41-50 years. Respondents above 50 years invest mostly in Fixed Deposits and Life
Insurance Products. In order to analyse preference of different age group respondents towards various
investment avenues we have also calculated percentages of people in different age groups investing in a
particular investment avenues. From figure 2 it can be said that Mutual Funds are favoured by those in
the age group of 31-40 years followed by those in the age group above 50 years. Life insurance is
preferred by those in the age group of 31-40 years followed by those in 41-50 years. Fixed Deposits are
favourite among the age group of 41-50 years followed by those in the age group above 51 years.
Recurring Deposits are preferred by respondents in the age group above 50 years and Market Investments
are favoured by those in the age group of 31-40 years.
We have applied Chi-Square test on the data to observe the significance of the data found and tested
hypothesis 1. The critical value of χ2 is χ20.05,12 = 21.026 where degrees of freedom = (no. of rows-1)X(no.
of columns-1)= 3x4 =12.The calculated χ2cal value for the above table is χ2cal =12.26. At 95% confidence
level, the χ2cal is less than χ2critical, therefore we fail to reject the null hypothesis and conclude that
Investment preference of various financial instruments is independent of age group.

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 TABLE 2: AGE AND INVESTMENT PREFERENCES

Age F Financial Mutual Life Fixed Recurring Market

(years) Instruments Funds Insurance Deposits Deposits Investments

25-30 (33) 12 19 16 14 12
31-40 (44) 31 41 25 17 25
41-50 (26) 9 19 23 13 8
51 and above (30) 15 21 22 19 15
Total 67 100 86 63 60
# Number in brackets indicate the total respondents in that category

FIGURE 1: NUMBER OF PEOPLE IN DIFFERENT AGE GROUPS INVESTING IN DIFFERENT

INVESTMENT AVENUES.

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FIGURE 2: PERCENTAGE
PERCENTAGE OF PEOPLE IN DIFFERENT AGE GROUPS INVESTING IN DIFFERENT
INVESTMENT AVENUES.

ASSOCIATION BETWEEN GENDER AND INVESTMENT CHOICES

From table 3 and figure 3 it is observed that males invest mostly in Life Insurance Products followed by
Fixed Deposits and Mutual Funds. Females invest mostly in Fixed Deposits closely followed by Life
Insurance Products. From figure 4 where percentage of male and female investments are shown, it can be
said that males prefer Mutual Funds and Life Insurance Products more than females whereas females
prefer Fixed Deposits, Recurring Deposits and Market Investments more than males.

TABLE 3: GENDER AND INVESTMENT PREFERNCES

Gender Financial Mutual Life Fixed Recurring Market

Instruments Funds Insurance Deposits Deposits Investments

Male (90) 46 70 54 42 40
Female (43) 21 30 32 21 20
Total 67 100 86 63 60
# Number in brackets indicate the total respondents in that category
We have applied Chi-Square test on the data to observe the significance of the data found and tested
hypothesis 2. The critical value of χ2 is χ20.05,4 = 9.488 where degrees of freedom = (no. of rows-1)X(no. of
columns-1)= 1x4 =4. The calculated χ2cal value for the above table is χ2cal =1.186. At 95% confidence
level, the χ2cal is less than χ2critical, therefore we fail to reject the null hypothesis and conclude that
Investment preference of various financial instruments is independent of gender.

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 FIGURE 3: NUMBER OF MALE AND FEMALE INVESTMENTS IN VARIOUS INVESTMENT
INSTRUMENTS

FIGURE
FIGURE 4: PERCENTAGE OF MALE AND FEMALE INVESTMENTS IN VARIOUS INVESTMENT
INSTRUMENTS

ASSOCIATION BETWEEN INCOME AND INVESTMENT CHOICES

From table 4 and figure 5 it is observed that respondents having an annual income up to Rs. 2 lakhs
invest mostly in Fixed Deposits followed by Mutual Funds. Those in the income bracket of Rs. 2-5 lakhs
invest mostly in Life Insurance Products followed by Mutual Funds and Fixed Deposits. Respondents in
the income bracket of Rs. 5-10 lakhs invest mostly in Life Insurance Products followed by Fixed Deposits
and those in the income bracket of Rs. 10-15 lakhs invest mostly in Life Insurance Products followed by

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Mutual Funds. Those in the income bracket above 15 lakhs invest mostly in Life Insurance Products
followed by Fixed Deposits and Mutual funds. Thus respondents across all income categories invest in
Life Insurance Products. From figure 6 where percentage of different income group people investing in
various investment avenues is shown, it can be analysed that Mutaul funds are preferred most by those in
income bracket of Rs. 2 lakhs. Life Insurance Products are preferred most by respondents in income
bracket of Rs. 10-15 lakhs. Fixed Deposits are favourite among those having income up to Rs. 2 lakhs.
Recurring Deposits are preferred most by those in income bracket of Rs. 5-10 lakhs and Market
Investments by those in income bracket of Rs. 2-5 lakhs.

TABLE 4: INCOME AND INVESTMENT PREFERNCES

Income Financial Mutual Life Fixed Recurring Market

(Lakhs) Instruments Funds Insurance Deposits Deposits Investments

Upto 2 Lakhs (6) 5 4 6 1 2

2 - 5 Lakhs (34) 18 21 18 14 21
5-10 Lakhs (67) 27 53 45 36 29
10- 15 Lakhs (11) 8 10 7 5 3
15 Lakhs and Above 9 12 10 7 5
(15)
Total 67 100 86 63 60
# Number in brackets indicate the total respondents in that category
We have applied Chi-Square test on the data to observe the significance of the data found and tested
hypothesis3. The critical value of χ2 is χ20.05,16 = 26.29 where degrees of freedom = (no. of rows-1)X(no. of
columns-1)= 4x4 =16. The calculated χ2cal value for the above table is χ2cal =12.947. At 95% confidence
level, the χ2cal is less than χ2critical, therefore we fail to reject the null hypothesis and conclude that
Investment preference of various financial instruments is independent of income.
FIGURE 5: NUMBER OF PEOPLE IN DIFFERENT INCOME GROUPS INVESTING IN DIFFERENT
INVESTMENT INSTRUMENTS

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 FIGURE 6: PERCENTAGE
PERCENTAGE OF PEOPLE IN DIFFERENT INCOME GROUPS INVESTING IN
DIFFERENT INVESTMENT INSTRUMENTS

ASSOCIATION BETWEEN MARITAL STATUS AND INVESTMENT CHOICES

From table 5 and figure 7 it is observed that married respondents invest mostly in Life insurance Products
followed by Fixed Deposits whereas unmarried respondents invest mostly in Mutual Funds and Market
Investments. From figure 8 where percentage of married and unmarried respondents investments are
shown, it can be said that married respondents prefer Life insurance Products, Fixed Deposits and
Recurring Deposits whereas unmarried respondents prefer Mutual Funds and Market Investments.

TABLE 5: MARITAL STATUS AND INVESTMENT PREFERENCES

Marital Financial Mutual Life Fixed Recurring Market

Status Instruments Funds Insurance Deposits Deposits Investments

Married (108) 52 83 73 54 46
Unmarried (25) 15 17 13 9 14
Total 67 100 86 63 60
# Number in brackets indicate the total respondents in that category
We have applied Chi-Square test on the data to observe the significance of the data found and tested
hypothesis 4.
The critical value of χ2 is χ20.05,4 = 9.488 where degrees of freedom = (no. of rows-1)X(no. of columns-1)=
1x4 =16. The calculated χ2cal value for the above table is χ2cal =2.936. At 95% confidence level, the χ2cal is
less than χ2critical, therefore we fail to reject the null hypothesis and conclude that Investment preference
of various financial instruments is independent of marital status.

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 FIGURE 7: NUMBER OF MARRIED AND UNMARRIED PEOPLE INVESTING IN DIFFERENT
INVESTMENT INSTRUMENTS

FIGURE 8: PERCENTAGE
PERCENTAGE OF MARRIED AND UNMARRIED PEOPLE INVESTING IN DIFFERENT
INVESTMENT INSTRUMENTS.

ASSOCIATION BETWEEN EMPLOYMENT STATUS AND INVESTMENT CHOICES

From table 6 and figure 9 it is observed that government employees invest mostly in Fixed Deposits
closely followed by Life Insurance Products whereas private employees invest mostly in Life Insurance
Products followed by Fixed Deposits. From figure 10 where percentage of private and government
employees investments are shown, it can be said that private employees have more preference for Mutual
Funds and Market Investments whereas government employees have more preference for Fixed Deposits
and Recurring Deposits. Both private and government employees have equal preference for Life
Insurance Products.

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 TABLE 6: EMPLOYMENT STATUS AND INVESTMENT PREFERENCES

Employment Financial Mutual Life Fixed Recurring Market

Status Instruments Funds Insurance Deposits Deposits Investments

Government Employees (33) 14 25 28 16 10

Private Employees (100) 53 75 58 47 50
Total 67 100 86 63 60
# Number in brackets indicate the total respondents in that category
We have applied Chi-Square test on the data to observe the significance of the data found and tested
hypothesis 5.
The critical value of χ2 is χ20.05,4 = 9.488 where degrees of freedom = (no. of rows-1)X(no. of columns-1)=
1x4 =16. The calculated χ2cal value for the above table is χ2cal =5.244. At 95% confidence level, the χ2cal is
less than χ2critical, therefore we fail to reject the null hypothesis and conclude that Investment preference
of various financial instruments is independent of employment status.

FIGURE 9: NUMBER OF GOVT. AND PRIVATE EMPLOYEES INVESTING IN DIFFERENT

INVESTMENT INSTRUMENTS

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 FIGURE 10: PERCENTAGE OF GOVT. AND PRIVATE EMPLOYEES INVESTING IN DIFFERENT
INVESTMENT INSTRUMENTS.

CONCLUSION
From the above analysis it was found that
1) Most of the investment in various investment avenues is made by working adults in the age group of
31 to 40 years followed by working adults of the age group 41 to 50 years.
2) The working adults earning annually between Rs. 10 to 15 lakhs prefer investing more in those
investment instruments which offer more returns and are more risky whereas working adults earning
up to Rs. 2 lakhs prefer investing in safe investment instruments.
3) Males prefer Mutual funds and Life insurance Products whereas females prefer Recurring Deposits
and Market Investments.
4) The government employees tend to invest in safe investment instruments whereas private employees
tend to invest in those investment instruments which offer more returns and are more risky.
5) Married respondents prefer safe investment instruments whereas unmarried respondents prefer
Mutual Funds and Market Investments which offer more returns and are more risky.
6) Our statistical analysis shows that investment preferences are not affected by age, gender, income,
marital status and employment status.
The above research and analysis depicts the investment preferences of today’s working adults. This
research can be helpful to different investment firms to target the right population to offer their
investment instruments and decide their policies accordingly.

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